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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 10TH DAY OF NOVEMBER, 2014
BEFORE
THE HON’BLE MR.JUSTICE ARAVIND KUMAR
MISCELLANEOUS FIRST APPEAL NO.111/2009 (ESI)
BETWEEN:
EMPLOYEES STATE INSURANCE CORPORATION NO.10, BINNY FIELDS, BINNYPET, BANGALORE-560 023 REPRESENTED BY ITS DEPUTY DIRECTOR
… APPELLANT
(BY SMT. GEETHA DEVI M.P., ADVOCATE)
AND:
M/S PAT GRANITES PVT. LTD., PLOT NO.22-B, JIGANI INDL. AREA ANEKAL TALUK BANGALORE-562 106.
… RESPONDENT
(BY SRI A.NAGARAJAPPA, ADVOCATE)
THIS APPEAL IS FILED UNDER SECTION 82(2) OF THE ESI ACT AGAINST THE ORDER DATED 24.10.2008 PASSED IN ESI. APPLICATION NO.39/2005 ON THE FILE OF THE ESI COURT, BANGALORE ALLOWING THE APPLICATION FILED U/S 75 OF THE ESI ACT.
THIS APPEAL COMING ON FOR HEARING THIS DAY, THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
Employees State Insurance Corporation (hereinafter referred to as ‘ESI’ for brevity) is in appeal questioning the correctness and legality of the order passed by Employees State Insurance Court, Bangalore dated 24.10.2008 in ESI Application No.39/2005 whereunder appeal filed by the employer under Section 75 of the Employees’ State Insurance Act, 1948 (hereinafter referred to as ‘ESI Act’ for brevity) has been allowed and demand notice dated 20.06.2005 issued by the Recovery Officer demanding payment of Rs.2,22,804/- has been held as not enforceable and amount paid by the employer under protest is ordered to be refunded.
Learned Advocates appearing for the parties would fairly submit that though appeal has been admitted on 03.06.2010 substantial question of law required to be formulated under Section 82(2) of the ESI
Act has not been formulated and as such, they pray for formulating substantial questions of law.
It is the contention of Smt.Geeta Devi, learned Advocate appearing for appellant – Corporation that Tribunal committed a serious error in setting aside demand notice 20.06.2005 issued pursuant to the order passed under Section 45A of ESI Act determining and quantifying ESI contribution payable by the employer amounting to Rs.2,13,074/- and further directing the Corporation to refund amount paid by the employer under protest, without properly analysing the circumstances available in the instant case and particularly, the evidence that has been tendered by the Corporation. She would elaborate her submission by contending that burden was cast on the employer to discharge wages paid to either its employees or to its Directors was beyond ceiling limit and they having failed to demonstrate or prove the same, order passed under Section 45A of ESI Act ought to have been upheld by
ESI Court and as such, she would submit that substantial questions of law as formulated in the appeal memorandum would arise for consideration, for being adjudicated and answered in favour of appellant.
She would also contend that at the time of inspection conducted by the Inspector of Corporation, payments booked by the employer to the tune of Rs.29 lakhs in the name of Sri Roopram was not substantiated by the employer and as such, in the absence of any proof thereof, ESI Court could not have accepted the plea of employer that said amount had been paid to contractor and it could not have ordered refund of the amount to employer which was paid pursuant to the order passed under Section 45A of the ESI Act.
Per contra, Sri A Nagarajappa, learned Advocate appearing for respondent-employer would support the judgment passed by ESI Court and draws the attention of this Court to the findings recorded by
ESI Court, whereunder it has been noticed by it that at the time of inspection, Wage Register extract pertaining to the contractor - Sri Rooparam and his employees were inspected by the officials of the Corporation and subsequently the original Register itself came to be produced and same came to be accepted by ESI Court by accepting the plea of the employer that said amount was paid to employees and same being a finding of fact, substantial questions of law have to be answered in favour of the respondent.
