EPF Act | Penalty For Delayed PF Contributions Can't Be Reduced Below 25% Of Arrears: Karnataka High Court
The Karnataka High Court has held that the penalty imposed on an establishment under the Employees Provident Fund Act for delaying payment of employees' provident fund contribution cannot be reduced below 25% of the arrears. In doing so the court modified an order which had reduced a company's penalty from over Rs. 3 Lakh to Rs. 25,000.The establishment had challenged an order dated 05.12.2016...
The Karnataka High Court has held that the penalty imposed on an establishment under the Employees Provident Fund Act for delaying payment of employees' provident fund contribution cannot be reduced below 25% of the arrears.
In doing so the court modified an order which had reduced a company's penalty from over Rs. 3 Lakh to Rs. 25,000.
The establishment had challenged an order dated 05.12.2016 of the Assistant Provident Fund Commissioner imposing damages of Rs.3,28,083 under Section 14B EPF Act on belated payment of contributions in respect of two international workers for the period 20.03.2014 To 31.03.2016. However the Central Government Industrial Tribunal had reduced the penalty to Rs. 25,000. Against this the commissioner approached the high court.
A division bench of Justice DK Singh and Justice S Rachaiah noted that Section 14B of the EPF Act empowers the Central Provident Fund Commissioner or an Officer authorised by the Central Government in this behalf to recover damages, wherein an employer makes default in the payment of any contribution to the Provident Fund.
Section 14B empowers to recover damages by way of penalty not exceeding the amount of arrears, as may be specified in the Scheme.
"Thus, Section 14B of the EPF Act empowers to recover damages upto 100% of the amount of arrears which would also include the interest. However, under the Employees' Provident Fund Scheme, 1952, the rate of penalty has been fixed under Para 32A. The maximum penalty for delay of six months and above has been fixed at 25% per annum. The CGIT, however, has reduced the penalty to Rs.25,000/- by the impugned order against Rs.3,28,083/- as imposed by the Assistant Provident Fund Commissioner, Bengaluru, vide order dated 05.12.2016," the court said.
The court referred to its judgment in another case where it had held that penalty for not depositing the PF contribution for more than six months cannot be reduced to less than 25% of the arrears, which would include the interest.
The court noted that the total arrears along with interest amounts to Rs. 3,10,534 and 25% of this figure would come to Rs.77,633 which would be the penalty amount payable by the company.
The establishment, a company which provides travelling assistance, was registered with the EPF Organization and was allotted the PF Code number.
The Commissioner had found that the names of two international workers appointed by the Company were not found in the International Worker-1 Returns filed by the Company. Clarification was sought from the Company in respect of the two international workers. It is alleged that no PF contribution of these two foreign workers was deposited by the Company.
In its clarification to the show cause notice, the Company said that these two foreign nationals were earlier working with the Company, however they had left.
The Commissioner assessed the liability at Rs.2,04,440 with interest at Rs.1,06,094. The penalty under Section 14B of the EPF Act was assessed at Rs.3,28,083, which would include the 100% penalty of the shortfall in making payment of the PF along with interest.
The company challenged the order before the Central Government Industrial Tribunal-cum-Labour Court and the CGIT reduced the penalty to Rs.25,000. Against this the Assistant Provident Fund Commissioner moved the high court.
"Thus, we would modify the impugned order dated 07.09.2020 in EPF No.388/2017 passed by the Central Government Industrial Tribunal-cum-Labour Court, Bengaluru, and assess the damages by way of penalty to Rs.77,633/-. If the petitioner has already paid Rs.25,000/-, in pursuance to the order passed by the CGIT, the balance amount of Rs.52,633/- is to be paid within a period of two weeks from today," the court said.
The plea was disposed of.
Case title: THE ASSISTANT PROVIDENT FUND COMMISSIONER v/s M/S. ENCHANTING TRAVELS PVT. LTD
WRIT PETITION NO. 23372 OF 2021