Are Petrol Pumps Really Covered by the Factories Act, 1948? Let's Discuss

Coverage of Petrol Pumps Under the Factories Act, 1948

The other day, one of my colleagues asked me whether petrol pumps for the distribution of fuel (petrol, diesel, etc.) are covered under the Factories Act, 1948. My response to him was "YES," subject to meeting the criteria laid down in Section 2(m) of the Factories Act, 1948; that is, if ten or more workers are engaged with the aid of power and twenty or more without power. However, I am still unable to understand whether the distribution of petrol, diesel, etc. is really covered under the "Manufacturing process" as defined in Section 2(k) of the Factories Act, 1948.

Regards,
BS Kalsi

Petrol Pumps and the Definition of Factories

I feel petrol pumps are not factories because there is no production process or value addition in the final product at a petrol pump. The basic concept of factories, as defined under Section 2, is that if 10 or more persons are employed for production with the use of power. The meaning of production entails the "change of state of raw material with value addition." At a petrol pump, there is no value addition in the fuels delivered by oil companies.

Regards

The requirement of petroleum products is for the generation of power for factories, but it will not cover the Factories Act. Nevertheless, you should obtain a Petroleum Storage License, and as per the license, only the permitted quantity of petrol or HSD has to be stored. This storage should not be in the factory but in separate sheds constructed as per the specifications, away from the factory.

With regards,

Jagdish.K

The question raised by Mr. Kalsi is one of the baffling questions in law, always eluding a precise and unquestionable answer. By "baffling question," what I mean is the presence of multiple interpretations, each of which will appear to be appropriate. Particularly, the difficulty becomes more pronounced when the constituent elements of a single definition also have their own definitions. In such a hazy situation, every authority charged with the responsibility of enforcing a particular Labour Enactment will have the tendency to advance an interpretation only to its favor, limiting it to the object of the particular law.

I faintly remember a judgment of some High Court upholding the applicability of the ESI Act to a Petroleum Dispensing Retail Outlet or Petrol Bunk as a 'factory' some years ago, relying on the definition of the term 'manufacturing process'. But in actual practice, if I am not wrong, petrol bunks are inspected under the Shops and Establishments Act in many states, and I am very sure in this regard, certainly in Tamil Nadu.

It should be admitted that always courts, in their unbiased wisdom, try to interpret definitions only in the backdrop of the mischief attempted to be remedied by the respective statute. Hence, the answer appears to me more appropriate to the question raised: petrol bunks are shops, for the predominant activity from that particular premises is the "retail sale" of petroleum products and not related to any manufacturing process other than pumping oil for the purpose of delivery through dispensing pumps with the aid of power.

If all the emphasis is added exclusively upon the terms 'factory' and 'manufacturing process' only, then every restaurant or eating house will be a factory because the manufacturing of food is carried on invariably with the aid of power for the incidental works. It's my personal view - contrary views are welcome.

Exclusion of Hotels and Restaurants from Manufacturing

Hotels, restaurants, and eating places were excluded from the manufacturing process in 1976.

Petrol Pumps as Factories

In the strict interpretation, petrol pumps are considered factories if they have 10 or more workers. If they have fewer than 10 workers, they come under the Shop & Commercial Establishment Act.

Regards,
Varghese Mathew

Petrol Pumps and the Factories Act

Petrol pumps are selling petroleum products like petrol, diesel, CNG, etc. They purchase these petroleum products from authorized suppliers and sell them to end users. They are neither producing nor manufacturing any product. Therefore, petrol pumps do not fall under the purview of the Factories Act.

Coverage of ESI in Petrol Pumps

The coverage of ESI in petrol pumps and its employees should be determined by the ESI Act and the Notification of ESIC.

Pumping of Oil as a Manufacturing Process

Pumping of oil is treated as a "manufacturing process." Therefore, petrol pumps employing 10 or more persons are considered "factories." In my opinion, when calculating the number of employees, the employees of contractors doing repair and maintenance or services of vehicles on the premises of the petrol pumps should also be counted and clubbed with the main unit. A copy of the Hon'ble Supreme Court Judgment dated 29-07-2009, which decided that pumping of oil is a manufacturing process, is enclosed for the kind perusal of the members.

Hotels, Restaurants, and Eating Places

Further, one of the members has expressed the opinion that hotels, restaurants, and eating places were excluded from the manufacturing process and are not factories. In this connection, it is submitted that hotels, restaurants, etc., using power for preparing food items and preservation are already covered under the ESI Act as "factories." A copy of the judgment dated 2-09-2009 of the Hon'ble Supreme Court of India is also enclosed herewith for the kind consideration of the members. However, I do not have a copy of the notification excluding hotels, restaurants, and eating places from the purview of the "manufacturing process," as mentioned by one of the members above. I hope the member will upload the same in this thread for the information of all.

