Jammu: The High Court of Jammu and Kashmir and Ladakh has upheld the government’s authority to collect a one per cent cess from construction contractors for the welfare of building and construction workers.
The court rejected a challenge by two companies, which had argued that Parliament did not have the power to apply the construction workers’ welfare laws to Jammu and Kashmir under the constitutional arrangement that existed before the abrogation of Article 370.
The judgment means that the Building and Other Construction Workers (BOCW) Act, the Welfare Cess Act and the 1998 Cess Rules remain legally valid in J&K.
The ruling was delivered by a Division Bench comprising Acting Chief Justice Sanjeev Kumar and Justice Mohd Yousuf Wani in two connected petitions filed by R.G. Buildwell Engineers Ltd. and Valeecha Engineering Ltd.
The dispute began after the J&K Economic Reconstruction Agency started deducting one per cent cess from the contractors’ bills.
The contractors argued that the levy was effectively a tax and that Parliament did not have the necessary legislative power to impose it in the erstwhile State of Jammu and Kashmir.
They also questioned the applicability of the BOCW Act, the Welfare Cess Act and the corresponding rules to the region.
The High Court, however, rejected their arguments.
The Bench held that the cess is a fee meant for a specific purpose—supporting construction workers—and not a general tax.
The court relied on an earlier Supreme Court judgment, Dewan Chand Builders & Contractors v. Union of India, which had settled the nature of the levy.
In simple terms, the money collected is meant to go towards the welfare fund for construction workers, rather than becoming part of the government’s general revenue.
The contractors had argued that Parliament’s residuary powers under Article 248 and Entry 97 of the Union List could not be used to impose the cess in the erstwhile State of J&K.
The High Court held that even if those provisions did not independently provide the necessary power, Parliament could still enact the law under Entries 23 and 24 of the Concurrent List, which deal with labour welfare and social security.
The court said the main purpose of the legislation was to protect construction workers and provide funds for their welfare.
Therefore, the Bench held that Parliament had the necessary legislative competence under Article 246 read with Entries 23 and 24 of List III.
The constitutional challenge was consequently rejected.
The court also clarified an important question: from which date did contractors become liable to pay the cess in J&K?
The Bench noted that the J&K Building and Other Construction Workers Welfare Board was constituted on July 31, 2007.
It held that the statutory system could not have been effectively implemented before that date.
However, contractors became liable to pay the prescribed cess from August 1, 2007.
The court clarified that the liability applies to contracts arising from Notices Inviting Tenders (NITs) issued after July 31, 2007.
Unpaid cess can be recovered with interest
The High Court ruled that cess payable on such contracts can be recovered from the petitioners.
The unpaid amount will carry six per cent annual interest, calculated from the date the cess became due until the date of recovery.
This means that contractors cannot avoid the levy merely because they did not include it in their original bid prices.
The ruling confirms that the construction workers’ welfare cess is legally valid in Jammu and Kashmir.
It also clarifies that eligible contractors can be asked to pay the levy on contracts covered by the court’s order, along with interest on any unpaid amount.
For construction workers, the cess is intended to support welfare measures through the Building and Other Construction Workers Welfare Fund.
For contractors, the judgment settles the legal challenge and confirms that the government can recover the applicable cess in accordance with the law.
The two petitions were accordingly disposed of by the High Court.
