K.M. Joseph, J.

1. This is an Appeal filed under Section 82(2) of the Employees' State Insurance Act, 1948 (hereinafter referred to as the Act). The appellant challenges the order passed by the Insurance Court in I.C.No.111 of 2003 which is an Application filed by the respondent herein challenging the proceedings under Section 45A of the Act. The proceedings under Section 45A arose from a demand made for additional contribution from the respondent for having paid certain sums to its employees by way of production incentive for the period September, 1999 to March, 2000. The respondent is a Public Sector Unit of the Government of Kerala. The substantial questions of law framed are as follows:

"(i) Whether the declaration made by the learned EI Court that the production incentive paid by the applicant is not wages and hence no ESI contribution is payable in this regard and all the findings made in its support are not erroneous, perverse and against the definition of wages under Section 2(22) of the ESI Act ?

(ii) Whether the production incentive compelled to be paid by the applicant to the employees on the basis of an agreement arrived at between the Management and Union is not a contract of employment express or implied and would it not come within the definition of wages under Section 2(22) of the ESI Act ?"

2. It is the case of the respondent that the amounts paid by way of production incentive to its employees was a voluntary payment under a voluntary scheme unilaterally initiated by it. It bagged an order from the BSNL. The contract with BSNL provided that if the respondent did not honour its commitment under the contract within the time limit, it will have to pay liquidated damages. According to the respondent, it approached its employees and laid the facts before them. They were not agreeable, going by the averments. We will extract the case set up by the respondent before the Court in regard to the matter as follows:

"5. It is submitted that during the year 1999, there was more orders from BSNL which were to be delivered within the specified time failing which company has to pay liquidated damages. In spite of the repeated requests by the applicant, the workers were reluctant to give more production as according to them, the norm fixed only need be given. The applicant took up the issue with the unions and the unions insisted that more production can be given only on payment of incentive. The management was constrained to pay incentive based on the production given by the workers. The payment of incentive was only for a particular period and on attaining the target, the payment of incentive was stopped. The stoppage of incentive also was accepted by the unions as well as by the workers. This itself shows that it was never a service condition and the decision to pay incentive was only to encourage the workers to give more production."

Consequent upon the same, it is not in dispute that the respondent proceeded to issue a Notice. The terms of the said Notice are as under:

"TRACO CABLE COMPANY LTD.

Panampally Nagar, Kochi

No.15/P&A/2926

7th October, 1999

NOTICE

The Management is pleased to introduce an Adhoc Incentive Scheme for the JFDC unit, Thiruvalla with a view to enhance production and execute the order received from the Department of Telecommunications in time. Timely delivery will ensure proper share of orders from DOT in the coming year which is very important for the growth of our company. As per the scheme, incentive will be paid on monthly basis for a minimum production of 1 LCKM of cables. Incentive rates for attaining various production ranges are as shown below:

Monthly production Incentive in‚ Remarks

in LCKM Rs./p.m.

Per employee

1.00 to 1.04 ‚ 250 , In the case of the

1.05 to 1.09 ‚ 350 ‚ difference between the

1.10 to 1.14 ‚ 500 slabs, the incentive

1.15 to 1.19 650 ‚ corresponding to the

1.20 to 1.24 1,000 lower slab will be

1.25 to 1.29 1,300 applicable

1.30 & above 1,500"

Eligibility for Incentive:

1.