Southern Engineering Co. v. Regional Provident Fund Commissioner, Employees' Provident Fund Organisation

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **FRIDAY, THE 4[TH] DAY OF NOVEMBER 2022 / 13TH KARTHIKA, 1944** ## **WP(C) NO. 8156 OF 2022** ## **PETITIONER/S:** SOUTHERN ENGINEERING CO POST OFFICE BUILDING, PERAMBRA P O, THRISSUR DISTRICT, PIN-680689, REPRESENTED BY ITS MANAGING PARTNER MR.LOGU GEORGE. BY ADVS. SAJI VARGHESE T.G MARIAM MATHAI ## **RESPONDENT/S:** THE REGIONAL PROVIDENT FUND COMMISSIONER EMPLOYEES PROVIDENT FUND ORGANIZATION, 36/685 A, BHAVISHYA NIDHI BHAVAN, KALOOR, KOCHI-682017. BY ADV SRI.SAJEEV KUMAR K. GOPAL, SC, EPFO THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 04.11.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **WP(C) NO. 8156 OF 2022** **2** ## **JUDGMENT** Order dated 1.2.2016 of the Assessing Officer for the period from 6/2005 to 2/2009 and assessment of the dues on account of non contribution towards the EPF under the Employee's Provident Funds and Miscellaneous Provisions Act, 1952 Act and 31.8.2021 of the Industrial Tribunal are under challenge on behalf of the petitioner, Management. The petitioner is a partnership firm of 11 petty contractors engaged in the business of labour supply contract to M/s Apollo tyres, Perambra and had been allotted a code under the provisions of the aforementioned Act. The service condition of certain employees of the petitioner firm are not similar to the others as only few of the employees are entitled to special HRA, conveyance allowance, special conveyance allowance and Sunday wages. On the basis of the inspection done in the premises, petitioner received a notice of not having made the payment equal and at par with respect to other employees on the aforementioned account. It was duly replied that only few of the employees are doing the extra and skilled duty and therefore they were entitled, which resulted into the impugned order and **WP(C) NO. 8156 OF 2022** **3** appeal preferred thereto was also dismissed. 2. Learned counsel for the petitioner submitted that the order of the assessing authority merged in the order of the appellate authority whereby matter has been again remanded back to the assessing authority on the point that all the employees are liable to be paid equal allowances ie, special HRA, conveyance allowances, special conveyance allowances and Sunday allowances is wholly sustainable. The wage register placed on record along with the appeal has totally been misconstrued much less misinterpreted. From perusal of the aforementioned documents annexed with the writ petition as well as Ext.P1, out of the 334 employees only 98 employees are getting the special allowances referred to above. In support of the contentions relied upon the judgment of the Supreme Court in **Regional Provident Fund Commissioner(II) West Bengal vs. Vivekananda Vidyamandir (2020 (17) SCC 643)** wherein the findings rendered by the larger bench of the Supreme Court in **Bridge and Roof Co.(India) Ltd v. Union of India (1963 (3) SCR 978** ) has been relied upon and held that the aforementioned allowances would not fall within the definition of basic wages. Keeping in view the nature and duties of the employees though there **WP(C) NO. 8156 OF 2022** **4** was no material placed on behalf of the assessee in the cited judgment , the order of the assessing authority was upheld. 3. On the contrary, learned counsel appearing on behalf of the Regional Provident Fund Commissioner countered the argument of the learned counsel for the petitioner on the premise that the writ petition would not be maintainable against the order of the remand. All the pleas taken in this Court can be urged and raised before the Assessing authority as and when the matter is taken up after the demand. The findings of the appellate Tribunal with regard to the special allowances cannot be treated to be a mandate but would be obiter. Management failed to place on record the wage register before the assessing authority resulting into the assessment under 7A to the tune of Rs.16,42,814/-. 4. I have heard the learned counsel for the parties and appraised the paper book. It would be expedient to extract the definition of basic wages and contribution as defined under Section 2(b) and(c) of the EPF Act, 1952. b) “basic wages” means all emoluments which are earned by an employee while on duty or [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include—(i) the cash value of any food concession; **WP(C) NO. 8156 OF 2022** **5** (ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment; (iii) any presents made by the employer; (c) “contribution” means a contribution payable in respect of a member under a Scheme4 [or the contribution payable in respect of an employee to whom the Insurance Scheme applies]; 5. No doubt, the petitioner did not place on record wage register at the time when the notice and proceedings for assessment under Section 7A were pending. But that would not take away the right to urge and agitate when placed on record along with the appeal. It was obligatory on behalf of the Tribunal to refer and rely the same but the entire gamut of the order do not reveal any advertence and the reply filed by the Provident Fund Commissioner to the assertion in the ground of appeal was not disputed. In the absence of the same, the Tribunal had rendered the following findings: 'Though HRA is specifically excluded under the provisions of the Act, special HRA has got nothing to do with the HRA component of