Understanding Cess Liability: Do Vehicle Purchases for Highway Construction Attract Labour Cess?

Cess Liability on Highway Construction Expenses

My client has completed highway construction on a BOT basis. Now the cess needs to be remitted.

1. My client has spent a significant amount on the purchase of vehicles and their spares, taxes such as service tax, licenses and fees, value-added tax, royalty charges, legal consultancy charges, interest and finance charges, bank guarantees, and bank charges, as well as finance and processing charges. Please clarify whether we are liable to pay cess for the above items in the road construction.

2. If the answer is no, are there any court decisions to support it?

Dear Vincent, The BOCW Welfare Cess Act, 1996 does not define the term "cost of construction." However, its sec. 2(d) enables the meaning of terms not defined under the Act but defined under the BOCW Act, 1996. Sec. 2(1)(d) of the BOCW Act, 1996 defines the term "Building or other construction work." Again, the term "cost of construction" is not defined in the latter either. Logically, one must therefore take the general meaning of the term "cost of construction," which would typically include only the cost of materials exclusively used in the particular construction activity and the cost spent on labor thereof. Any vehicle or construction equipment cannot be termed as material exclusively used in the construction of any one project as it forms part of the movable assets of its owner and has a substantially longer functional duration. Therefore, its cost cannot be added to the construction cost of any particular project; but its rental value can be added.

Thank you.

Thank you for the prompt reply dated 29th January. Is there any court order to substantiate the comments? If so, please quote the Court Judgment.

VINCENT ALEX