The Building and Construction Workers Cess

Both exclusions make sense once stated. Land is not construction, and taxing it would make the cess depend on where a building stands rather than on how much building was done. And it would be perverse to tax an employer on the compensation he has paid an injured worker, which is the very thing the Chapter exists to promote.

Section 100(2), collection. The cess is collected from every employer undertaking building or other construction work, in such manner and at such time as the Central Government prescribes, including:

• deduction at source in relation to work of a Government or a public sector undertaking; or
• advance collection through a local authority where an approval of the work by that local authority, or another authority notified by the State Government, is required.

Those two methods are the answer to the collection problem. For public works the money never reaches the contractor; for private works it is taken when the plans are approved, before anything is built.

Section 100(3), where it goes. The proceeds are deposited by the local authority or other notified authority to the Building Workers' Welfare Board, in the manner the Central Government prescribes.

Section 100(4), uniform rates. Notwithstanding sub-sections (1) and (2), the cess, including advance payment, may, subject to final assessment, be collected at a uniform rate or rates prescribed by the Central Government on the basis of the quantum of the work involved.

Section 101: interest on late payment

If an employer fails to pay any amount of cess within the time prescribed by the appropriate Government, he is liable to pay interest at the rate prescribed by the Central Government, on the amount of cess, for the period from the date the payment was due until it is actually paid.

Note the split. The time for payment is prescribed by the appropriate Government, which may be a State; the rate of interest by the Central Government. That kind of split appears throughout the Code and is worth noticing when a question asks who does what.

Section 102: exemption from cess

Notwithstanding anything in the Chapter, the appropriate Government may by notification exempt any employer or class of employers in a State from paying the cess where such cess is already levied and payable under any corresponding law in force in that State.

The purpose is to prevent double taxation, not to grant relief. Some States had their own building workers' cess laws before the Code, and an employer already paying under one of those should not pay twice.

Section 103: self-assessment

Section 103(1). The employer shall, within sixty days, or such period as the Central Government notifies, of the completion of each building and other construction work, pay the cess, adjusting the advance cess already paid under section 100, on the basis of his self-assessment of the cost of construction, worked out on the documents and in the manner prescribed; and after paying, file a return under section 123(d).

Section 103(2). If the officer or authority to whom the return was filed finds any discrepancy between the self-assessed payment and the payment required under the return, he shall, after such inquiry as he thinks fit, make the appropriate assessment order.

Section 103(3). An assessment order shall specify the date within which the cess is to be paid.

Section 104: penalty for non-payment

If any cess payable under section 103 is not paid within the date specified in the assessment order, it is deemed to be in arrears, and the authority prescribed by the Central Government may, after such inquiry as it deems fit, impose on the employer a penalty not exceeding the amount of cess.

The proviso has two limbs, and both are protections:

• the employer shall be given a reasonable opportunity of being heard before any penalty is imposed; and
• if after that hearing the authority is satisfied that the default was for any good and sufficient reason, no penalty shall be imposed.

Note the ceiling: the penalty may not exceed the amount of the cess itself, so at worst the employer pays double. And a good and sufficient reason is a complete answer, not merely a mitigation.

Section 105: appeal

Section 105(1). An employer aggrieved by an assessment order under section 103 or by an order imposing penalty under section 104 may appeal, within the time prescribed by the Central Government, to the prescribed appellate authority, in the prescribed form and manner.

Section 105(2). The appeal shall be accompanied by such fees as the appropriate Government prescribes.

Section 105(3). The appellate authority shall, after giving the appellant an opportunity of being heard, dispose of the appeal as expeditiously as possible.

Section 105(4), finality. Every order passed in appeal shall be final and shall not be called in question in any court of law.

Section 105(4) is strongly worded and is worth a sentence of criticism. It is an ouster of the civil court's jurisdiction over a tax, decided by an executive appellate authority, with no further appeal provided anywhere in the Code. The constitutional jurisdiction of the High Court under Article 226 is not taken away by such a clause, but nothing in the Code preserves it either.

A worked example

Shreyas Developers builds a housing block in Pune. The land cost 4 crore rupees and the construction cost 10 crore rupees. During the work a labourer is injured and Shreyas pays him 3 lakh rupees of compensation under Chapter VII. Assume the notified cess rate is one per cent.

What is the cess base? The cost of construction, which by the Explanation to section 100(1) excludes the cost of land and excludes compensation paid or payable under Chapter VII. So the base is 10 crore rupees, not 14 crore, and the 3 lakh of compensation comes out too.

What is the cess? One per cent of the construction cost, subject to the statutory band of not less than one and not more than two per cent.

When and how is it collected? From Shreyas as the employer undertaking the work, in the manner and at the time the Central Government prescribes. Because the municipal corporation had to approve the building, the cess may be collected in advance through that local authority under section 100(2), and deposited by it to the Maharashtra Building and Other Construction Workers' Welfare Board under section 100(3).

