IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON WEDNESDAY, THE 2ND DECEMBER 2009 / 11TH AGRAHAYANA 1931 Ins.APP.No. 5 of 2009() ----------------------- ( IC.48/2005 of E.I COURT, PALAKKAD ) APPELLANT/RESPONDENT: ------------------------------- EMPLOYEES STATE INSURANCE CORPORATION, REP. BY ITS REGIONAL DIRECTOR, PANCHADEEP BHAVAN, ROUND NORTH, THRISSUR - 680 020. BY ADV. SRI.T.V.AJAYAKUMAR RESPONDENT/APPLICANT ------------------------ M/S.PREMIER CASHEW INDUSTRIES VILAKUDY P.O., KUNNICODE REPRESENTED BY ITS PROPRIETOR, L.KUNJU KUNJU. BY ADV. SRI.A.V.XAVIER ADV. SRI.JOLLY JOHN THIS INSURANCE APPEALS HAVING COME UP FOR ADMISSION ON 02/12/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R. RAMAN & P.R. RAMACHANDRA MENON, JJ. ............................................................................... INSURANCE APPEAL NO. 5 OF 2009 ......................................................................... Dated this the 2nd December, 2009 J U D G M E N T P.R. Raman, J: This appeal is filed by the Employees State Insurance Corporation represented by its Regional Director, challenging the order passed by the E.I. Court , Palakkad in I.C. No. 48 of 2005. The respondent herein filed the said application challenging the order passed by the appellant herein under Section 45-A of the E.S.I. Act, demanding huge amount by way of contribution on the alleged omitted wages as determined on an adhoc basis under Section 45A. For the purpose of determination of omitted wages said to have been paid by the respondent herein, reliance was placed on a vigilance inspection conducted by the appellant on the premises of the respondent herein, as also the income tax return obtained by them from the Income Tax Department for the period 1995-96, 1996-97 and 1997-98. By letter dated 27.01.2003, the Appellant Corporation informed the respondent INSURANCE APPEAL NO. 5 OF 2009 2 who is the proprietor of Premier Cashew Industries that on inspection of the records of the factories of the respondent on 17 and 18th April 2002 by the Vigilance Officer (ESIC) it has been reported that an amount of wages of Rs.5,49,17,024.28/- has not been taken into account for payment of contribution in respect of 6 factories under the Premier Cashes Industries, Kollam , as detailed therein. The various amounts said to have been paid as wages as per the Income Tax Returns are described under item Nos.1 to 7 of the same letter. From the description contained in the Head of Account mentioned in this letter, it is seen that these amounts are paid towards Rawnut drying charges, processing charges, Holiday/festival wages, Maicadu cooly, factory staff salary and batta, staff salary (H.O), weekly wages. The second paragraph of the said letter shows the details of the amounts of wages on which compliance was made as per the records in respect of the six factories , viz., at Kannanellur, Mylom, Ambalathumkala, Odanavattom, Panumpetta, Chakkuvarakkal. It is their case that the balance amounts are therefore the omitted wages on which compliance is required. INSURANCE APPEAL NO. 5 OF 2009 3 Accordingly demand was made taking 5.5% as wage portion on the balance amount and 6.5% as wages for the period after 31.12.1996. To this letter, the respondent herein submitted a detailed reply, which is marked as Exts.A2 and A4, as per which they had furnished a statement in respect of the amount credited in their account as having paid to the different factories . The said statement also shows that there are certain factories outside the State and some of the factories are within the State and also the bifurcated figures in respect of the factories. According to the respondent, the amount taken as omitted wages are actually the amount paid by the respondent herein to different establishments, independently covered under the E.S.I. Act allotting a code . As far as the factories within the State are concerned, according to them, these are the expenditure incurred by them and not wages paid to any of the employees. However, the Corporation proceeded to confirm the proposal made and an order was passed under Section 45-A of the Act. This was the matter of challenge before the E.I. Court. The Insurance Court found that inspection had been INSURANCE APPEAL NO. 5 OF 2009 4 conducted in the respondent's establishments on various occasions by the appellant herein through their inspectors. Therefore, if there were discrepancies or non compliance, that could have been detected by the officers who conducted the inspection. It was admitted by R.W.1 himself that inspections were conducted on earlier occasions also and that it was not the case of the appellant that omission, if any, noticed, is still not rectified. It was further admitted by R.W.1 that he did not visit the other factories or verify the separate books of accounts of such factories. It was further admitted in the cross examination that there may be wages, which would not attract ESI Act and that he verified only the consolidated balance sheet which contained the details of all the factories. According to the E.I. Court, the appellant had blindly accepted Ext.B2 report of the R.W.1 which was not supported by any other valid materials and Ext.A6 adhoc assessment order was passed accepting the said report. In paragraph No.8 of the impugned order, it has been specifically stated that