Labour Cess applicable on cost of construction without GSt or gross cost

[Sangeeta Garg]

My client got a house constructed in Vasant Vihar. He is seeking a CA certiifcate to pay labour cess. In my view he should pay it on cost of construction plus other items i.e lift, solar etc. but not on GSt . Rate is @1%. He may add gst on solar etc. but not on cost of construction. Further he has to pay it directly as per contractor this has nothing to do with him as this is assessment now.

Client is not registered under GSt. Kindly advise.

[KASTURI SETHI]

Extract of FAQ of BOCWW Cess.

 Q. No.2 What is labour cess

Ans. In the truest sense, there is no cess called Labour Cess. It is Building & Other Construction Workers’ Welfare Cess [BOCWW Cess).

2. As per Section 15 (2) (a) of CGST Act, Any Cess shall be included in the value of supply. For more details go through the following Issue IDs on TMI in this forum:-

(i) 115480 dated 2.10.19

(ii) 115489 dated 4.10.19

 (iii) 118312 dated 4.1.23.

3. Also go through the definition of 'Total Cost of Construction' as per Cess Act.

FAQ 5 Is this cess another tax levied on the labour portion of a contract ?

Ans. No. The levy of Cess on the cost of construction incurred by the employers on the building and other construction works is a means for ensuring sufficient funds for the Welfare Boards to undertake social security schemes and welfare measures for building and other construction workers. In this connection, the Hon’ble Supreme Court in the case of Dewan Chand Builders and Contractors v. Union of India and Other 2011 (11) TMI 405 - SUPREME COURT] has said that:

“The fund, so collected, is directed to specific ends spelt out in the BOCW Act. Therefore, applying the principle laid down in the aforesaid decisions of this Court, it is clear that the said levy is a ‘fee' and not ‘tax'. The said fund is set apart and appropriated specifically for the performance of specified purpose; it is not merged in the public revenues for the benefit of the general public and as such the nexus between the Cess and the purpose for which it is levied gets established, satisfying the element of quid pro quo in the scheme. With these features of the Cess Act in view, the subject levy has to be construed as ‘fee' and not a ‘tax'.

AI Summary

Labour cess applicability on construction cost excludes GST and covers ancillary items, treated as a fee payable by employer. BOCWW Cess applies on the Total Cost of Construction, including ancillary components like lifts and solar, but excludes GST from the cess base; GST on ancillary items may be invoiced separately. The levy is characterised as a fee earmarked for welfare purposes rather than a tax, and payment/assessment mechanics commonly involve the employer or contractor regardless of the client's GST registration.