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Judgment
By this petition under Article 227 of the Constitution of India, the petitioner has prayed for the following reliefs :
“8(a) YOUR LORDSHIPS BE PLEASED to admit this petition;:
(b) YOUR LORDSHIPS BE PLEASED to call for the records and proceedings of the ATA No.882(5)2014 from the Ld. EPFAT, New Delhi and
after perusing the same allow this petition by way of quashing and setting aside the order dated 04-01-2017 passed by the Ld. EPFAT, New Delhi in
ATA No. 882(5)2014 passed by the Assessing Authority under Section 7Q and Section 14B of the Act in the larger interest of Justice;
(c) YOUR LORDSHIPS BE PLEASED to stay the operation and implementation of the order dated 04-01-2017 passed by the Ld. EPFAT, New
Delhi in ATA No. 882(5)2014 till the final disposal of the Present Petition;
(d) YOUR LORDSHIPS BE PLEASED to grant interim relief in terms of Para 8(c);
(e) To pass any other appropriate and just order/s;â€
The brief facts are as under :
2.1. The respondent-establishment made an application for the first time to be registered under the provisions of Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 (for short “the Act 1952â€).
2.2. The petitioner ordered to cover the respondent-establishment with retrospective effect from 2001 by an order dated 14th August 2012. The
respondent-establishment thereafter paid the amount towards the provident fund contribution and since then it was complying with the provisions of
the Act, 1952.
2.3. The petitioner issued a show cause notice dated 10th February, 2014, calling upon the respondent-establishment for filing objection, if any, with
regard to failure to pay the contribution and other dues within the due dates as required under the law for the period from July, 2001 to February, 2010,
and also to explain, as to why, damages under Section 14B of the Act, 1952 should not be levied.
2.4. The petitioner also provided statement of delayed payment together with damages under Section 14B and interest under Section 7Q of the Act,
1952.
2.5. It appears that thereafter, personal hearing was granted from time to time to unable the respondent-establishment to represent its case in proper
manner and to adduce record. Final decision was taken on 15th July 2014 by the petitioner on the basis of the material on record, as the respondent
establishment neither made any representation nor availed the opportunities of personal hearing granted by the petitioner. The petitioner, therefore,
considering the fact that no explanation was offered on the proposed levy and no valid reasons for the delay made in the payment of Employees'
Provident Fund dues tendered by the respondent establishment an ex parte order dated 18th July 2014 was passed, directing the respondent-
establishment to pay Rs.16,16,642/- to be payable by the respondent-establishment.
2.6. It appears that thereafter, the respondent- establishment being aggrieved by the aforesaid order, preferred an appeal before the Employees'
Provident Fund Appellate Tribunal, New Delhi (for short “The Appellate Tribunalâ€)being ATA No.882(5)2014 under Section 7-I of the Act, 1952.
2.7. The Appellate Tribunal by order dated 4th January 2017, held as under :
“5. It is clear on case file that appellant establishment was covered under the provisions of the Act through coverage letter dated 14.08.2012, with
retrospective effect from 01.06.2001. This Tribunal is satisfied with the contentions raised on behalf of appellant that before the date of allotment of
PP code i.e. prior to 14.08.2012 it was not feasible for appellant to comply with the provisions of the Act. It is not a case of respondent that before
14.08.2012, appellant establishment ever deducted employees’ share from the wages of the employees. Any assessment for the period prior to
date of allotment i.e. 14.08.2012 is against the rule of natural justice especially when appellant establishment not disputed interest part from the date of
coverage. Accordingly by allowing present appeal, assessment u/s 14-B of the Act only set aside. Copy of the order be sent to the parties as per law.
File be consigned to the record room after due compliance.â€
2.8. The petitioner therefore, being aggrieved by the aforesaid order, has preferred this petition.
Learned advocate Mr.Rituraj M. Meena for the petitioner submitted that the order passed by the Appellate Tribunal is erroneous because the
respondent-establishment cannot be given the benefit of ignorance of law for more than 10 years.
3.1. It was further submitted that the damages levied under the provisions of Section 14B pertains to the loss, which otherwise would not have been
caused to the petitioner if the respondent-establishment would not have ignored the applicability of the Act, 1952.
