M/S Dewan Chand
Builders & Contractors Vs. Union of India & Ors.
J U D G M E N T
D.K. JAIN, J.:
appeals, by special leave, arise out of judgment and final order dated 28th
February, 2007 in W.P.(C) No.3620/2003 [connected with W.P.(C) Nos.216-17 of 2006];
W.P.(C) Nos.7480-81/2006 & CM No. 5879/2006, and W.P.(C) Nos.7485-87/2006 &
CM No.5886/2006] rendered by the High Court of Delhi, whereby, the said
petitions were dismissed with costs of `25000/-.
The High Court has held
that The Building and Other Construction Workers (Regulation of Employment and Conditions
of Service) Act, 1996 (for short "the BOCW Act"); The Building and Other
Construction Workers (Regulation of Employment and Conditions of Service) Central
Rules, 1998, (for short the "1998 Central Rules");
The Building and
Other Construction Workers Welfare Cess Act, 1996 (for short "the Cess
Act") and The Building and Other Construction Workers Welfare Cess Rules, 1998
( for short "the Cess Rules") are constitutionally valid and within
the competence of the Parliament as the levy under the impugned enactments is a
"fee", referable to Entry 97 of List-I of the Seventh Schedule of the
Constitution of India.
all the appeals involve a common pure question of law, these are being disposed
of by this common judgment. For deciding the subject issue before us viz. constitutional
validity of the Cess Act, even a reference to the factual aspects is unnecessary,
except to note that the appellant in these appeals is a contractor, engaged in building
and other construction works in the National Capital Territory of Delhi.
before addressing the contentions advanced on behalf of the parties, it will be
useful to survey the relevant provisions of both the Acts and the Rules.
background in which the BOCW Act was enacted, is set out in the Statement of Objects
and Reasons, appended to the Bill preceding its enactment. To better appreciate
the legislative intent, it would be instructive to refer to the following
extract from the Statement of Objects and Reasons :
"It is estimated
that about 8.5. Million workers in the country are engaged in building and other
construction works. Building and other construction workers are one of the most
numerous and vulnerable segments of the unorganized labour in India. The
building and other construction works are characterized by their inherent risk to
the life and limb of the workers.
The work is also
characterized by its casual nature, temporary relationship between employer and
employee, uncertain working hours, lack of basic amenities and inadequacy of welfare
facilities. In the absence of adequate statutory provisions, the requisite information
regarding the number and nature of accidents is also not forthcoming. In the absence
of such information, it is difficult to fix responsibility or to take any corrective
Although the provisions
of certain Central Acts are applicable to the building and other construction workers
yet a need has been felt for a comprehensive Central Legislation for regulating
their safety, health, welfare and other conditions of service."
fairly long preamble to the BOCW Act is again indicative of its purpose. It
reads thus: "An Act 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 therewith or incidental thereto."
Further, Section 1(4)
of the BOCW Act makes it clear that it: "......applies to every establishment
which employs, or had employed on any day of the preceding twelve months, ten or
more building workers in any building or other construction work." Some of
the definitions under Section 2 of the BOCW Act, relevant for these appeals
are: (b) "beneficiary" means a building worker registered under
Section 12;(c) "Board" means a Building and Other Construction Workers'
Welfare Board constituted
under sub- section (1) of Section 18;(d) ... ... ...(e) "building worker"
means a person who is employed to do any skilled, semi-skilled or unskilled, manual,
supervisory, technical or clerical work for hire or reward, whether the terms of
employment be expressed or implied, in connection with any building or other construction
work but does not include any such person-
(i) who is employed
mainly in a managerial or administrative capacity; or (ii) who, being employed in
a supervisory capacity, draws wages exceeding one thousand six hundred rupees
per mensem or exercises, either by the nature of the duties attached to the office
or by reason of the powers vested in him, functions mainly of a managerial
nature;(f) ... ... ...
