It was early morning on a Sunday. Mr. Peter, Mr. Rahim and Mr.Siva who are close friends are sitting on a bench under a tree in a park taking rest after their usual morning walk. They are working as ESIC Consultants. They have built up the reputation of being very sincere, honest and law-abiding in providing service to the employer and thereby to the working population and the ESI Corporation. They are very intelligent and knowledgeable. They never do resort to bribing the officers to get things done. Whenever they come across some problems, they discuss the issues with the officers of the ESIC and set right their records and ensure that their employers comply with the provisions of law.
Rahim, who is garrulous by nature, remains silent today and is looking at the sky for a long time. Amused by his silence, the other two ask him what the problem is. Rahim says, “One employer called me. He was a Managing Partner in a Firm, which he got converted into a Private Limited Company. He said that he had filed a case in the EI Court challenging an order issued under Sec. 45 of the ESI Act. The case remains pending and he asked me whether I could help settle the issue through the Amnesty Scheme”.
Siva said, “Okay, what did you say? And, what was the case?”
“ It was a case pertaining to the year 2010-11. The employer did not pay any contribution and his name had figured in the Defaulters List. The authorities had issued the Show Cause Notice in Form C-18 to the employer to pay the contribution due on Assumed Wages. The employer did not respond to the Notice at all. Consequently, the authorities had issued orders under Sec. 45-A determining contribution on Assumed Wages. The employer says, now, that that the assessment is on the higher side, although the Assumed Wages are at about 55% of the upper limit of coverage. He wants me to help him settle the issue”, said Rahim.
“Okay, take up that case”.
“No, I couldn’t.”
“The employer does not agree to follow the other requirements under the Amnesty Scheme. He wants me to manage things for him”.
“What did he say, actually?”
“He did not say anything. It was I who explained to him the provisions of Amnesty. The employer simply backtracked”.
“What did you say, then?”
“I told the employer that we should, first of all, go to the EI Court and file an application seeking permission for out-of-court settlemt. The Court would give permission as it was only a formality”.
“Then I told him that we must pay the contribution as per our records. The employer agreed. I told him then that we must produce the records before the ESIC authorities. The employer was shocked”.
“Why? After all, you advised him right.”
“The employer asked me what would happen if the ESIC authorities assessed much more contribution when he produced the records before them than what he had paid as per his own calculation. I said that we would have to remit that extra amount, if there had been any such assessment. The employer, then, asked me whether that amount would take the total dues beyond the amount assessed on assumed wages. I said that I could not predict it and would have to see his records to arrive at a tentative decision, because one must examine what sort of ‘wages’ are paid to his employees and what items were taken into account by the employer to pay the contribution as per his own calculation”.
Siva and Peter were just watching Rahim unfold the story, without any interruption. Rahim continued, “The employer was annoyed at my statement. He, then, asked me whether we could go to EI Court once again, if the assessment of the authorities was not agreeable to him. I said that it depended upon the nature and contents of the affidavit in the pending case and the manner in which we seek permission of the Court to permit out-of-court settlement. I also said that depended on the fact whether the ESIC authorities issue another 45-A order, after verifying the records”.
“The employer became fidgety, thereafter. He asked me whether we could try settlement of the case under the Amnesty Scheme, keeping the case in the EI Court pending. I said that we could not. This made the employer nervous and he said that he could not wager on this issue and wanted me to explain in clear terms how the Amnesty Scheme would be useful to him to settle the cases filed under Sec. 75”, Rahim paused.
“I understand the position of the employer. But, what did you say?”, asked Peter.
“I did not say anything. Because, his question was right and there was no answer to his satisfaction. But, the employer himself came up with a solution”.
Siva and Peter found the unfolding of the story more interesting. Siva asked, “What was that solution?”
Rahim said, “Yes. The employer told me to withdraw the case by giving any kind of undertaking to the court, as the court desired. He told me to approach the ESIC authorities, then, and inform them that there was no record available at all and request for permission to pay the contribution as per the Income Tax Return. He said that he would pay the interest and get exempted from paying Damages. He advised me to go through Para 2 (iii) of the Hqrs. letter dated 03.03.2014.”.
Siva was laughing. Peter said, “But, how can the employer say that he does not have any record. When he had gone to the EI Court, he would have based his arguments on some evidence in the form of the account books of his factory and filed affidavit to that effect. He would have got stay order also in those cases, only by citing those records as prima facie evidence. How could he then say he did not have any record, after withdrawal of the case?”
Siva said, “The employer cannot say that he had filed the case in the Court without any evidence to disprove the contents of the 45-A order. His case would not stand in the court of law, then. And, the ESIC could easily win the case in the EI Court itself. There would be no need for the ESIC to accommodate such employers, who went to court without any records.”
