Introduction: The Employees’ Provident Fund (EPF) assessment proceedings often uncover a myriad of tactics employed by employers to navigate or sometimes circumvent the process. A notable strategy observed involves the last-minute introduction of the ‘identification of beneficiaries’ argument to potentially derail the proceedings. This maneuver is typically reserved for situations where the employer finds themselves without substantive grounds to challenge the assessment. The legal framework, particularly Section 7A of the EPF Act, outlines the procedural aspects for assessing dues against employers, emphasizing not just contributions but also interest, damages, and dues by exempted establishments. This discussion delves into the complexities of identifying beneficiaries during EPF assessments, highlighting the legal nuances and practical challenges that unfold in the process.
I have practically seen while making assessment that whenever employer is not having any ground then he will not leave any stone unturned to divert the assessment proceeding such as he is not given proper opportunity of hearing or he will demand cross examination of enforcement officer even after submission of final report just before issue of assessment order. In case, all these tricks are not working then at the last resort, he will plant the ghost of identification of beneficiaries at the last moment to scuttle the whole assessment proceeding.
Legal Procedure: – 1. we have to keep in mind that section 7A of the Act is a procedural section where procedure to assess the dues against the employer is described. These dues may be contribution payable under section 6, interest payable under section 7Q, damages payable under section 14B or dues payable by any exempted establishment. All these dues can be assessed as per procedure laid down in section 7A of the Act. We have to keep in mind that in section 7A the word “dues” is used not the word “contribution” as generally we have a misnomer that section 7A is limited for assessment of contribution only.
2. In section 7A, inquiry officer is vested with the power of the civil court to conduct the proceeding smoothly. Legislature has incorporated provision of review and escapement under section 7 of the Act. In this section, no such wording “identification of beneficiaries” used by the legislature. In fact, under section 7A(3A) inquiry officer is used power to carry out best assessment or ex-parte assessment in case employer is deliberately not producing documents or not appearing for hearing.
3. This term “identification of beneficiaries” has come into picture through judicial decisions especially Hon’ble Apex Court judgement in the matter of M/s Himachal Pradesh Forest State Corporation and in the matter of FCI. We have to keep in mind there was no dispute regarding payment of contribution for regular employees in both the cases.
4. We have to keep in mind that it is duty of employer to recruit or employ the employee. Here, I am saying the word “employ” as sometime employer is not hiring the employees but engaging the employees through the contractor but he is having full control and supervision over the employees. So, it is naturally duty of the employer to identify the employees and employer can take the plea of identification of beneficiaries only in two circumstances.
A. Employer is unable to unable to identify employees due to non-availability of document due to limitation in particular law.
B. Employer in the capacity of either as employer or as principal employer is not having direct nexus with the payment released to individual employee.
5. For better understanding on the issue, we will take up both the above said factors one by one. Let us assume one establishment, which is company by legal status, is in inquiry under EPF&MP Act-1952. We are aware that no limitation period is prescribed in the Act so inquiry may be for the period older than 10 years. Employer has presented statutory returns prescribed under the Act before inquiry officer and came out with the plea that no supporting documents are available due to limitation of 8 years in the Companies Act and they are not bound to maintain documents beyond the limitation period. At this stage, we cannot say that plea of employer is evasive or arbitrary in nature as he is having the legal backing behind the stand taken by him. Even, department cannot take stand before the inquiry officer to take up case under section 7A(3A) for best or ex-parte assessment on the ground that employer is unable to produce the documents. At this stage, even employer is taking the plea of identification of beneficiaries with the copy of challans for the employees he has already paid the due then PF authorities cannot carry out assessment merely based on Profit & Loss statement stating that employer has failed to produce copy of ledger and other supporting documents related to P & L statement. In the nutshell, we can say that in case, establishment is constituted under a particular law and that law prescribe a limitation then PF Authorities can not compel employer to travel beyond the domain of law and force him to identify the beneficiaries. In that case, employer has discharged the burden to produce documents and now onus has been shifted on the department to prove the counter as well as identify the beneficiaries.
6. Now, we will come to second factor that is related to nexus of the employer with the payment released to employees. In order to understand this, let us assume a case, Suppose, employer has booked Rs. 10 Cr. as salary & wages in the profit and loss statement. During the inquiry employer has presented salary statement for Rs. 5 Cr. and when it was enquired from him for the balance Rs. 5 Cr.. He states that this amount was entered without his knowledge and his actual expense is Rs. 5 Cr. only. In that circumstances, assessment order for the difference amount of Rs. 5 Cr. will be passed under section 7A(3A) of the Act. In that kind of cases, as employer has no defense then he will take the plea of identification of beneficiaries. He will put up a contention that you are not revenue authority and you are not competent to assess where employees are not identified. In that case, he will put a question to hide his mistake that employees are not identified for Rs. 5 Cr. so whose account you are going to credit this amount. He will unnecessary put up a blame on the department that you have army of inspectors so it is your duty to identify the beneficiaries and in case, department has failed to do so then benefit need to be given to the employer. His contention is not having any merit for the following reasons: –
A. P & L statement is a statutory return and procedure to prepare it start with the beginning of the financial year. Suppose, employer has booked one expense in P & L statement then it is not the case that he suddenly booked the amount but it is part of established procedure which start with any recording of any financial transaction at the level of raising any bill or voucher. Later on, this entry is passed into journal and followed by ledgers then only it is recorded into P & L statement. At all these stages, employer was having supporting documents to record the expense but he is not presenting the same at the time of payment of PF dues over the same expense.
