K.D Gopalakrishnan V. The Union of India Ministry of Labour and Employment and The Deputy Director Sub Regional Office, Employees State Insurance Corporation and The Recovery Officer Sub Regional Office, Employees State Insurance Corporation and The Branch Manager State Bank of India, Kayamkulam Branch

WP(C)/9456/2024

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K.D. Gopalakrishnan, the proprietor of 'Elemecs Wedding Castle', faced multiple recovery notices from the ESIC for unpaid contributions. After an inspection by the Social Security Officer, a demand of 3,04,714/- for the period from 01.04.2019 to 31.03.2020 was issued. Subsequent notices demanded a total of 12,24,429/- for a broader period, including overlapping dates with the initial demand. Gopalakrishnan challenged these notices in court, leading to a partial quashing and remand for reassessment. Despite these proceedings, a prohibitory order under the Income Tax Act, based on ESIC's requisition, further complicated his financial operations. The court's decision allowed for the continuation of legal challenges against the notices while providing temporary relief regarding the bank account freeze.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 800260 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 23-07-2024
• Assessment Year: misc
• Laws Referred To: Employees State Insurance Act, 1948, Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: DEEPA NARAYANAN R 4; T SETHUMADHAVAN; T AJAYAKUMAR
• Assessee Lawyers: S KHAN; S G NAMBIAR
• Keywords: ESI Contribution; Natural Justice; Prohibitory order; Recovery notice
• Section: 75; 77; 45A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.NAGARESH TUESDAY, THE 23RD DAY OF JULY 2024 / 1ST SRAVANA, 1946 WP(C) NO. 9456 OF 2024 PETITIONER: K.D GOPALAKRISHNAN AGED 72 YEARS S/O KESAVAN, DAMODARAN VELIYIL HOUSE, PATHIYOOR VILLAGE, ERUVA MURI, KAYAMKULAM, ALAPPUZHA DISTRICT, PIN – 690572 BY ADVS. S.SHANAVAS KHAN S.INDU KALA G.NAMBIAR RESPONDENTS: 1 THE UNION OF INDIA MINISTRY OF LABOUR AND EMPLOYMENT SHRAM SHAKTI BHAVAN, RAFI MARG, NEW DELHI, REPRESENTED BY ITS SECRETARY, PIN - 110001 2 THE DEPUTY DIRECTOR SUB REGIONAL OFFICE, EMPLOYEES STATE INSURANCE CORPORATION, PANCHDEEP BHAVAN, ASRAMAM KOLLAM, PIN - 691002 3 THE RECOVERY OFFICER SUB REGIONAL OFFICE, EMPLOYEES STATE INSURANCE CORPORATION, PANCHDEEP BHAVAN, ASRAMAM KOLLAM, PIN - 691002 4 THE BRANCH MANAGER STATE BANK OF INDIA, KAYAMKULAM BRANCH, NELSON COMPLEX, PUTHIYIDOM, KAYAMKULAM, ALAPPUZHA, PIN – 690502 BY ADVS. DEEPA NARAYANAN-R4 T.SETHUMADHAVAN (SR.)(S-310) WP(C) No.9456 of 2024 2 SRI.T.AJAYAKUMAR,SC, ESI THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 23.07.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) No.9456 of 2024 3 JUDGMENT Dated this the 23rd day of July, 2024 The petitioner is the Proprietor of 'Elemecs Wedding Castle'. The Social Security Officer inspected the Establishment and verified certain Books of Accounts. Thereafter, the petitioner received notice dated 04.10.2023 to show cause within 30 days as to why ESI contribution amounting to 3,04,714/- should not be determined and ₹ recovered from him. 2. Hearing date was fixed on 26.10.2023. On the date of hearing, counsel appeared and sought adjournment. However, without granting an opportunity of being heard, the 2nd respondent passed Ext.P1 order on 27.10.2023 under Section 45A of the Employees State Insurance Act, 1948, directing the petitioner to pay a sum of 3,04,714/- for the ₹ period from 01.04.2019 to 31.03.2020 within 15 days from the WP(C) No.9456 of 2024 4 date of the order. 