This sandwich policy is not bound by any act, it is a common practice where employers have made such rules to prevent the effect on daily work from long holidays.
Many employees enjoy their long vacation with the holiday of sandwich, this is a type of policy which helps employer to prevent work from obstructing.
The every establishment is free to frame their leave policy according to business need adding conditions. The acts & rules only speaks about the quantum of leave one can have in a calendar year.
You can approach the authority under labour department of your area, if the deductions are being made without a policy or knowledge of employee.
Explanation 2 says that "The leave admissible under this sub-section shall
be exclusive of all holidays whether occurring during or at either end
of the period of leave". This means that you can apply Sandwich Leave for leaves offered by the company other than this mandatory leave (PL/EL). One should not apply Sandwich Leave for PL/EL.