wages paid to the employees. It is also seen that special HRA being paid to its employees is higher than the HRA paid to the employees. Similarly it is seen that conveyance and special allowances are only a subterfuge to avoid payment of provident fund contribution. Similarly it is seen that Sunday wages are paid uniformly to all employees who worked on Sundays. It is further seen that skilled wages and night wages are being paid only to very few employees who were doing skilled work and who were working in the night. Hence the test of universality cannot be applied to skilled wages and night wages. To sum up, provident **WP(C) NO. 8156 OF 2022** **6** fund contribution is liable to be paid on basic wages, special HRA, conveyance allowance and special allowance. The provident fund contribution will not be attracted on HRA, skilled wages and night wages. In view of the above observations the impugned order is required to be modified. Hence the matter is remitted back to the respondent authority to reassess the dues on the basis of the above observation within a period of 6 months after issuing notice to the appellant. If the appellant fails to appear or fails to produce the record called for the respondent is at liberty to assess the dues in accordance with law. The pre-deposit made by the appellant as per the directions of this Tribunal U/s 7(O) of the Act shall be adjusted or refunded after completing the proceedings.” 6. The aforementioned findings in my view cannot be considered to be a subterfuge as held by the Tribunal for the reason that only a handful of the employees who could discharge the special duties were given the benefit of special allowances, special HRA and special conveyance allowances. The remand order of Tribunal directing the assessing authority to recover qua all employees is not sustainable in view of the ratio culled out in the judgment of the Supreme Court in ## **Regional Provident Fund Commissioner(II) West Bengal** ## (supra). **9.** Basic wage, under the Act, has been defined as all emoluments paid in cash to an employee in accordance with the terms of his contract of employment. But it carves out certain exceptions which would not fall within the definition of basic wage and which includes dearness allowance apart from other allowances mentioned therein. But this exclusion of dearness allowance finds inclusion in Section 6. The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the **WP(C) NO. 8156 OF 2022** **7** payment of such special allowance as not being common to all. The crucial test is one of universality. The employer, under the Act, has a statutory obligation to deduct the specified percentage of the contribution from the employee’s salary and make matching contribution. The entire amount is then required to be deposited in the fund within 15 days from the date of such collection. The aforesaid provisions fell for detailed consideration by this Court in Bridge & Roof (supra) when it was observed as follows: “7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition. 8. Then we come to clause (ii). It excludes dearness allowance, houserent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment. This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the exceptions contained in clause (ii) refer to payments which are earned by an employee in accordance with **WP(C) NO. 8156 OF 2022** **8** the terms of his contract of employment. It was admitted by counsel on both sides before us that it was difficult to find any one basis for the exceptions contained in the three clauses. It is clear however from clause (ii) that from the definition of the word "basic wages" certain earnings were excluded, though they must be earned by employees in accordance with the terms of the contract of employment. Having excluded "dearness allowance" from the definition of "basic wages", s. 6 then provides for inclusion of dearness allowance for purposes of contribution. But that is clearly the result of the specific provision in s. 6 which lays down that contribution shall be 61/4 per centum of the basic wages, dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (for any) in s. 6. It seems that the basis of inclusion in s. 6 and exclusion in clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose, of contribution under s. 6, 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. Dearness allowance (for examples is payable in all concerns either as an addition to basic wages or as a part of consolidated wages where a concern does not have separate dearness allowance and basic wages. Similarly, retaining allowance is payable to all permanent employees in all seasonal factories like sugar factories and is therefore included in s. 6; but houserent allowance is not paid in many concerns and sometimes in the same concern it is paid to some employees but not to others, for the theory is that houserent is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, houserent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concern is taken out of the definition of "basic wages", even though the basis of payment of houserent allowance where it is paid is the contract of employment. Similarly, overtime allowance though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment; but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances are not necessarily to be found in all concerns; nor are they necessarily earned by all employees of the same concern, though where they exist they are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions