Is Our Industrial Construction Project Subject to the BOCW Act and Labour Cess?

One of our clients (a company) is developing an industry and has applied for and received approval from the Directorate of Factories under the Factories Act for the site layout and building plans. The construction of buildings and other infrastructure has commenced.

The definition of "Building and Other Construction Activity" under the BOCW Act specifically states that it "does not include any building or other construction work to which the provisions of the Factories Act of 1948 or the Mines Act of 1952 apply."

In this context, can someone please clarify whether the BOCW Act itself is applicable to the above works and whether the company has to pay Labour Cess under the BOCW Act?

Regards

Dear Sunil, there is a judgment on the same. I have the case with me. Please give me your email ID so that I can forward it. Existing industrial construction is to be covered under BOCW. Cess needs to be paid for existing industry also in case any new project is constructed. Mail me at [Email Removed For Privacy Reasons]

Regards,
Jiwanjot Singh

Seeking Expert Opinion on BOCW Act Compliance

I am an Administrative in charge working for a leading corporation in India under the construction division located in Andhra Pradesh. I would like to seek your expert opinion on the following.

We are company "C". Our group company "A" has secured an EPC contract worth about Rs. 2500 Crs from customer "B". This group Co. "A" has awarded us the execution of construction with materials and a portion of supply of brought-out materials, for a value of Rs. 300 Crs. Our contract from the group co. includes materials as well. Now, the customer has advised our group co. "A" to comply with the BOCW Act and BOCW Cess Act. Our group co. has then instructed us to comply with the same. (Note: Our group co. is not involved in any construction activities; they handle engineering and supply of main items, etc.) The entire execution is carried out by us, and the workmen also belong to us.

Kindly advise on the following:

1. Whether the above acts are applicable to us or to our group co. "A".

2. If they are applicable, who is liable for the relevant provisions - the group co. or us?

3. On what component/amount are we liable to pay the cess (both in the case of our liability or the group co.'s liability), i.e., whether on the total contract value or on the contract value after deducting the supplies amount.

Note: Supplies amount refers to the amount to be claimed by us directly (other than the execution amount) for the supply items procured for certain special jobs. Materials include all construction materials required for the job, such as steel, bulk materials, etc.

Regards,
GANESH G
[Phone Number Removed For Privacy Reasons]

Dear Ganesh,

As per my understanding, the following are the appropriate point-wise answers to your queries:

1. The Act applies to you if you have registered yourself as an employer under the BOCW Act. There is no contractor/subcontractor defined in BOCW. One who has registered as an employer in the BOCW Act is liable to pay cess and comply with the Act.

2. As discussed in the above point.

3. You should pay the interim amount of Cess on the Construction Cost only and not on supplies. However, on completion of the project, you are to get an assessment done from the Assessing Authority and pay the differential amount. Although there is no clarity on the same in the law as it states that Cess is applicable on all costs except Land & Compensation, it doesn't make sense for you to pay Cess on the supply material. Many construction companies have already appealed against this in courts, but the High Court's decision is still pending on the matter.

Therefore, I suggest getting the final assessment done from the Assessing Authority and depositing the interim cess amount on the construction cost only.

Regards,

Jiwanjot Singh

[Email Removed For Privacy Reasons]

Liability for Labor Cess Under BOCW Act

Essentially, it is the liability of the customer to deduct 1% from the bills payable and remit it to the government. Generally, the customer tends to pass this on to the contractor (your company). Of course, your company has then passed this on to you.

Although BOCW defines the term 'contractor,' which also includes a sub-contractor, when it comes to the applicability of Cess, everyone (whether the customer, contractor, or sub-contractor) is considered the same, as pointed out by Jiwanjot. Therefore, one of you must remit the labor cess to the government. Since the responsibility has been passed on to you, you need to register as the 'Employer' and comply with the BOCW Act and BOCW Cess Act for the component assigned to you.

I assume that your company has an agreement with the customer, and in turn, you have an agreement with your company. That is, you bill your company, and your company bills the customer. If this is the case, you should ensure that you add 1% to your bills as the Labor Cess component, and your company should do the same with the customer. This is important if the agreement value between your company and the customer, and subsequently with you, excludes taxes, duties, cess, etc. If the value is inclusive of all taxes, duties, etc., and the 1% cess is missed, then your company has effectively lost 1%. You should ensure that this is not passed on to you.

Regards,
Sunil

Sir, we are a power-generating company with our existing power-producing units covered under the Factories Act. We are constructing additional units on the same premises. We require guidance on the following points:

1. **Applicability of Acts:** Whether the Factories Act or the BOCW (RE & CS) Act 1996 shall be applicable for construction activities?

2. **Employer Identification:** The main package contractor neither engages any construction worker nor supplies any construction worker but gets all the job done by engaging subcontractors. Under these circumstances, who will be the employer if the BOCW (RE & CS) Act 1996 stands applicable for us?

3. **Statutory Compliance Responsibility:** Who will be responsible for statutory compliances in respect of the CL (R & A) Act 1970?

May you kindly enlighten us on the matter.

With regards,
GOUTAM MAJUMDER

Kindly email the copy of the judgment to my email ID at [Email Removed For Privacy Reasons]. We have also received verbal instructions to deposit the cess, and we are covered under the Factories Act. That judgment will be helpful for us to decide on the further course of action.

Regards

Sir,

I am already registered as the Principal Employer under the CLRA Act, 1971. Whether my contractors or I have to register/obtain a labor license again under the BOCW Act, 1996?

Anil

During the construction phase of an industrial establishment, the unit does not acquire the status of a factory. Once commercial operations start, the unit is covered under the Factories Act. Therefore, the Building and Other Construction Workers (BOCW) Act is applicable during the construction phase. There is a High Court judgment against Sterlite in Odisha wherein the court has ruled on the applicability of the BOCW Act.

Please let me know if you need any further assistance.

Could anyone help me with whether Labour Cess is applicable on free issue material provided by the Principal Contractor? Company "A" is constructing a factory for Company "B". Company "A" is providing cement and steel to Company "B" as free issue material. The value of the free issue material is also not included in the Bill of Quantities (BOQ). As per our BOQ, we raise proper bills on a regular basis, and they deduct Building and Other Construction Workers' (BOCW) Cess on work done. However, in the final settlement, they are stating that BOCW Cess on free issue material should also be imposed on Company "B".

Total Work Order Value - 71 Cr. (Excluded Free Issue Material)
Total Work Done Value - 71 Cr. (Excluded Free Issue Material)
Total Labor Cess Deducted Value - 0.71 Cr. (Excluded Free Issue Material)
Free Issue Material Value - 47 Cr.
They are deducting Rs. 0.47 Cr. as BOCW Cess on Free Issue Material.

Is this correct because that is not our cost of construction?

Regards, Vinay

Dear Mr. Tripathi, the deducted cess on FIM is correct. There is no ambiguity. The total cost of construction would be inclusive of 47 Crores if it was not supplied by A. There is no exemption if the cost of material is supplied by the Client. Only the cost of land and compensation paid or to be paid to workers under the WC Act can be deducted from the Cess Amount. The only impact would be on the cess amount. It would be less if the client is able to procure material at a lower cost than the contractor. So, 1% charged on it would be lesser than if the material is bought through the contractor. But even in that case, the assessing officer can see through under-invoicing or costing. Then they will ask for higher cess with the appropriate higher cost charged for the material. I guess in this case your company is benefited with less cess.

The applicability of BOCW in the business of laying electric lines will be location-wise or project-wise?