On Amnesty Scheme 2014: Part – III

(This part of the article visualizes the scenario in the Regional Offices, consequent to the directions given in Para A- 2 (iv), (v) and (vi) of the Hqrs. letter dated 03.03.2014 on the Amnesty Scheme-2014. Para 2 (iv) deals with the settlement of cases pertaining to omitted wages on which contribution had been determined by the ESIC authorities.)

An employer approaches the Branch Officer of the Insurance Branch in a Regional Office in the chamber of the latter. The Branch Officer offers the employer a seat and asks him what the matter is.

Employer: My factory remains covered under the ESI Act for a very long time. But, during the last inspection, the Inspector reported that I had not paid contribution on certain items of wages. I had certain doubts. But, you had also issued orders under Sec. 45-A upholding the version of the Inspector and disagreeing with my statements of defence against such assessment, during personal hearings.

Branch Officer: Okay, what did you do then?

Employer: I went to the E.I. Court against your orders. But, he Court had also upheld your orders. I appealed against it. The matter is now pending in the High Court. I am informed that the ESI Corporation is providing a solution, now, through certain Amnesty Scheme. I would like to know whether I could get relief through it.

Brach Officer: Yes, you are welcome. Your case falls within Para A. 2 (iv) of the Hqrs. instructions dated 03.03.2014.

Employer: I have already paid contribution as per the entries in the Reg. 32 Register. This assessment in question has been made on omitted wages which I had not taken into account for calculation of contribution. You have assessed that contribution as Rs. 4,00,000/-. As the E.I. Court has also upheld your order, if I am to pay the contribution now, I must pay Rs. 4 lakhs and interest for the entire period including the period of litigation. In the normal course, the period of litigation is exempted only for calculating the quantum of Damages. How much should I pay now under the Amnesty Scheme?

B.O: You have to pay contribution which “shall not be less than 30% of the assessed amount of contribution”. Secondly, you have to pay the interst in full, of course, only with reference to that 30%. Thirdly, you will not be levied any Damages at all.

Employer: What? Did I hear right? Did you say that I had to pay not less than 30% of the assessed amount? Is it true that the choice is left to me to decide the quantum of contribution payable?

B.O: Yes, the instructions literally mean so.

Employer: Sir, I am very lucky then. I shall pay that amount today itself and get my case settled.

B.O: No, you have to get the permission of the High Court to settle the matter out of court. You have to opt for a solution under the Amnesty Scheme only thereafter.

Employer: Okay, I shall take steps immediately. But, still, I do have certain doubts.

B.O: What are they?

Employer: Will you ask me to produce records maintained under Income Tax Act?

B.O: No, all the relevant records had already been verified, even before I issued orders under Sec. 45-A. There is no question of verifying the records once again.

Employer: But, I am told that you are calling for records.

B.O: No. That is only in respect of cases in which contribution had been determined on Assumed Wages. But, in your case, contribution had been determined on the basis of your records and after hearing you. In fact, your records have been verified twice, once by the SSO and again by me. Besides, the E.I. Court has already given its stamp of approval of the legitimacy and legality of the assessment thus made. There is nothing for us to verify your records once again.

Employer: Oh, Thankyou very much! I shall make use of this Scheme without fail. …. Sir, may I ask you one more thing?

B.O: Yes. You can.

Employer: When will there be the next Amnesty Scheme?


Employer: Because, I am not paying contribution on many items of omitted wages, at present, too. I shall keep the issue pending that way, in spite of inspection by the SSO, in spite of your hearings and 45-A orders and in spite of verdicts in your favour by the E.I. Court and even the High Court, so that, at a later date, when you bring out another Scheme for Amnesty, I could pay only 30% of it with Interest and without Damages and finish off the matter. This provision emboldens us to evade the payment of contribution in time on all items of wages under Sec. 2 (22) and escape even normal liability.

The Branch Officer remains silent.

Employer: Oh, what an easy way out! The Amnesty Scheme of 2006 was rightly and only for Sec. 85 cases. But, the Amnesty Scheme of 2008 brought into picture the Sec. 75 cases but said that the entire amount of contribution had to be paid, as per the 45-A orders. Interest had also to be paid in full. There was only some relief in Damages. That way, that circular was also providing relief essentially under Sec. 85 only.

But, your Amnesty Scheme 2010 was a landmark. It introduced the concept of payment of 30% of the assessed dues. And, no penalty in the form of Damages. What a joy! This Scheme opened to the defaulters, the Door of Escape, very wide and the present scheme is also doing the same. This would make the benefit provisions also unattractive to the workforce, as the quantum of cash benefits depends only on the small amount of contribution we pay. There would, therefore, be no malingering and false certification too.

I only pray that every department of the Government of India emulates ESIC and rewards the erring assesses by recovering only 30% of the dues legally payable by the employers who turn out to be defaulters by not paying the dues in time. See you later, Thankyou!

