There is one important point missing in the thread, and that is whether you actually belonged to the worker category. In many cases, what I have noticed is that the labor officer may get involved informally, but when it reaches the stage where you decide to file a complaint, the question arises whether the complainant is a workman under the ID Act or not. If you were having supervisory powers functionally, then the issue cannot be settled in a Labour Office. If that is the case with you, it is good if you collect the amount offered and leave.
Having worked for 4 years and six months, the applicability of the Payment of Gratuity Act should also be explored. Since the issue is in Tamil Nadu and we have a ruling by the Madras High Court in Mettur Bearsel's case that an employee who has worked for 240 days in the fifth year is entitled to get gratuity, the act of the employer asking you to go should be viewed as an attempt to avoid payment of gratuity. If you have decided to go, then you should ask them to compensate for the loss of gratuity also.