means a person who undertakes to produce a given result for any establishment, other
than a mere supply of goods or articles of manufacture, by the employment of
building workers or who supplies building workers for any work of the
establishment; and includes a sub-contractor;(h) ... ... ...(i) "employer",
in relation to an establishment, means the owner thereof, and includes,-
(i) in relation to a building
or other construction work carried on by or under the authority of any department
of the Government, directly without any contractor, the authority specified in this
behalf, or where no authority is specified, the head of the department;
(ii) in relation to a
building or other construction work carried on by or on behalf of a local
authority or other establishment, directly without any contractor, the chief executive
officer of that authority or establishment; (iii) in relation to a building or other
construction work carried on by or through a contractor, or by the employment
of building workers supplied by a contractor, the contractor; (j) ... ... ... (k)
"Fund" means the Building and Other Construction Workers' Welfare
fund of a Board constituted under sub-section (1) of Section 24."
The scheme of the BOCW
Act is that it empowers the Central Government and the State Governments to
constitute Welfare Boards to provide and monitor social security schemes and
welfare measures for the benefit of the building and other construction
workers. Section 7 requires every employer in relation to an establishment to which
the BOCW Act applies to get such establishment registered. Section 10 makes this
requirement mandatory and therefore, without such registration, the employer of
an establishment, to which the BOCW Act applies, cannot employ building
Chapter IV of the
BOCW Act contains provisions stipulating the registration of building workers as
beneficiaries and requires certain contributions to be made by such beneficiary
at such rate per month as may be specified by the State Government. Where the
worker is unable to pay his contribution due to any financial hardship, the
Board can waive the payment of such contribution for a period not exceeding
three months at a time. Chapter V of the BOCW Act sets out the constitution and
functions of the Building and Other Construction Workers' Welfare Boards.
Section 24 sets out
the provision for the constitution of the Welfare Fund and its application. Part
III of Chapter VI of the BOCW Act contains provisions concerning the safety, health
and welfare of the construction workers generally and with reference to specific
kinds of activities.
It is thus, clear
from the scheme of the BOCW Act that its sole aim is the welfare of building and
construction workers, directly relatable to their constitutionally recognised right
to live with basic human dignity, enshrined in Article 21 of the Constitution
of India. It envisages a network of authorities at the Central and State levels
to ensure that the benefit of the legislation is made available to every
building and construction worker, by constituting Welfare Boards and clothing them
with sufficient powers to ensure enforcement of the primary purpose of the BOCW
means of generating revenues for making effective the welfare provisions of the
BOCW Act is through the Cess Act, which is questioned in these appeals as
Statement of Objects and Reasons to the BOCW Act explained that it had been considered
"necessary to levy a Cess on the cost of construction incurred by the
employers on the building and other construction works for ensuring sufficient
funds for the Welfare Boards to undertake the social security Schemes and welfare
measures." Simultaneously with the enactment of the BOCW Act, the Parliament
enacted the Cess Act.
The Statement of
Objects and Reasons to the Cess Act noted that the intention was to "provide
for the levy and collection of a Cess on the cost of construction incurred by the
employers for augmenting the resources of the Building and Other Construction Workers'
Welfare Boards constituted by the State Governments under the Building and Other
Construction Workers (Regulation of Employment and Conditions of Service)
Ordinance, 1995." Section 2(a) of the Cess Act defines the term
"Board" to mean the Board constituted by the State Government under
sub-section (1) of Section 18 of the BOCW Act. Section 2(d) of the Cess Act
adopts all of the definitions contained in the BOCW Act and reads as under:
"2(d) words and
expressions used herein but not defined and defined in the Building and Other Construction
Workers (Regulation of Employment and Conditions of Service) Act, 1996 shall have
the meanings respectively assigned to them in that Act." Section 3 of the Cess
Act, the charging Section, reads as under: "3. Levy and collection of Cess:
(1) There shall be levied and collected a Cess for the purpose 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."
