Gasket Radiators Pvt. Ltd. Vs.
Employees State Insurance Corpn. & ANR [1985] INSC 39 (28 February 1985)
REDDY, O. CHINNAPPA (J) REDDY, O. CHINNAPPA
(J) VENKATARAMIAH, E.S. (J) MISRA, R.B. (J)
CITATION: 1985 AIR 790 1985 SCR (2)1085 1985
SCC (2) 68 1985 SCALE (1)337
ACT:
Constitution of India, Articles 41, 42 and 43
and Entries 23 and 24, List 111, Schedule. Vll-Campetency of legislature to
make laws.
Employees' State Insurance Act, 1948-Chapter
V-A (Prior to its deletion w. e. f. July 1, 1973 by notification issued up
under s. 73-1)-Whether contemplates rendering of any service or conferment of
benefit-Employer's special contribution-Whethernecessary to label constitution
as a tax or fee-Whether quid pro guo exists between contribution and
benefit-Whether quid pro quo need be simultaneous or deferred.
Interpretation: Whether observation Judgment
to be construed as provision of statute.
HEADNOTE:
The Employee' State Insurance Act 1948, a
social welfare legislation in tune with the Directive Principles of State
Policy contained in Articles 41, 42 and 43 OF the Constitution, was enacted to
provide for certain benefits to employees in the case of sickness, maternity
and employment injury and to make provisions for certain other matters in
relation thereto. the Act directly falls under Entries 23 and 24 of List III of
the Vllth Schedule of the Constitution, which are, social security and social
insurance, employment and unemployment", and "welfare of labour
including coDditioDs of work, provident funds, employers liability, workmen's
compensation, invalidity and old age pensions and maternity benefits".
The Act applies to all factories including
factories belonging to the Government other tban seasonal factorics- Chapter Il
provides for the establishment of the Employees' State Insurance Corporation,
to bo a body corporate, for administering the scbeme of Employees' State
Insurance.
Section 26 provides for the establishment of
a Fund called the Employees' State Insurance Flmd. Section 28 lists the
purposes for which the Fund may be expended. Chapter IV provides for the manner
of insurance of ull the employGes in factories or ostablishments to which tho
Act applios 1086 and the payment of contribution for that purpose. The
contribution payable in rcspect of an employce shall comprise contributioll
payable by the employer called employer's contribution aad contribution payble
by the employee called employee's contribution. The contribution has to be paid
at tbe rates specified in the first schcdule.
SeCtiOD 46 specifies the benefits to which
the iosured persons,their dependats and others shall be entitled. The scheme
under tbe Act could only be implemonled by stagos, and, thelefore, ' trnnsitory
provisioDs" were made by introduction of Chapter V-A by s. 20 of Act No.
53 of 1951, which provided for tbe payment by the principal employer of a
special contribution which shall be in lieu of the employer's contribution
payable under Chapser IV in the case of factories or establishments situate in
areas iD which the provisions of both Cbapters IV and V are in force. The
provisioas or Chapter V-A, however, ceased to have effect on and from July 1,
1973.
The appellant compaoy wa9 foemed in 1964 and
started production Ihe same year. The appellant company was exemptcd from Ihe
provisiona of Chapter V-A until the provisions of Chapter V of the Act were
enforced in the area where the appellaDt's factory was situaled. This exemption
was withdrawn with effect from May 31, 1969. The appellant company ques tioned
its liability to pay special contribution under Cbapter V-A of the Act under
Article 2'6 of the Constitution. The High Court disrDissed the Detition .
In the appeal to this Court it was contended
that contribution payable under Chapter V-A is a fee and its levy is illegal as
the Act does not contemplate the rendering of any service or the conferment of
any benefit to the appellant company or its employees as quJd pro quo for the
pay mcnt. and the DrOVisionS of Chapter V-A are, therefore, ultra vires
Dismissing the appeal.