3. Thereafter, the petitioner received Ext.P2 recovery notice from the 2nd respondent, addressed to the 3rd respondent to recover from the petitioner an amount of 12,23,429/- with interest for the period from August 2018 to ₹ 06.11.2023. In execution of Ext.P2 demand, the 3rd respondent issued Ext.P3 demand notice dated 16.11.2023 to the petitioner demanding 12,24,429/-. ₹ 4. Challenging Exts.P1 to P3, the petitioner approached this Court filing W.P. (C) No.2373 of 2024 and the matter was disposed of quashing Ext.P2 (Ext.P1 herein) with a direction to the competent among the respondents to reconsider the matter with notice to the petitioner and to pass fresh orders within thirty days from the date of production of copy of the judgment. It was also made clear that this Court has only dealt with Ext.P2 order and has not dealt with the merits or otherwise of Exts.P3 and P4 (Exts.P2 and P3 WP(C) No.9456 of 2024 5 herein). It was further observed that it would be open to the petitioner to mount a challenge against Exts.P3 and P4 and all the contentions raised by the petitioner in the writ petition were left open. 5. Before filing of W.P. (C) No.2373 of 2024, the 3rd respondent had issued Ext.P5 prohibitory order as per Rule 26(1) of 2nd Schedule of the Income Tax Act, 1961 and the same was communicated to the 4th respondent. The petitioner was not let known of the same. When he was unable to operate his account, he approached the 4th respondent, who in turn informed that the account cannot be operated because of Ex.P5. 6. The petitioner submits that Ext.P5 prohibitory order was issued based on the requisition of the 2nd respondent in respect of an amount that was fixed, without any proper adjudication and without issuing any notice of hearing to the petitioner. As Exts.P2, P3 and P5 are issued in violation of the WP(C) No.9456 of 2024 6 principles of natural justice and without proper adjudication as contemplated by law, the petitioner has filed this writ petition. 7. Counsel for the petitioner pointed out that Exts.P2 and P3 are arbitrary and illegal and violates the principles of natural justice. The 2nd respondent, being a statutory authority, is invested with the power of fixing contribution as per Section 45A of the Employees State Insurance Act, 1948. As per Section 45A of the Act, when a factory or establishment has not furnished any returns or particulars, the 2nd respondent is competent to determine the amount of contributions payable in respect of the employees. 8. The counsel for the petitioner further pointed out that as per Ext.P1, the respondents have assessed contribution due for the period from 01.04.2019 to 31.03.2020 as 3,04,714/-. Subsequently, after Ext.P4 ₹ judgment and remand, the respondents have issued Exts.P2 and P3 demand notices for the period from August, 2018 to WP(C) No.9456 of 2024 7 November, 2023 claiming an amount of 12,24,429/-. The ₹ period indicated in Exts.P2 and P3 covers the period of Ext.P1 also. Therefore, it is evident that there is clear error in the assessment made by the respondents. Exts.P2 and P3 are therefore liable to be quashed. 9. Standing Counsel entered appearance on behalf of respondents 2 and 3 and resisted the writ petition. The Standing Counsel submitted that the Social Security Officer of E.S.I. Corporation who inspected the Establishment on 13.09.2023, verified the Books of Accounts for the period from 01.04.2019 to 31.03.2020 including Attendance and Salary Registers for the period from 01.08.2018 to 31.07.2023. Omitted wages, salary differences and omission on repair and maintenance labour charges were noted by the Social Security Officer. The Social Security Officer found difference in the number of employees and total wages as per the Wage Register for E.S.I coverable employees and WP(C) No.9456 of 2024 8 as per wages filed online in the ESIC portal. 