3.2. It was therefore, submitted that the petitioner would have to pay the employees' benefit as per the scheme for the period for which the damages
are levied under Section 14B of the Act, 1952.
3.3. Learned advocate for the petitioner submitted that there is no evidence to show that the establishment had deducted PF dues from the salary of
its employees. Reference was made to Para no.6.4 of the memo of the Appeal filed before the Appellate Authority by the respondent-establishment,
wherein it is stated that the respondent establishment was deducting the amounts from the primary school and its staff since 2001, while making an
application for allotment of PF Code under the provisions of the Act, 1952.
On the other hand, learned advocate Mr. Dipak R. Dave for the respondent submitted that as the respondent-establishment was allotted PF Code
only by order dated 14.08.2012, it was not possible for the respondent establishment to comply with the provisions of the Act, 1952.
4.1. Reliance was placed upon the averments made in the appeal memo filed before the Appellate Authority to submit that the respondent-
establishment is running educational institution with the permission obtained from the competent authority. An application was made under the Act,
1952 on attaining the required payment strength along with the contribution dues payable by demand draft, Cheque. It was further submitted that there
is no basis for the petitioner to cover the respondent-establishment from 01.06.2001 on the ground that, it was employing 49 employees.
4.2. It was therefore, submitted that the petitioner without verifying details of remittance made by the respondent had issued show cause notice.
4.3. With regard to the non-filing of reply to show cause notice issued by the petitioner, it was submitted that the respondent could not file reply as the
old record could not be traced out and sufficient supporting staff was not available to linkup the previous records. Reliance was placed upon the letter
dated 24.04.2014 addressed to the petitioner seeking permission to file reply.
4.4. Learned advocate for the respondent, thereafter, relied upon the factual aspects of the matter referred to in para 6.8 of the Appeal Memo, which
reads thus :
“The appellant states that, though the appellant could not attend to the inquiry proceedings for the purpose of levying the penal damages, the
appellant that was conscious has sent a letter dated 14-06-2014 and acknowledged by the EPFO, Sub-Regional Office, Vapi on 15-07-2014 to the
respondent detailing the Incidents occurred from the inception to till the date of coverage and requested the respondent to ab initio correct the date of
coverage of the appellant establishment. The gist of the letter is as follows :
(a) The Institution has applied for the Provident Fund Code Number for the primary section institute employees only;
(b) The institute has enclosed the details in respect of the employees working with primary section institute for the period from 2001-2012;
(c) According to the recorded evidence provided to the EPFO and the fact being the primary Section institute has seldom employed over and above
twenty employees till 2009;
(d) With effect from 01-06-2009, the primary sections Institute has employed twenty two employees; hence the act and scheme provisions are
applicable to the Institute w.e.f. 01-06-2009;
(e) The secondary section Institute is fully aided by the Government; hence the Act & Scheme provisions are not applicable to the institute;
(f) Ultimately requesting the EPFO Sub-Regional Office to set right the coverage date from the existing date of coverage from 01-06-2001 to 01-06-
2009 and render justice.â€
4.5. Learned advocate for the respondent placed reliance upon the decision of the Division Bench of this court rendered in the case of Mansa Nagrik
Sahakari Bank Limited vs. Regional Provident Fund Commissioner of Gujrat State reported in 2005(2)GLR 1592. Learned advocate for the
respondent relied upon the following observations made in the said judgment :
“[12] As regards the decision of the Bombay High Court in Backbay Premises Co-operative Society Ltd. vs. Union of India, 1999 (1) LLJ 155/589,
it is true that the Bombay High Court in that case was concerned with a co-operative society and the controversy did arise under the provisions of the
Employees' Provident Funds and Miscellaneous Provisions Act, 1952, the interpretation of which is involved in the present appeal also. However, it is
important to note that the aggrieved party was a housing co-operative society and the Regional Provident Fund Commissioner was seeking to apply
the provisions of the Act to the premises owned by the society on the ground that the society provides services to its members on payment. The
society was recovering maintenance charges for upkeep of the building from its members to manage and administer the property like repairs and
maintenance of the building. The authorities invoked items 16(2) and 34 (in the Appendix I to the Act which defines ""non factory industries"") which
read as under :-
16.(2) Societies, clubs or associations which provide board or lodging or both or facility for amusement or any other service to any of their members or
to any of their guests on payment.