^
HELD: 1. The payment of contribution by an
employer towards the premium of an employee's compulsory insurance under the
Employee' State Insurance Act falls directly within Entrics 23 and 24 of List
III of the VIIth Schedulo and it is wholly unnecessary to seek justification
fot it by recourso to Entry 91 of List 1 or Entry 47 of List III in aDg
circumlocutous fashioD. [1094A-B]
2. These contributions or for example
coDtribulions to Provident Funds or payment of other benefits to worlcers
cannot be labelled as taxes or fees. They are neither taxes nor fees. They
donot require to be labelled as taxes or fees to recoive ligitimation. [1093E']
3. ( Even if tho charge is to be con-trucd as
a fee it is justifiable on that basis also as there was sufflcient quid pro
quo. [1096A]
3. (ii) Services and bonefits are indeed
meant to be and are bound to be conferrcd oo the employees and throngh them on
the employer, in due course. when tbe scheme becomes fully operative in all
areas. For a start the scheme is confined to a few aroas and though special
contribution is 1087 levied from all employers wherever they be, in the case of
employers who A straightaway receive the beoefits of the insurance scheme,
their rate of contribution is bigher while in the case of employ-rs, who do not
yet receive the benets of the scheme, their rate of contribution is lower.
For the latter the scheme is analogous to a
deferred insurance policy. Morely because the benefits to be receive are
postponed, it cannot be said that there is no quid pro quo Ordinarily a return
in presenti is generally present when fee is levied, but simultaeity or
contemporaneity of payment is not the most vital or crucial test to determine
whether a levy is a fee or not. In fact, it may often happen that the rendering
of a service or the conferment of a benefit may only follow after the
consolidation of a fund from the fee levied. It is only after a sufficient
nucleus is available that one may reasonably except a compensating re(urn. The
question of how soon a return may be expected or ought to be given must
necessarily depend on the nature of the services required to be performed and
benefits required to be conferred [1094D-H] Basant Kumar vs. Eagle Rolling
Mills, AIR 1964 SC 1260=[1964] 6 SCR 913, referred lo.
K. C. Sarma vs. Regional Director, E. S. I
Corporation, AIR 1962 ASSAM 120, followed. D
4. The observations in the case of Kewal
Krishan that the benefit should not be indirect and remote was not made in
connection with any delayed benefit from the point of view of time, but with
reference to the very benefit itself and its connection with the levy. The
judgments of Courts are not to be construed as Acts of Parliament. Nor can a
Judgment on a particular aspect of a question be read as a Holy Book covering
all aspects of every question whether such questions arose for consideration of
not in that case.
[1096B-C] Kewal Krishan vs. State of Punjab,
AIR 1980 SC 1008 destinguished.
Amar Nath Om Parkash VS. State of Punjab, AIR
1985 SC 218, relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 764 of 1972.
From the Judgment and order dated the 6th/7th
September, 1971 of the Gujarat High Court at Ahmedabad in Special Civil
Application No. 1489 of 1969.
G.B. Pai, D.N. Misra, A.N. Ditia and Miss
Meera Mothur, for the Appellant.
1088 Abdul Khader, S.T. Desai, Girish
Chandra, N.L. Kekar, V. Subba Rao, R.N. Poddar for the Respondents.
The judgment of the Court was delivered by
CHINNAPPA REDDY, J. The question raised in this appeal concerns the vires of
Chapter V-A of the Employees' State Insurance Act, 1948. The principal Act was
enacted in 1948.
Chapter V-A was inserted by s. 20 of Act No.
53 of 1951. The provisions of the Chapter, however, have ceased to have effect
on and from July l, 1973. That is the sequel to a notification issued under s.
73-I of the Act. Chapter V-A is headed "Transitory Provisions" and
provides for the payment by the principal employer of a special contribution
which shall be in lieu of the employer's contribution payable under Chapter IV-
in the case of factories or establishments situated in areas in which the
provisions of both Chapters IV and V are in force. The special contribution is
required to be such percentage, not exceeding five per cent of the total wage
bill of the employer, as the Central Government may specify. It is also
provided that the employer's special contribution in the case of factories or
establishments in areas in which the provisions of both Chapters IV and V are
in force shall be fixed at a rate higher than that in the case of factories or
establishments situate in areas in which the provisions of the said Chapters are
not in force.
