Cash Canteen Subsidy Qualifies As Cash Value Of Food Concession And Is Included In Dearness Allowance: Gujarat High Court

The Gujarat High Court has ruled that a monthly cash canteen subsidy of ₹475 provided to employees by Reliance Industries Ltd. qualifies as part of the dearness allowance under Explanation 1 to Section 6 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act). This classification determines whether provident fund (PF) contributions are required on the subsidy amount.

The decision, delivered by a division bench of Justices AS Supehia and Gita Gopi, analyzed the language of the EPF Act, as well as relevant judicial precedents, to determine the status of the cash canteen subsidy in terms of PF contribution requirements.

The Court held that the "cash canteen subsidy" falls under the expression “the cash value of any food concession” as outlined in Explanation 1 to Section 6 of the EPF Act, and is, therefore, considered part of the dearness allowance by means of a statutory deeming fiction.

The judges noted, “On an overall threadbare analysis of the facts and law as well [as] the judicial precedents, we hold that the 'cash canteen subsidy' will satisfy the expression 'the cash value of any food concession' and will fall under Explanation 1 to Section 6 of the EPF Act, 1952 and will be part of the dearness allowance by virtue of deeming fiction, hence amenable to deductions towards provident fund.”

In addressing whether the cash canteen subsidy constituted part of basic wages, the Court observed, “the payment of cash canteen subsidy was reliant on the factum of option/choice, and hence, as per foregoing principle (b), the canteen subsidy is available to those who seize the 'opportunity' hence, the same will not be 'emolument', and as a sequel, it will not form part of basic wages. It is also not in dispute that the canteen subsidy is not earned by the employees when they are on leave, and after a period of leave of seven days, it gets forfeited.”

“Hence, the nature of payment of canteen subsidy expels it from the definition of 'basic wages'. The respondent No.2 has precisely held that the canteen subsidy will not fall within the definition of Section 2(b) of the EPF Act, 1952. We do not find any infirmity in the opinion of the learned Single Judge confirming such findings,” the Court added.

The Court then examined Explanation 1 to Section 6, which classifies the “cash value of any food concession” as part of dearness allowance. In this context, it noted that Reliance Industries provided food at subsidized rates through 12 canteens, and that the canteen subsidy had been revised periodically in line with rising costs of living, reaching ₹525 per month as of January 1, 2002. According to the Court, “ “revising of the rates of food items has direct nexus to the cost of living, which is an integral part of dearness allowance which is paid to the employees to offset the adverse impact of inflation.”

This connection between the cost of living and dearness allowance meant that the subsidy served a similar purpose.

Highlighting the statutory language, the Court stated, “The characteristics of 'the cash value of any food concession' and 'dearness allowance' are analogous and are interlaced with each other. The legislature in its wisdom has aptly excluded both from the ambit of Section 2(b), but they are included for the purpose of deduction of contribution towards provident fund in Section 6 of the EPF Act, 1952.”

Therefore, the Court ruled that the subsidy, while not dearness allowance in the strictest sense, is included in dearness allowance by deeming fiction under Explanation 1 to Section 6.

The judgment further clarified the equitable treatment of employees in this context. While some employees consumed food directly at subsidized rates in canteens, others received a cash subsidy in lieu of this benefit. The Court held that the cash subsidy should be treated in the same manner as the food concession provided in the canteen, saying, Such cash value of the subsidized food in canteens, in fact is a concession in the form of cash subsidy, and hence, it will satisfy the expression “cash value of any food concession” which will indubitably form a part of dearness allowance.”

The Court also dismissed Reliance's argument that the cash subsidy could not be considered dearness allowance because it is only paid to employees who are present at work, whereas dearness allowance is paid regardless of attendance.

The Court refuted this position, observing, “The expression 'cash value of any food concession' has the genesis in the consumption of food by the employees in the canteens run by the Establishments, and it depends on their presence. An employee may not take the food at concessional rates everyday, but the same cannot absolve the Establishment from deductions to provident fund entirely.”

Concluding its analysis, the Court found fault with the Single Judge's decision to quash the orders from the statutory authorities, stating that a beneficial legislative provision should be “liberally construed” to meet its purpose, which in this case includes securing provident fund contributions for employees.

Accordingly, the Letters Patent Appeal was allowed, and the Single Judge's judgment was overturned.

The High Court reinstated the Regional Provident Fund Commissioner's original order from June 25, 1998, requiring Reliance Industries to deduct provident fund contributions from the cash canteen subsidy provided to employees and to settle the arrears within three months.

Case Title: IPCL EMPLOYEE ASSOCIATION (BHARTIYA MAJDOOR SANGH) Versus RELIANCE INDUSTRIES LTD.

LL Citation: 2024 LiveLaw (Guj) 165

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