BRIEF BACKGROUND:
It is not in dispute that respondent is a covered establishment under the ESI Act and is required to pay contributions in accordance with Sections 39 and 40 of the ESI Act at the rates prescribed under the Rules and in the manner prescribed under the Regulations. Respondent – Establishment was inspected by its Inspector on 21.06.2004, 23.06.2004 and 06.07.2004 and
inspection reports were made available to respondent. On verification of records, the Inspector has found that employer had not considered various amounts booked under the heads of account for the purposes of payment of ESI contribution under five headings namely,
(1) polishing charges paid to Sri Roopram (2) repair and maintenance (3) factory expenses (4) dust cleaning expenses and (5) difference of wages.
Insofar as headings (2) to (4) are concerned, there is no dispute with regard to the report and employer is stated to have paid the demand made under these headings. Hence, facts relating to these three headings are not delved upon in this appeal. Thus, it boils down to two headings referred to supra namely (1) and (5).
After affording opportunity to the employer and also extending personal hearing which was admittedly attended by representative of the employer and on verification of records made available by the employer, the competent authority, in exercise of its
power vested under Section 45A of the Act held that contributions amounting to Rs.2,13,074/- for the period from 01.04.1999 to 31.03.2003 had not been paid and as such, determining the said amount as payable, order dated 27.04.2005 came to be passed. Consequently, demand notice was also issued. Being aggrieved by the same, appeal came to be filed by respondent-employer herein before ESI Court in ESI Application No.39/2005.
On service of notice, said application was resisted by the Corporation by filing detailed statement of objections. It was contended by the employer that demand made therein is contrary to records particularly with regard to difference in wages. It was contended that salary paid to the Directors exceeds ceiling limit and as such, question of payment of ESI contribution in respect of the salaries/wages paid to the Directors does not arise. It was also contended that polishing work has not been done at the factory/unit and had been done outside namely, by a contractor by name Sri
Roopram who has been engaged by employer as contractor and he in turn has paid salaries/wages to his employees, which is reflected in the remittances ledger furnished at the time of conducting the inspection and as such, question of examining the contractor- Sri Roopram did not arise and even otherwise, said wages paid by said Sri Roopram also exceeded ceiling limit prescribed under the Act and as such, ESI contribution is not liable to be paid on those amounts. On these grounds, the order passed under Section 45A of the ESI Act as well as demand notice raised thereunder by the Corporation came to be assailed.
It was contended by the Corporation before the appellate Court that employer having raised a plea that Sri Roopram had been engaged as a contractor, burden was on the employer to examine said Sri Roopram to substantiate its claim and this exercise was not undertaken by the employer. Hence, the competent authority was justified in arriving at a conclusion that
wages paid to six employees by the respondent – employer would attract payment of ESI contributions. It was also contended that except self serving testimony of the employer with regard to wages paid to its Directors, no material whatsoever was placed and ledgers which came to be produced before the ESI Court was an after thought, fabricated and concocted for the purposes of absolving itself from making ESI contributions and non- consideration of this vital aspect by the ESI Court has resulted in an erroneous order being passed and thereby it has resulted in miscarriage in the administration of justice. As such, Corporation sought for dismissal of the application.
Both parties adduced evidence namely, oral and documentary before ESI Court and on evaluation of the such evidence, it has come to a conclusion that there was no cross examination of P.W.1 by the Corporation with regard to wages register relating to difference of wages for the period April, 1999 to March,
2003 and as such, it has held that demand made by Corporation in that regard is erroneous. Insofar as claim relating to wages alleged to have been paid by employer to Sri Roopram, it has been held that he was not examined before the competent authority and Inspector had obtained during the course of his inspection wage Register pertaining to said Sri Roopram and other employees and even said Wage Register Extract indicated that wages were paid to the workers engaged by Sri Roopram for polishing granites was for exceeding the ceiling limit during the relevant point of time and as such, it was held that Corporation could not have raised demand for ESI contribution on said amount and has allowed the appeal filed by employer and directed the Corporation to refund the amount paid by employer.