Section 4 of the Cess
Act requires "every employer" to file a return in the manner
prescribed. Section 5 spells out the process for the assessment of the Cess payable,
while, Section 8 provides for interest payable in the event of a delayed payment
of Cess. Section 9 stipulates penalty for non-payment of the Cess within the
specified time. There is an internal mechanism of appeal under Section 11 for
an employer who is aggrieved by the assessment order made under Section 5.
In exercise of the
power conferred under Section 14 of the Cess Act, the Central Government framed
the Cess Rules. Rule 3 thereof defines the cost of construction for the purpose
of levy of Cess as under: "3. Levy of Cess- For the purpose of levy of
Cess under Sub- section (1) of Section 3 of the Act, cost of construction shall
include all expenditure incurred by an employer in connection with the building
or other construction work but shall not include-cost of land; -
any compensation paid
or payable to a worker or his kin under the Workmen's Compensation Act,
1923." Rule 4 of the Cess Rules makes it mandatory for deduction of Cess payable
at the notified rates from the bills paid for the building and other construction
work of a Government or a Public Sector Undertaking. Rule 5 prescribes the manner
in which the proceeds of Cess collected under Rule 4 shall be transferred by
such Government office, Public Sector Undertakings, local authority, or Cess
collector, to the Board. The powers of the Assessing Officer and the Board of
Assessment are enumerated in Rules 7 to 14 of the Cess Rules.
is manifest from the overarching schemes of the BOCW Act, the Cess Act and the Rules
made thereunder that their sole object is to regulate the employment and
conditions of service of building and other construction workers, traditionally
exploited sections in the society and to provide for their safety, health and other
The BOCW Act and the Cess
Act break new ground in that, the liability to pay Cess falls not only on the owner
of a building or establishment, but under Section 2(i)(iii) of the BOCW Act
"in relation to a building or other construction work carried on by or through
a contractor, or by the employment of building workers supplied by a contractor,
The extension of the
liability on to the contractor is with a view to ensure that, if for any reason
it is not possible to collect Cess from the owner of the building at a stage subsequent
to the completion of the construction, it can be recovered from the contractor.
The Cess Act and the Cess Rules ensure that the Cess is collected at source from
the bills of the contractors to whom payments are made by the owner. In short, the
burden of Cess is passed on from the owner to the contractor.
both the statutes were enacted in 1996, the Central Government in exercise of its
powers under Section 62 of the BOCW Act notified the Delhi Building and Other Construction
Workers (RE&CS), Rules, 2002 (for short "the Delhi Rules") vide Notification
No. DLC/CLA/BCW/01/19 dated 10th January, 2002. Accordingly, Government of NCT of
Delhi constituted the Delhi Building and Other Construction Workers Welfare Board
vide Notification No. DLC/CLA/BCW/02/596 dated 2nd September, 2002. Thus, the Cess
Act and the Cess Rules are operative in the whole of NCT of Delhi w.e.f.
noted above, the principal ground for challenge to the validity of the Cess Act
is the lack of legislative competence of the Parliament. Mr. Uday Joshi,
learned counsel appearing on behalf of the appellant, strenuously urged that the
impost levied by the Cess Act is a compulsory and involuntary exaction, made for
a public purpose without reference to any special benefit for the payer of the
It was argued that there
exists no co-relationship between the payee of the Cess and the services
rendered and therefore, the levy is in effect a tax. It was submitted that the maintenance
of a separate corpus, i.e., Building and Other Construction Workers Welfare Fund,
which also vests in the State, is a cloak to cover the true character of the levy,
which is to be utilized for the benefit of the building worker, is in fact a
that the Cess Act in fact provides for the levy of tax although it is termed as
Cess, it was contended that no tax can be levied or collected in terms of Article
265 of the Constitution of India, except by authority of law. In other words,
the power to make a legislation imposing a tax has to be traced with reference
to a specific Entry in the Lists in the Seventh Schedule to the Constitution.
