The classification of basic wages must genuinely reflect employee remuneration, and artificial wage splitting to avoid statutory contributions is impermissible under the Act.

JUDGMENT:

AMIT BORKAR, J.

1. The petitioner invokes Articles 226 and 227 of the Constitution to challenge the legality of the order dated 19 October 2016 passed by the Presiding Officer, Provident Fund Appellate Tribunal, New Delhi in ATA No. 12149(9)2014. By that order, the Tribunal set aside the determination made on 30 October 2014 under Section 7A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 which had directed the respondent to pay provident fund dues. The petitioner seeks restoration of the order passed by the Authority under Section 7A.

2. The relevant facts are as follows. The petitioner states that the respondent establishment is covered under the EPF and MP Act and allotted Code No. MH/201739. Complaints dated 13 February 2013 and 20 March 2014 were received. An Enforcement Officer submitted a report dated 4 July 2014. On verification of records, it was found that the respondent did not comply with the mandatory provisions of the Act for the period from May 2009 to May 2014. An inquiry under Section 7A was commenced. During the inquiry, the salary registers were examined. It appeared that the respondent split wages in a manner that reduced the base on which provident fund contribution was to be calculated. The Authority found that this was done to avoid statutory liability. After considering the record, an order dated 30 October 2014 was passed determining arrears of Rs. 2,91,765 under Section 7A.

3. The respondent challenged the order dated 30 October 2014 before the Provident Fund Appellate Tribunal at New Delhi. The Tribunal, by order dated 19 October 2016, allowed the appeal. It set aside the dues determined under Section 7A. Aggrieved by this reversal, the petitioner has approached this Court under Articles 226 and 227.

4. The learned Advocate for the petitioner submitted that the Tribunal failed to consider the nature and purpose of the EPF and MP Act. The Act is a social welfare legislation meant to secure the financial interest of employees. The record placed before the Authority showed that the respondent intentionally split wages to reduce the base for provident fund deduction. This conduct deprived the employees of their rightful statutory benefit. It was urged that such conduct amounted to a clear attempt to evade the Act and was contrary to Section 2 (b) of the Act. Counsel submitted that basic wages include all emoluments earned by an employee while on duty, on leave, or on holidays, as per the contract of employment. Basic wages exclude only specific allowances such as the cash value of food concession, dearness allowance, house rent allowance, overtime allowance, bonus, commission, or similar allowances. Under Section 6, the employer must contribute 10 percent of the basic wages. The respondent could not unilaterally structure salary in a way that defeats the statutory mandate.

5. The petitioner relied upon the judgment of the Supreme Court in Regional Provident Fund Commissioner (II) West Bengal v. Vivekanand Vidyamandir and others, 2020 (17) SCC 641. Attention was invited to paragraphs 16 to 21. The submission is that the Tribunal ignored the binding principles laid down by the Supreme Court on the scope of basic wages and permissibility of wage splitting. Counsel submitted that the Tribunal’s reasoning does not withstand scrutiny in the light of the settled position of law.

6. The learned Advocate for the respondent supported the order of the Tribunal. He submitted