Dear Shailesh Parikh / Anuradha / Sai Consultant / Kumar / PCA
Without prejudice, from my perspective, the Apex Court has unfortunately lost a golden opportunity to set right the confusion caused by various High Court judgments and orders of the provident fund commissioners by the Hon'ble Supreme Court. The Supreme Court did not decide any legal issue. The position of law remains as it was before the judgment. All that the learned judges have done is to reproduce the definition of "basic wages" and Section 6 of the EPF Act and some relevant paragraphs from three earlier judgments of the court.
The argument of the department, advanced through the Additional Solicitor General, was limited to the question of whether a special allowance falls within the definition of basic wage, though the appeals by the management were in respect of travel allowance, canteen allowance, management allowance, conveyance allowance, education allowance, food concession, medical allowance, night shift incentive, and city compensatory allowance being wrongly treated as 'basic wages' on which contribution was demanded and the demand being upheld by the high courts.
The submissions of the counsels who appeared for the management in connected petitions were that the basic wages defined under Section 2(b) contain exceptions and will not include what would ordinarily not be earned in accordance with the contract of terms of appointment. Even with regard to payments earned by the employees in terms of the contract, the basis of inclusion and exclusion is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution. But, whatever is not payable by all concerns or may not be earned by all employees of a concern is excluded for the purpose of contribution. The example of house rent allowance was taken to show that it is not paid in many concerns and sometimes in some concerns to some employees but not to others, and would therefore be excluded from basic wage; the same is the case with overtime allowance.
The learned judges referred extensively to paragraph Nos. 7 and 8 in the Bridge and Roof case and reproduced the entire paragraphs 7 and 8 of the said judgment. Thereafter, para-11 of the judgment in Muir Mills Company Limited, Kanpur Vs. Workmen AIR 1960 SC 985 has been reproduced. The judgment of the Hon'ble Supreme Court in Manipal Academy of Higher Education Vs. Provident Fund Commissioner (2008) 5 SCC 428 was referred to, and para-10 of the judgment is reproduced. At para-12 of the judgment, surprisingly, the judgment says that the term "basic wage" has not been defined under the Act. This is unfortunate because the definition of 'basic wage' under Section 2(b) has been extracted at para-8 of the judgment. Para-9 from the judgment of the Court in Kichha Sugar Company Limited Vs. Tarai Chini Mill Majdoor Union (2014) 4 SCC 37 has been reproduced. The court in the said case had gone into the dictionary meaning of 'basic wage'. In fact, all this was not necessary as basic wage is defined under the Act right from its inception.
The judgment refers to The Daily Partap case only to say that the Act is a piece of beneficial social welfare legislation. The Court in para-14, which is the only paragraph where the learned judges could be said to have analyzed the case, refers only to the fact that employer-petitioners before it were not able to show that the allowances paid were not paid across the board to all the employees in a particular category. According to the Court, in order to contend that the payment goes beyond the basic wages, it has to be shown that the workmen became eligible for extra amounts beyond normal work. No law has been laid down in the judgment. The learned judges only say that the facts have been examined by the appellate authority and a factual conclusion is arrived at. Beyond this, the judgment does not give any insight into the scope of the definition of 'basic wage'. This leaves us where we started, and that is, confusion still prevails.
In fact, the issue before the court was whether conveyance allowance, education allowance, food concession, medical allowance, special holidays, night shift incentive, and city compensatory allowance constitute part of basic wages. No discussions have taken place on these issues, and nothing has been said as to whether any of these components of wage should be treated as 'basic wage' or otherwise. Effectively, what the earlier judgments have said is that if a component of wage is paid to all the employees across the board, it would fall within the definition of basic wage, except those that are expressly excluded like, for example, house rent allowance. The Hon'ble Supreme Court in none of the earlier judgments nor in the present judgment considered the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii).
While the dearness allowance, which is excluded in Section 2(b)(ii), has been included in Section 6, similar inclusion is not found in respect of other allowances. This should be taken as having been done deliberately by the Parliament to see that other allowances such as conveyance allowance, uniform allowance, washing allowance, overtime allowance, bonus & commission do not fall within the definition of basic wages. The Hon'ble Supreme Court is neither prepared to say this nor consider arguments on these lines. Maybe, the matter will have to be taken again to the Hon'ble Apex Court for a clear verdict on the scope of the words "or any other similar allowance payable to the employee in respect of his employment or of work done in such employment" under Section 2(b)(ii) of the EPF Act, 1952.
Last but not least, the SC Judgment in Airfreight Ltd. vs State Of Karnataka & Ors., decided on 4 August 1999, has not been brought to the notice of the judges.
Regards,