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C.A.No.375/06 etc.    

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 375 OF 2006

A. Prabhakara Reddy & Co.        …..Appellant

Versus

State of Madhya Pradesh & Ors.        …..Respondents

W I T H

C.A.Nos. 376-379 of 2006

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. The questions of law in these appeals are same and arise out

of similar factual matrix. Hence, they have been heard together and

shall be governed by this common judgment.

2. The appellants are engaged in the business of construction of

buildings  etc.  In  the  present  matters  their  grievance  is  against

demand  of  cess  under  The  Building  and  Other  Construction

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Workers’ Welfare Cess Act, 1996 (Act 28/96) (hereinafter referred to

as ‘the Cess Act’) in the following factual premise. Their agreements

or contracts for construction of projects belonging to departments

and  instrumentalities  of  Government  of  Madhya  Pradesh  were

finalized  and  work  orders  were  issued  to  contractors  (the

appellants)  between  December  2002  to  March  2003.  Since  the

Madhya Pradesh Building and Other Construction Workers’ Welfare

Board (hereinafter referred to as ‘the Board’) came to be constituted

only  on  9.4.2003  followed  by  gazette  publication  on  10.4.2003,

there could be no provision in the contracts as to who shall bear

the burden of paying cess under the Cess Act. On that as well as

several  other  grounds  the  appellants,  being  aggrieved  with  the

demand  of  cess  made  upon  them,  challenged  such  demand  by

preferring  writ  petitions  which  have  been  dismissed  by  the

impugned  common  judgment  dated  21.6.2004  of  the  Division

Bench following an earlier judgment dated 17.3.2004 in LPA no.

169 of 2003.  

3. The impugned judgment exhibits  more than one ground to

assail the demand of cess but before us the appellants have given

up the  other  grounds and have  confined their  challenge  on the

ground that the Assistant Labour Commissioner (ALC) in his letter

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C.A.No.375/06 etc.    

to  the  Chief  Engineer  of  the  concerned project  at  Jabalpur  had

communicated that cess is to be recovered w.e.f. 1.4.2003. He also

reminded the Chief Engineer that it was expected of him that he

will  “definitely  stipulate  the condition of  payment  of  1% cess in

each tender with effect from above date.” On the basis of above, the

submission on behalf of appellants is that no cess could be levied

for the tenders,  contracts  and work orders for construction that

came  into  existence  before  the  Board  was  constituted  on

9/10.4.2003.  As  per  submissions  of  Mr.  Sunil  Gupta,  learned

Senior Advocate for the appellants, the cost of construction triggers

the charging of cess under Section 3 of the Cess Act.  Such cost

stands ascertained and determined when contract is executed and

work  order  issued.  This  cost  cannot  be  split  up  into  two

components,  one  for  the  pre-Board  and  the  other  for  the  later

period for levying cess on the cost incurred in the latter period only.

4. It is also the case of the appellants that if demand of cess is

made on construction works undertaken or even contemplated on

account of issue of work order before the constitution of the Board,

then such demand would amount to making the Cess Act operate

retrospectively and that would be unwarranted, illegal and unjust.  

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C.A.No.375/06 etc.    

5. In view of such limited issues, it is not necessary for us to

consider at length the factual details. Only some relevant dates and

facts have to be noted to support our reasons for not agreeing with

the aforesaid contentions advanced on behalf of the appellants.  

6. The  Union  of  India  was  evidently  concerned  with  the  sad

plight  of  construction  workers  belonging  to  unorganized  sector.

With a view to regulate employment and conditions of  service of

Building  and  other  construction  workers  and  to  reduce  their

exploitation  by  providing  for  welfare  measures  related  to  their

safety,  health  etc,  the  Central  Government  promulgated  The

Building  and  Other  Construction  Workers’  (Regulation  of

Employment  and  Conditions  of  Service)  Ordinance  1995  on

3.11.1995.  It  was  succeeded  by  other  Ordinances  bearing  nos.

3/96, 15/96 and 25/96. The last Ordinance dated 20.6.1996 was

followed  by  the  Building  and  Other  Construction  Workers’

(Regulation of  Employment and Conditions of  Service)  Act,  1996

(Act  27/96)  (hereinafter  referred  to  as  ‘the  BOCW  Act’).  It  was

published in the gazette on 19.8.1996 but as provided by Section

1(3), it was effective from 1.3.1996. For its effective working, a cess

or fee was necessary. For that the Parliament enacted the Cess Act

(Act 28/96).  