in s. 2(b) is that all that is not earned in all concerns or by all employees of concern is excluded from basic wages. To this the **WP(C) NO. 8156 OF 2022** **9** exclusion of dearness allowance in clause (ii) is an exception. But that exception has been corrected by including dearness allowance in s. 6 for the purpose of contribution. Dearness allowance which is an exception in the definition of "basic wages", is included for the propose of contribution by s. 6 and the real exceptions therefore in clause (ii) are the other exceptions beside dearness allowance, which has been included through S. 6.” **10** . Any variable earning which may vary from individual to individual according to their efficiency and diligence will stand excluded from the term “basic wages” was considered in Muir Mills Co. Ltd., Kanpur Vs. Its Workmen, AIR 1960 SC 985 observing: “11. Thus understood "basic wage" never includes the additional emoluments which some workmen may earn, on the basis of a system of bonuses related to the production. The quantum of earning in such bonuses varies from individual to individual according to their efficiency and diligence; it will vary sometimes from season to season with the variations of working conditions in the factory or other place where the work is done; it will vary also with variations in the rate of supplies of raw material or in the assistance obtainable from machinery. This very element of variation, excludes this part of workmen's emoluments from the connotation of "basic wages"…” **11** . In Manipal Academy of Higher Education vs. Provident Fund Commissioner, (2008) 5 SCC 428, relying upon Bridge Roof’s case it was observed: “10. The basic principles as laid down in Bridge Roof's case (supra) on a combined reading of Sections 2(b) and 6 are as follows: (a) Where the wage is universally, necessarily and ordinarily paid to all across the board such emoluments are basic wages. (b) Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages. By way of example it was held that overtime allowance, though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment but because it may not be earned by all employees of a concern, it is excluded from basic wages. (c) Conversely, any payment by way of a special incentive or work is not basic wages.” 12. The term basic wage has not been defined under the Act. Adverting to the dictionary meaning of the same in Kichha Sugar Company Limited through General **WP(C) NO. 8156 OF 2022** **10** Manager vs. Tarai Chini Mill Majdoor Union, Uttarakhand, (2014) 4 SCC 37, it was observed as follows: “9. According to http://www.merriam webster.com (Merriam Webster Dictionary) the word 'basic wage' means as follows: 1. A wage or salary based on the cost of living and used as a standard for calculating rates of pay 2. A rate of pay for a standard work period exclusive of such additional payments as bonuses and overtime. 10. When an expression is not defined, one can take into account the definition given to such expression in a statute as also the dictionary meaning. In our opinion, those wages which are universally, necessarily and ordinarily paid to all the employees across the board are basic wage. Where the payment is available to those who avail the opportunity more than others, the amount paid for that cannot be included in the basic wage. As for example, the overtime allowance, though it is generally enforced across the board but not earned by all employees equally. Overtime wages or for that matter, leave encashment may be available to each workman but it may vary from one workman to other. The extra bonus depends upon the extra hour of work done by the workman whereas leave encashment shall depend upon the number of days of leave available to workman. Both are variable. In view of what we have observed above, we are of the opinion that the amount received as leave encashment and overtime wages is not fit to be included for calculating 15% of the Hill Development Allowance.” **13** . That the Act was a piece of beneficial social welfare legislation and must be interpreted as such was considered in The Daily Partap vs. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh, (1998) 8 SCC 90. 14. Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant **WP(C) NO. 8156 OF 2022** **11** period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed. 7. In paragraph 14 of the judgment extracted above, the plea of the establishment was not accepted for want of material but as compared to the facts enumerated above, the material aforementioned ex facie leaves no manner of doubt that only handful people were getting the special wages. For the reason aforementioned, the observation of the Appellate Tribunal with regard to the findings rendered in the impugned order are not sustainable, repugnant and against the definition of basic wages and judgment cited (supra). Accordingly Ext.P3 is quashed. Writ petition stands allowed. ## **Sd/-** sab **AMIT RAWAL** ## **JUDGE** **WP(C) NO. 8156 OF 2022** **12** ## **APPENDIX OF WP(C) 8156/2022** PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE APPEAL NO.487 OF 2019 BEFORE THE CGIT ERNAKULAM (OLD APPEAL NO.256 (7) OF 2016 BEFORE THE EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL NEW DELHI). Exhibit P2 TRUE COPY OF THE REPLY TO THE APPEAL FILED BY THE RESPONDENT IN APPEAL NO.487/2019 BEFORE THE CGIT ERNAKULAM. Exhibit P3 TRUE COPY OF THE ORDER DATED 31.08.2021 OF THE CGIT IN APPEAL NO.487 OF 2019, WHICH WAS RECEIVED BY THE PETITIONER ON 23.12.2021.