Understanding Manufacturing in Common Language

Though, in common language, it seems very strange to say that pumping of oil or preparing food with power is manufacturing, the question is whether the policymakers or our legislature may have used these words after detailed deliberations, consultations, and keeping in view the safety of the person handling such products. The coverage of the above types of establishments under the Factories Act is within the powers of appropriate State Government authorities. However, when the question with reference to claims of contributions and benefits under the ESI Act, 1948, to the employees in the above types of establishments arises, the coverage is to be decided as per the definition of "manufacturing process" under the Factories Act, 1948, as required under section 2(14AA) of the ESI Act. Perhaps this is one of the main reasons that some of the leading cases on issues relating to "manufacturing process" have been decided with reference to claims under the ESI Act, 1948.

Regards.

What you say is very correct. It is very difficult to accept conceptually by any layman that merely pumping petrol is manufacturing. But the fact is, pumping petrol in a petrol pump is a manufacturing process as per the Supreme Court judgment, as stated by Harsh Kumar ji. The definition of a manufacturing process in the Factories Act is very wide. This definition includes many activities that are not strictly manufacturing as we understand in common parlance. Even the preparation of food with power is a manufacturing process as per another judgment of the Supreme Court, as stated by Harsh Kumar ji. Harsh Kumar ji has provided both judgments in attachments. The judgment of Restaurant/Hotel is from 2009, and the notification of excluding Restaurant/Hotels from the manufacturing process is a very old one. The judgment of the Supreme Court supersedes the old notification. Likewise, construction activity should also fall under the scope of the Factory Act. Experts are requested to comment.

Dear Friends,

It may be appropriate to take note of the discussion that took place in this forum some time back - refer to the link - https://www.citehr.com/471221-factor...-does-car.html

There have been judgments and opinions for and against what constitutes "a factory." There are judgments from various state High Courts and the Supreme Court as well. It is also to be noted that various activities are being added to the list of "factories." In many instances, if we see these lists and activities associated with them, literally no manufacturing activities or transformation from one product to new products take place. But still, these processes are declared as "manufacturing processes," and therefore they are factories.

Petrol Pumps as Factories

Coming to the Petrol Pump (bunks), which are retail outlets for petrol/diesel or oil distribution networks, a natural question arises: what exactly "a process" takes place in this retail distribution? And how could it be termed as a "factory"? Going by various definitions provided under various Acts, please consider the following observations:

Quote: Business Standard dated May 8, 2014:

Pumping oil in a petrol pump is a manufacturing process, so ruled the Supreme Court in a very recent judgment. But it is not considered manufacture under Central Excise Law. It is manufacture under the Factories Act, 1948. The principle is that the definition in one law is not valid for another law.

The Employees’ State Insurance Act 1948 applies to all factories. A petrol pump is a factory by dint of Section 2(12) of this Act because a factory means any premises where 10 or more persons are employed for wages and in any part of which a manufacturing process is carried out. Now, a manufacturing process includes pumping oil under Section 2(k)(ii) of the Factories Act 1948. Thus, legally, a petrol pump is carrying on a manufacturing process. Therefore, it is liable to pay contributions under the Employees’ State Insurance Act. After holding this legal position, the Supreme Court has observed by way of clarification that the word manufacturing process or manufacture does not mean the same thing in all the statutes. The word manufacture under the Central Excise Act means bringing into existence a different commodity, whereas under the Factories Act, simply pumping oil becomes a manufacturing process.

To a layman, it is conceptually somewhat difficult to accept that merely pumping petrol in a petrol pump is manufacture. But, when the purpose is taken into account, it becomes easy to understand. The idea is to provide insurance cover to the workers when there are more than 10 working in an enterprise where pumping oil, water, sewerage, or any other substance is going on. That is why in the Factories Act, the definition of manufacturing process is very wide. The definition also includes repairing, refitting, and finishing of a ship or vessel. This definition includes so many activities which are strictly not manufacture as we understand in common parlance.

Purpose of Definitions in Different Acts

The definition goes with the purpose of the Act. A definition in one Act is not applicable in another Act because the purposes are different. The Prevention of Food Adulteration Act has its purpose so wide that practically anything a person puts into his mouth comes under its fold. But excise or customs law does not have such a wide range of purpose. In Central Excise, food is understood in a completely different meaning. Gambier, which is a condiment taken with betel leaf, is by no means regarded as food by anybody. But gambier is considered food under the Prevention of Food Adulteration Act because the idea of this Act is to prevent food adulteration. Even biscuits, ice cream, or cold drinks are not regarded as food in common parlance. So they don’t get the benefit of exemption on food, but they are considered food under the Prevention of Food Adulteration Act.

However, the Bombay High Court has observed that the principle that a definition given to a word or expression in a particular Act cannot be utilized for the interpretation of a similar word or expression occurring in a different Act is not "an absolute principle of law." Said the Court, "generally it is so, but in a given case, the definition given in a particular statute not being repugnant, may be used to construe and interpret the same expression occurring in another statute." In this Bombay case, the popular meaning of drugs for the purpose of excise law and the definition of drugs in the Drugs and Cosmetics Act are not different, and so there was no harm in consulting the definition of the other Act.

