Case Study: Chhattisgarh High Court Strikes Down BOCW Cess on Pure Supply Contracts

Cess Not Applicable on Supply Contracts – Chhattisgarh High Court Ruling

Case

M/s. BNC Power Projects Ltd. & Anr. v. Union of India & Ors.

Court and Date

Chhattisgarh High Court
Hon’ble Mr. Sanjay K. Agrawal & Hon’ble Mr. Sanjay Kumar Jaiswal, JJ.
WPC No. 4368/2021 | Date: 21 March 2025

Relevant Law

Building and Other Construction Workers’ Welfare Cess Act, 1996 – Section 3
Building and Other Construction Workers’ Welfare Cess Rules, 1998 – Rule 3

Background

M/s. BNC Power Projects Ltd., engaged in infrastructure projects, entered into multiple agreements with NTPC for turnkey projects. The purchase orders were strictly for supply of materials, not construction. Despite this, NTPC deducted 1% cess under the Cess Act from payments and deposited it with the State Government. The company challenged the deduction, claiming it was unconstitutional as the contracts involved only supply of materials, not building or construction works.

Legal Issue

Whether cess under the Building and Other Construction Workers’ Welfare Cess Act can be levied on pure supply contracts or contracts involving only installation/erection without any civil construction component.

Key Legal Findings

• The Cess Act clearly excludes pure supply contracts from its scope.
• Mere installation or erection of pipelines, transmission lines, towers, or power equipment without civil construction does not attract cess.
• Cess cannot be recovered from the employer for materials supplied or under supply contracts.
• The Supreme Court precedent in UP Power Transmission Corporation Ltd. v. CG Power & Industrial Solutions Ltd. (2021) 6 SCC 15 applies directly.

Judgment

The High Court held that recovery of cess from the petitioner on supply contracts was unconstitutional and bad in law. It directed the State to refund the amount collected within three months (without interest). The court refrained from ruling on the constitutional validity of Rule 3, as the relevant Act had already been repealed in 2020 and replaced by the Occupational Safety, Health and Working Conditions Code, 2020.

Conclusion

The decision reaffirms that cess under the BOCW Cess Act is strictly linked to building and construction activities. Pure supply contracts, even with installation/erection components that do not involve civil construction, are outside its ambit.

Key Learning

Organisations engaged purely in supply contracts without civil construction work are not liable to pay BOCW cess. This ruling strengthens the protection for suppliers from unwarranted cess demands and underscores the need to correctly classify contracts to avoid unlawful deductions.

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