Rahim said, “You are right. I asked him the same questions. But, the employer countered me saying that I was more loyal than the king. He asked why I was going into those aspects when the ESIC authorities themselves did not bother about it since 2010. He said that the very fact this kind of options had been given, in writing, in the Amnesty Scheme implied that such arguments of the employer would be accepted by the ESIC”.
Peter said, “As per Rule 6 (F) of the Income Tax Rules, 1962, read with Sec. 44-AA(2), 44-AD, 44-AE or 44-AF and Sec. 2 (12A) of the Income Tax Act, 1961, the businessmen must keep the financial records safe for seven years, i.e., six years from the end of the Assessment Year. If the businessman is a Company, he must, as per Sec. 209 (4 A) of the Companies Act, 1956, preserve the records in good order for a period of not less than eight years immediately preceding the current year. The records mean the books of account together with the vouchers relevant to any entry in such books of account”.
Siva supplemented the statement of Peter. He said, “In a circular dated 27.6.1961, issued by the Department of Company Affairs, it has been opined that the preservation of books and papers will necessarily require the preservation of vouchers, records, papers, etc. also. The circular states: “Having regard to the facts that sub-section (1) of the section 209 requires a company to keep books of account with respect to the matters in respect of which receipts and expenditure take place and that the books of accounts would not be of much use without the vouchers, records, papers, etc., on the basis of which such books have been prepared, this Department is of the view that such vouchers, records, papers, etc., must also be preserved for a like period”.
Rahim said, “Yes, this, precisely, being the law-position, if an employer comes forward to pay ESI contribution as per Income Tax Return, he cannot plead absence of records, if the period of dispute falls within that time-span of six years. So, the instructions of the Hqrs. in Para 2 (iii) needs re-consideration”.
Siva said, “Para 2 (iv) too. It deals with omitted wages on which …….”
Siva was interrupted by the ring tone of the the mobile phone of Rahim. Rahim received the call and said ‘Hello’. Thereafter, he just kept listening for about a minute. Then he slipped the mobile into his pocket as the caller had disconnected the phone. The other two looked at him, inquisitively. Rahim said, “The call was from the same employer. He said that he did not require my services. He accused me that I was more loyal than the king. He also said that he had found a Consultant who assured him that he would get things done the way the employers would be benefitted. That Consultant had even explained to him that the employers could, now, play with the ESIC, as the Hqrs. communication on Amnesty was very ambiguous and nebulous on vital aspects, ever since 2010”.
All the three laughed, wryly. Siva said, “Yes. The ESIC instructions on Amnesty from the year 2010 help only this kind of consultants and employers. The interest of the employees or the ESIC are not taken care of. Okay, friends! See you, then”.
The threesome disbursed.
5 responses to “On Amnesty Scheme 2014: Part II”
If an employer does not preserve records as per the Company Act and the Income Tax Act, that is none of the business of ESIC. It can frame its own guidelines. If the Corporation has taken a decision to assess contribution on the basis of Income Tax Returns, there seems nothing wrong with this, at least until a more unified regulatory regime is established. This is to simply the procedure. Certainly, a lot is left to the discretion of the assessing officer. There is always scope to curtail the discretion with the help of clear cut rules. Certainly, this should have been attempted by sharing the experience of the Amnesty Scheme 2010.
An honest assessing officer who has imbibed the spirit of the Amnesty Scheme is the only solution to ride through the opaque provisions of the scheme. Only through open mind could the Scheme be successful
A well reasoned and balanced assessment would definitely make the employer accept the order.
Man is law abiding by nature.
Reply given in the following Post:
“Man is law abiding by nature” debatable assumption.
This post can be effectively used as mock case study during training of ESIC officers. Contributor has analysed the issue quite well. Amnesty schemes are not meant for waiving legal requirement since no executive order can waive legal mandate. But many amenesty scheme under law assured “pay on your own and no question asked”. Only when such an offer is on table,one can say there is true amnesty. Only in case of criminal cases,Esic amenesty schemes, worked as true amenesty. In the case of ad-hoc assedsment it could be a trap and only conman, not genuine consultant,can help . As for the fiction of “assumed wage” for purpose of ad-hoc assessment, curiousely, this work in favour of most employers who pay decent wage. After 2-3 years of ceiling increase, the wage level creap up closer to upper level so that average wage of registerd employees go well beyond 55%. It also help those who increased their employee strength substantially after first registration or last inspection,since ESIC, rather foolishly, take only last known employee strength and not the employees who would come under non-muster roll category. Then a stage arrive, larger number employee go out of coverage,though wage of remaining come closer to upper level, but ESIC will continue to adopt last known employee strength and about 55% of maximum wage. This means a clever employee will wait for ad-hoc notice, compare with what he is required to pay actually,and then take decision to wait for exparty order,so that he can pay more advantageous exparty order ,ofcourse with a long face.
Moral of story,like some laws,instructions too are asses!
the amnesty scheme is extended now