Pure Supply Contract is statutorily exempt from levy under the BOCW Act.[1]

The Maharashtra State Electricity Transmission Company Limited (MSETCL), the Respondent, awarded the petitioner work orders for a total of 26 projects. MSETCL and the petitioner entered into individual agreements for each specific scope of work, including separate agreements for equipment supply, erection, testing and commissioning, and civil works.

A notification was issued by the Labour Department on July 4, 2016, stating that expenses related to design, supply, and transportation would not be subject to the 1% cess imposed by The Building and Other Construction Workers Welfare Cess Act, 1996 (“BOCW Act”). However, on June 30, 2016, MSETCL issued a circular that is being challenged in the petition. The circular instructed the deduction of a 1% cess from the running account bills, which included bills for the cost of equipment supply.

Subsequently, on January 2, 2017, MSETCL issued another directive that applied to all projects, mandating a deduction of a 1% cess from the total project cost, which included supply agreements, except for the cost of land. Then, on July 27, 2017, the State of Maharashtra issued a correction stating that the labor cess would only be applicable to civil works, effective from June 30, 2016. However, on August 4, 2017, the correction was seemingly revoked. The challenge in the petition revolves around the ongoing imposition of a 1% cess on supply contracts.

The Bombay High Court invalidated the imposition of a 1% cess on the design and supply of equipment. Furthermore, the court ordered the release of payments that were unlawfully deducted as the 1% cess on the design and supply of equipment. The respondents were prohibited from deducting 1% of the cess from future payments to the Petitioner if the deduction is related to the cost of designing and supplying equipment.

[1] High Court of Bombay in Writ Petition No. 668 OF 2019