Dear friends,
Supreme Court in its judgement dated 18.11.2011 (copy attached) has upheld constitutional validity of cess levied under the Building and Other Construction Workers Welfare Cess Act, 1996. The court has held that cess is in the nature of fee and not tax.

From India, Malappuram

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File Type: doc SC on constitutional validitiy of cess on construction workers 18.11.2011.doc (60.5 KB, 889 views)


Dear Mr. Agrawal

Thank you for sharing the judgement on BOCWW Cess Act with our members. If the BOCW Welfare Cess is not a tax and only a fee, is it mandatody to make payment of 1 % Cess, i.e., Cost of work done to the State BOCW Welfare Board.

Now I am confused. I feel like to have the answers for the below questions.

What is the difference between Tax and Fee?

If Cess is not tax, then what is the necessity to effect payment.

Is the cess is not mandatory then why we are forced to pay Cess (Education) over and above the Service Tax?

What is the meaning for "strenuously urged that the impost levied by the Cess Act is a compulsory and involuntary exaction, made for a public purpose without reference to any special benefit for the payer of the Cess" ?

What was the decision?

Whether we have to invariably make payment or on optional basis:

If we are not paying the cess, what will be the consequences on becoming defaulter.

May I expect the reply from our learned members.

Thanking you in anticipation friends.

From India, Kumbakonam
Generally tax is contributed not to a particular fund or corpus but to a general fund, like income tax whereas cess is contributed towards a particular purpose, like education cess. Normally cess is paid on tax and any contribution made to a particular board is termed as fees, as it is understood from the verdict. The arguments that "...strenuously urged that the impost levied by the Cess Act is a compulsory and involuntary exaction, made for a public purpose without reference to any special benefit for the payer of the Cess. It was argued that there exists no co-relationship between the payee of the Cess and the services rendered and therefore, the levy is in effect a tax" have not been accepted by the Apex Court.

Against this arguments, the respondents relied on the fact that " the levy is attracted when there is an activity of building and construction. The collection of cess on the cost of construction is for enhancing the resources of the Building & other Construction Workers' Welfare Boards constituted under the BOCW Act. The Cess so collected is directed to a specific end spelt out in the BOCW Act itself; it is set apart for the benefit of the building and construction workers; appropriated specifically for the performance of such welfare work and is not merged in the public revenues for the benefit of the general public."

Therefore the main arguments were centred on whether it is a tax or cess or fees. Since the very purpose of the Cess Act is to augment the Welfare Fund under the BOCW Act the levy of Cess on the cost of construction incurred by the employers on the building and other construction works is for ensuring sufficient funds for the Welfare Boards to undertake social security schemes and welfare measures for building and other construction workers. The fund, so collected, is directed to specific ends spelt out in the BOCW Act. Therefore, it is clear that the said levy is a 'fee' and not 'tax'. The said fund is set apart and appropriated specifically for the performance of specified purpose; it is not merged in the public revenues for the benefit of the general public and as such the nexus between the Cess and the purpose for which it is levied gets established. With these features of the Cess Act in view, the subject levy has to be construed as 'fee' and not a 'tax'.

With a reading of the entire text it is clear that the matter is with regard to its interpretation as to whether Cess is fee or tax and since the amount is not pooled for a general purpose but for a specific purpose of creating fund for the Welfare of Construction workers, it is to be understood as fees and not tax.



From India, Kannur

Thank you Mr. Madhu for your excellent clarification. By reading your reply even the layman also can understand the differnce between Tax and Cess. Keep on enlightening us Mr. Madhu
From India, Kumbakonam
Dear Seniors, Please let me know whether Cess under BOCW Act is payable on construction cost of Factory Building where in manufacturing process is to be carried on? Regards. J.N. Singh
From India, Hyderabad
Dear Madhu Kumar ji Please let me know whether Cess under BOCW Act is Applicable on construction cost of factory building? Regards. J.N. Singh
From India, Hyderabad
Thank you Agrawal ji and Madhu ji for your valuable contribution.
Keshav Korgaonkar
Shantadurgaent.com,Insurance Advisors,Corporate Advisors,Legal Advise,Wage and salary,Shantadurgaent.com,Labour Compliance Audit,SSI registration,NOC from

From India, Mumbai
Dear Friends.
Is BOCW applicable for interior fitout projects for offices. Currently one of our clients have got a notice for the same for a recently finished office Interior constructions works.
Kindly throw more light on this issue.

From United States, Chesterfield
BOCW cess is applicable not only for new construction but also for repairs and alterations which has civil work in it.
From India, Bangalore
Thank you very much RReddy. I am not sure if Interior design and construction which does not entail any civil or structural works would entail CESS.
From United States, Chesterfield

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