Facing a 40 Lakh PF Liability: How Can We Navigate This Legal Challenge?

Dear Seniors,

I have a big issue in my company. We had asked our legal consultant to complete all formalities relating to the new factory. As our company partners are fully involved in the operations of the company and have little knowledge about administration, they didn't follow up on all legal formalities. We had an ESI inspection, and we didn't have ESI for people in the new factory. Now, a PF inspection is ongoing, and they have mentioned that we are liable for contractors outside the premises as well, with the total PF liability amounting to 40 lakhs. Our consultant has advised us to maintain proper documentation, and now he says that this has to be settled.

Please advise on what can be done as this is real harassment. PF inspectors are stating that if the TDS of contractors is deducted under section 194, then the company is responsible for their PF.

Regards,
Charles

Yes, Charles. It is true you should settle the case with the liaison and negotiate better. I think you understand my language. For complete clarification, please go through the PF act and talk with another consultant because maybe you do not trust your consultant. Many things I cannot say here.

On Monday, I will try to contact you and tell you more about this situation as per my experience.

Are the ESI and EPF liabilities related to the previous employer's liabilities? Normally, when a running company is taken over, such liabilities are also settled in advance. Otherwise, it becomes the liabilities of the present owner. Generally, it is a joint liability of both the transferee and the transferor companies. But if the transferor fails to pay, the entire liability will fall on the transferee, i.e., the present company.

Now, without getting details of the amounts due, it is difficult to sort out your issue. Contractors working outside your premises need not be covered by ESI or EPF. Tax is deducted from the payments made even to such services that are outside the purview of PF. Therefore, the stance of EPF authorities that all such payments should be included and that you should pay such a huge amount as a contribution should be challenged. Do not bend to pay a bribe. Let the Assistant Provident Fund Commissioner send a summons under section 7A of the Employees' Provident Fund and Miscellaneous Provisions Act and call on you to produce books. You can fight it there. It may be an intentional motive of the Enforcement Officer to collect money from you. Don't give in, but let there be an official hearing.

Regards,

Madhu.T.K

Dear Charles,

It is really a sad situation for your company. Recently, many Enforcement Officers are demanding huge amounts as bribes. Just imagine, even if you escape now, what will be the case for the next inspectors?

As Mr. Madhu pointed out, wait for the 7A notice to be served and explain the situation to AC in the personal hearing and request an amicable settlement. For the TDS matter, you can consult with an auditor and get their opinion. For contract works outside the premises, I am enclosing a file for your reference.

S. Sethupathy
Excellent HR Services
Erode

The money which you should have given to your poor workers, now you have to give them to corrupt government officials. You would have been much better off if you had given it faithfully to the deserving workers. They would have worked better and with more dedication. You stole their money and now the officials are taking it away from you. There is always a penalty for breaking the law, if you get caught. And you are caught.

I am paying all my workers correctly. I have all challans regarding payments to workers inside my factory. The PF officials are asking for liability of the outside contractor. Why should I bear with outside job workers who do my work once in a while?

Dear Charles,

It is really a sad situation for your company. Recently, many Enforcement Officers are demanding a huge amount as bribes. Just imagine, even if you escape now, what will be the situation for the next inspectors? As Mr. Madhu pointed out, wait for the 7A notice to be served, explain the situation to the AC in the personal hearing, and request an amicable settlement. For the TDS matter, you can consult with an auditor and get his opinion. For contract works outside the premises, I am enclosing a file for your reference.

S. Sethupathy, Excellent HR Services, Erode

Sir,

Thank you for your advice and the attachments you have provided. They are of a lot of use. We have received a letter from APFC, and the date has lapsed twice. I asked my consultant to deal with it, but he didn't go for the trial. The PF Inspectors are coming to my place and asking for details, which I have provided. They are saying that I am liable towards outside contractors and have a liability of 25% of the total job work amount. I have to pay it in the department, or I have to pay the Inspectors with the appropriate amount to adjust it.

Thanks for your valuable advice.