J&K And Ladakh High Court Upholds Construction Workers Cess Act For Erstwhile J&K

The High Court of Jammu & Kashmir and Ladakh has upheld the levy of cess on the cost of construction under the Building and Other Construction Workers Welfare Cess Act, 1996, holding that the Cess Act is an extension and integral part of the law governing the employment and welfare of construction workers.

A Division Bench of Acting Chief Justice Sanjeev Kumar and Justice Mohd Yousuf Wani held,

“The Cess Act must be considered and treated to be an extension and integral part of the BOCW Act. The Cess Act does provide for levy and collection of cess but clearly provides in Section 3 that the purpose of collection of levy and cess is for giving effect to the BOCW Act. The predominant object and purpose of the Cess Act is to garner finances and augment the resources for the Workers' Welfare Boards constituted under the BOCW Act,” the Bench held.

The court also held that Parliament had legislative competence to enact the Cess Act for the erstwhile State of Jammu and Kashmir. The court held that the legislation could be traced to Entries 23 and 24 of the Concurrent List.

The cess is levied at a rate of one to two per cent of the cost of construction incurred by the employer and is used to augment the resources of Building and Other Construction Workers' Welfare Boards. In the present case, the contractors had challenged deductions of one per cent from their bills.

The Court was hearing petitions filed by R.G. Buildwell Engineers Ltd. and Valeecha Engineering Ltd. challenging the applicability of the BOCW Act, the Cess Act, and the Building and Other Construction Workers Welfare Cess Rules, 1998, to the erstwhile State.

The Court first considered whether the levy was a tax or a fee.

Relying on the Supreme Court's judgment in Dewan Chand Builders & Contractors v. Union of India, (2012), it held that the levy was a fee and not a tax. The court noted that the cess was collected for a specific welfare purpose.

It also rejected the contractors' argument that the levy could not be treated as a fee because the contributors did not receive a direct benefit. The court held that a reasonable connection between the class contributing to the levy and the welfare activity was sufficient.

The Bench then examined whether Parliament could derive legislative competence from Article 248 read with Entry 97 of the Union List. Before August 5, 2019, the Constitution applied to Jammu and Kashmir with exceptions and modifications, including in relation to Article 248 and Entry 97.

The court held that Parliament could not derive legislative competence to enact the Cess Act for Jammu and Kashmir from the modified Article 248 read with Entry 97. However, it found that the Cess Act could be sustained under Entries 23 and 24 of the Concurrent List.

The Court considered the Supreme Court's decision in Dewan Chand Builders, which had upheld the Cess Act by tracing it to Entry 97. It held that the earlier judgment did not prevent the State of Jammu and Kashmir from arguing that the Cess Act was traceable to Entries 23 and 24.

“We have carefully gone through the judgments of the High Court of Delhi in Builders Association of India and others case (supra) as well as the Supreme Court in Dewan Chand Builders's case and we are of the considered opinion that the aforesaid judgments do not come in the way of the State of Jammu and Kashmir to urge and argue that the Cess Act is traceable and referable to Entries 23 and 24 of the Concurrent List and, therefore, was within the legislative competence of Parliament, notwithstanding that Article 248 read with Entry 97 of the Union List were made applicable to the State of Jammu and Kashmir with exceptions and modifications. We, therefore, do not agree with the contention of Mr. Shah that the issue raised by the State of Jammu and Kashmir to sustain the constitutional validity of the Cess Act by bringing it within the purview of Entries 23 and 24 of the Concurrent List is no more open to debate and discussion in view of the judgment of the Supreme Court in Dewan Chand Builders's case (supra).”

The Court noted that the Union had initially taken the position before the Delhi High Court that the Cess Act was referable to Entries 23 and 24. However, the Additional Solicitor General did not press that argument during the hearing and instead relied on Entry 97. The Delhi High Court therefore did not examine the legislation from the perspective of Entries 23 and 24.

After examining the pith and substance of the Cess Act, the Court concluded that it was a labour welfare legislation rather than merely a revenue-collection law. It found that the levy was intended to augment the resources of the Welfare Boards so that they could discharge their functions under the BOCW Act.

The Court ultimately held,

“For the foregoing reasons, we are of the considered opinion that Parliament had the legislative competence in terms of Article 246 read with Entries 23 and 24 of List III of the Seventh Schedule and, therefore, the challenge to the constitutional validity of the Cess Act is meritless and must fail.”

The Court separately considered whether the cess could be collected before the constitution of the Welfare Board. Relying on the Supreme Court's decision in Prakash Atlanta (JV) v. National Highways Authority of India, 2026, it held that the constitution of the Welfare Board was necessary before the cess could be levied and collected.

The Jammu and Kashmir Building and Other Construction Workers Welfare Board was constituted through SRO 274 of 2007 dated July 31, 2007. The Court held that before that date, the Cess Act and Rules were not capable of being given effect, and the petitioners could not have factored the cess into their bidding price.

However, from August 1, 2007, the petitioners became liable to pay the prescribed cess. The court specifically held that all works executed by them under Notices Inviting Tenders issued after July 31, 2007 would attract the levy.

The court disposed of both petitions, holding that Parliament had legislative competence to enact the BOCW Act and the Cess Act in relation to the then State of Jammu and Kashmir and that both Acts were constitutionally valid. It also upheld the constitutional validity of the Building and Other Construction Workers Welfare Cess Rules, 1998.

The cess payable by the petitioners at the prescribed rate will be recoverable with interest at six per cent per annum from the date it became due until it is actually recovered.