The employees' State Insurance Act, 1948 was
enacted to provide for certain benefits to employees in the case of sickness,
maternity and employment injury and to make provisions for certain other
matters in relation thereto. It is an obvious social welfare legislation in
tune with the Directive Principles of State Policy contained in Articles 41, 42
and 43 of the Constitution. It is a legislation which comes directly under
entries 23 and 24 of list III of the Vllth schedule of the Constitution, which
are, "social security and social insurance; employment and
unemployment", and "welfare of labour including conditions of work,
provident funds, employers' liability, workmen's compensation, invalidity and
old age pensions and maternity benefits". The Act extends to the whole of
India and comes into force on such date or dates as the Central Government may
appoint, different dates being permissible for different provisions of the Act
and or different States or for different parts thereof. It applies to all
factories including factories belonging to the Government other than seasonal
factories. Chapter 1089 II provides for the establishment of the Employees'
State Insurance A Corporation for administering tho scheme of Employees' State
Insurance in accordance with the provisions of the Act. The Corporation is to
be a body corporate HAVING perpetual succession and a common seal.
There are detailed provisions for the
Constitution of a Standing Committee and a Medical Benefit Council. Chapter III
provides for Finance and Audit. Section 26, in particular, provides for the
establishment of a Fund called the Employers' State Insurance Fund into which
all contributions paid under the Act and all other money received on behalf of
the Corporation shall be paid. The Corporation is authorised also to accept
grants, donations and gifts from the Central or any State Government, local
authority or any individual or body whether incorporated or not, for all or any
of the purposes of the Act. Section 28 lists the purposes for which the Fund
may be expended and it includes among other items, (i) payment of benefits and
provision of medical treatment and attendance to insured persons and, where the
medical benefit is extended to their families. the provision of such medical
benefit to their families, in accordance with the provisions of this Act and
defraying the charges and costs in connection therewith; and E (ii)
...........................
(iii) ......... .
(IV) establishment and maintenance of
hospitals, dispensaries and other institutions and the provisions of medical
and other ancillary services for the benefit of insured per sons and, where the
medical benefit is extended to their families;" ChapterlV provides for the
manner of insurance of all the employees in factories or ESTABLISHMENT to which
the Act applies and the payment of contribution for that purpose.
The contribution payable in respect of an
employee shall comprise contribution payable by the employer called employees
contribution and contribution payable by the employee called employee's
contribution. The contribution has to be paid at the rates specified in the
first schedule.
Detailed provision is made for the method and
payment 1090 of contribution. Chapter V deals with benefits Section 46 specifies
the benefits to which the insured persons, their dependants and others shall be
entitled. There are other detailed provisions indicating the manner of working
out the various benefits.
Quite obviously the scheme could not be
implemented straight away throught out the country but could only be
implemented by stages. It, therefore, became necessary for the Parliament to
make certain transitory provisions, which it did by the introduction of Chapter
V-A by Act 53 of 1951.
The Statement of objects and reasons of Act
53 of 1951 may be usefully extracted here. The Statement is as follows:-
"The Employees' State Insurance Act, 1948, was passed by the Dominion
Legislature in April 1948. It provides for certain benefits to industrial
employees in case of sickness maternity and employment injury The Act permits
tho implementation of the scheme by stages.
