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The Employees State Insurance Corporation v. M/s. Texmo Industries

Special Leave Petition (Civil) · 2021 INSC 167Decided 8 Mar 2021
Special Leave Petition (Civil) No. 811 of 2021
Justice Indira Banerjee · Justice Hrishikesh Roy

Background

The ESI Corporation inspected the records of Texmo Industries, a pump manufacturer in Coimbatore, and found short payment of ESI contributions, including on the Conveyance Allowance paid to employees. The Corporation demanded the shortfall as part of employees' "wages" under the ESI Act. The company disputed only the Conveyance Allowance portion, and the Employees' State Insurance Court as well as the Madras High Court ruled in the company's favour, holding that Conveyance Allowance is not "wages" for ESI purposes. The Corporation appealed to the Supreme Court.

Decision Breakdown

The Supreme Court examined the definition of "wages" under Section 2(22) of the ESI Act, which expressly excludes "any travelling allowance or the value of any travelling concession." The Court held that Conveyance Allowance is paid to enable an employee to travel from home to the workplace and is therefore in the nature of a travelling allowance, compensatory, not remunerative, and falls squarely within the statutory exclusion, regardless of whether it is paid in cash or as free transport. Relying on earlier High Court and Supreme Court precedent distinguishing remunerative payments (included in wages) from compensatory payments (excluded), the Court found no infirmity in the concurrent findings of the ESI Court and High Court, and dismissed the Corporation's Special Leave Petition.

Lesson Learnt

Allowances paid purely to compensate an employee for commuting or other job-related expenses (as opposed to payments for work actually done) are not treated as "wages" for statutory contribution purposes: employers are not required to pay ESI contributions on genuine travel/conveyance allowances.

Official source (sci.gov.in)View Judgment (PDF)

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