Building and other construction workers: welfare boards, cess and benefits

1. Why a special scheme

Construction work is casual, migratory and short-term. A mason may work for a dozen builders a year, and none of them employs him long enough to owe him gratuity, provident fund or maternity benefit under the ordinary rules. The 1996 scheme solved this by taxing the project rather than the employment: every employer pays a cess on the cost of construction into a State fund, and the fund pays benefits to workers who register with the board, whoever they happen to be working for.

2. Definitions and coverage

• Building or other construction work, s.2(6): construction, alteration, repair, maintenance or demolition of buildings, streets, roads, railways, airfields, irrigation and drainage works, embankments, power generation, transmission and distribution, water works, oil and gas installations, electric lines, internet and telecommunication towers, dams, canals, tunnels, bridges, pipelines and similar works. It does not include work related to a factory or mine, work employing fewer than ten workers in the preceding twelve months, or work for an individual's own residence costing not more than fifty lakh rupees (or a higher notified amount) [BOCW Act s.2(1)(d)].
• Building worker, s.2(7): a person employed for hire or reward to do any skilled, semi-skilled or unskilled, manual, technical or clerical work in connection with such work, but not a person employed mainly in a managerial, supervisory or administrative capacity [s.2(1)(e)].
• By the First Schedule, Chapter VIII applies to every establishment that falls under building and other construction work.

3. State Building Workers' Welfare Boards: section 7 [BOCW Act ss.18, 22]

Every State Government must constitute a Building and Other Construction Workers' Welfare Board, a body corporate. It has a chairperson nominated by the State, one member nominated by the Centre and up to fifteen others, with equal representation of the State Government, employers and building workers, and at least one woman (s.7(3)). The Secretary is its chief executive.

Its functions (s.7(6)) are to:

• provide death and disability benefits to a beneficiary or dependants;
• pay pension to beneficiaries who have completed sixty years;
• pay premium for group insurance;
• frame educational schemes for beneficiaries' children;
• meet medical expenses for major ailments;
• pay maternity benefit to beneficiaries;
• run skill development and awareness schemes;
• provide transit accommodation or hostels;
• frame other welfare schemes with the Centre's concurrence, and other prescribed measures.

The State may also constitute advisory committees (s.7(7)).

4. The cess: sections 100 to 105 [Cess Act ss.3 to 11]

• Levy (s.100(1)) [s.3]: a cess for the social security and welfare of building workers at a rate not less than one per cent and not more than two per cent of the cost of construction incurred by an employer, as notified by the Central Government. Cost of construction excludes the cost of land and compensation paid under Chapter VII.
• Collection (s.100(2) to (4)): from every employer undertaking the work, including by deduction at source from Government and public sector bills, or in advance by the local authority when it approves the building plan; the proceeds go to the State board. Advance cess may be collected at uniform rates subject to final assessment.
• Self-assessment (s.103) [ss.4, 5]: within sixty days of completing each work, the employer pays the cess on his own assessment of the cost (adjusting advance cess) and files a return under s.123(d). If the officer finds a discrepancy, he makes an assessment order after inquiry, fixing the date for payment.
• Interest (s.101) [s.8]: on cess not paid in time, at the rate prescribed by the Central Government.
• Penalty (s.104) [s.9]: if cess assessed under s.103 is not paid by the date fixed, the prescribed authority may, after a hearing, impose a penalty not exceeding the amount of cess; none if the default had good and sufficient reason.
• Appeal (s.105) [s.11]: against an assessment or penalty order, to the prescribed appellate authority, whose order is final.
• Exemption (s.102): where a corresponding State law already levies the cess.

The cess was upheld in Dewan Chand Builders & Contractors v. Union of India, 2011 INSC 810, (2012) 1 SCC 101. The Court treated the levy as a fee rather than a tax, because it is collected for a specified purpose, the welfare of construction workers, and is kept in a separate fund for that purpose, which is the required correlation between the levy and the services rendered.

5. Beneficiaries: sections 106 and 107 [BOCW Act ss.12, 14]

• Registration: every building worker aged eighteen to sixty who has been engaged in building or other construction work for not less than ninety days in the preceding twelve months shall be registered as a beneficiary by the officer authorised by the board (s.106).
• Cessation: on attaining sixty, or on not being engaged in such work for ninety days in a year; absence due to an employment injury is excluded from the count (s.107(1)).
• Protection at sixty: a person who was a beneficiary for at least three years continuously before sixty remains eligible for prescribed benefits, and periods with other boards are added (s.107(2)). Registration is therefore portable between States, which matters for migrant workers.

6. The Welfare Fund: section 108 [BOCW Act s.24]

Each board constitutes a Building and Other Construction Workers' Welfare Fund, credited with the cess, Central grants and loans, and other sums. It is applied to the board's functions under s.7(6), its staff costs and other authorised objects. Administrative expenses may not exceed five per cent of the board's total expenses in a year (s.108(3)).

Large sums collected under the 1996 Acts remained unspent, and registration of workers was poor. In National Campaign Committee for Central Legislation on Construction Labour v. Union of India, 2018 INSC 244, (2018) 5 SCC 607, the Court strongly criticised the Centre and the States for failing to implement the Acts and spend the cess on the workers for whom it was collected, and issued directions for registration, model schemes, audit and monitoring. During the 2020 lockdown the same funds were used for direct cash transfers to registered workers, and the Court in Migrant Labourers (2021) again stressed registration.

7. Problem

A builder completes a housing project costing Rs 10 crore, including Rs 3 crore for the land. He pays no cess, saying most of his workers were supplied by contractors and none were registered with the board. The board imposes cess, interest and a penalty of Rs 15 lakh. Advise him.

Issue. His liability to cess, and the limit on penalty.

Law. Section 100 levies cess on the cost of construction incurred by the employer, excluding land. Liability does not depend on how the workers were engaged or whether they were registered. Sections 101 and 104 provide interest and a penalty not exceeding the cess.

Application. The cost of construction is Rs 7 crore. Taking the cess at one per cent (the rate in force under the 1996 Cess Act; check the rate now notified under s.100), it is Rs 7 lakh. Interest runs from the due date. A penalty of Rs 15 lakh exceeds the cess and is beyond the statutory maximum; it can be at most Rs 7 lakh, and none if he shows good and sufficient reason.

Conclusion. He must pay the cess with interest. He should appeal the penalty under s.105 as excessive. The non-registration of his workers is the board's and the workers' concern; it is no defence to the levy.

How this is examined

This is a new item in the syllabus; earlier papers did not ask it. Expect “Explain the provisions relating to social security and cess for building and other construction workers under the Code” or short notes on “the Building Workers' Welfare Board”, “registration of building workers as beneficiaries” and “levy of cess”. Structure: why a cess, definitions, board and functions, levy and collection, registration, fund, and the NCC-CL case on non-implementation.