In a dispute regarding if a supply contract is subject to the Building and Other Construction Workers Act, 1996 and Building and Other Construction Workers Welfare Cess Act, on the basis of objective and definitions in the following Acts, it was decided Supply contracts are excluded and only Building and construction services are included. This judgment was passed in the case of Uttar Pradesh Power Transmission Corporation Ltd. and Anr. vs. CG Power and Industrial Solutions Limited and Anr. [SLP (C) No. 8630/2020] by a Double Bench consisting of Hon’ble Justice Uday Umesh Lalit and Hon’ble Justice Indira Banerjee.

The Special Leave Petition (SLP) was filed by the petitioner (UPPTCL) under article 136 of the constitution against the final judgment of the High Court of Allahabad. The High court had allowed the writ petition filed by the respondent, directing them to remit the Labour cess amounting to Rs.2,60,68,814/- computed at 1% of the contract value under section 3(1) and 3(2) of the Building and Other Construction Workers Welfare Cess Act, 1996 (Cess Act) read with Rule 3 and Rule 4 of the Cess Rules, 1998 and Section 2(1)(d), (g) of BOCW Act. Respondent entered into a framework agreement with UPPTCL for the construction of a 765/400 KV substation at Unnao. The superintendent engineer sent a detailed order for the construction of the same to the respondent on a single source responsibility turn-key basis. The work was split between the parties and covered under 4 separate contracts. The first contract was for design, engineering, manufacture, testing, and supply of all materials required; the second covered erection, testing, commissioning, unloading, handling, etc.; the third covered all civil works and handing over of the substations, and the fourth covered operation and maintenance for three years.

With regards to the first contract, the respondent submitted two performance bank guarantees and duly performed the contract. During an Audit inspection, the accountant general found a lapse on the part of UPPTCL in not deducting labor cess from bills of contractor. On communication Respondent objected to such an imposition given the nature of the contract was not covered under the Act. The respondent requested UPPTCL for setting aide the demand for cess which was alleged to be outstanding based on the above-said reasons. However, UPPTCL did not release the performance bank guarantee to secure recovery towards cess. Respondent extends the bank guarantee till February 2019.

The High Court on a writ petition filed by Respondent held that UPPTCL cannot encash the guarantees. The High Court on a counter-petition filed by the UPPTCL held that in the absence of levy and assessment under the Cess Act, 1996 and rules thereunder the communications stand void. The High Court held that in the absence of any such order under the Cess Act, 1996 recovery cannot be made on the basis of an objection from CAG.

The Supreme court observed that neither the contract nor clause 8.1 as argued by the petitioner enable them to withhold any amount from bills raised by Respondent no. 1 on them. It also observed that it was nobody’s case that Respondent committed any breach as the same was performed to everybody’s satisfaction. Based on previous Supreme Court Judgments the court held, the scheme of the BOCW Act excludes a supply contract from its ambit. Respondent does not fall with the definition of contractor or employer of the BOCW Act under the 1^st, 2^nd, and 4^th contract. 
Even under the Cess Act, installation or erection of requisite materials which do not have any construction involved is not amenable to Cess.

The Supreme Court held that a contractor who enters into a pure supply contract is by law exempted from the levy of cess under the BOCW Act. The Supreme Court Concluded by holding, “It is well settled that when statute requires a thing to be done in a particular manner, it is to be done in that manner alone. UPPTCL could not have taken recourse to the methods adopted by it.”

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