Case Details as follows:
The Employees’ Provident Fund Organisation (‘EPFO’) has in a recent internal communication1
forwarded the aforesaid judgment to its officers and directed them to utilise this judgement as per the merits of the case.
Facts of the case
• The petitioner has two categories of employees namely Non – Executive and Executive whose salary includes the following components:
Category
Components
Non Executive
• Basic Salary
• Variable Dearness Allowance (‘VDA’)
• Conveyance Allowance
Executive
• Basic Salary
• House Rent Allowance
• Special Allowance
• The petitioner was remitting PF contributions for Non - Executive employees on two components of salary namely Basic Salary and VDA and for Executive employees on Basic Salary.
The PF office contended that the company was paying basic wages to its employees in guise of various allowances to avoid the PF liability and thus issued summon to the petitioner for determination of the PF dues.
• In its assessment order, the PF office held that both conveyance allowance and special allowance are part of basic wages and have to be considered while remitting PF liability.
• Against the assessment order, the petitioner filed an appeal before the Employees’ Provident Fund Appellate Tribunal which was dismissed by the appellate authority.
• Aggrieved by the above dismissal, the petitioner filed a petition before the Madhya Pradesh High Court.
PF department’s contention
• PF department contended that basic wages includes all emoluments earned by the employees under all circumstances. The department placed reliance on the ruling of the honourable Supreme Court in the case of M/s Bridge and Roofs Co. Ltd. vs. Union of India and others2 wherein the principle of universality3
was laid down to determine whether the PF contribution was payable on a particular component of salary.
Petitioner’s contention
• The petitioner contended that the company is not liable to deduct provident fund from the wages of the employees except on basic wages and VDA and the petitioner placed reliance on the ruling of the honourable Supreme Court in the case of Manipal Academy of Higher Education vs. Provident Fund Commissioner4
.
Madhya Pradesh High Court ruling
• Based on the facts of the case, and the principle of law laid down in the case of Manipal Academy (Supra), the high court held that since there was no criteria to decide the special allowance and the fact that both the conveyance and special allowance was universally, necessarily and ordinarily paid to all the employees across the board, both the above allowances would have to be considered while determining the PF liability.
2 AIR 1963 SC 1474
3 Under the principle of ‘universality’ what is payable universally, necessarily and ordinarily in all concerns and is earned by all the permanent employees is included for the purpose of PF contribution.
4 (2008) 5 SCC 428