Contribution U/s. 45A Of ESI Act Was Determined Without Segregating Material Cost From Labour Charges: Madras HC Modifies Contribution

Referring to Section 38(2) of E.S.I Act read with Rule 51 of the E.S.I (Central) Rules, the Madras High Court modified the order of the Employees Insurance Court, Hosur, in E.S.I.O.P.No.10 of 2019, dated March 09, 2022, and directed the appellants to pay the modified contribution amount of Rs.8,81,896/-.

The High Court held so while considering a case where the contribution as per Section 45-A of the Employees' State Insurance Act was determined without segregating material costs from labour charges.

A Single Judge Bench of Justice C. Kumarappan observed that “the respondent contended that the petitioners have not produced any record / register, balance sheet or voucher, to prove the expenditure other than the wages. It was further contended that only because of the non-production of the proper record, such as relevant register, the respondents, with no other option, taken actual expenditure incurred by the petitioners, towards manufacturing, repair, and maintenance charges and has determined the contribution under Section 45-A of the Act. Therefore, from the counter statement, it is apparent that there is no specific denial about the involvement of certain expenditure towards the material costs, and other aspect”.

However, the said defence could not be considered by the respondents, as the petitioners did not submit any records, added the Bench.

Advocate T. Sellapandian appeared for the Petitioner whereas Advocate Ramachandramoorthy appeared for the Respondent.

The brief facts of the case were that the petitioner's premises were inspected by the officer of the respondent, and a report was submitted directing the petitioner to pay the contribution of INR 1,12,161/- towards E.S.I contribution. E.S.I CP-2 notice was also issued under Section 45-A. In pursuance thereof, Form C-18 notice on an actual basis and adhoc basis was issued directing the petitioner to pay a contribution in a sum of Rs.12,76,961/-. The petitioners have paid a sum of Rs.1,43,770/- as per Form C -18 on an actual basis. However, they did not pay the amount in respect of the proposal on an adhoc basis. The petitioners submit that the respondents have no right to claim contributions on adhoc basis. After taking into consideration the oral and documentary evidence and other materials on record, the trial Court has dismissed the E.S.I.O.P. and ultimately confirmed the order passed under Section 45-A of the E.S.I. Act.

After considering the submission, the Bench noted that the petitioner is not entitled to get relief under provisions of the Employees' State Insurance Act.

The Bench highlighted that the petitioners did not think fit to examine any witness, to explain the cost of materials, and therefore, it is unclear as to what is the quantum of material cost.

“But one thing is certain there could have been an involvement or expenditure towards the cost of the materials. Which factum was not seriously disputed by the respondent”, added the Bench.

The Bench stated that in the absence of any account book and break up figures for payment of wages, 25% of the total expenditure spent towards building construction, alone can be reckoned as wages by referring to Regional Director, Employees' State Insurance Corporation V. Sundaram Clayton Ltd. and others wherein it was held that in the absence of any accounts and break-up figures for payment of wages to the workers engaged for the purpose of constructing buildings, the request of the respondent-Corporation therein to fix the same at 25 percent was reasonable.

Referring to the case of Sundaram Clayton Ltd. and others, the Bench reiterated that while not submitting the relevant registers and vouchers, the Court took only 25% of the total expenditure towards labour charges, excluding 75% towards material costs.

Hence, the High Court rejected the petitioner’s plea and directed him to pay the contribution within a period of six weeks, failing which, the respondents are entitled to recover the same, according to law.

Cause Title: Sushil Plastic Product and Anr. v. The Deputy Director, E.S.I. Corporation and Anr. [Neutral Citation: 2023: MHC: 3973]

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