Hi, My company is establishing a factory and engaging contractors for construction. BOCW cess is payable on the cost of construction.
Does this cess need to be paid on installation/fabrication of the machine? Should it form a separate part from the cost of the project?
From India, Bengaluru
Does this cess need to be paid on installation/fabrication of the machine? Should it form a separate part from the cost of the project?
From India, Bengaluru
Dear Colleague,
While the charging Section 3 of the Building and Other Construction Workers’ Welfare Cess Act, 1996 uses the expression, “cost of construction”, the same is explained in the Rules. The charging Section as well as rule 3 ought to be read together homogenously to sub-serve the object of the enactment. As per Rule 3 of the Building and Other Construction Workers’ Welfare Cess Rules, 1998, the “cost of construction” is an inclusive definition which includes all expenditure except :
cost of land and
any compensation paid or payable to a worker or his kin under the Workmen's Compensation Act, 1923.
The Building & Other Construction Workers’ Welfare Cess [BOCWW Cess] is levied on the total cost of construction (i.e. the cost comprising of both the materials [supply] and the labour service] portion). The definition of cost of construction as per the statute (as already discussed above) excludes only cost of land and any compensation paid or payable to worker or his kin under the Workmen’s Compensation Act, 1923.
The Building & Other Construction Workers’ Welfare Cess [BOCWW Cess] is applicable on the total contract price and thus such cess is levied on both the materials [supply] and the labour [service] portion
From India, Chennai
309While the charging Section 3 of the Building and Other Construction Workers’ Welfare Cess Act, 1996 uses the expression, “cost of construction”, the same is explained in the Rules. The charging Section as well as rule 3 ought to be read together homogenously to sub-serve the object of the enactment. As per Rule 3 of the Building and Other Construction Workers’ Welfare Cess Rules, 1998, the “cost of construction” is an inclusive definition which includes all expenditure except :
cost of land and
any compensation paid or payable to a worker or his kin under the Workmen's Compensation Act, 1923.
The Building & Other Construction Workers’ Welfare Cess [BOCWW Cess] is levied on the total cost of construction (i.e. the cost comprising of both the materials [supply] and the labour service] portion). The definition of cost of construction as per the statute (as already discussed above) excludes only cost of land and any compensation paid or payable to worker or his kin under the Workmen’s Compensation Act, 1923.
The Building & Other Construction Workers’ Welfare Cess [BOCWW Cess] is applicable on the total contract price and thus such cess is levied on both the materials [supply] and the labour [service] portion
From India, Chennai
Dear CiteHR member Chandak Mitali ji,
Before delineating the intricacies of the BOCW Act and Rules, I shall opine on the basis of various High Courts and Hon'ble Supreme Court judgments that Cess is not payable on the cost of supplies of equipment and machinery including their installation provided your fabrication work is not covered under any specific activity defined in Section 2(1)(d) of the BOCW Act 1996.
I shall now revert to the post of Dr Sivakumar and with due respect refer to provisions of the Act, Rules and judgments of the Hon'ble Courts on the subject as under:
Section 3(1) of the Cess Act prescribes that a Cess would be leviable @ not exceeding 2% but not less than 1% on the ‘cost of construction’. ‘Cost of Construction’ as given in Rule 3 of the Cess Rules is to include ‘all expenditure incurred by an employer in connection with the building or other construction work’ with the exclusion of i) cost of land, and ii) any compensation paid or payable to a worker or his kin under the Workmen’s Compensation Act, 1923. Section 2(d) of the Cess Rules states that any expression not defined in the Cess Rules would have the meaning assigned to such expression in the BOCW Act.