All societies, clubs, and associations which render service to their members, without charging any fee over and above the subscription fee or
membership fee.
(Emphasis supplied)
The Bombay High Court held that a housing society providing repairs and maintenance services to its members is not rendering ""any other service
contemplated in item 16(2) or ""service"" in item 34.
The decision in Backbay Premises Co-operative Society Ltd. (Supra) is clearly distinguishable as it was a housing co-operative society not providing
any commercial services, much less a commercial establishment.
[16] At the hearing of the petition, we called upon the learned standing counsel for the respondents to indicate the basis on which the impugned order
dated 1.10.2004 was passed under Section 14B. The learned standing counsel produced the instructions issued by the Central Provident Fund
Commissioner through circulars dated 24.10.1975 and 15.6.2004 laying down the guidelines for levy of penal damages under Section 14B. Part III of
the Circular dated 24.10.1975, reads as under:- (a) to (e) .... .... ... ...
(f) Damages should not be levied at the present rates from the establishments which have been discovered and covered retrospectively i.e. in the case
of discovered establishments in respect of which coverage notices are issued on or after 1.11.1973. In these cases, damages may be levied at the rate
of 10% per annum for amounts due upto the date of issue of the coverage notice and paid within the stipulated period in coverage letter. Damages on
the current contributions (on or after 1.11.1973) may be levied in accordance with the new rates. In the cases of discovered establishments in respect
of which the coverage notices were issued prior to 1.11.73, damages at the then existing rates should be levied.
(g) to (i) ... ... ... ...
The Circular dated 15.6.2004, reads as under:-
Very often establishments are covered retrospectively leaving a gap between the effective date of coverage and the actual date of communication of
the coverage notice. When establishments are covered retrospectively the EPFO is required to credit interest to the members account from the date
of coverage irrespective of the fact that the establishment has started compliance only after receiving the coverage intimation from the PF office. This
interest burden on the EPFO on account of such belated remittance is normally taken care of by the employers by virtue of Section 14B of the Act.
Many establishments have represented against the levy of damages for the 'pre-discovery period' (the gap between the actual date of coverage and
the date of intimation of the coverage notice) that they were prevented from making remittance in the absence of any code number allotted to them.
Various High Courts also have taken strong exception to this particularly after introduction of Section 7Q of the Act. Moreover, different regions
adopt different standards in levying damages in such cases.
The matter was discussed in detail by the CBT in its 165th meeting held on 3.12.2003. It has been decided that no damages shall be levied for the pre-
discovery period where the code number was allotted belatedly by the EPFO and the establishment was prevented from remitting the contributions in
the absence of a code number allotted to it by the EPFO. In order to have uniformity of approach by different field offices and with a view to alleviate
the difficulties experienced by the establishments, the following guidelines are issued in the matter of levy of damages in respect of establishments
covered belatedly :-
Levy of damages on workers' share for pre-discovery period : No damages shall be levied if the workers' share for the pre-discovery period has
been waived.
Establishment which paid P.F. dues within the time prescribed in the coverage notice : No damages shall be levied however to compensate the
interest loss to the E.P.F.O., only simple interest @ 12% p.a. Shall be levied.
Establishment which paid P.F. dues beyond the date fixed in the coverage notice : No damages shall be levied till the date of payment fixed in the
coverage notice. Only simple the coverage interest @12% upto the mentioned in the coverage letter and damages at appropriate rates for the period
of delay beyond the date fixed in the coverage letter be levied.
Establishment which were having their own private P.F. System before coverage and who deposited the P.F. In Banks or finance establishments :
Only difference of interest amount between 12% simple interest p.a. and the actual interest earned by the private P.F. shall be levied if the latter is
less than 12% p.a. eyond the date fixed in the coverage notice, damages shall be levied at the appropriate rates.
However, the past cases already decided may not be reopened. To avoid confusion and inconvenience in the matter of remittance of PF dues where
the establishments are covered belatedly, the coverage notices shall henceforth contain instructions that 'payments of PF contributions and allied dues
shall be made within 15 days from the date of receipt of the coverage notice'.
