Understanding Construction Cost Under BOCW Act: What Components Should We Consider for Cess Calculation?

Hi Team Members, could anyone provide insight into the definition of construction cost under the BOCW Act? What components/heads should we consider when calculating cess?

Regards,
Venkat

In the BOCW Act, construction cost is the total cost of the work/project, including the manpower cost. Cess is 1% of the total cost of the project. For example, if the total cost of the project is 4 lakh, then the cess would be 4000.

Regards

As a matter of fact, the Contractor has to pay a minimum of 1% and a maximum of 2% Cess as fixed by the appropriate Government. The Cess is to be calculated from the work done during the financial year, or if the work period is less than 1 year, then the cost of the project will be considered for calculating the Cess. The cess paid will normally be reimbursed by the Principal Employer on actuals.

Regards

Your answer to your query lies in rule 3 of the Building and Other Construction Workers Welfare Cess Act, 1998, where the cost of construction is stated as:

Levy of Cess

"For the purpose of levy of cess under sub-section (1) of section 3 of the Act, the cost of construction shall include all expenditure incurred by an employer in connection with the building or other construction work but shall not include:

- Cost of land;
- Any compensation paid or payable to a worker or his kin under the Workmen's Compensation Act, 1923."

Therefore, I feel that whichever becomes an immovable part of the construction, like doors, windows, grills, wiring, sewerage, water and conduit pipes, bulb holders, electric switches, taps, toilet seats, washbasins, bathtubs, paints, etc., should be included in the cost of construction. However, the tubes, bulbs, air conditioners, inverters, movable almirahs, tables, chairs, and furniture, etc., can be excluded.

Kindly explain where it is written that the entire project cost shall be involved. It is inquired whether in a scenario where a factory is under construction, and the building, plant, and machinery fabrication and erection work are progressing simultaneously with the building work, the costs incurred on the procurement and erection of plant and machinery shall also be included in the coverage. Your immediate assistance is greatly appreciated.

Dear Sir, I am working as a contractor with Purvanchal Vidyut Vitran Nigam Limited. My client has awarded a work contract worth Rs. 18 crores, which includes the supply of materials and erection work. However, my contract is separate for the supply and erection portions. Now, the client is saying that labor cess will be deducted on the full amount of Rs. 18 crores. In my opinion, labor cess should only be applicable to the erection portion amounting to Rs. 5 crores because there are two separate contracts—one for the supply of materials and another for erection.

Kindly advise on what the actual facts are and please provide any circulars, government orders, or relevant documents so that I can convince my client effectively.

Thank you.

Dear VK Yadav, Some authorities are deducting Cess on the total cost, while a separate section is mentioned in the contract. It can be a challenge to the honorable court.