2019 (3) TMI 295 - SC - Indian Laws

Interpretation of statute - special allowances paid by an establishment to its employees - scope of basic wages - whether the special allowances paid by an establishment to its employees would fall within the expression basic wages under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund? - Held that - Basic wage, under the Act, has been defined as all emoluments paid in cash to an employee in accordance with the terms of his contract of employment. But it carves out certain exceptions which would not fall within the definition of basic wage and which includes dearness allowance apart from other allowances mentioned therein. But this exclusion of dearness allowance finds inclusion in Section 6. The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all. The crucial test is one of universality. The employer, under the Act, has a statutory obligation to deduct the specified percentage of the contribution from the employee s salary and make matching contribution. The entire amount is then required to be deposited in the fund within 15 days from the date of such collection. In the present case, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion to interfere with the concurrent conclusions of facts - The appeals by the establishments therefore merit no interference - appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:
1. Whether special allowances paid by an establishment to its employees fall within the expression "basic wages" under Section 2(b)(ii) read with Section 6 of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, for computation of deduction towards Provident Fund.

Detailed Analysis:

Civil Appeal No. 6221 of 2011:
The respondent, an unaided school, provided special allowances as incentives to teaching and non-teaching staff based on an agreement. The authority under the Act included these special allowances in the basic wage for provident fund deductions. The Single Judge set aside this order, while the Division Bench initially included the special allowance as part of dearness allowance, making it liable for deduction. However, upon review, the subsequent Division Bench excluded it, stating it was not linked to the consumer price index and thus not part of the basic wage.

Civil Appeal Nos. 396566 of 2013:
The appellant was paying various allowances, including basic wage, variable dearness allowance (VDA), house rent allowance (HRA), travel allowance, canteen allowance, and lunch incentive. The authority under the Act excluded only the washing allowance from the basic wage. The High Court partially allowed the appellant's writ petition by excluding lunch incentive from the basic wage. A review petition by the appellant was dismissed.

Civil Appeal Nos. 396970 of 2013:
The appellant excluded house rent allowance, special allowance, management allowance, and conveyance allowance from the basic wage for provident fund contributions. The authority under the Act included these allowances in the basic wage. The High Court dismissed the appellant's writ petition and review petition.

Civil Appeal Nos. 396768 of 2013:
Similar to the previous appeal, the appellant excluded certain allowances from the basic wage. The authority under the Act included these allowances in the basic wage, and the High Court dismissed the appellant's writ petition and review petition.

Transfer Case (C) No.19 of 2019:
The petitioner challenged a show cause notice regarding the inclusion of various allowances in the basic wage. The writ petition was dismissed due to the availability of statutory remedies under the Act. The writ appeal was transferred to the Supreme Court for adjudication.

Common Submissions and Legal Analysis:
The appellants argued that basic wages under Section 2(b) exclude certain allowances unless universally and necessarily paid to all employees. They contended that special allowances, being discretionary and not universally applicable, should not be included in the basic wage for provident fund contributions. The respondents, represented by the Additional Solicitor General, argued that special allowances, being camouflaged dearness allowances, should be included in the basic wage as they are universally paid to all employees.

Judgment:
The Court held that allowances which are universally, necessarily, and ordinarily paid to all employees across the board are considered basic wages. Any variable earning based on individual efficiency and diligence, such as production bonuses, would be excluded from basic wages. The Court found no evidence that the allowances in question were variable or linked to any incentive for production. The wage structure and components were examined by the authority and appellate authority under the Act, concluding that the allowances were part of the basic wage camouflaged as allowances to avoid provident fund contributions.

Conclusion:
The Court allowed Civil Appeal No. 6221 of 2011, including the special allowance in the basic wage for provident fund deductions. The remaining appeals by the establishments were dismissed, affirming that the allowances in question were part of the basic wage and liable for provident fund contributions. The appeal by the Regional Provident Fund Commissioner was allowed.

Result:
- Civil Appeal No. 6221 of 2011: Allowed.
- Civil Appeal Nos. 396566 of 2013: Dismissed.
- Civil Appeal Nos. 396768 of 2013: Dismissed.
- Civil Appeal Nos. 396970 of 2013: Dismissed.
- Transfer Case (C) No.19 of 2019: Dismissed.