Having heard the learned Advocates appearing for parties, I am of the considered view that
following two substantial questions of law would arise for my consideration in this appeal: (1) Whether ESI Court was correct in holding that salary/wages paid to Directors was above the ceiling limit and as such, it would not fall within the definition of ‘wages’? (2) Whether ESI Court was correct in accepting the plea of payment made by employer to Sri Roopram to absolve the employer from payment of ESI contribution on said amount?
Facts in detail having been discussed hereinabove, it is not necessary for this Court to re-state the same. RE: SUBSTANTIAL QUESTION OF LAW NO.(1): 13. Inspection of Factory premises of respondent- establishment was conducted on three
dates namely, 21.06.2004, 23.06.2004 and 06.07.2004. Inspection report was prepared as per Ex.R-2. Said inspection report has been received and countersigned by the employer as could be seen from Ex.R-2 and it has been specifically stated by the employer to the following effect: “for para No.3 & 4 not agreed to and disputed.
for PAT Granites Pvt. Ltd., Sd/- Authorised Signatory’
Amount of Rs.10,02,589/- was claimed to be the difference between wages on which contribution was to be paid as per attendance register, wage register and amount booked as per the general ledger, as per the note made in the inspection report – Ex.R-2. Said inspection report would also indicate that attendance register, wage register, Form - 7 register, general ledger, cash book came to be inspected by the Inspector which related to the period 01.04.1999 to 31.03.2003.
Difference of wages amounting to Rs.10,02,589/- is spread over for the period from 1999 to 2003, details of which are as under: Period Amount 1999-2000 Rs.2,76,000/- 2000-2001 Rs.4,27,208/- 2001-2002 Rs.2,75,609/- 2002-2003 Rs.23,772/-
It was the specific defence of the employer that difference of wages for these years related to payment of wages/salaries made to Executives and Executive Directors and same had been reflected in the ledger extracts. It is not in dispute that at the time of inspection conducted, ledger extracts had been inspected and endorsed by the Inspector which reflected payments made to Directors as well as Executive Directors. Subsequently, wage Register for the period 01.04.1999 to 31.03.2000, 01.04.2000 to 31.03.2001 and 01.04.2001 to 31.03.2002 came to be produced before the ESI Court by the employer. Undisputedly,
ledger account extract for the years 01.04.1999 to 31.03.2000 and 01.04.2000 to 31.03.2004 came to be produced before the ESI Court as per Exs.A-17 and A-18 by the employer. Defence set up by the employer at the first available opportunity namely, at the time of personal hearing and reiterating the same after the order came to be passed under Section 45A of the ESI Act and also before the ESI Court has been consistent. As rightly pointed out by ESI Court, there is no cross examination of the employer on this issue at all. Tenor of the cross examination of A.W.1 dated 25.06.2007 would clearly indicate that it is related to the payments made to the polishing contractor Sri Roopram. It is undisputed fact that employer is a private limited company and accounts are required to be maintained as per the provisions of Companies Act, 1956 and any infraction thereof would lead to penal consequences. As such, the Corporation having conducted inspection of the respondent-establishment and having received the documents produced by the employer had not
discharged its initial burden of disputing the contents of said ledger extracts. Said accounts having been maintained by the employer in the course of its business, presumption arises with regard to entries made therein and said ledger extracts which was seen and inspected by the inspector at the undisputed point of time namely, at the time of conducting inspection and which document came to be marked as Ex.A-14 would clearly indicate that salaries that have been paid to the Directors was Rs.7,500/- or Rs.8,000/- as the case may be, by raising payment vouchers. Official witness on behalf of the Corporation has admitted that at the time of conducting inspection i.e., in the year 2004, ESI coverage limit was Rs.6,500/- per month and it was increased to Rs.7,500/- per month from 01.04.2004. Thus, on both counts, demand raised by the Corporation was not lawful namely, on the ground that it exceeded ceiling limit and ledger extract entries found as per Ex.A-13 was not rebutted by the Corporation by any other contrary evidence except self serving