The term ‘Building or other construction work’, is defined in Section 2(1)(d) of the BOCW Act as under-
2(1)(d) “building or other construction work” means the construction, alteration, repairs, maintenance or demolition, of or, in relation to, buildings, streets, roads, railways, tramways, airfields, irrigation, drainage, embankment and navigation works, flood control works (including storm water drainage works), generation, transmission and distribution of power, water works (including channels for distribution of water), oil and gas installations, electric lines, wireless radio, television, telegraph and overseas communications, dams, canals, reservoirs, watercourses, tunnels, bridges, viaducts, aqueducts, pipelines, towers, cooling towers, transmission towers and such other work as may be specific in this behalf by the appropriate Government, by notification but does not include any building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), apply."
In view of above provision it is clear that Cess is payable on the expenditure incurred on specific construction related activities. The construction works have been defined in detail in Section 2(d) of the BOCW Act as noted above. Other activities like equipment and machinery or other supplies are not subject to levy of Cess.
Following judgments are relevant to the case:
1. The High Court of Andhra Pradesh in "Cormandel Prestcrete Private Limited v. State of Andhra Pradesh and Ors." clearly held in 2008 that cess is to be collected only on the ‘cost of construction’ and not on the entire value of work, meaning that the total cost of work, would not be counted for cess valuation.
2. The Jharkhand High Court in the matter of "Abhijeet Hazaribagh Toll Road Limited v. Union of India and Ors" dealt with Section 3 of the Cess Act and Rule 3 of the Cess Rules and held in 2014 that ‘under no stretch of imagination, it can be said that the construction activity amount to sale/purchase of goods’.
3. The Hon'ble Supreme Court of India in the matter of "Lanco Anpara Power Limited v. State of Uttar Pradesh and Others." dealt with the term “building or other construction work” as defined under Section 2(1)(d) of the BOCW Act, and held as under:
Para No: 37- "We now advert to the core issue touching upon the construction of Section 2(1)(d) of the BOCW Act. The argument of the appellants is that the language thereof is unambiguous and literal construction is to be accorded to find the legislative intent. To our mind, this submission is of no avail. Section 2(1)(d) of the BOCW Act dealing with the building or construction work is in three parts. In the first part, different activities are mentioned which are to be covered by the said expression, namely, construction, alteration, repairs, maintenance or demolition.
Second part of the definition is aimed at those buildings or works in relation to which the aforesaid activities are carried out. The third part of the definition contains exclusion clause by stipulation that it does not include “any building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), applies”.
The first and second part of the definition as observed by the Hon'ble Supreme Court of India are relevant to the present query.
Keeping in view the above judgments and explanations it is clear that no Cess is payable on equipment and machinery including its installation as no construction activity of Section 2(d) is involved in it. The Employer has to accordingly enter into different contracts. In case of a Turnkey Contract, different agreements and contracts need to be made for different activities.
I hope the above explanation will suffice to clear the doubts in the matter. I shall be thankful to all members of the CiteHR Forum to guide me if I am missing in my understanding.
With due respect and regards to seniors and all members,
Chandra Mani Lal Srivastava
Master Consultant 9315516083
New Delhi
From India, New Delhi
Before delineating the intricacies of the BOCW Act and Rules, I shall opine on the basis of various High Courts and Hon'ble Supreme Court judgments that Cess is not payable on the cost of supplies of equipment and machinery including their installation provided your fabrication work is not covered under any specific activity defined in Section 2(1)(d) of the BOCW Act 1996.
I shall now revert to the post of Dr Sivakumar and with due respect refer to provisions of the Act, Rules and judgments of the Hon'ble Courts on the subject as under:
Section 3(1) of the Cess Act prescribes that a Cess would be leviable @ not exceeding 2% but not less than 1% on the ‘cost of construction’. ‘Cost of Construction’ as given in Rule 3 of the Cess Rules is to include ‘all expenditure incurred by an employer in connection with the building or other construction work’ with the exclusion of i) cost of land, and ii) any compensation paid or payable to a worker or his kin under the Workmen’s Compensation Act, 1923. Section 2(d) of the Cess Rules states that any expression not defined in the Cess Rules would have the meaning assigned to such expression in the BOCW Act.