10. On the basis of the report of the Social Security Officer, notice dated 04.10.2023 was issued to the petitioner intimating that he has not paid contribution for an amount of 9,11,542/-. The petitioner was required to file his objection. ₹ The petitioner did not respond to Ext.R2(a) notice. As regards the overlapping of the periods in Ext.P1 in one part and Exts.P2 and P3 on the other part, the respondents submitted that Form C-19 notice and CP-2 notices like Exts.P2 and P3 were not issued in pursuance of Ext.P1 order passed under Section 45A. The amount of contribution assessed under Ext.P1 order is not included in Exts.P2 and P3 notices. Therefore, there is no duplication of demand made by the respondents. The writ petition is therefore without any merit and it is liable to be dismissed, contended the Standing Counsel. WP(C) No.9456 of 2024 9 11. I have heard the learned counsel for the petitioner, the learned Deputy Solicitor General of India-in- Charge representing the 1st respondent and the respective learned Standing Counsel representing respondents 2 to 4. 12. The prime ground projected by the petitioner is that pursuant to the inspection conducted in the year 2023, Ext.P1 was issued to the petitioner demanding an amount of 3,04,714/- as outstanding amount for the period from ₹ 01.04.2019 to 31.03.2020. The petitioner challenged the said assessment and this Court as per Ext.P4 judgment in W.P. (C) No.2373 of 2024 remitted the matter back to the authorities. It is in the meanwhile that Exts.P2 and P3 demand for 12,24,429/- has been issued to the petitioner ₹ for the period from August, 2018 to November, 2023. The period of demand under Exts.P2 and P3 includes the period of demand under Ext.P1 also. WP(C) No.9456 of 2024 10 13. It is evident from the counter affidavit filed by respondents 2 and 3 that the amount of 9,11,542/- was ₹ found due from the Wage Register maintained by the petitioner. The amount of contribution assessed under Ext.P1 order is not included in Exts.P2 and P3 notices. In such circumstances, I do not find any prima facie case as projected in the writ petition. 14. Be that as it may, against Exts.P2 and P3 the petitioner has alternate remedy to approach the Employees Insurance Court under Sections 75 and 77 of Employees' State Insurance Act, 1948. Granting liberty to the petitioner to do so, the writ petition is dismissed. 15. Counsel for the petitioner pointed out that the Bank Account of the petitioner has been freezed pursuant to non-payment of the amount demanded under Exts.P2 and P3. Unless the petitioner is permitted to operate the Bank Account, the petitioner’s Industry will be prejudicially WP(C) No.9456 of 2024 11 affected. In the facts of the case, I am of the view that since the liability demanded as per Exts.P2 and P3 is less than 13 lakhs, the petitioner can be permitted to operate the ₹ Bank Account on conditions. The 4th respondent is therefore directed to permit the petitioner to operate the Bank Account in question after retaining 13 lakhs in the account of the ₹ petitioner. Sd/- N.NAGARESH JUDGE hmh WP(C) No.9456 of 2024 12 APPENDIX OF WP(C) 9456/2024 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF ORDER DATED 27/10/2023 PASSED BY 2ND RESPONDENT Exhibit P2 TRUE COPY OF THE DEMAND FOR RECOVERY DATED 07/11/2023 ISSUED BY 2ND RESPONDENT Exhibit P3 TRUE COPY OF THE DEMAND NOTICE DATED 16/11/2023 ISSUED BY 3RD RESPONDENT Exhibit P4 TRUE COPY OF THE JUDGMENT DATED 27/02/2024 IN W.P (C) NO.2373 OF 2024 OF THIS HON'BLE COURT Exhibit P5 TRUE COPY OF THE PROHIBITORY ORDER DATED 08/01/2024 OF THE REVENUE RECOVERY OFFICER, ESIC, SRO, KOLLAM Exhibit P6 TRUE COPY OF THE REPRESENTATION DATED 05/02/2024 SUBMITTED BY PETITIONER BEFORE THE ESI CORPORATION, KOLLAM "