It was intended that the scheme should be
implemented in the first instance in Delhi and Kanpur, but regional
implementation of such schemes is always attended with certain practical
difficulties. The principal difficulties are the rise in the cost of production
and the diminution of the competitive capacity of industries located in those
regions. The main objections of the employers centred round the former
difficulty and those of the Uttar Pradesh Government emphasised the latter. The
Central Government have considered those objections and are anxious to avoid
any competitive handicap to any region. This may be best achieved by an
equitable distribution of the employer's contribution, even where
implementation is affected only in certain areas, among the employers in the
whole country employers in regions where the scheme is implemented paying slightly
higher contributions. This will minimise the contribution leviable from the
employers and spread the incidence of the cost of the scheme equitably. This
Bill is primarily intended to achieve this object." The notes on Clause )0
of the Bill which provided for the introduction of Chapter V-A was to the
following effect, 1091 "Clause 20-A new self-contained chapter is proposed
A providing for the collection of employer's special contribution throughout
the Union. The rate of the contribution which may be varied from time to time
is to be fixed by the Central Government after two months' notice by
notification. The rate of the contribution shall be higher m areas where the
scheme applied than in other areas. The manner of and time within which the
special contribution is to be paid would be notified by the Central Government.
Consequential provisions fitting the
employer's special contribution into the existing scheme of the Act and other
necessary provisions have been made in this Chapter. The Central Government is
empowered to give directions or provide for such matters as may be necessary
for the removal of any difficulty. The Chapter can be withdrawn from operation
by the Central Government after giving three months' notice." The
desirability and the necessity for the implementation of the scheme by stages
has been brought out by a Constitution Bench of this court in Basant Kumar v.
Eagle Rolling Mil/s(l) where it was stated.
"..... In the vary nature of things, it
would have been impossible for the legislature to decide in what areas and in
respect of which factories the Employees' State Insurance Corporation should be
established. It is obvious that a scheme of this kind, though very beneficent,
could not be introduced in the whole of the country all at once. Such
beneficial measures which need careful experimentation have some times to be
adopted by stages and in different phases, and so, inevitably, the question of
extending the statutory benefits contemplated by the Act has to be left to the
discretion of the appropriate Government.
"Appropriate Government" under S.
2(1) means in respect of establishments under the control of the Central
Government or a Railway administration or a major port or a mine or oil
field(i, the Central Government, and in all other cases, the State Government.
Thus, it is clear that when extending the Act to different establishments, the
relevant (1) AIR 1964 SC 1260=[1964] 6 SCR 913 1092 Government is given the
power to constitute a Corporation for the administration of the scheme of
Employees' State Insurance. The course adopted by modern legislatures in
dealing with welfare scheme has uniformly conformed to the same pattern. The
legislature evolves a scheme of socioeconomic welfare, makes elaborate
provisions in respect of it and leaves it to the Government concerned to decide
when, how and in what manner the scheme should be introduced." In the
present case the appellant company which was formed in 1965 and went into
production the same year, was exempted from the provisions of Chapter V-A of
the Act until the provisions of Chapter V of the Act were enforced in the area
where the appellant 's factory was situated. However this exemption was
withdrawn with effect from May 31, 1969 by a notification of the Government.
The appellant company questioned its liability to pay special contribution
under Chapter V-A of the Employees' State Insurance Act by filing a writ
petition in the High Court of Gujarat under Art. 226 of the Constitution. The
writ petition was dismissed by the High Court on September 7, 1971 and the
present appeal has been filed pursuant to a certificate granted by the High
Court under Art. 132(1) and 133(1) (c) of the Constitution.
Meanwhile Chapter V-A has ceased to have
effect on and from July 1, 1973. We are, therefore, concerned in this appeal
with the question of the payment of special contribution under Chapter V-A by
the appellant company for the period, May 31, 1969 to March 26, 1973. The main
ground on which the appellant canvasses the correctness of the judgment of the
High Court is that the contribution payable under Chapter V- A is a fee and its
levy is illegal as the Act does not contemplate the rendering of any service or
the conferment of any benefit to the appellant company or its employees as quid
pro quo for the payment. The provisions of Chapter V-A, therefore, according to
the learned counsel, are ultra vires.
