Introduction

In a recent judgment titled IPCL Employee Association (Bhartiya Majdoor Sangh) vs. Reliance Industries Ltd.[1] the Hon’ble Gujarat High Court (“Hon’ble HC”) has held that the cash canteen subsidy given by Reliance Industries Ltd. (“Company”) forms a part of the dearness allowance. It satisfies the expression “the cash value of any food concession” under Explanation 1 to Section 6 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”) and hence, forms part of the dearness allowance.

Brief Facts

A dispute arose between the appellant, IPCL Employees Association (“Association”), and the respondent Company, regarding the EPF contribution for the canteen subsidy paid to the members of the Association at a rate of INR 475 per month. In 1995, a settlement was reached under the provisions of the Industrial Disputes Act, 1947 (“ID Act”), which included a clause increasing the canteen subsidy from INR 300 to INR 475. However, it did not specify whether the canteen subsidy would be classified as part of basic wages or dearness allowance. Subsequently, the dispute was brought before the Employees Provident Fund (“EPF”) authorities. After hearing both parties, the Regional Provident Fund Commissioner (“RPFC”) concluded that the cash canteen subsidy should be considered as part of the dearness allowance and therefore subject to EPF contributions. Consequently, the Company was held liable for contributing the relevant amount under the EPF Act.

The Company then filed a review application challenging the RPFC's order, but the application was rejected. Following this, the Company appealed to the Appellate Tribunal, which dismissed the appeal. The matter then went to the single judge bench of Hon’ble HC, who allowed the petition filed by the Company and set aside all the previous orders. Aggrieved by this decision, the Association approached the division bench of the Hon’ble HC to redress the matter.

Issues before the Hon’ble HC

1.    Whether the cash canteen subsidy falls within the scope of the expression “the cash value of any food concession” thereby forming part of “dearness allowance” for the purpose of attracting contributions under the EPF Act?- Answered in the affirmative

2.    Whether the cash canteen subsidy be considered an emolument so as to form part of “basic wages” for the purpose of attracting contributions under the EPF Act?- Answered in the negative


Observations of the Hon’ble HC:

Issue 1: Whether the cash canteen subsidy falls within the scope of the expression “the cash value of any food concession” thereby forming part of “dearness allowance” for the purpose of attracting contributions under the EPF Act?

1.    The Hon’ble HC examined the Bombay High Court case of Tata Power Company Ltd., vs. Regional Provident Fund Commissioner, Mumbai & Ors.[2] which was relied upon by the Single Judge to hold that cash canteen subsidy would not fall within the scope of the terms “cash value of any food concession”. The Hon’ble HC noted that the Bombay High Court in its decision clarified the meaning of “cash value of any food concession” and held that this term refers to the reduced price of an item when food is provided to employees, and without the supply of food, there is no “cash value of a concession”. In that case, since Tata Power Company Ltd did not provide food, the food allowance could not be treated as the “cash value of food concession”. The Bombay High Court emphasized that the provision of subsidized food is essential to calculate the concession’s cash value. In light of this, the Hon’ble HC distinguished the facts of the present case from the facts of Tata Power Company Ltd., vs. Regional Provident Fund Commissioner, Mumbai & Ors.[3] holding that since in the present case the Company supplies food at subsidized rates through canteens, the cash canteen subsidy falls within the scope of the expression “the cash value of any food concession”.

2.    The Hon'ble HC further noted that the Company's revision of food item rates is directly linked to the cost of living, which is an integral part of the dearness allowance which is paid to the employees to offset the adverse impact of inflation. While the “cash value of food concession” cannot strictly be categorized as dearness allowance, the legislature has created a deeming fiction to include it within dearness allowance, given the fundamental similarities and interconnected nature of both components.

3.    The Hon'ble HC also rejected the contentions of the Company to distinguish the terms “allowance” from “subsidy”, holding that the meaning of the cash canteen subsidy must be considered in the context of the supply of food at concessional rates in the canteens, as the two are inherently linked. It is a well-established legal principle that beneficial legislation should be interpreted liberally to fulfil its statutory purpose. In cases of ambiguity, the courts must adopt the interpretation that benefits employees, avoiding any interpretation that would undermine the objectives of the legislation.

Issue 2: Whether the cash canteen subsidy be considered an emolument so as to form part of “basic wages” for the purpose of attracting contributions under the EPF Act?

The Hon’ble HC examined the Supreme Court’s decisions in Bridge and Roof Co. Ltd. vs. Union of India[4] and Manipal Academy of Higher Education vs. Provident Fund Commissioner[5], in which the Supreme Court had clarified that:

·      Where the wage is universally, necessarily and ordinarily paid to all, across the board such emoluments are basic wages.

·      Where the payment is available to be specially paid to those who avail of the opportunity is not basic wages.

The Hon’ble HC held that in the present case, the subsidy is not earned during periods of leave, and is forfeited after seven days of absence, thereby not making it universally available to all employees. Additionally, the payment of cash canteen subsidy depends on the employee’s choice to avail it, and is available to those who seize the opportunity making it ineligible to be classified as an “emolument” or part of basic wages. Therefore, the cash canteen subsidy does not meet the criteria for basic wages under Section 2(b) of the EPF Act.

Ruling of Hon’ble HC:

The Hon’ble HC held that the ‘cash canteen subsidy’ qualifies as the “cash value of any food concession” under Explanation 1 to Section 6 of the EPF Act, 1952, thereby forming part of dearness allowance by virtue of the deeming fiction and is subject to deductions towards the provident fund. The Hon’ble HC quashed the judgement passed by the learned Single Judge and further mandated that the order must be abided by the Company within 3 months from the date of the order.

Future Implications for the Employers:

·      Employers must review their benefit structures, particularly those linked to food or similar concessional allowances, to ensure alignment with the EPF Act’s definitions and avoid potential claims for under-contribution.

·      Employers must carefully assess the implications of any similar benefits provided to employees, especially where there is a connection to inflation or cost-of-living adjustments, as these may be subject to EPF deductions.


[1] IPCL Employee Association (Bhartiya Majdoor Sangh) vs Reliance Industries Ltd 2024:GUJHC:58705-DB

[2] Tata Power Company Ltd., vs. Regional Provident Fund Commissioner, Mumbai & Ors., (2008) III LLJ 992

[3] Tata Power Company Ltd., vs. Regional Provident Fund Commissioner, Mumbai & Ors., (2008) III LLJ 992

[4] Bridge and Roofs Co. Ltd., vs. Union of India, AIR 1963 S.C. 1474

[5] Manipal Academy of Higher Education vs. Provident Fund Commissioner, 2008 (5) S.C.C. 420


Written by Partner Gyanendra Mishra and Senior Associate Mudrika Purohit.