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C.A.No.375/06 etc.    

7. The  Cess  Act  was  published  in  the  gazette  on  19.8.1996.

Under Section 1(3) it  was enforced from still  an earlier date, i.e,

3.11.1995.  Under  this  Act,  the  Central  Government  framed The

Building  and  Other  Construction  Workers’  Welfare  Cess  Rules,

1998 (hereinafter referred to as ‘the Rules’) which came into force

on  publication  in  the  official  gazette  dated  26.3.1998.  As  noted

earlier  the  Madhya  Pradesh  Government  constituted  the  Board

after considerable delay by a notification dated 9.4.2003 published

in the official gazette dated 10.4.2003.

8. It is relevant to note that the constitutionality of the Cess Act

and Rules framed thereunder was challenged before the High Court

of Delhi which upheld it.  The matter came to this Court and by

judgment in the case of  Dewan Chand Builders and Contractors

vs. Union of India & Ors. reported in (2012) 1 SCC 101, this Court

also dismissed the challenge and held that the levy is in fact a “fee”

and not a “tax”.

9. The appellants have based their contention noted earlier on

the premise that the cess chargeable under the Cess Act is a fee

and therefore it cannot be levied from a retrospective date when

there was no Board to render any service. Mr. Sunil Gupta, learned

senior advocate for the appellants placed reliance upon judgments

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C.A.No.375/06 etc.    

of this Court in the case of  Khazan Chand & Ors. vs. State of

Jammu and Kashmir & Ors, (1984) 2 SCC 456, M/s Ujagar Prints

& Ors. (II) vs. Union of India & Ors., (1989) 3 SCC 488 and Union

of  India  &  Ors.  vs.  Bombay  Tyre  International  Ltd.  &  Ors.,

(1984) 1 SCC 467 to highlight that a statute for compulsory levy or

tax is required to have provisions for charging of the levy/tax, for

the machinery to make the assessment and lastly, provisions for

collection or recovery. He also relied upon judgment in the case of

Shyam Sunder & Ors. vs. Ram Kumar & Anr., (2001) 8 SCC 24 to

buttress the well established proposition of law that retrospective

operation  is  not  to  be  given  to  a  statute  when  the  effect  is  to

adversely affect existing right or obligation, (matters of procedure

being  an  exception)  unless  retrospective  operation  cannot  be

avoided on account of express language or necessary intendment

flowing from the enactment.

10. Counsel  for  the  State  of  Madhya  Pradesh  and  other

respondents pointed out that after the Union of India through a

notification bearing SO no. 2899 dated 26.9.1996 specified the rate

of  cess  as  1% of  cost  of  construction,  the  liability  of  concerned

employers under the Cess Act became fully ascertainable on the

basis of Section 3 of the Cess Act which provides as follows:

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C.A.No.375/06 etc.    

“3 . Levy and collection of cess.—(1) There shall be levied and collected a cess for the purposes of the Building  and  Other  Construction  Workers (Regulation  of  Employment  and  Conditions  of Service) Act, 1996, at such rate not exceeding two per cent,  but not less than one per cent,  of  the cost of construction incurred by an employer, as the  Central  Government  may,  by  notification  in the Official Gazette, from time to time specify.  

(2) The cess levied under sub-section (1) shall be collected from every employer in such manner and at  such  time,  including  deduction  at  source  in relation to a building or other construction work of a Government or of a public sector undertaking or advance collection through a local authority where an approval of such building or other construction work by such local authority is required, as may be prescribed.  

(3)  The  proceeds  of  the  cess  collected  under sub-section (2) shall be paid by the local authority or the State Government collecting the cess to the Board after deducting the cost of collection of such cess not  exceeding one per  cent,  of  the amount collected.  

(4)  Notwithstanding  anything  contained  in sub-section (1) or sub-section (2), the cess leviable under this Act including payment of such cess in advance  may,  subject  to  final  assessment  to  be made, be collected at a uniform rate or rates as may be prescribed on the basis of the quantum of the building or other construction work involved.”