We are afraid that the very approach of the
appellant to the problem at issue suffers from a basic defect. The appellant's
argument proceeds on the fundamental misconception that the payment of
contribution directed to be made by the employer under the Employees' State
Insurance Act or other similar payment or benefit under various other social
welfare legislations must either be labelled as a tax or a fee in order to
attain legitimacy or not at all. The idea that such payment, contribution or
whatever name 1093 is given to it should be so pigeon-hold and fitted in stems
from a misunderstanding of the scheme of our Constitution in regard to social
welfare legislation. Apart from the preamble which promises to secure to all
its citizens, "justice, social, economic and political", the State is
enjoined by the Directive Principles of State Policy to secure a social order
for the promotion of the welfare of the people. In particular Arts. 41, 42 and
43 enjoin the State to make effective provision for securing the right to work,
to education and public assistance in cases of unemployment, old age, sickness
and disablement, and in other cases of any undeserved want, to make provision
for securing just and humane conditions of work and maternity relief and to
secure by suitable legislation or economic organisation or in any other way, to
all workers, agricultural, Industrial or otherwise, work, a living wage,
conditions of work ensuring a decent standard of life and full enjoyment of
leisure and social and cultural opportunities. It is in pursuance of these
Directive Principles that we find entries 23 and 24 in list III of the VlIth
Schedule of the Constitution. Both Parliament and the Legislature of any State,
subject to conditions with which we are not concerned, have power to make laws
with respect to any of the matters enumerated in List llI It is pursuant to the
power entrusted in respect of entries 23 and 24 of List III that Parliament has
enacted the Employees' State Insurance Act. In our understanding, entries 23
and 24 of List III, of their own force, empower-Parliament or the legislature
of a State to direct the payment by an employer of contributions of the nature
of those contemplated by the Employees' State Insurance Act for the benefit of
the employees. These contributions or for example contributions to provident
funds or payments of other benefits to workers are not required to be and
cannot be labelled as taxes or fees for the sole and simple reason that they
are neither taxes nor fees. List I and List lI contain several entries in
respect of which taxes may be levied by the Parliament, by the Legislature of
any State and by both. Entry 97 is a residuary clause which enables Parliament
to legislate in respect of any other matter not enumerated in List lI or List
III including any tax not mentioned in either of those lists. Entry 96 of List
I enables Parliament to levy fee in respect of any of the matters in that list,
but not including fee taken in any court. Similarly entry 66 of List II enables
the legislature of a State of levy fee in respect of the matters in that list,
but not including fees taken in any court. Again entry 47 of List III enables
Parliament and the Legislature of a State to levy fees in respect of any of the
matters in that list but not including fees in 1094 any court. The payment of
contribution by an employer towards the premium (what else is it ?) of an
employee's compulsory insurance under the Employees' State Insurance Act falls
directly within entries 23 and 24 of List IIl and it is wholly unnecessary to
seek justification for it by recourse to Entry 97 of List I or Entry 47 of List
III in any circumlocutous fashion. We see no reason to brand or stamp the
contribution as a tax or fee in order to seek to legitimise it. Legitimation
need not be sought fictionally from Entry 97 of List I or Entry 47 of List III when
legitimation is directly derived for the charge from Entries 23 and 24 of List
III.
Even if the charge is to be construed as a
fee as the High Court has done, it appears to us to be justifiable on that
basis too. It is not disputed and indeed it is not capable of any controversy
that services and benefits are indeed meant to be and are bound to be conferred
on the employees and through them on the employer, in due course, when the
scheme becomes fully operative in all areas. For a start the scheme is confined
to a few areas and though special contribution is levied from all employers
wherever they be, in the case of employers who straightaway receive the
benefits of the insurance scheme, their rate of contribution is higher while in
the case of employers, who do not yet receive the benefits of the scheme, their
rate of contribution is lower. So far as the latter are concerned, the scheme
is analogous to a deferred insurance policy which parents often take out on the
lives of their children, but which are to be effective only from a future date
after the children attain a certain age, though premium is liable to be paid
right from the start. Merely because the benefits to be received are postponed,
it cannot be said that there is no quid pro quo. It is true that ordinarily a
return in proe senti is generally present when fee is levied, but simultaneity
or contemporaneity of payment and benefit is not the most vital or crucial test
to determine whether a levy is a fee or not. In fact, it may often happen that
the rendering of a service or the conferment of a benefit may only follow after
the consolidation of a fund from the fee levied. Hospitals, for instance,
cannot be built in a day nor medical facilities provided right from the day of
the commencement of the scheme. It is only after a sufficient nucleus is
available that one may reasonably expect a compensating return. The question of
how soon a return may be expected or ought to be given must necessarily depend
on the nature of the services required to be performed and benefits required to
be 1095 conferred. In K C Sarma v. Regional Director, E S 1.