The term ‘Building or other construction work’, is defined in Section 2(1)(d) of the BOCW Act as under-
2(1)(d) “building or other construction work” means the construction, alteration, repairs, maintenance or demolition, of or, in relation to, buildings, streets, roads, railways, tramways, airfields, irrigation, drainage, embankment and navigation works, flood control works (including storm water drainage works), generation, transmission and distribution of power, water works (including channels for distribution of water), oil and gas installations, electric lines, wireless radio, television, telegraph and overseas communications, dams, canals, reservoirs, watercourses, tunnels, bridges, viaducts, aqueducts, pipelines, towers, cooling towers, transmission towers and such other work as may be specific in this behalf by the appropriate Government, by notification but does not include any building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), apply."
In view of above provision it is clear that Cess is payable on the expenditure incurred on specific construction related activities. The construction works have been defined in detail in Section 2(d) of the BOCW Act as noted above. Other activities like equipment and machinery or other supplies are not subject to levy of Cess.
Following judgments are relevant to the case:
1. The High Court of Andhra Pradesh in "Cormandel Prestcrete Private Limited v. State of Andhra Pradesh and Ors." clearly held in 2008 that cess is to be collected only on the ‘cost of construction’ and not on the entire value of work, meaning that the total cost of work, would not be counted for cess valuation.
2. The Jharkhand High Court in the matter of "Abhijeet Hazaribagh Toll Road Limited v. Union of India and Ors" dealt with Section 3 of the Cess Act and Rule 3 of the Cess Rules and held in 2014 that ‘under no stretch of imagination, it can be said that the construction activity amount to sale/purchase of goods’.
3. The Hon'ble Supreme Court of India in the matter of "Lanco Anpara Power Limited v. State of Uttar Pradesh and Others." dealt with the term “building or other construction work” as defined under Section 2(1)(d) of the BOCW Act, and held as under:
Para No: 37- "We now advert to the core issue touching upon the construction of Section 2(1)(d) of the BOCW Act. The argument of the appellants is that the language thereof is unambiguous and literal construction is to be accorded to find the legislative intent. To our mind, this submission is of no avail. Section 2(1)(d) of the BOCW Act dealing with the building or construction work is in three parts. In the first part, different activities are mentioned which are to be covered by the said expression, namely, construction, alteration, repairs, maintenance or demolition.
Second part of the definition is aimed at those buildings or works in relation to which the aforesaid activities are carried out. The third part of the definition contains exclusion clause by stipulation that it does not include “any building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), applies”.
The first and second part of the definition as observed by the Hon'ble Supreme Court of India are relevant to the present query.
Keeping in view the above judgments and explanations it is clear that no Cess is payable on equipment and machinery including its installation as no construction activity of Section 2(d) is involved in it. The Employer has to accordingly enter into different contracts. In case of a Turnkey Contract, different agreements and contracts need to be made for different activities.
I hope the above explanation will suffice to clear the doubts in the matter. I shall be thankful to all members of the CiteHR Forum to guide me if I am missing in my understanding.
With due respect and regards to seniors and all members,
Chandra Mani Lal Srivastava
Master Consultant 9315516083
New Delhi
From India, New Delhi
I agree with Mr.Srivatsava. He has explained very clearly and precisely. Though there is no exclusive clause in the definition that the cost of equipment or machinery need not be included, it would be a common prudence for anyone to understand that installation of any equipment or machinery in a newly constructed factory or establishment would not form part of the construction itself. As per the Act, the Cess is to be paid to the Welfare Fund for the benefit of construction workers on the certain percentage on the total cost of construction only (1 to 2%). I would humbly request Mr.Srivatsava to give the case laws with citations as well so that it would be useful for the readers for their quick reference.
Ranganathan RS
GM Corp IR & Legal
Brakes India Pvt Ltd
Chennai
From India, Madras
Ranganathan RS
GM Corp IR & Legal
Brakes India Pvt Ltd
Chennai
From India, Madras
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BOCW NOTIFICATION FOR CESS BY DELHI Government.pdf
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