According to the
learned counsel, the subject matter of the present statute i.e. the Cess Act being
fully covered by Entry 49 in List II (State List) pertaining to taxes on "lands
and buildings", the power to levy Cess would not be available to the
Parliament, based on the assumption of residuary power.
contra, Mr. R.P. Bhatt, learned senior counsel appearing on behalf of the respondents,
defending the constitutional validity of the subject legislation, stressed that
the Cess Act is within the legislative competence of Parliament with reference to
Entry 97 of List I in the Seventh Schedule. In the written submissions filed on
behalf of the respondents, it is pleaded that the charging Section in the Cess
Act makes it clear that the levy is attracted when there is an activity of building
The collection of cess
on the cost of construction is for enhancing the resources of the Building &
other Construction Workers' Welfare Boards constituted under the BOCW Act. The
Cess so collected is directed to a specific end spelt out in the BOCW Act
itself; it is set apart for the benefit of the building and construction
workers; appropriated specifically for the performance of such welfare work and
is not merged in the public revenues for the benefit of the general public.
is evident from the contentions raised on behalf of the appellant that there is
a two pronged attack on the legislative competence of the Parliament to enact
the Cess Act: (i) it is a `tax' and not a `cess' because no element of quid pro
quo exists between the payer of the cess and the beneficiary and (ii) if it is
a `tax' then it is a tax on "lands and buildings" falling within the
ambit of Entry 49 List II (the State List) of the Seventh Schedule, ousting the
legislative competence of the Parliament.
the core issue arising for consideration is whether the cess levied under the scheme
of the impugned Cess Act is a `fee' or a `tax'. Before embarking on an evaluation
based on the said submissions, it would be apposite to briefly examine the
concept of `tax' and `fee'.
question whether a particular statutory impost is a `tax' or `fee' has arisen
as a challenge in several cases before this Court, which in turn necessitated the
demarcation between the concepts of `Cess', `tax' and `fee'. The characteristics
of a fee, as distinct from tax, were explained as early as in The Commissioner,
Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt1 (generally referred to as the `Shirur Mutt's Case'). The ratio of this decision
has been consistently followed as a locus classicus in subsequent decisions dealing
with the concept of `fee' and `tax'.
The Constitution Bench
of this Court in Hingir Rampur Coal Co. Ltd. Vs. State of Orissa2 was faced with
the challenge to the constitutional validity of the Orissa Mining Areas Development
Fund Act, 1952, levying Cess on the petitioner's colliery. The Bench explained
different features of a `tax', a `fee' and `cess' in the following passage:
"The neat and terse
definition of Tax which has been given by Latham, C.J., in Matthews v. Chicory Marketing
Board (1938) 60 C.L.R. 263 is often cited as a classic on this subject. "A
Tax", said Latham, C.J., "is a compulsory exaction of money by public
authority for public purposes enforceable by law, and is not payment for services
In bringing out the essential
features of a tax this definition also assists in distinguishing a tax from a
Fee. It is true that between a tax and a fee there is no generic difference.
Both are compulsory exactions of money by public authorities; but whereas a tax
is imposed for public purposes and is not, and need not, be supported by any consideration
of service rendered in return, a fee 1 AIR 1954 SC 2822 1961 (2) SCR 537 is levied
essentially for services rendered and as such there is an element of quid pro quo
between the person who pays the fee and the public authority which imposes it.
If specific services are
rendered to a specific area or to a specific class of persons or trade or
business in any local area, and as a condition precedent for the said services or
in return for them cess is levied against the said area or the said class of
persons or trade or business the cess is distinguishable from a tax and is
described as a fee. Tax recovered by public authority invariably goes into the consolidated
fund which ultimately is utilised for all public purposes, whereas a cess levied
by way of Fee is not intended to be, and does not become, a part of the consolidated
It is earmarked and
set apart for the purpose of services for which it is levied." (Emphasis supplied
by us)It was further held that, "It is true that when the Legislature
levies a fee for rendering specific services to a specified area or to a specified
class of persons or trade or business, in the last analysis such services may indirectly
form part of services to the public in general.