Corporation(1) it was observed:
".. It appears that the employed special
contribution is not a tax but a fee. This contribution goes to a fund known as
the Employees' State Insurance Fund which is to be utilised for the benefits to
be given to the employees under the Act. the cost of these benefits will` not
be met from the general revenues of the state, but will be borne entirely from
the aforesaid fund only.. the employers' contribution under the Act constitutes
only a fee and not a tax The Government cannot go on levying employers'
contribution under sec. 73A of the Act without giving a service in return. But
from this it does not follow that the service must be given as soon as the
contribution is made. The object of the Act is that the benefits which it
provides should become available to the employees in all factories through out
India as soon as circumstances make it practicable. Statutory bodies have to be
set up, various officers have to be appointed and arrangements have to be made
for providing medical help. All these required time and money and in some areas
the time required may be more than in other areas. Chapter VA is for meeting
the needs of the transitory period. When the whole Act is brought into force in
the whole of India, it would not be necessary to retain this Chapter. Then all
contributions will be made under Chapter IV. It may be noted that Chapter VA
was inserted, as pointed out above, by an amending Act only in 1951. The object
of the amendment was to make an equitable distribution of contributions by all
employers. It was not considered fair that only employers of these regions to
which the benefit provisions were extended should alone make contributions and
thereby help to set up a corporation.
The benefit provisions will sooner or later
be extended to all areas. Therefore, the amendment provides that employers of
regions to which the benefit clauses are not extended must also make their
contributions though at a lesser rate." As anticipated by the Assam High
Court, Chapter VA has now ceased to have effect from July l, 1973, as already
mentioned AIR 1962 Assam 120.
1096 by us earlier. If the charge was to be
levied as a fee, we are satisfied that there was sufficient quid pro quo. The
learned counsel for the respondent attempted to argue that simultaneity or
contemperancity of levy and service were of the essence of a fee and that it
had been so laid down in argument was drawn from the statement in Cheval
Christians (supra) case that the benefit should not be indirect and remote The
reference, there, to indirectness and remoteness was not made in connection
with any delayed benefit from the point of view of time, but with reference to the
very benefit itself and its connection with the levy. We once again have to
reiterate what we were forced to point out in Amar Nath Om Parkash vs. State of
Punjab(2) that judgments of courts are not to be construed as Acts of
Parliament. Nor can we read a judgment on a particular aspect of a question as
a Holy Book covering all aspects of every question whether such questions and
facets of such questions arose for consideration or not in that case. We must
however, hasten to notice that the Madras High Court in Shakti Pipe Limited vs
E. S I. Corporation(3) and the Kerala High Court in Gwalior Rayon Silk
Manufacturing Company v,. S. 1.
Corporation(4) have upheld the levy of
special contribution as a tax. Therefore, whether the special contribution is,
to be viewed as a tax, fee or neither it has sufficient constitutional
protection. The appeal is, therefore, dismissed with costs.
A.P.J. Appeal dismissed.
(1) AIR 1980 SC 1008 (2) AIR 1985 SC 218 (3)
1978 LABOUR & Ind. Cases 410 11 (4) 1975 LABOUR & Ind. Cases 1395.
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