 (emphasis supplied)
In view of the aforesaid instructions and in view of the fact that the petitioner-bank was having its own private PF system, it is clear that the
petitioner-bank's case would fall under category 4. Hence, the respondent-authorities could not have levied damages by way of penalty under Section
14B of the Act for the period prior to the date of payment fixed in the coverage notice. In the instant case, the penalty to be levied would be only for
the period after the date of payment fixed in the coverage notice. The coverage notice did not specify any date for payment of dues. The order dated
27.12.2000 under Section 7A did not quantify the amounts under Section 7A which were already paid by 21.7.2000. The order dated 27.12.2000
quantified the amount of interest payable under Section 7Q of the Act which amount the Bank paid after almost three years. The respondent-
authorities would, therefore, be required to re-calculate the amount of penalty for the said delay on the aforesaid basis after giving an opportunity of
hearing to the petitioner.â€
4.6. It was therefore, submitted that the Appellate Authority has rightly allowed the appeal by holding that no assessment for the period prior to the
date of allotment i.e. 14.08.2012 is permissible under the provisions of Act, 1952.
Having heard the learned advocate for the respective parties and having gone through the material on record that the short question, which falls for
consideration is whether the impugned show cause notice dated 10.02.2014 and the order dated 08.07.2014 levying damages under Section 14B and
7Q of the Act, 1952 for the period from 2001 to 2010 are rightly set aside by the Appellate Authority, in view of the effect of allotment of PF Code in
the year 2012 or not.
The facts are not disputed as the petitioner allotted the PF Code by an order dated 14.08.2012. Therefore, the respondent-establishment could not
have complied with the provisions of the Act, 1952 prior to 14.08.2012.
Provisions of Section 14B of the Act, 1952, reads as under :
“14B. Power to recover damages.- Where an employer makes default in the payment of any contribution to the Fund [, the [Pension] Fund or the
Insurance Fund] or in the transfer of accumulations required to be transferred by him under sub-section (2) of section 15 [or sub-section (5) of section
17] or in the payment of any charges payable under any other provision of this Act or of [any Scheme or Insurance Scheme] or under any of the
conditions specified under section 17, [the Central Provident Fund Commissioner or such other officer as may be authorised by the Central
Government, by notification in the Official Gazette, in this behalf] may recover [from the employer by way of penalty such damages, not exceeding
the amount of arrears, as may be specified in the Scheme]:
[Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard:]
[Provided further that the Central Board may reduce or waive the damages levied under this section in relation to an establishment which is a sick
industrial company and in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction
established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), subject to such terms and conditions as may
be specified in the Scheme.]â€
From the above provisions, the damages can be levied by the petitioner only when there is interest burden on account of belated remittance by an
assessment.
In view of circular dated 15.06.2014 as referred to in the aforesaid decision in case of Mansa Nagrik Sahakari Bank Limited Vs. Regional
Provident Fund Commissioner of Gujarat State (supra), it is clear that no damages can be levied for pre-discovery period. In the facts of the present
case, period prior to date of discovery is period prior to 14.08.2012.
Similarly, interest under the provisions of Section 7Q of the Act, 1952 provides for levy of simple interest @ 12% per annum or any higher rate as
may be specified in scheme on any amount due from the respondents under the Act, 1952 from the date on which the amount has become so due till
the date of actual payment. In the facts of the present case that the respondent-establishment is ordered to be covered by allowing the PF Code in the
year 2012. It is apparent that no amount would be payable by the respondent-establishment prior to the allotment of PF Code as establishment would
be covered under the provisions of the Act from such date only.
In view of the above position of law, there is no infirmity in the impugned order passed by the Appellate Authority, whereby the order dated
18.07.2014 is set aside holding that the establishment under Section 14B of the Act, 1952 prior to the date of allotment i.e. 14.08.2012 as it was not
feasible for the respondent-establishment to comply with the provisions of the Act as respondent- establishment never deducted the employees' wages
of the employees prior to the date.
In view of the foregoing reasons, the petition fails and is accordingly dismissed. Notice is discharged. No order as to costs.