B. Employer is taking lot of statutory benefits over the expense booked by him in the form of allowance of expense for the purpose of income tax benefits and claim of input tax credit etc. For example, any amount booked as salary in P & L statement will be allowed as expense for claiming for deduction under Income Tax Act-1961 which will bring down the tax liability of the employer. He cannot take a defense that when this expense was beneficial for him that time it was genuine and when time has come to pay liability over this expense then his stand is changed that this expense is not genuine.
C. It is statutory duty of the employer as well as onus is on him to produce documents and in case, he has failed to produce documents then it is fit case for assessment under section 7A(3A) of the Act.
D. in this case, it is fault at the end of employer that he has failed to produce documents despite being legally bound to produce documents then he cannot be allowed to take benefit out of his own wrong.
E. This is fact that no provision is there in EPF Scheme- 1952 for accounting of and subsequently use any amount assessed under section 7A(3A) of the Act for the wellbeing of all the contributories of the Scheme or in general wellbeing of the society. In this case, provision similar to investor protection fund in Companies Act need to be incorporated in the Scheme so that this kind of dispute do not arise again and again. We have keep in mind that jurisdiction of the inquiry officer at the time of assessment is limited only to assess the amount and it is not his jurisdiction that how amount is going to be accounted or further distributed. Moreover, inquiry officer being a statutory authority under the Act is duty bound to follow the provision of the Act.
7. There may be cases where principal employer is not releasing payment or salary in the name of employees and he is making payment on lump-sum basis to the third party or contractor based on work assigned to the third party. This generally happened in the case of work contract or job work expense or contract expense etc. It is the capability and competence of the inquiry officer that he is able to establish whether contract is “contract of service” or “partial contract of service” and “partial contract for service” or contract is purely a “contract for service”. In all the cases pertaining to contract for service or where there is not a direct nexus with the release of payment to employees engaged by third party and principal employer then principal employer can be compelled for identification of beneficiaries. I am using the word “nexus” here as this word has wider connotation and meaning. In that type of cases, the nature of the contact between contractor and principal employer has wider significance. In addition to that it is need to be seen whether contractor is exclusive contractor specially in the case of pure work contract. In this type of cases, it is duty of principal employer to produce the copy of agreement, copy of bills, details of contractor and copy of TDS details to prove the genuineness of the payment. As soon as, principal employer is producing these details during the inquiry then burden on the principal employer to produce documents stand discharged. Now, onus shift on the department to verify the documents submitted by the principal employer and summon the records or summon contractors in person for the inquiry. Inquiry officer cannot fasten liability on the principal merely bases on the amount paid by principal employer to contractor taking any scale of 60% or 40% as wage component out of the total payment as work expense or job work expense booked in the P & L statement. In case, principal employer has produced the above said documents then it is duty of the department to file requisition before the inquiry officer to summon the documents from the third parties and need to be investigated on the following aspects:
A. Nature of the contract between the parties.
B. Employer-employee relationship between employees engaged contractor and principal employer.
C. Contractor is exclusive or not.
D. Control and supervision of Principal employer over the work as well as over the employees.
Conclusions
1. In all the cases where employer has directly booked salary and wages in the P & L statement then it is duty employer to submit details of the employee. In case, employer has failed to produce document or producing bogus or forged documents or taking shed of identification of beneficiaries then employer is straight forward liable for assessment under section 7A(3A) of the Act except the cases where this barred by limitation as stated above in any particular case.
2. In this regard, any account need to mentioned or provision need to be incorporated in the EPF Scheme on the lines of investor protection fund for crediting or accounting of the amount assessed under Section 7A(3A).
3. In the case, where employer is acting the capacity principal employer and he is having direct nexus with the release of payment to individual employee specially in the case of manpower contract then also it is duty of the principal employer to identify the employees otherwise he is liable for assessment under section 7A(3A) of the Act.
4. Rest of all other case, where there is direct nexus is not established between principal employer and release of payment to individual employee then burden on the principal employer stand discharged when he is producing copy of the agreement, TDS details, particular of the contractor and copy of bills and then onus is shifted on the department as well as on inquiry officer to summon documents from the third party or third party in person during the inquiry. Any assessment in work contract cases by taking 60 or 40 % of total amount as wages is not the valid assessment and it is against the principle of identification of beneficiaries.
5. In my considered opinion, the principle laid down by Hon’ble Apex Court for identification of beneficiaries is applicable in this type of cases where payment was released to third party and principle employer is able to identify the beneficiaries as he is not having documents in his possession or he is not in position to produce documents due to some limitation or he is producing documents in his possession and requesting to summon remaining documents from the third party. In case, in general, we are applying the principal of the identification of beneficiaries then it will be against the provision of Section 7A(3A) as well as against the legislative intent.
Author Bio
