Is ESI Required for Outside Job Work? Navigating Recent Judgments and Inspector Demands

Hello,

Kindly clarify whether ESI is applicable for job work done by outside parties. The material is sent through proper outward receipt, and the finished material is received only upon receipt of the delivery challan. ESI inspectors are insisting that the labor charges done by non-coded establishments are coverable irrespective of whether the work is done outside the premises and by different parties. I heard that recently a judgment has come in favor of the principal employer; even then, they are insisting on payment.

No need. Please go through the judgment.

The principal employer is not liable to pay ESI on outside jobs executed through contract labor. This clarification has come from the highest court of the land, the Honorable Supreme Court.

In the case of ESIC Bangalore vs. JMD Fashions (No. MFA 1089/2001), the Karnataka High Court held that outside establishments are not immediate employers under Section 2(13) of the ESI Act. The ESIC decided to go on appeal against this verdict before the Supreme Court. The SC, in its judgment dated 12.03.2007, dismissed the petition of the ESIC and upheld the decision of the HC.

Recently, the MP High Court had also given a similar judgment, stating that in the case of job works done by contract labor, there is no element of supervision by the principal employer, and therefore the principal employer will not be responsible for the payment of ESI contributions in respect of such contract labor.

Earlier, the ESI authorities had been demanding and, in many cases, even recovered the ESI contributions from the employers for outside jobs done by contracted vendors.