Which Factory Act Or Shops & Establishments Act Does A Car Showroom Come Under?

Respected Seniors,

Please tell me, does a car showroom cum service center fall under the Factory Act or the Shops & Establishment Act for Noida?

Kindly provide me with all the necessary forms and formats as per the relevant act.

Regards,
Nadeem Ahmad
9654700786

If both are in the same premises, it is a factory if it together has 10 or more workers. If in different premises, the showroom will come under the Shop & Commercial Est Act, and the service center will be a factory if it alone has 10 or more workers.

Varghese Mathew
9961266966

Check about your electricity power; if it is H.T., it definitely falls under the Factories Act.

Thanks & Regards,

B. RAVIMURUGAN
Chief Manager - HR, Legal & Admin
Natrust/Chennai
M: 09884623097

Mr. Nadeem,

Please check with your Delhi factories for the HT/LT criteria for registration. In the Factories Act, there are no such criteria.

Varghese Mathew

Dear Nadeem,

To answer your query, we need to find out from you how many persons you have employed for your car showroom cum service center.

I would like to quote Section 2(m) of the Factories Act, 1948, which defines 'Factory' as:

(i) Where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried out with the aid of power, or
(ii) Where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried out without the aid of power.

It was held by the Rajasthan High Court that "where an auto service station is run for cleaning, washing, and oiling of vehicles, it is considered a 'manufacturing process' within the meaning of Section 2(k) of the Act. If the requisite number of workers are employed, then the premises is a factory within the meaning of Section 2(m) of the Act, and under such circumstances, a license is necessary under Section 6 of the Factories Act. (Citation-1993 AIR 117(125) (Raj. HC),1993 Cri LJ)

If your car showroom is located on the same premises, then it shall be treated as part of the Factory; otherwise, you need to take registration under UP Shops & Establishments Rules.

In the light of the above explanation, you may take suitable action.

BS Kalsi
Member Since Aug 2011

Dear friend,

The expression "manufacturing process" is defined in Clause (k) of Section 2 of the Factories Act. The said Clause (k) is as follows:

(k) 'manufacturing process' means any process for-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal, or

(ii) pumping oil, water, sewage or any other substance, or;

(iii) generating, transforming or transmitting power, or

(iv) composing types for printing, printing by letterpress, lithography, photogravure, or other similar process or book binding; or

(v) constructing, reconstructing, repairing, refitting, finishing, or breaking up ships or vessels; or

(vi) preserving or storing any article in cold storage.

Thus, the different processes set out in Sub-clause (i) of Clause (k) of Section 2 must be with a view to the use, sale, transport, delivery or disposal of the article or substances manufactured."

A 'factory' and 'manufacturing process' as given in the Act: Section 2(m) of the Act defines 'Factory' as under:- "factory" means any premises including the precincts thereof- (i) ............ (ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on. The mere labor bestowed on an article even if the labor is applied through machinery will not make it a manufacture unless it has progressed so far that a transformation ensues, and the article becomes commercially known as another and different article from that as it had begun its existence.

The Factories Act, 1948, defines a worker by s. 2 (1) as meaning, it a person employed, directly or through any "a person employed, directly or thought any agency, whether for wages or not, in any manufacturing process or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process." and a factory is defined by s. 2(m) as meaning any premises including the precincts thereof wherein a specified number of workers on any day of the preceding twelve months is employed. By the combined operation of these definitions, persons employed in any manufacturing process or in cleaning any part of the machinery or part of the premises used for the manufacturing process or any other kind of work incidental to or connected with the manufacturing process or the subject of the manufacturing process are deemed to be workers in a factory.

More are discussed in the attachment.

It comes under the Shops and Establishment Act, and a showroom is not a factory.

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Thank you!

Are you all sure that servicing vehicles comes under the Factories Act? There is nothing being manufactured. It is a purely service-based business, so how can it be considered a factory?

Please read section 2(k) of the Factories Act. It defines the activities constituting a manufacturing process. You will find activities such as washing, cleaning, pumping water, etc., as part of the manufacturing process. These activities are carried out in service stations with the aid of power. Therefore, a workplace is considered a factory if it employs 10 or more workers.

Varghese Mathew

Employees State Insurance ... vs Bhag Singh on 19 May, 1988

This judgment is opposite of what you said. Please go through in detail.

It specifically says somewhere in the middle that:

Similarly, the "manufacturing process" in sub-clause (I) of section 2(k) would only apply in a case where a new marketable commodity comes into being after the process which can be used, sold, transported, delivered, or disposed of. As no new marketable commodity emerges after washing and cleaning of the cars, it will not fall within the meaning of sub-clause (I) of Section 2(k). In the decision reported in 1982 P.L.R. 600, the same learned Judge held that the business of dry-cleaners would not fall within the definition of "factory" on the grounds that whenever washing or cleaning is done by a dry-cleaner with a view to its use, no separate commercially different marketable commodity comes into being which could be used, sold, transported, delivered, or disposed of, and therefore, no manufacturing process can be said to be involved.

Another part states:

"As regards service stations for repairing motor cars, etc., the counsel for the Corporation wants it to be brought within the definition of 'manufacturing process' as per section 2(k)(i) of the Factories Act wherein the word 'repairing' has been used. But this word has to be read along with the words "any article or substance with a view to its use sale, transport, delivery, or disposal" coming thereafter. So, the process of repairing has to be with any of these views, which would be completely missing in the business carried out in this case.

I also find that the original Rajasthan HC and Mumbai HC have held different views on the matter. But the case I have quoted has referred to both of them and stated why their views do not hold true.

So now, what's the latest on the judgment? Has the SC made any judgment on this?

The Supreme Court (SC) has held the following processes as manufacturing:

1. Garbling of pepper and curing of ginger (1961)
2. Collecting/storing/processing of tobacco leaves (1969)
3. Transforming electrical energy from high to low potential and transmitting (1967)

No new product is made in the above cases. There have been numerous High Court decisions supporting the notion that new products need not be made as a result of the process. This raises the question: What new products are created when water, petrol, or other liquids are pumped and distributed?

In a recent ruling last July, the Bombay High Court (HC) established that IT processes qualify as manufacturing activities.

Varghese Mathew

I think these are also explained in the judgment. I don't know about the last one. I can't see why it will be manufacturing. I need to search the judgment and read. The reason why pumping of oil is considered manufacturing is that by pumping the oil, you are converting it from an unusual state (underground locked in rocks) to a usable state. Both of the judgments I referred to say that fuel pump selling petrol is not a factory and that the SEC refers to refineries or extraction of oil. So I guess the matter remains a point of contention.

Sorting coconuts and packing them in bags, stitching old gunny bags are manufacturing processes.

Varghese Mathew

Dear Friends,

In this forum, very few discussions are interesting to read. This discussion is one of the interesting ones. Thanks to everyone who participated in this discussion.

Dear Saswata ji,

The judgment is attached herewith.

Dear friends,

If we delve deeper, there are numerous activities that fall under the classification of a "Factory" in different contexts and Acts. Some examples are listed in the attachment.

Regarding the software company being classified as a Factory under the Factories Act and ESI, some expressed views are provided in the attachment, which are worth noting.