If the special service
rendered is distinctly and primarily meant for the benefit of a specified class
or area the fact that in benefiting the specified class or area the State as a whole
may ultimately and indirectly be benefited would not detract from the character
of the levy as a fee.
Where, however, the specific
service is indistinguishable from public service, and in essence is directly a part
of it, different considerations may arise. In such a case it is necessary to enquire,
what, is the primary object of the levy and the essential purpose which it is intended
to achieve. Its primary object and the essential purpose must be distinguished from
its ultimate or incidental results or consequences. That is the true test in
determining the character of the levy." (Emphasis supplied by us)
the basis of the above considerations, this Court in the aforementioned case,
examined the scheme of the Act impugned in that case in depth and opined that the
primary and the principal object of the Act was to develop the mineral areas in
the State and to assist in providing more efficient and extended exploitation of
its mineral wealth.
The Cess levied did not
become a part of the consolidated fund and was not subject to an appropriation in
that behalf. It went into a special fund earmarked for carrying out the purpose
of the Act and thus, its existence established a correlation between the Cess and
the purpose for which it was levied, satisfying the element of quid pro quo in the
scheme. These features of the Act impressed upon the levy the character of a `fee'
as distinct from a `tax'.
in State of W.B. Vs. Kesoram Industries Ltd. & Ors.3, the Constitution Bench
of this Court, was faced with a challenge to the Constitutional validity of the
levy of Cesses on coal-bearing lands; tea plantation lands and on removal of bricks
earth. Relying on the decision in Hingir Rampur Coal Co. Ltd (supra), speaking
for the majority, R.C. Lahoti, J. (as His Lordship then was), explained the distinction
between the terms `tax' and `fee' in the following words: (SCC HN) "The
term cess is commonly employed to connote a Tax with a purpose or a tax allocated
to a particular thing.
However, it also
means an assessment or levy. 3 (2004) 10 SCC 201 Depending on the context and purpose
of levy, cess may not be a tax; it may be a fee or fee as well. It is not
necessary that the services rendered from out of the Fee collected should be directly
in proportion with the amount of Fee collected. It is equally not necessary that
the services rendered by the Fee collected should remain confined to the person
from whom the fee has been collected. Availability of indirect benefit and a
general nexus between the persons bearing the burden of levy of fee and the services
rendered out of the fee collected is enough to uphold the validity of the fee
the light of the tests laid down in Hingir Rampur (supra) and followed in
Kesoram Industries (supra), it is manifest that the true test to determine the
character of a levy, delineating `tax' from `fee' is the primary object of the levy
and the essential purpose intended to be achieved.
is no doubt in our mind that the Statement of Objects and Reasons of the Cess
Act, clearly spells out the essential purpose, the enactment seeks to achieve i.e.
to augment the Welfare Fund under the BOCW Act. The levy of Cess on the cost of
construction incurred by the employers on the building and other construction works
is for ensuring sufficient funds for the Welfare Boards to undertake social security
schemes and welfare measures for building and other construction workers.
The fund, so collected,
is directed to specific ends spelt out in the BOCW Act. Therefore, applying the
principle laid down in the aforesaid decisions of this Court, it is clear that the
said levy is a `fee' and not `tax'. The said fund is set apart and appropriated
specifically for the performance of specified purpose; it is not merged in the public
revenues for the benefit of the general public and as such the nexus between
the Cess and the purpose for which it is levied gets established, satisfying the
element of quid pro quo in the scheme. With these features of the Cess Act in
view, the subject levy has to be construed as `fee' and not a `tax'. Thus, we
uphold and affirm the finding of the High Court on the issue.
this juncture, we may also deal with the argument of learned counsel appearing for
the appellant that, since there exists no `quid pro quo' between the payer
(contractors) of the fee and the ultimate beneficiary (workers) of the services
rendered, the said levy is in fact a tax. While it is true that `quid pro quo'
is one of the determining factors that sets apart a `tax' from a `fee' but the
concept of quid pro quo requires to be understood in its proper perspective.
