Who Pays the 1% Cess on Construction Contracts: Employer or Contractor?

Hi,

I want to clarify that as per the Building and Other Construction Workers Welfare Cess Act of 1996, who will pay the 1% of the cess amount on the total contract value? Is it the employer or the contractor?

Dear,

The cess under the BOCW Cess Act, 1996 is to be collected from the employer. For the definition of the employer, you may refer to section 2(i) of the BOCW (RE&CS) Act, 1996.

Regards,

R.N. Khola

As per the definition of an employer under section 2 (i) of the BOCW (RE&CS) Act, 1996, the term "employer" includes contractors concerning contract labor. Please clarify if we hire a contractor and that contractor hires a sub-contractor, whether the sub-contractor is liable to pay the cess. Is it so or not? Please clarify.

Further, please clarify on what amount the cess is payable, i.e., on the cost of construction or if it includes the cost of machinery and other items that are to be erected and commissioned.

According to me, Cess is payable by the Principal Employer. This is because:

i. The assessment of cess is done on the basis of the total construction cost (excluding land cost and compensation paid/payable under WC).

ii. The information to be furnished to the assessment officer in 'Form I' is done by the Principal Employer and not by Contractor(s). The assessment order is passed based on this information in 'Form I'.

However, the Principal Employer can make recovery of the cess amount from the contractor's billing if it is provided in the agreement signed by both parties.

In case the Principal Employer is a PSU/Govt. U/T, cess is payable by the contractors.

Judgments on Cess Liability

I am quoting two different judgments on this issue as under:

1. It will be the liability of the contractor and not the principal employer to pay welfare cess in respect of workers working at the site under the Building and Other Construction Workers Welfare Cess Act 1996.

M/s. Gannon Dunkerley & Co. Ltd. vs. State of Madhya Pradesh and Others. 2010 LLR 184 (MP HC)

2. It will be the owner and not the contractor of this establishment who will be responsible to pay Cess under Building & Other Construction Workers (RE&CS) Act.

Adani Agri Logistics Limited and Another vs. The State of Haryana and Others. 2010 LLR 752 (Punjab & Haryana HC)

Dear All,

I am working at a hotel as an HR Manager. The establishment took place in 2014-15, and it is located in the RICCO area, for which we obtained an NOC from RICCo. However, I have received a notice from the labor department regarding BOCW/CESS Taxes after four years of opening the property. Could you kindly suggest the procedure and other details? Is it applicable or not? Or is it related to the labor contractor? What costs are included in BOCW/Cess taxes?

Thank you.