Authored By:
Srimayee Mohapatra – Proof Editor
Tanushree Suman Ray – Associate Editor
Date Of Judgement: May 12, 2021
Bench: Uday Umesh Lalit, Hon’ble Ms. Banerjee, K.M. Joseph
Court: Supreme Court of India
Citation: [SLP© No. 8630 of 2020]
1. Introduction:
The Supreme Court of India in ‘Uttar Pradesh Power Transmission Corporation Limited v. CG Power and Industrial Solutions Limited’[1] and has held that the existence of an arbitration clause under a contract does not debar the court from entertaining a writ petition in an appropriate case. Further, the judge ruled upon the applicability of cess (Labour cess) under the Building and other Construction Workers’ Welfare Cess Act, 1996 (the cess Act) and Building and Other Constructions Workers (Regulation of Employment and Condition of Service) Act, 1996(the BOCW Act) in relation to supply contracts. According to the statement of Objects and Reasons for the BOCW Act, it is estimated that around 8.5 million workers in the country are engaged in building and other construction works. Building and other construction workers are one of the greatest and helpless segments of the unorganized labor in India. The Building and other construction works are characterized by their inherent risk of the life and limb of the workers. This work is also characterized by the casual nature, the temporary relationship between employer and employee, undetermined working hours, lack of basic amenities, and inadequacy of welfare facilities.
The underlying Special Leave Petition under Article 136 of the Constitution of India was filed by Uttar Pradesh Power Transmission Corporation Limited (UPPTCL) against the final judgment and Order passed by the High court of Judicature at Allahabad (Lucknow Bench), which allowed the writ petition filed by CG Power and Industrial Solutions Limited.
2. The fact of the Case:
The Special Leave Petition, under Section 136 of Constitution of India, filed by the Petitioner, which referred to as the UPPTCL, against a final Judgement and order dated 24th February 2020, passed by the High Court of Judicature at Allahabad (Lucknow Bench), allows the writ petition filed by Respondent No.1 and set aside the letters dated on 2nd of September 2016 and 29th of December 2018 issued by Executive Engineer, Unnao UPPTCL directing the Respondent No.1 to remit Labour Cess amounting to Rs.2,60,68,814, computed at 1% of the contract value, under section 3 sub-section (1) and (2)[2] read with Rules 3 and Rule 4 (1) (2) (3) and (4) of the Building and other Construction Workers Welfare Cess Rules, 1998, referred as the “Cess Rules” and also section 2(1)(d), (g) and (i) of the building and other Construction workers (Regulation of Employment and condition of Service) Act, 1996, referred to as the BOCW Act. The BOCW Act has been enacted to regulate the employment and conditions of service of building and other construction workers and to provide for their safety, health, and welfare measures and for other matters connected with or incidental.
3. Key contentions/ Issues raised:
The following issues or contentions were raised by the parties involved:
1. Whether cess under Cess Act read with BOCW Act is leviable regarding a contract for supply and delivery of equipment and materials?
2. Whether the availability of an alternative remedy prevent the High Court from entertaining a writ petition?
4. Arguments given/ Stand:
The argument presented by the petitioner-
The petitioner to justify his submission relied upon Clause 8 of the special condition of the supply contract which states that prices of imported items shall be inclusive of all duties, taxes, fees, etc. as are legitimately pertinent might be paid by the contractor and no isolated claim shall be entertained by the purchaser.
The argument presented by Respondent -
Mr. Ramesh Singh, the learned counsel for the Respondent has appropriately pointed out that just for timely execution of performance all the four contracts are considered as a singular contract. For the other reason including levy of tax and expenses, the supply contract shall be treated as a divisible and separate contract that is well understood by both of the parties. UTTPL has very well understood that a supply contract would not come within the ambit of the Cess Act. Hence levy of labor cess amount is not applicable in the case of the supply contract.
The respondent also argued that according to the terms and conditions of the contract the first contract was Supply and Delivery of apparatus and Materials. The first contract is separable, divisible, and distinct from the civil contract. Hence levy of cess in respect of the first contract was illegal and unwarranted.
5. Judgement:
The Court was hearing a dispute between UPPTCL and CG power and Industrial Limited arising out of a framework agreement for the construction of a power substation. In this case, the action of UPPTCL in forcibly extracting building cess from Respondent No.1 in respect of the first contract, solely based on the CAG report, is over the power conferred on UPPTCL by law or in terms of the contract.
It was observed by the Court that entirely on the premise of the CAG report UPPTCL demanded and partly obtained cess. In the view of the Court with no arbitration, it is inappropriate to obtain cess completely based on the CAG report. The Court emphasized the Judgement made in the case of ‘Arjun Kumar Agrawal v. Union of India and Others[3], where the Court held that CAG’s report is typically subjected to parliamentary debates and it’s for the parliament to decide on whether to acknowledge or dismiss the CAG’S Report. Reference was also made to the judgment of the Court in the case of ‘Centre of Public Litigation v. Union of India’[4], where the court held that it might be improper to refer to the findings and conclusion contained within the CAG’S report.
As, noticeable by the court there is no conflict or contention between UPPTL and CG Power and Industrial Solution Ltd. And Others as to the true meaning, intent, construction of any of the clauses of the contract and to the execution of performance and also the way of payment for the same. UPPTCL changed its stand only after considering the CAG’s report. The Court also noticed that there is no special power or authority has been conferred upon UPPTL to withdraw the labor cess persuasively from Respondent no.1 under Cess Act in connection to the first contract. Aside from that, the Cess Act or the other statutory rules mentioned set down certain means and modes to recover unpaid cess under Cess Act and the cess could only be recovered in that manner endorsed by the law. UPPTCL has no authority to adopt any other means to recover cess coercively. The Court further clarified that having an arbitration clause in an agreement didn’t prevent the aggrieved party from pursuing its writ remedy under Article 226 of the Indian Constitution.