The employer departs. The Branch Officer continues to remain in a pensive mood.





Filed under Amnesty

3 responses to “On Amnesty Scheme 2014: Part – III

  1. Jai

    Para 2 (iv) of the Amnesty Scheme states that if the employer is not able to produce any records and the assessment has been made in respect of wages other than the wages shown in Regulation 32 Register, he shall pay the contribution which shall not be less than 30 per cent of the assessed amount of contribution. The cases where assessment has already been made as per Hqrs instruction NO. P-l1/13/97-Ins-IV dated 26/5/2003 or where the contribution has been assessed on actual bases will not fall under the purview of this Scheme.’
    The word ‘omitted wages’ does not exist either in the ESI Act, Rules or Regulations. Omitted wages can be defined literally to mean the wages which have been omitted by the employer from payment of contributions. However, under this category, such heads of account which the SSO thinks (imagines) contain wages are reported in the inspection reports. Most of the time, clear amount of wages is not reflected under the category of the omitted wages. Either the entire amounts of bills which also contain such elements which are not wages or the amount under the entire head of account is reported. The assessing officer then issues notices to the employer why contribution should not be assessed on the entire amount of omitted wages. If the employer fails to produces details of the heads and or fails to prove that there is no wages element under the heads or clearly bifurcates elements which are wages and which are not to the satisfaction of the assessing officer, the entire amount under that head of the account is taken to be wages and contribution determined by the assessing officer. These kinds of assessments are the ones which are made in respect of wages other than the wages shown in Regulation 32 Register. Hence, under the Amnesty Scheme contribution will be restricted to 30 per cent of the assessed amount of this category. It may seem surprising why this relaxation of 70 per cent is being given under the scheme. We should remember that in these cases the entire expenditure under a particular head/bill are assumed to be wages and the ESIC has nothing on record to prove that it was wages. Rather the employer has nothing to prove that it was not wages. Now when both the parties have no evidence to prove their claim, how would the courts decide? Well that will depend on the details of each particular case. However, a mid-way, in the form of the Amnesty Scheme, by the implementing agency would definitely be welcome in the cause of earning public goodwill.
    Under the existing set up, one may fairly think that if an employer who has failed to produce records before the assessing officer to prove that a particular head of its annual account was not wages, he will not be able to prove the same and lose his case in the court of law. However, this will give income or contribution to ESIC for which it will not be able to provide anyone entitlement to anyone for benefit under the scheme. This contribution will be a burden for the employer without providing corresponding entitlement to benefit to the employee or IP for whom the amount is being collected. This position is a deviation from the basic objective of the ESI Act.
    There is already provision under the Hqrs. circular dated 26/05/2003 (referred to in the Amnesty Scheme) which provide for taking 60 per cent of the amount of such expenditure as wages where the work was done through contractual employees and the employer is not able to clearly bifurcate the amount of wages. If the amount of payment is for a work which included the cost of material also and the employer is not able to produce segregation of wages and material elements separately, wages is to be taken as 25 per cent of the entire bill amount.
    The Amnesty Scheme finds a mid-way. Neither 40 nor 25 but 30 per cent of such expenditure is to be taken as wages under the Scheme and that too without a bar whether the expenditure is with or without material. It may not seem entirely justifiable, but then the same is the case with taking 25 or 40 per cent of the expenditure of a particular head as wages because the SSO doubts and the assessing officer assess a particular head to contain wages on which contribution has not been paid and the employer fails to prove otherwise. In fact, the entire idea of omitted wages is skewed. It does not promote the cause of the Act. It deviates from the objective of the scheme. If we accept that regime, Amnesty Scheme of this kind becomes inevitable.

    • The concept of ‘Omitted Wages’ will be dealt with separately. It is intended to advance the purpose of the Act and to prevent the employers and middlemen from denying benefit to the workers. Sec. 45-A enables recovery of contribution on omitted wages, as a civil action against the employers for non-payment of contribution while there can be criminal action too under Sec. 85. But, such criminal prosecutions are not resorted to in the cases involving recovery of contribution on omitted wages.

      The Amnesty Scheme that permits 30% payment is unlawful and arbitrary. One wonders whether the logic of ‘middle-way’ given by Mr. Jai had been recorded in the Filenoting of the ESIC before the authorities decided on the quantum of 30%.

      This scheme encourages evaders and unlawfully causes loss of revenue to the organisation.

      There are arguments that the ESIC is not a revenue generating agency. But, the ESIC needs revenue for providing benefits and it has Revenue Division, Revenue Manual, etc., The orders issued by the ESIC on omitted wages caution the other employers not to evade payment of contribution as they would then have to pay more to the ESIC in the form of interest, damages and the employees share of contribution too.

      • Kumar Talukdar

        I would like to inform their are units which were prosecuted for non production of records and those units are closed since long,their closure has not been decided and whereabouts of the accused employers are not
        available and those cases are not considered by the B.O.

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