the appellant had allotted separate code numbers to the factories, which are covered under the ESI Act INSURANCE APPEAL NO. 5 OF 2009 5 and that for the purpose of adhoc assessment, they had been treated as independent establishments. It was further stated that since all the factories are owned by the respondent, there might be a consolidated balance sheet for the purpose of Income Tax return, showing the details of expenditure of all the factories including payment of wages. It is also stated in the same paragraph that the appellant had admitted that some of the factories are functioning in the non-implemental areas. In that view of the matter, the Court below found that there was no justification in proceeding to recover such amount based on Ext.A6 adhoc assessment made and accordingly Ext.A6 order was set aside. 2. The learned Counsel Mr. Ajayakumar, appearing for the appellant has submitted that when a provisional order under Section 45-A is made and issued to the respondent herein, in case of any dispute regarding the amount including the amount in the provisional assessment, they are entitled to file objections and support the objections by producing all the relevant records before the authorities concerned. In so far as the respondent INSURANCE APPEAL NO. 5 OF 2009 6 has not attempted to produce any such records to support the submission made by him, the appellant is said to be justified in confirming the proposal to recover the amount. However he admits, as found by the court below, that some of the factories owned by the respondent have been allotted separate code numbers and are covered independently under E.S.I. Act. But according to him, the liability is fastened on the respondent as the principal employer. If the respondent is considered to be the principal employer of the different factories, which are separately covered under the Act, then what the respondent ought to have shown is that they have not paid any wages to the employees, but the amount paid to these factories are eligible expenditure under Section 35 of the Income Tax Act. Whether, in turn, these factories have paid these amount as wages or not, according to them, is not within their knowledge. Further, whatever wages have been paid by the factories, they have already paid contribution on the said wages . 3. It is true that the Corporation is entitled to make adhoc assessment under Section 45-A where the employer is not INSURANCE APPEAL NO. 5 OF 2009 7 maintaining proper accounts. But the order under Section 45-A should also be based on some records because in order to arrive at the figures proposing what is the omitted wages, necessarily, the Corporation should have some records. In this case, the only records based on which they have made the adhoc assessment is the Income Tax Return filed by the respondent herein, which only shows that various amounts have been paid to different factories which are independently covered under the E.S.I. Act. They are shown as expenditure incurred by the respondent herein and claimed necessary deductions for the purpose of income tax. When the respondent have come forward by filing a detailed statement showing the bifurcated figures, which they have paid to the different such establishments, a duty was cast upon the Corporation to cause verification of the records of those different establishments and to see whether they have in turn paid these amounts as wages to their employees. In case there is any omission, the Corporation is entitled to/expected to call for explanation for such deficiency. No such attempt is admittedly made in this case. In this connection, the court below INSURANCE APPEAL NO. 5 OF 2009 8 has found, after referring to the evidence of R.W.1 that he did not inspect any other factories or verify their records. Therefore, we do not find any ground to interfere with the findings of the Insurance Court that the order issued against the respondent under Section 45-A is not sustainable, so long as the respondent has no case that these amounts are paid as wages to its employees in the Premier Cashew Factory. On the other hand these are only expenditure incurred by them and paid over to the different establishments. Then the only question to be considered is whether the amount paid by the respondent to different establishments are wages paid by those factories/establishments. 4. Therefore what is to be found out is whether the amount already paid to the different factories as per the statement furnished by the respondent herein are expended by the said factories towards wages paid to the employees. If they have already paid wages and paid contribution, then no contribution will be liable to be paid . Therefore, omission, if any, should be supplied and demanded in the hands of the above INSURANCE APPEAL NO. 5 OF 2009 9 factories independently covered under the E.S.I. Act. In this view of the matter, we find that no fault or error is committed by the E.I. Court. However we make it clear that the judgment of the E.I. Court will not stand in the way of the Corporation in taking appropriate steps to proceed against the above establishments, in accordance with law, in case there is any omitted wages, on which no contribution is paid by them. With the above view, the appeal is dismissed. No cost. P.R. RAMAN, JUDGE. P.R. RAMACHANDRA MENON, JUDGE. lk