Regards,

In my opinion, and in light of the definition of "Manufacturing process," petrol pumps fall within the definition of factories. Even power distribution is also considered a factory, as the power is generated by someone and somewhere and is distributed by Electricity Boards, etc.

Regards.

Dear Members, I am grateful to the CiteHR members for wholeheartedly participating in the discussion and dissemination of their experience and knowledge. Similarly, during my search on the internet, I came across a judgment reported in Labour Law Reporter, page no. 1066, Supreme Court of India, October 2009, where it has been held that in M/S Qazi Noorul H.H.H Petrol Pump and Another vs. Deputy Director, E.S.I. Corporation, that "Pumping oil is a manufacturing process."

A copy of the extract is attached for the members' perusal.

Regards,
BS Kalsi

It is a great and interesting discussion on the vexatious question of whether pumping oil falls within the definition of a manufacturing process under Sec. 2(k) of the Factories Act. There are indeed valuable contributions from all learned members, each of which has its own merit and substance. I can't but agree with them. The question nevertheless is baffling, as Mr. Umakantan has rightly said. Yes, it is puzzling to accept the process of pumping oil as a manufacturing process because it defies the normal understanding of a manufacturing process that is etched even in prudent minds, and for all purposes, the petrol pump, after all, engages in the sale of petrol and should qualify to be a shop.

We normally associate the idea of a manufacturing process with any process that either transforms or converts a substance into a different article/substance that is marketable. However, the case of Baranagar Service Station v. ESIC 1987(54) FLR 635 (Cal.DB) has dispelled this notion by holding that a manufacturing process need not cause any transformation of an existing substance or result in the emergence of a new product. For example, washing and cleaning are also included in the definition of a manufacturing process, though they do not result in the emergence of a new product.

Then the question that arises is whether the process of pumping oil, in order to be a manufacturing process, shall be linked to pumping oil from a refinery or any processing unit. This question was addressed exactly by the case of ESIC v. Bhag Singh 1988 II LLN 417. Repelling the same view in the said case, the Hon'ble Punjab & Haryana High Court held that the expression 'manufacturing process' shall not be understood in a narrow and restricted sense of bringing out a different product. Even if a process brings out a special result in the goods or substance, it falls within the definition of a manufacturing process. The court cites the example of washing, cleaning, or oiling, which are included as manufacturing processes. Though these processes do not make a new car out of the ones that are brought to the service station for the said purposes, they nevertheless bring out a special result in the vehicle, namely a lubricated and cleansed vehicle, and pumping oil too shall similarly be understood as bringing out a special result in the car that is brought for filling fuel.

Thus, the above case law, together with Quazi Nurul Petrol Pump furnished by learned member Mr. Harsh Kumar Mehta, may largely address your query. Though the cases cited were under the ESI Act, they are nevertheless relevant to the subject under discussion since the definition of a manufacturing process under Sec. 2(14 AA) of the ESI Act is pari materia with that under the Factories Act.

The courts have given such plain and liberal meaning to the manufacturing process under the Factories Act, keeping in view the social objectives of the Factories Act, namely the health and safety of workers employed at workplaces. Therefore, the meaning of a manufacturing process needs to be understood in the sense the legislature gave it, but not in the ordinary sense of the meaning.

Regards,
B. Saikumar
In-House HR & IR Advisor
Navi Mumbai

Exclusions from the Definition of a Factory under the Factories Act

Please see the definition of Factory under Section 2(m) of The Factories Act. By an amendment effective from 26.10.1976, the following are excluded from the definition of a factory:

• Mobile unit attached to the armed forces of the union
• Railway running shed
• Hotel, restaurant, or eating place

Though hotels, etc., are not considered factories under the Factories Act due to the above exclusions, they are classified as factories under the ESI Act because, in the definition of a factory in the ESI Act, they are not excluded (Section 2(12) of the ESI Act).

Regards,
Varghese Mathew

I feel petrol pumps do not come under the Factory Act because they are only selling points; there is no repair process or productive activity.

Dear all friends, with the views put forward and the arguments advanced by Harsh Kumar and Loginmiracle about the classification of retail outlets mechanically distributing petroleum products as "factories" under cross-reference to various cognate definitions in different statutes associated with the subject matter, as per the ratio decidendi of the decisions of the Apex Court and various High Courts, bring the present discussion to its finality. The well-thought-out and convincingly drafted explanation by Saikumar adds beauty to the finality.

Classification of Labor Laws

As we are all well-aware, all our labor laws could be brought under the following classifications:
- Laws relating to a particular type of establishments
- Laws relating to service conditions
- Laws relating to Industrial Relations
- Monetary Labor Laws
- Laws relating to the social security of labor

So, my reply to Mr. Korgaonkar is: Unless and until there is a direct judicial decision on the classificatory aspect arising out of any two establishment-oriented laws, these petroleum retail outlets or petrol bunks, as commonly called, are "factories" because of the supremacy of the law declared by the Supreme Court as per Article 141 of our Constitution.