ESI Inspection Confusion: When Do Interest and Damages Start Accruing?

ESI Inspection Queries

I need your help with the matter of ESI Inspection on the below-mentioned issues:

- Under Amendment Section 45(4) of ESI, the Joint Director/Deputy Director Vigilance has the power of Test Inspection/Re-Inspection.
- It is mandatory to pass an Order Under 45 A if the client pays the Determined Amount Liability as per C-18 received.
- From which date is the amount of Interest and Damages derived/charged by the ESI Authority - from the date of receipt of C-18 Notice OR from the Order received under 45A?
- However, as per the Amendment Act under Section 45AA of ESI, 60 days are given to make an appeal before the Appellate Authority - RO/SRO OR filing the case before EI Court. The query is interconnected to the above to derive the days/date.

A line in reply is appreciated.

Regards,
Azim

Powers of ESI Authorities Under Amendment Section 45(4)

Under Amendment Section 45(4) of ESI, the Joint Director/Deputy Director Vigilance has the power of Test Inspection/Re-Inspection.

Order Under 45A and Payment of Determined Amount

It is mandatory to pass an Order Under 45A if the client pays the Determined Amount Liability as per C-18 received.

Interest and Damages by ESI Authority

From which date is the amount of Interest and Damages derived/charged by the ESI Authority? It is from the date of receipt of C-18.

Appeal Process Under Section 45AA of ESI

However, as per the Amendment Act under Section 45AA of ESI, 60 days are given to make an appeal before the Appellate Authority - RO/SRO or filing the case before the EI Court. The query is interconnected to the above to derive the days/date - if you are not appealing, then the interest and damages will be applicable.

In my opinion, the paragraph-wise reply to the issues raised by you in the above thread is as follows:

Test Inspection

Section 45(4) does not disclose the authorities who are competent for re-inspection, etc. It is only an enabling provision. For a list of authorized officers who have the powers of a Social Security Officer, please refer to Regulation 102 of ESI (General) Regulations, 1952 (as amended w.e.f. 1/2011).

C-18/D-18 Notices

C-18/D-18 is only a form on which a notice is issued to the employer/principal employer for the deposit of certain dues of contribution, interest, or damages which are proposed to be assessed or liable for recovery as per the records of ESIC. If the employer/principal employer deposits the amounts of contributions/damages after the receipt of said C-18 or D-18, it will mean that he accepts the liability. Therefore, whether a speaking order is issued subsequently is of no importance. Kindly review the wording/language of the forms of notices mentioned as C-18 or D-18.

Levy of Interest and Damages

(i) For the levy of interest, please refer to Rules 31, 31-A, & 31-B of ESI (General) Regulations, 1950. Interest becomes payable exactly from the 1st date of default in payment of contribution. The issuance of a C-18 or Speaking Order has no relevance to decide from which date the interest will be recovered or payable. Authorities may issue a C-18 at any time at their convenience, but interest is payable for the period of delay as mentioned in the above Regulations.

(ii) For the levy of damages, please refer to Regulation 31-C of ESI (General) Regulations, 1950, which lays down that damages are payable as per rates specified if an employer fails to pay the contribution within the period of defaults. In other words, the damages are payable right from the 1st day of default as mentioned in Regulation 31. The issuance of D-18 or speaking order is merely a procedural aspect.

As per Rule 31, every employer is required to pay/deposit "contributions within 21 days of the last day of the calendar month in which the contribution falls due." Therefore, in my opinion, from the 22nd day, the interest and damages become due and payable under the above Act and Rules/Regulations framed therein. (It can extend to one day in case the 21st day is a Sunday). There is a separate time limit of deposit in respect of other circumstances, viz., permanent closure of the factory.

Amendment in Section 45AA

The provisions are clear and self-explanatory. However, please see Regulation 31-D of ESI (General) Regulations, 1950 (amended w.e.f. 01/2011).

As an employer or an officer of any company/employer, I suggest consulting the amended updated ESI Act, 1948, and rules/regulations framed thereunder.

Regards

Respected Mehta & Mohankumar Sir,

Further inputs on the threads. We have been covered under ESI since September 2009. In February 2012, the SSO conducted an inspection for the period from February 2010 till August 2012. C-18 was received, and dues as determined - EC & LC were paid in the absence of a 45A Order.

As submitted by you herein above, it will mean that the employer accepts the liability, and therefore whether a speaking order is issued or not subsequently is of no importance.

Now, we have received another Notice dated 16th December 2013 from the Joint Director Vigilance under Section 45(4) of the ESI Amendment Act 2010.

Question on Re-Inspection

For the same period - February 2010 to March 2013, can an inspection be carried out again, even though we have paid the liability as mentioned above?

Dates of receipt of C-18 & 45A of the second inspection are as follows:

Second Inspection Notice received on 16.12.2013 as stated above

Date of C-18 issued: 18/07/2014 (Received by us on 23/07/2014)

Date of Order u/s 45A: 16/10/2014 (Received by us on 17/10/2014)

Period covered: 01/04/2009 to 30/03/2012 (For short payment - EC)

Period covered: 01/04/2009 to 30/03/2011 (LC for casual/contractor's employees - Labour Charges under ESI Sec 2(22))

Further, the 45A Order stipulates if not satisfied, to make an appeal under Sec 45AA within 60 days.

Seeking Assistance on ESI Amendment Act 2010

Need help on the captioned subject matter. As per the ESI Amendment Act 2010, which has been notified and has come into effect w.e.f. 01-06-2010.

Questions on ESI Authority Powers and Appeals

Under Amendment Section 45(4) of ESI, the Joint Director/Deputy Director Vigilance has the power of Test Inspection/Re-Inspection.

From which date is the amount of Interest and Damages derived/charged by the ESI Authority - from the date of receipt of C-18 Notice OR from the Order received under 45A?

However, as per the Amendment Act under Section 45AA of ESI, 60 days are given to make an appeal before the Appellate Authority - RO/SRO OR filing the case before EI Court.

From your viewpoint, which is the preferred option: to make an Appeal OR to file a case before the EI Court?

If we pay 25% OR 50% as the case may be as stipulated in the Act and the Appeal is admitted, during the pendency of the appeal for final hearing, can the ESI Authority insist on the interest and damages as well as the amount of liability determined during the inspection?

If we preferred Appeal before RO/SRO by paying 25% of the demand liability & the Final Order of Appeal is not in our favor, to which Forum does further appeal lie: EI Court OR High Court?

If before EI or High Court, we lose, from which date will the Authority charge the Interest/Damages Amount?

Please give your valuable inputs on the above submission seriatim.

Regards,
Azim

Dear Sir,

We received a C18 for interest and damages. After meeting with ESIC authority, they confirmed that we have to pay only interest. We need confirmation from ESIC that in the future, ESIC will not demand damages. Could you please provide guidance on how to write a letter to ESIC regarding damages and share a sample letter for reference?

Thank you.

Form C-18 and Its Relevance

Sir, the form C-18 is only a claim form for contribution and interest. It has no relevance to damages. For the claim of damages, the appropriate form named by ESIC is D-18.

Interest and Damages on Delayed Payment

I think once there is a delay in the payment of contribution, the amount of interest as well as damages is payable, and there is no escape from said claims. It is another aspect that the said department initiates such claims in the form of affording personal hearing to the employers. I hope you may assess the position with reference to the rates of interest as well as damages as mentioned in ESI (Central) Rules and in relevant Regulations.