SRINAGAR: The Jammu and Kashmir and Ladakh High Court has upheld the constitutional validity of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, and the Building and Other Construction Workers Welfare Cess Act, 1996, holding that Parliament had the legislative competence to apply the laws to the erstwhile State of Jammu and Kashmir.
However, the Division Bench has held that contractors are liable to pay the prescribed cess only in respect of contracts executed pursuant to Notices Inviting Tenders (NITs) issued after July 31, 2007—the date on which the J&K Building and Other Construction Workers Welfare Board was constituted. The court has also directed that the recoverable cess shall carry interest at six per cent per annum from the date it became due until actual recovery.
The judgment was delivered on September 8, 2026, by Acting Chief Justice Sanjeev Kumar and Justice Mohd Yousuf Wani in two connected petitions—OWP No. 1599/2013 and OWP No. 61/2014—filed by R.G. Buildwell Engineers Ltd. and Valeecha Engineering Ltd.
The petitioners had challenged the constitutional validity of the BOCW Act, the Cess Act and the rules, notifications and other instruments issued under them, contending that Parliament lacked legislative competence to extend the laws to the erstwhile State of Jammu and Kashmir under the constitutional arrangement that existed before August 5, 2019.
The contractors claimed to have subsisting contracts with the J&K Economic Reconstruction Agency and said several of the contracts had been awarded before the constitution of the Welfare Board and were already under execution. They contended that one per cent of the value of their bills began being deducted towards cess from 2012, despite their objections.
According to the petitioners, many contracts had been awarded before the issuance of SRO 439 dated December 1, 2010, and some had either reached completion or had already been finalised without any cess deduction. They argued that they could not have factored the liability into their bids when no effective mechanism for collection of the cess existed at the time.
They further argued that the one per cent levy was in the nature of a tax rather than a fee because it was compulsory and no corresponding service was being provided to the contractors. They maintained that Parliament could not rely on the residuary Entry 97 of the Union List to impose the levy in Jammu and Kashmir because Entry 97, as applicable to the erstwhile State under Article 370, had been substantially modified.
The petitioners also relied on the constitutional position prevailing in Jammu and Kashmir before August 5, 2019, arguing that the State List did not apply to the erstwhile State and that the residuary legislative powers available to Parliament were limited by the modifications made under the Constitution (Application to Jammu and Kashmir) Order, 1954.
Opposing the petitions, the respondents argued that the legislation was referable to Entries 23 and 24 of the Concurrent List, relating to labour and welfare, read with Entry 47. They submitted that the Concurrent List had been validly extended to Jammu and Kashmir through the 1954 Order and that Parliament was therefore competent to enact and apply the laws.
The respondents also maintained that the cess was a fee and not a tax and was specifically intended for the welfare of building and construction workers. They relied on the arbitration mechanism contained in the contracts for disputes relating to the deductions.
The bench first considered whether the levy under the Cess Act was a tax or a fee. Relying on the Supreme Court’s judgment in Dewan Chand Builders & Contractors v. Union of India, reported in (2012) 1 SCC 101, the court held that the issue was no longer open.
The court noted that the Supreme Court had found a sufficient connection between the levy and the specific purpose for which it was collected, namely augmentation of the Welfare Fund for building and construction workers. It therefore held the levy to be a fee and not a tax.
Rejecting the argument that the petitioners received no direct service in return, the bench observed that “it is not necessary that the benefit of the levy must go directly to the person from whom it is collected.” It said there was a reasonable connection between the class from whom the levy was collected and the welfare activity for which the money was utilised.
The more substantial issue before the court concerned Parliament’s legislative competence to apply the legislation to Jammu and Kashmir under the constitutional arrangement existing before August 5, 2019.
The bench noted that Article 370, as it then stood, restricted Parliament’s law-making power in relation to Jammu and Kashmir to matters in the Union and Concurrent Lists that had been extended to the State in accordance with the constitutional framework then applicable. The court also examined the 1954 Order and the modifications made to Articles 246 and 248.