The Apex Court rejected the Special Leave Petition filed by the petitioner and held that judgment passed by the High Court doesn’t call for interpretation under Article 136 of the Indian Constitution.
6. Provisions and precedents mentioned:
1.Provisions mentioned:
Article 136 of the Constitution of India
Article 226 of the Constitution of India
Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996
Building and Other Construction Workers’ Welfare Cess Act, 1996
Section 192 of the Income Tax Act, 1961
2. Case laws mentioned as precedents:
Dewan Chand Builders and Contractors vs. Union of India (2012) 1 SCC 101
Pathan Mohammed Suleman Rehmatkhan v. State of Gujarat and Others (2014) 4 SCC 156
Arjun Kumar Agrawal v. Union of India and Others (2013) 7SCC 1
Centre of Public Litigation v. Union of India (2012) 3 SCC 1
Whirlpool Corporation V. Registrar of Trade Marks, Mumbai and Ors. AIR 1999 SC 22
Pimpri Chinchwad Municipal Corporation and Ors. V. Gayatri Construction Company and Ors (2008) 8 SCC 172)
7. Observation of the court:
The decision of the Apex Court in the case of UTTPL v. CG Power and Industrial Solutions Ltd. made the provision of the BOCW Act clearer. The Court after considering the judgment given in the case of ‘A. Dewan Chand Builder clarified that building cess was payable only in respect of construction work for ensuring sufficient funds for the welfare of building and other construction workers and mere supply or erection work that didn’t involve construction work was not within the scope of the BOCW act to levy cess.[5]
In this present case there were four different contracts of a single framework agreement, of which only the third contract specifically involves construction works, and as per the provisions of the BOCW Act cess is payable only in respect of the third contract which covers all civil works. Hence, UTTPL has no authority to forcibly extract cess from the respondent in research of supply contract which is not permissible by law.
The Court, in this case, observed that the petitioner has demanded and partially obtained cess solely based on the CAG report. In the considered view of the court in absence of any statutory adjudication process, it was not permissible for the petitioner to issue the impugned communication to deduct cess solely based on the report of the CAG.
As observed by the court even though the initial contract between the parties contained an arbitration clause, there is no mention of an arbitration agreement within the Counter Affidavit. UPPTCL didn’t address the maintainability of the writ petition on the ground of the presence of an arbitration clause. The Court was correct in its decision that the presence of alternative remedy doesn’t debar the High Court for entertaining writ petition and relief under Article 226 of the Constitution of India may be granted in a case arising out of contract.
The decision of the Apex Court Settled down the dispute between the two parties by ruling that the levy of cess under cess act read with BOCW Act excludes the contract of mere supply of equipment and materials within its scope.
8. Case Analysis:
The judgment of the Supreme Court in Uttar Pradesh Power Transmission Corporation Ltd. Vs. CG Power and Industrial Solution Limited of 2020 held that BOCW Cess was payable only on the contract, which covered this civil works. Other contracts did not contemplate any civil works or construction works and did not attract a levy of BOCW Cess. The BOCW Cess can only be imposed upon the construction, repair, demolition, or maintenance, or any other work of construction. Bare supply, installation, and erection activities that did not involve construction work were not amendable to BOCW Cess. There could be no realization of BOCW Cess prior to an assessment by the concerned authorities. In the absence of any adjudication by the concerned department and in the absence of contractual right, it was not permissible for the owner to debut the BOCW Cess from the contractor’s bills. In addition to the above, the SC also clarifies that having an arbitration clause in an agreement did not preclude a concerned party from pursuing its writ remedy under Article 226 of the constitution of India. From now, the decision in UPPTCL seems to have settled the debate by ruling that ‘cost of construction’ would exclude design engineering supply and maintenance et cetera scope of works.
However, it cannot be overlooked that in the present case, there were four different and distinct contracts for a single project with only one contract referring to construction work specifically.
9. Conclusion:
The Supreme Court’s decision clarifies an important aspect of the coverage of Labour Cess under the Cess Act and the BOCW Act. The decision clarifies that the labor Cess is payable only on agreements pertaining to building and construction work, and not with respect to supply agreements. While this view is a logical consequence of the judgment of the Supreme Court judgment in Lanco Anpara, the clarification provided by the Supreme Court to consider the ambivalence created by certain High Court decisions. Further, despite being reiterative, the Judgement’s discussion on the jurisprudence of the scope of the judicial review is instructive.
References/Bibliography:
Thacker, Naresh. BOCWW cess is payable only in respect of the cost of construction and not on supply or erection scope of work. 24 – May 2021. Available at:<https://www.constructionweekonline.in/people/17813-bocww-cess-is-payable-only-in-respect-of-cost-of-construction-and-not-on-supply-or-erection-scope-of-works> [Accessed 4 July 2021]
Bhardwaj, Prachi. Levy of building cess on a contract for supply and delivery of equipment and materials? Impermissible, hold Supreme Court.SCC Blog. [online] SSC Blog. Available from:< https://www.scconline.com/blog/post/2021/05/25/levy-of-building-cess-on-a-contract-for-supply-and-delivery-of-equipment-and-materials-impermissible-holds-supreme-court/ > [Accessed 5 July 2021]
Administrator, Consultease.2021. Supreme Court Order in the case of Uttar Pradesh Power Transmission Corporation Ltd. [online] CONSULTEASE.COM. Available at: <https://www.consultease.com/supreme-court/supreme-court-order-case-uttar-pradesh-power-transmission-corporation-ltd/#.YOLLQbfhUzY>[Accessed 5 July 2021]
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