Retention Allowance Forms Part Of Basic Wages For EPF Contributions: Bombay HC

Background

The Federation, a government-linked organization under the Maharashtra Raw Cotton (Procurement, Processing, and Marketing) Act, 1971, facilitates the procurement and sale of cotton. It had paid retention allowances to seasonal workers but did not make corresponding EPF contributions. Consequently, the Assistant Provident Fund Commissioner issued a demand notice requiring the Federation to deposit overdue contributions. The Federation failed to provide any justification and the Commissioner issued an order to deposit all overdue contributions under 15 days. This order was challenged by the Federation, contending that retention allowance is not 'basic wage' under the EPF Act.

Arguments

Mr. M.V. Samarth, Senior Counsel for the Federation, contended that the retention allowance does not qualify as a “basic wage” under the EPF Act and should be excluded from PF contributions. He further argued that the Federation should be exempt from the EPF Act as it is not an “industry” under Sections 2(i) and 4 of the Act. The Federation claimed that it only facilitated cotton transactions for farmers and thus did not engage in industrial activity. They also maintained that seasonal employment lacks continuity and therefore should not attract provident fund obligations.

Mr. G.A. Kunte, counsel for the Assistant Provident Commissioner, countered that the Federation had never raised these objections before, making them ineligible for consideration at the writ stage. He also referenced the Federation's by-laws, which indicated that its functions extended beyond mere facilitation to include activities integral to the cotton and textile industry. Further, Kunte cited Section 6 of the EPF Act, which obligates employers to contribute to PF based on basic wages, including retaining allowances paid to employees. He referenced several precedents to establish that both seasonal and permanent employees are included.

Court's Reasoning

Firstly, the court dismissed the Federation's argument that it is not an industry under the EPF Act. It noted that the issue was not raised before the lower authorities, and therefore, could not now be used to invalidate the order. Furthermore, Schedule I of the EPF Act lists industries engaged in manufacturing textiles, including cotton processing activities. The Federation's operations, which encompass cotton procurement and processing for textile use, clearly fall within this scope.

Secondly, Section 6 of the EPF Act mandates that employers contribute to the EPF based on basic wages, dearness allowance, and retaining allowance. The court cited Managing Director, Chalthan Vibhag Sahakari Khand Udyog v. Government Labour Officer [(1981) 2 SCC 147], where the Supreme Court held that retention allowances paid during the off-season are considered part of basic wages. Thus, the court concluded that retention allowance, even during idle periods, must be included in PF calculations.

Thirdly, analyzing the definition of “basic wages” under the EPF Act, the court noted that it covers all emoluments earned while on duty, excluding specified allowances like house rent and overtime. Retaining allowance, however, is not excluded. The court affirmed that the authorities correctly applied the law in determining that the Federation was obligated to contribute to the EPF on retention allowances.

Lastly, the court emphasized that retaining allowance reflects an ongoing employer-employee relationship, even in off-seasons. The Federation's payment of this allowance demonstrated an intention to retain employee services for the next season, thus establishing continuous employment under the EPF Act. Thus, the Court dismissed the petition and upheld the order requiring PF contributions on retention allowances.

Case Name: Maharashtra State Cooperative Cotton Growers' Marketing Federation Ltd. v. Appellate Tribunal, Employees Provident Fund

Citation: 2024 LiveLaw (Bom) 591

Counsel for the Petitioner: Mr. M.V. Samarth, Senior Counsel with Mr. Vipul Ingle.

Counsel for Respondent No. 2: Mr. G.A. Kunte.

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