2018 (11) TMI 889 - HC - GST

Deduction of GST and service tax from salary - Exploitation of the workmen by the State Government as well as local bodies - upgradation of honorarium/salary component from time to time as per the labour index - Held that - The State must act like a Modal employer. Something which cannot be done directly cannot be permitted to be done indirectly. The agreement entered into between the UPNL and its employees is unconstitutional. Thus, violative of Articles 14 and 16 of the Constitution of India. The employees working through agency of UPNL, deployed by the State Government and local bodies are entitled to at least minimum of pay-scale, which is being paid to their counterparts on the principle of Equal Pay for Equal Work. The employees sponsored through UPNL are working without being regularized for decades together. It amounts to begaar. In the instant case also, the arrangement made by the State Government through UPNL is a sham. The Principal Employer is State Government - The action of the State Government of not regularizing the employees sponsored through agency of UPNL and to deny them minimum of pay-scale including dearness allowance is arbitrary and unreasonable. The State Government is directed to regularize the employees sponsored through UPNL in a phased manner within a period of one year as per regularization schemes framed from time to time - The State Government is directed to ensure that the employees sponsored by UPNL get minimum of payscale with dearness allowance along with arrears to be paid within a period of six months from today - The respondents are directed not to deduct any GST or Service Tax from the salary of the employees sponsored by UPNL - petition disposed off.

Summary

Issues Involved:
1. Exploitation of workmen by the State Government and local bodies.
2. Regularization of services of persons employed through UPNL.
3. Payment structure and allowances for UPNL employees.
4. Compliance with labor laws and regulations.
5. Legal status and obligations of UPNL as an employer.
6. Deduction of GST and Service Tax from employees' salaries.
7. Principle of "Equal Pay for Equal Work."
8. State Government's adherence to constitutional provisions and judicial precedents.

Issue-wise Detailed Analysis:

1. Exploitation of Workmen by the State Government and Local Bodies:
The judgment highlights the exploitation of workmen employed through UPNL, who are paid a meager honorarium of ?8,400/-. Despite performing the same duties as their counterparts, they face deductions for GST and Service Tax. The administrative, disciplinary, and financial control over these employees lies with the establishments where they work, indicating a direct employer-employee relationship with the State Government.

2. Regularization of Services of Persons Employed through UPNL:
The court inquired whether there was any scheme for regularizing the services of UPNL employees. The State Government admitted that no such plan existed. The judgment references the Supreme Court's ruling in "State of Karnataka vs. Uma Devi," stating that UPNL employees cannot be regularized. However, the court finds this reliance misplaced and directs the State to regularize UPNL employees within a year.

3. Payment Structure and Allowances for UPNL Employees:
The court examined whether UPNL employees received fixed salaries or additional allowances like Dearness Allowance. It was found that these employees only received a fixed salary, with no dearness allowance, despite inflationary trends. The judgment orders that UPNL employees be paid at least the minimum of the pay scale with dearness allowance, aligning their compensation with that of their counterparts.

4. Compliance with Labor Laws and Regulations:
The judgment scrutinizes the applicability of the Contract Labour (Regulation and Abolition) Act, 1970, and the Uttarakhand Contract Labour (Regulation and Abolition) Rules, 2003. It was noted that UPNL was neither registered under Section 7 of the Act nor licensed as a contractor under Section 12. The court emphasizes that the arrangement between the State Government and UPNL is a sham to avoid regularization and proper compensation.

5. Legal Status and Obligations of UPNL as an Employer:
The court delved into the Memorandum and Articles of Association of UPNL, which primarily aims to provide employment to ex-servicemen and their dependents. The judgment reveals that UPNL's role has been misused to deny regular employment benefits to other employees. The court asserts that the Principal Employer is the State Government, making it responsible for the employees' welfare.

6. Deduction of GST and Service Tax from Employees' Salaries:
The court found the deduction of GST and Service Tax from UPNL employees' salaries to be unconstitutional. It directed the State Government to stop these deductions immediately, emphasizing that salary is a property under Article 300-A of the Constitution of India, and such deductions lack legal authority.

7. Principle of "Equal Pay for Equal Work":
The judgment upholds the principle of "Equal Pay for Equal Work," stating that UPNL employees are entitled to the same pay scale as their regular counterparts. The court condemns the State Government's practice of paying these employees a meager honorarium, terming it as "begaar" (forced labor).

8. State Government's Adherence to Constitutional Provisions and Judicial Precedents:
The court criticizes the State Government for not adhering to Articles 14 and 16 of the Constitution, which mandate equality before the law and equal opportunity in public employment. The judgment references various Supreme Court rulings, including "Olga Tellis vs. Bombay Municipal Corp." and "M/s Basti Sugar Mills Ltd. vs. Ram Ujagar & others," to underscore the unconstitutionality of the State's actions.

Conclusion and Directions:
The court concluded that the State Government must regularize UPNL employees and ensure they receive at least the minimum pay scale with dearness allowance. It also directed the cessation of GST and Service Tax deductions from their salaries. The judgment emphasizes that the State must act as a model employer and adhere to constitutional and legal standards in its employment practices.