Constitution bench of this Court in Kewal Krishan Puri and Anr. Vs. State of Punjab
and Anr. , while dealing with provisions of the Punjab Agricultural Produce Markets
Act, 1961, held that the element of quid pro quo must exist between the payer
of the Fee and the special services rendered. Taking note of the well
recognized distinct connotations between `tax' and `fee', the Bench observed that
a `fee' is a charge for special service rendered to individuals by the Governmental
agency and therefore, for levy of fee an element of quid pro 4 1980 (1) SCC 416
quo for the services rendered was necessary; service rendered does not mean any
personal or domestic service and it meant service in relation to the transaction,
property or the institution in respect of which the fee is paid.
A significant principle
deduced in the said judgment was that the element of quid pro quo may not be possible,
or even necessary, to be established with arithmetical exactitude but even broadly
and reasonably it must be established, with some amount of certainty, reasonableness
or preponderance of probability that quite a substantial portion of the amount of
fee realized is spent for the special benefit of its payers. Each case has to be
judged from a reasonable and practical point of view for finding an element of
quid pro quo.
Sreenivasa General Traders and Ors. Vs. State of Andhra Pradesh and Ors.5, a
Bench of three learned Judges, analysed, in great detail, the principles culled
out in Kewal Krishan Puri (supra). Opining that the observation made in the said
decision, seeking to quantify the extent of correlation between the amount of fee
collected and the cost of rendition of service, namely:
"At least a good
and substantial portion of the amount collected on account of fees, may be in neighbourhood
of two-thirds or three-fourths, must be shown with reasonable certainty as
being spent for rendering services in the market to the payer of fee" appeared
to be an obiter, the Court echoed the following views insofar as the actual
quid 5 (1983) 4 SCC 353 pro quo between the services rendered and payer of the
fee was concerned:
view that there must be actual quid pro quo for a fee has undergone a sea change
in the subsequent decisions. The distinction between a tax and a fee lies primarily
in the fact that a tax is levied as part of a common burden, while a fee is for
payment of a specific benefit or privilege although the special advantage is secondary
to the primary motive of regulation in public interest. If the element of revenue
for general purpose of the State predominates, the levy becomes a tax.
In regard to fees there
is, and must always be, correlation between the fee collected and the service intended
to be rendered. In determining whether a levy is a fee, the true test must be whether
its primary and essential purpose is to render specific services to a specified
area of class; it may be of no consequence that the State may ultimately and
indirectly be benefited by it.
The power of any legislature
to levy a fee is conditioned by the fact that it must be "by and large"
a quid pro quo for the services rendered. However, correlationship between the levy
and the services rendered (sic or) expected is one of general character and not
of mathematical exactitude. All that is necessary is that there should be a "reasonable
relationship" between the levy of the Fee and the services rendered."
from this perspective, the inevitable conclusion is that in the instant case there
does exist a reasonable nexus between the payer of the Cess and the services
rendered for that industry and therefore, the said levy cannot be assailed on
the ground that being in the nature of a `tax', it was beyond the legislative competence
reached the conclusion that the levy by the impugned Act is in effect a `fee'
and not a `tax', we deem it unnecessary to deal with the second limb of the
challenge, viz. the impost is a tax on "lands and buildings", covered
by Entry 49 in List II of the Seventh Schedule.
view of the aforegoing discussion, we do not find any infirmity in the conclusions
arrived at by the High Court while upholding the validity of the impugned Acts.
All the appeals, being bereft of any merit are dismissed with costs, quantified
at `25,000/- in each set of appeals.
(ASOK KUMAR GANGULY)