testimony of the Inspector. In the absence thereof, no fault can be found with the finding recorded by the ESI Court. Hence, I am of the considered view that substantial question of law No.(1) deserves to be answered in the affirmative i.e., in favour of respondent – employer and against the appellant -Corporation. RE: SUBSTANTIAL QUESTION OF LAW NO.(2): 14. As noticed herein above and at the cost of repetition, it has to be observed that sum of Rs.29,00,740.36 paid to polishing contractor- Sri Roopram for the period 1999-2003 which was claimed by the employer as piece rate was held as wages to an extent of 85% of the bill amount and by allowing 15% towards service charges, a demand at the rate of 6.5% on Rs.24,65,630/- was raised which was to the tune of Rs.1,60,266/-. This demand was attempted to be staved off by the employer on the ground that it has not paid the same to its workers but same was paid by the said contractor working in the unit of employer and
said employer also stated that amounts paid was above the ceiling limit and as such, it is not to be covered under the Act by directing the respondent-employer to pay the contributions. Defence raised by the employer was that said amounts have been paid to the contractor who inturn has paid to his employees and they have drawn wages more than Rs.6,500/- per month since they were working in piece rate basis and said amount paid to the contractor cannot be brought within the purview of ESI Act by directing the employer to pay employer’s contribution. In this regard, it would be appropriate to note at this stage cross examination of R.W.1 (official witness of Corporation) dated 22.02.2008 since it runs contrary to the inspection report – Ex.R-2. In the inspection report –Ex-R-2 the Inspector namely, R.W.1 has not indicated about the presence of the contractor, but on the other hand, he stated that work had come to a stand still. However, in the cross examination dated 22.02.2008 R.W.1 has admitted to the following effect:
“Since 4 years, I am working as xxx inspected by me. It is true that when the period of inspection, a contractor by name Rooparam, labour contractor was there. The principal employer did not furnish the records pertaining to the said labour contractor, for my inspection.”
(emphasis supplied by me) It requires to be noticed that nothing prevented the Inspector to examine the labour contractor who was present at the spot to ascertain as to whether he was paying wages independently by recording his statement. This exercise was not undertaken for reasons best known. At the same time, it requires to be noticed that at the time of inspection conducted, ledger account extract of the employer in respect of Sri Roopram namely, labour contractor for the period 01.04.1999 to 31.03.2000 had been produced and same came to be marked as Ex.A-16 before ESI Court. This document Ex.A-16 was very much available on record and same has been undisputedly countersigned by the Inspector at the time of inspection and his signature has been
identified and marked as Exhibit-A-16(a). As such, above referred evidence would acquire significance inasmuch as, official witness could not have stated that Principal employer did not furnish records pertaining to said labour contractor for his inspection. When the said document was very much available on record which was not examined and contractor was not examined since burden was equally on the Corporation to disprove the contents of it as either incorrect or improper and nothing prevented the Corporation to counter check the same with the labour Department to find out the corrections of its content. Undisputedly, no such exercise was undertaken by the Corporation at any point of time.
In fact, after order came to be passed under Section 45A of the ESI Act, amount has been paid under protest by the employer by reserving liberty to challenge the findings recorded thereunder and has also submitted a request to the competent authority for re-
verification of records by enclosing those documents which came to be produced before it including the copies of Form No.16A issued under Rule 31(1)(b) of the Income Tax Act, 1961 relating to the period 01.04.1999 to 31.03.2003. It is no doubt true at the time of competent authority passing the order under Section 45A of ESI Act, Form No.16A was not available. However, plea raised by the employer in this regard was very much available on record and same had also been reiterated by the employer before ESI Court and proved. In that view of the matter, acceptance of said plea by the ESI Court cannot be held as fallacious or contrary to records. In that view of the matter, substantial question of law No.2 requires to be answered in the affirmative i.e., against the appellant – Corporation and in favour of respondent-employer.
For the reasons aforestated, I proceed to pass the following:
JUDGMENT (1) Appeal is hereby dismissed.
(2) Order passed by Employees State Insurance Court, Bangalore dated 24.10.2008 in ESI Application No.39/2005 is hereby affirmed.
(3) Registry to retransmit the original records to jurisdictional ESI Court.
(4) No costs.
Sd/-
JUDGE
*sp