It observed that while Parliament had exclusive power over matters in the Union List, the State List did not apply to Jammu and Kashmir and the residuary powers were also subject to specific constitutional modifications.
The court agreed with the petitioners to the extent that Article 248 read with Entry 97, in the form applicable to Jammu and Kashmir, did not by itself confer legislative competence on Parliament to enact the Cess Act for the erstwhile State.
The bench, however, held that this did not invalidate the legislation because the Cess Act could be traced to Entries 23 and 24 of the Concurrent List.
“We have no manner of doubt that Article 248 of the Constitution of India and Entry 97 of List I of the Seventh Schedule, as was made applicable to the State of Jammu and Kashmir in terms of the 1954 Order, did not confer upon Parliament legislative competence to legislate the Cess Act for the State of Jammu and Kashmir,” the court said.
It immediately added that, “when we look to the Cess Act in its entirety and, particularly, its pith and substance, we clearly find that the Cess Act is a legislation which can be traced to Entries 23 and 24 of the Concurrent List and, therefore, can be very well saved from being declared ultra vires.”
The bench examined the history of the constitutional challenge to the Cess Act before the Delhi High Court and subsequently the Supreme Court in Dewan Chand Builders. It noted that those proceedings had proceeded on the question of whether the cess was a tax on land and buildings or a fee referable to the residuary Entry 97.
The court found that the question of whether the Cess Act could instead be traced to Entries 23 and 24 of the Concurrent List had not been fully argued before those courts. It therefore held that the issue remained open in the context of the erstwhile State of Jammu and Kashmir.
Examining the “pith and substance” of the legislation, the bench said the Cess Act was enacted to augment the resources of the Welfare Boards constituted under the BOCW Act and was therefore an extension and integral part of the labour welfare legislation.
“The Cess Act, being an enactment for augmenting the resources of the Workers’ Welfare Boards constituted under the BOCW Act, cannot be said to be merely a revenue-collection legislation,” the court observed.
It further held that the legislation was, in its pith and substance, a labour welfare law aimed at social security and the welfare of workers, including matters such as conditions of work, provident fund, workmen’s compensation, invalidity and old-age pensions and maternity benefits.
The court then considered whether the cess could have been collected in Jammu and Kashmir before the constitution of the Welfare Board.
The petitioners relied on the Supreme Court’s 2026 judgment in Prakash Atlanta (JV) v. National Highways Authority of India, arguing that constitution of the Welfare Board was a necessary precondition for implementation of the BOCW and Cess Acts. The Supreme Court had observed that contractors could not have factored the cess into their bids before a mechanism for its collection was put in place.
The High Court noted the Supreme Court’s conclusion that “the constitution of Welfare Boards is the sine qua non for giving effect to the BOCW Act and the Cess Act and the cess in connection therewith could not have been levied or collected before the constitution of such Welfare Boards.”
In the J&K context, the bench found that the Welfare Board had been constituted through SRO 274 dated July 31, 2007, thereby putting in place the mechanism necessary for collection and utilisation of the cess.
The court consequently held that before July 31, 2007, the Cess Act and the rules could not effectively be implemented in Jammu and Kashmir. From August 1, 2007, however, the contractors became liable to pay the prescribed cess.
“However, w.e.f. 1st August 2007, the petitioners became liable to pay the cess at the prescribed rate under the Cess Act and the Rules framed thereunder,” the bench held, adding that all works allotted pursuant to NITs issued after July 31, 2007 would attract the levy.
Accordingly, the court disposed of both petitions, holding the BOCW Act and Cess Act constitutionally valid in relation to the erstwhile State of Jammu and Kashmir and upholding the validity of the 1998 Cess Rules.
It clarified that the petitioners would be liable for cess on contracts executed pursuant to NITs issued after July 31, 2007, while the recoverable amount would carry interest at six per cent per annum from the date it became due until actual recovery.
The petitioners were represented by Senior Advocate Zaffar A Shah along with Advocates A. Hanan and Nisar Ahmad, while the respondents were represented by Deputy Solicitor General of India T.M. Shamsi, Advocate Rehana Qayoom and Additional Advocate General Alla Ud Din Ganaie.