11. He  highlighted  the  provisions  in  the  Cess  Act  and  Rules

framed thereunder such as Rules 3, 4, 5 & 7 providing for levy of

cess; time  and manner of collection; transfer of the proceeds of the

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C.A.No.375/06 etc.    

cess  to  the  Board;  and  assessment  of  the  cess,  to  support  his

contention that there is no basis under the law to support the plea

of the appellants that the contracts or work orders finalized before

constitution of  Board must be made immune from levy of cess on

the ground that cost of construction must always be treated as a

single  entity  and  therefore  incapable  of  two  divisions,  one

pertaining to pre-Board period and the other relating to after the

constitution of the Board. He supported the views of the High Court

that there can be no estoppel against statute and hence, even if a

contract or work order does not provide for payment of recovery of

cess by the contractor or the principal, the statute providing for

cess  cannot  become  ineffective.  It  is  also  the  stand  of  the

respondents that had the cess been a tax, the liability to pay the

same would be coterminous with the entire cost,  if  construction

was after coming into force of the Cess Act but since it has been

held  to  be  a  fee,  the  respondents  have  acted  reasonably  and

effected  its  levy  by  raising  demands  only  to  cover  such  cost  of

construction which coincides with and begins from the constitution

of the Board.

12. Although learned senior counsel for the appellants had taken

us through the entire scheme of the Main Act as well as the Cess

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Act and also the Rules framed thereunder, but nothing helps the

appellants’  case  and  in  view  of  limited  issues  arising  from

determination, we do not feel persuaded to go into details of the

Cess Act and the Rules unnecessarily.  We are of  the considered

view that after the Cess Act and the Rules came into effect and the

Board was constituted, with the notification specifying the rate of

cess  to  be levied upon the cost  of  construction incurred by the

employer  already in  place,  the  respondents  were  duty  bound to

collect the cess by raising the demands in respect of the on going

construction works if  the workers in such construction activities

were eligible for benefits under the BOCW Act. The fact that the

task of registering the workers and providing them the benefit may

take sometime, would not affect the liability to pay the levy as per

the Cess Act. Any other interpretation would defeat the rights of the

workers whose protection is the principal aim or primary concern

and objective of the BOCW Act as well as the Cess Act. The Cess is

a fee for service and hence, its calculation, as per settled law is not

to be strictly in accordance with  quid pro quo  rule and does not

require  any  mathematical  exactitude.  The  scheme of  the  BOCW

Act, the Cess Act and the Rules warrant that the lawfully imposable

cess should be imposed, collected and put in the statutory welfare

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fund without  delay  so that  the benefits  may flow to  the eligible

workers at the earliest. The scheme of the BOCW Act or the Cess

Act  does  not  warrant  that  unless  all  the  workers  are  already

registered  or  the  welfare  fund  is  duly  credited  or  the  welfare

measures are made available, no cess can be levied. In other words

the  service  to  the  workers  is  not  required  to  be  a  condition

precedent for the levy of the cess. The rendering of welfare services

can reasonably be undertaken only after the cess is levied, collected

and credited to the welfare fund.

13. We also find no merit in other submission advanced on behalf

of the appellants that there is legal impediment in charging levy on

the cost of construction incurred by the employer from a particular

period on account of constitution of Board from a particular date or

for any other reason. This argument is fallacious. Such beneficial

measures  for  the  welfare  of  workers  are  applicable  even  to  the

construction activity  which may have commenced before  coming

into  force  of  the  BOCW  Act  and  the  Cess  Act,  if  they  are

subsequently covered by the provisions of these Acts. There can be

no legal obstacle in ignoring the construction cost incurred before

the  cess  became  leviable  by  distinguishing  it  from  the  cost  of

construction  incurred  later,  from  a  date  when  the  Board  is

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C.A.No.375/06 etc.    

available to render service to the Building and other construction

workers. Levy of cess in these facts and circumstances cannot be

faulted for any reason. Demand of cess in the given facts cannot

amount  to  retrospective  application  of  the  Cess  Act.  Hence  the

appeals must fail.

14. Before parting with the judgment, it is made clear that the

appellants  did  not  press  their  contention  that  if  cess  is  found

leviable,  its  liability  should  be  borne  by  the  principal,  i.e,

Government of Madhya Pradesh. They have sought liberty that they

be permitted to raise such contention in an appropriate proceeding,

in accordance with law. This liberty is granted.  

15. The appeals are dismissed but without costs. If any dues of

cess payable by the appellants to the respondents has remained

unpaid on account of interim orders, all such lawful dues should

be paid by the appellants as per law at the earliest and in any case

within eight weeks.

     …………………………………….J.       [VIKRAMAJIT SEN]

      ……………………………………..J.                  [SHIVA KIRTI SINGH]

New Delhi. August 24, 2015

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