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Labour welfare cess and its implications for the construction industry

By Anup Koushik Karavadi      

The construction industry in India is witnessing a boom fuelled by growing demands for infrastructure, commercial space and residential accommodation for the aspirational middle class.  The industry is intricately tied to economic growth and creation of jobs, which in turn results in increasing consumer spending and growth, so the cycle is complete. While it is acknowledged that the industry is a labor intensive one, the persons, including a large number of women employed in the industry are unskilled, temporary and therefore unorganized and tend to work under inhuman and pitiful conditions.      

The plight of the construction labourer seeks to be at least legally addressed in certain legislations. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act) stipulates the welfare measures that have to be undertaken by the employers for its workers in the construction and building industry.  Further, The Building and Other Construction Workers Welfare Cess Act, 1996, (Cess Act) has been enacted for levy and collection of cess on the ‘cost of construction’ incurred, from the relevant ‘employer’ with a view to augment the resources for the Building and Other Construction Workers’ Welfare Boards constituted under the BOCW Act.        

Both the Acts have imposed the obligation of implementation on the respective state governments and hence, though the Acts have been in force since 1996-97, the implementation of the Acts has been erratic warranting directions from the Supreme Court of India in the National Campaign Committee for Central Legislation on Construction Labour v. Union of India [2012 (2) SLJ471 (SC)] to the governments of various states and union territories to implement the Acts and constitute the Welfare Boards and collect the Cess as contemplated under the said Acts. Thus it is relevant for the developers, employers’ and the contractors who are in the business of construction to be aware of the implications of the said Acts. This article proposes to highlight two of the many implications which may result due to the implementation of the said Acts.      

Acts and their implications      

The said Acts apply to every ‘establishment’ which employs ten or more ‘building workers’ in any ‘building or other construction work’ anytime during the preceding twelve months. The BOCW Act requires every employer in relation to an establishment to which the BOCW Act applies to make an application to the registering officer for registration of establishment within sixty days from the date of commencement of the construction work. Further, the Cess Act mandates every ‘employer’ in relation to an establishment who carries on building and construction work to pay a cess of 1% (see end note 1) of the ‘cost of construction’.      

Registration of the establishment under the BOCW Act        

The term ‘establishment’ includes an establishment belonging to the contractor and also the establishment where building and other construction work have commenced or proposed to commence. It is relevant to understand that the term 'building or other construction works' has a wide meaning and includes alteration, repairs, maintenance or demolition, of or, in relation to, any public works, infrastructure projects or buildings and residences (Not included when the construction cost  of residences does not exceed INR 1,000,000). From the provisions of the BOCW Act it could be inferred that registration under the Act is establishment specific and not employer specific. It is a moot point as to whether the employer has to register the site where the building and other construction work have commenced (or proposed to be commenced) or the establishment from where the employer carries out its business.  However, as Section 46 of the BOCW Act requires the employer to give a notice of commencement of construction work to the inspector having jurisdiction in the area where the site is located, the employer may register the establishment from where it carries out the business and issue a notice of commencement whenever it initiates a building or construction work.        

Liability to pay cess        

As per the Act, the employer in relation to an establishment means, the owner thereof and includes the contractor in case where the building or other construction work is carried on by or through a contractor. Section 3 (charging section) of the Cess Act along with such a definition certainly does not specify whether the  cess has to be paid by  the owner or  the contractor with respect to an establishment. Such a query has been partially addressed by the Courts in Builders Association of India v. UOI [(139) 2007 DLT 578] and New India Construction Company  v. State of Haryana (see end note 2) by observing that under the scheme of the BOCW Act, the intention was not to confine the applicability of the Acts to the owner or the contractor but to cover both. The cess should be collected from either the owner or the contractor. The Court has also suggested that if the cess is not collected from the contractor then the same may be collected from the owner.      


While it is commendable that the government has woken up to the long neglected construction worker’s welfare, there has been lack of clarity and will in implementation and enforcement until the courts have stepped in to fill the gap. It is understood that the Central Government is also planning to table amendments (see end note 3) to the Acts which shall widen the scope of applicability of the Acts to  enable the respective state governments to implement the Acts with ease and it is hoped that the cess so collected will truly benefit the construction workers by providing better and safer work conditions. This is a wake up call to owners, employers and contractors engaged in construction activity to ensure strict compliance and take this cess into account while calculating project costs.

End notes:
1.      The Government of India vide Notification No. S-61011/9/95-RW [SO.2899] dated the 26th September, 1996 has provided that cess for the purposes of the BOCW Act, shall be levied at 1% of the cost of construction incurred by an employer.
2.      Unreported – Cited in (2011) ILLJ 307 P&H
3.      Press note released by the Cabinet on 1st November, 2012, detailing the proposed amendments.  

[The author is a Senior Associate, Corporate Practice, Lakshmikumaran & Sridharan, Hyderabad]        
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