Had this been a public sector project? The cess could be deducted at source.

What must Shreyas do when the block is finished? Within sixty days of completion, or such other period as is notified, pay the cess on self-assessment, adjusting the advance already paid, and then file a return under section 123(d): section 103(1).

The authority finds his self-assessment understates the cost. After such inquiry as it thinks fit it makes an assessment order, which specifies the date for payment: section 103(2) and (3).

He pays late. He owes interest from the due date to the date of payment, at the rate prescribed by the Central Government: section 101. And the unpaid cess is deemed to be in arrears, exposing him to a penalty not exceeding the amount of the cess: section 104.

He says the delay was caused by a bank failure. He must be given a reasonable opportunity of being heard, and if the authority is satisfied the default was for a good and sufficient reason, no penalty shall be imposed: the proviso to section 104.

He wants to challenge the assessment. He may appeal to the prescribed appellate authority within the prescribed time, with the prescribed fee, and will be heard: section 105(1) to (3). The order in appeal is final and cannot be called in question in any court of law: section 105(4).

Maharashtra already levies its own building workers' cess. The appropriate Government may exempt Shreyas or his class of employers from the cess under this Chapter, because it is already levied and payable under a corresponding State law: section 102.

What this does NOT mean

The cess is not a contribution. No worker pays it and it buys no individual entitlement. It funds the Board, which pays benefits to registered workers under section 7(6).

The rate is not fixed in the Code. Section 100(1) sets a band, one to two per cent, and the Central Government notifies the rate within it.

The cost of construction is not the project cost. Land is excluded, and so is Chapter VII compensation.

A penalty is not automatic on late payment. Section 104 requires an inquiry, a hearing, and the absence of a good and sufficient reason, and caps the penalty at the cess.

Section 102 is not a relief provision. It prevents double levy where a corresponding State law already applies.

Limits and criticism

Section 105(4) ousts the courts from a tax dispute. An assessment and a penalty are decided finally by an executive appellate authority, with no appeal to any court provided.

Collection depends on the local authority. Where approval is not required, or the authority does not collect, the cess depends on the employer's own self-assessment sixty days after the work ends, by which time the establishment may have dissolved.

Nothing in these sections ties the money to the workers who earned it. The cess funds a Board, and whether an individual worker sees any of it depends on his registration under section 106.

The one to two per cent band is narrow and fixed in the statute, so the only way to raise more is to build more.

Quick revision

• Section 100(1): cess for the social security and welfare of building workers, not less than one and not more than two per cent of the cost of construction, as the Central Government notifies. Excluded: the cost of land and Chapter VII compensation.
• Section 100(2) and (3): collected from every employer undertaking the work, including by deduction at source for Government or public sector work and advance collection through a local authority where approval is required; deposited to the Building Workers' Welfare Board.
• Section 100(4): uniform rates on the quantum of work, subject to final assessment.
• Section 101: interest for late payment, from the due date to actual payment; time prescribed by the appropriate Government, rate by the Central Government.
• Section 102: exemption where the cess is already levied and payable under a corresponding State law.
• Section 103: self-assessment within sixty days of completion, adjusting advance cess, then a return under section 123(d); the authority may make an assessment order on a discrepancy, specifying the date for payment.
• Section 104: unpaid cess is in arrears; penalty not exceeding the amount of cess, only after a reasonable opportunity of being heard, and none at all for a good and sufficient reason.
• Section 105: appeal to the prescribed appellate authority, with fees, after a hearing, disposed of as expeditiously as possible; the order is final and not questionable in any court of law.

Test yourself

1. State the rate of the cess and what it is charged on. Not exceeding two per cent and not less than one per cent, as notified by the Central Government, of the cost of construction incurred by an employer: section 100(1).

2. A project cost 20 crore rupees, of which 6 crore was the land. What is the cess base? 14 crore rupees. The Explanation to section 100(1) excludes the cost of land, and also any compensation paid or payable to an employee or his kin under Chapter VII.

3. Name the two special methods of collection in section 100(2). Deduction at source in relation to building or other construction work of a Government or of a public sector undertaking, and advance collection through a local authority, or other authority notified by the State Government, where its approval of the work is required.

4. When must an employer pay on self-assessment? Within sixty days of the completion of each building and other construction work, or such period as the Central Government notifies, adjusting any advance cess already paid, and he must then file a return under section 123(d): section 103(1).

5. What is the maximum penalty for non-payment, and when must none be imposed? A penalty not exceeding the amount of the cess. None shall be imposed if, after giving the employer a reasonable opportunity of being heard, the authority is satisfied that the default was for any good and sufficient reason: section 104 and its proviso.

6. Is an order of the appellate authority under section 105 open to challenge? Section 105(4) provides that every order passed in appeal shall be final and shall not be called in question in any court of law.

7. When may an employer be exempted from the cess altogether? Where the cess is already levied and payable under a corresponding law in force in that State, the appropriate Government may by notification exempt him or his class of employers: section 102.