PF Coverage - Labour Charges

Dear All,
I work with OEM and we have outsourced few activities from our Production Dept. like assembly. We provide all the raw material, equipments, machines and get the work done on piece work system. The Vendor charge us Labour Charges in his Invoice. He is not covered under PF Act. He has deployed around 100 employees (direct + indirect). He is our dedicated vendor hence he works only for us.
Our local PF Authorities claims that since the vendor is not covered under PF, we as a company is responsbile for his coverage under our PF No. PF Authorities holding company responsible as Principle Employer.
Let me know your views.
Regards,
P Garge

Since the contractor is doing a job work on materials supplied by you, you are bound to pay PF and ESI, if applicable, in respect of the employees of the contractor. On the other hand, if the contractor himself is purchasing materials and manufacturing the items according to your designs and supplying the same to you by raising an invoice, then your relationship will be of buyer and seller. In that case, you need not pay the PF on behalf of vendors employees. But in that case he will have to comply with Sales Tax and Central Excise registrations and you will have to pay the taxes as applicable.
It will be advisable to let the contractor(job Worker) take EPF registration of his own so that your head ache will be over. Naturally, the contributions payable being cost to his company, he will make necessary increase in the labour bills also. Any way there can hardly be found any establishment employing 100 employees without PF registration.
Regards,
Madhu.T.K