A scathing letter addressed to Gujarat's Labour Secretary has brought to light alarming discrepancies in the collection and disbursement of the Building and Other Construction Workers' Welfare Cess, with activists citing a recent Comptroller and Auditor General (CAG) report to demand urgent corrective measures for the benefit of the state's estimated 25 lakh unorganized construction workers.
Vipul Pandya, General Secretary of the concerned organization, has written to Lochan Sehra, IAS, Secretary of the Labour, Skill Development and Employment Department and Chairman of the Gujarat Building and Other Construction Workers Welfare Board, highlighting serious observations contained in the CAG's Report No. 2 of 2025 (Performance Audit – Civil). The audit raises fundamental questions about the assessment, collection, and transfer of cess funds meant for worker welfare.
Assessment Based on Estimated, Not Actual Costs
The CAG report, in Chapter IV, Point 4.2.2, notes that Municipal Corporations and Urban Development Authorities (UDAs) were collecting cess at 1% of the estimated construction cost certified by employers, rather than the actual cost of construction. The relevant officials reportedly admitted during audit that actual construction costs were never assessed. This practice directly contravenes Section 3(1) of the Building and Other Construction Workers' Welfare Cess Act, 1996, which mandates a 1% levy on the total actual cost of construction.
Originally, Gujarat had implemented a simplified method in 2006 based on a Standard Schedule of Rates (SOR) of ₹3,000 per square meter, effectively collecting ₹30 per square meter of super built-up area. However, this resolution was rescinded on March 1, 2014, in favor of the statutory 1% on actual cost. Despite this, the CAG found that the practice of using estimated costs persisted.
The letter highlights a stark disparity in cess collection figures. As of January 31, 2026, Gujarat had collected a cumulative total of ₹7,694.13 crore. By comparison, Maharashtra had collected ₹22,020 crore (as of September 2023), Delhi had amassed ₹24,212.26 crore (as of March 2020), and Karnataka had gathered approximately ₹13,500 crore. Given the massive scale of commercial, residential, and industrial construction in Gujarat over the last two decades, activists argue that the state's collections are "notably low" and warrant a statewide investigation.
The letter also points to non-compliance with Rule 4(4) of the 1998 Cess Rules, which requires reassessment based on actual construction cost upon completion of work, with recovery of differential amounts where initial estimates fell short.
Illegal Exemptions to Local Bodies
In a finding flagged by the CAG under Point 4.2.4, the state government in January 2005 appointed heads of local authorities as cess collectors and assessing officers but simultaneously exempted Gram Panchayats and Nagar Panchayats from collection duties. The CAG observed that this exemption was "not consistent with Section 6 of the Cess Act," effectively depriving the welfare fund of revenue from construction activities across vast rural and semi-urban jurisdictions.
Perhaps the most serious allegation concerns the non-constitution of the welfare fund itself. Section 24 of the BOCW Act, 1996, mandates that the Board form a welfare fund. However, the CAG found that no such fund had been created. Consequently, Rule 5 of the 1998 Cess Rules—which requires collected cess to be transferred to the Board within 30 days—has been systematically violated.
Instead of being deposited in a dedicated Board account, the entire cess revenue is being credited to the state treasury under "Major Head: 230, Sub-Head: (04) Income from Cess Levied under Gujarat Building and Other Construction Workers' Welfare Cess Act, 1996." This is despite clear directions from the Supreme Court mandating that cess collections be transferred to the Board's fund.
A Problem Ignored Since 2016
The issue is not new. The Public Accounts Committee (PAC) discussed the matter on October 18, 2016, when ₹1,549 crore was already sitting in the state treasury. The PAC Chairman had then noted that transferring this amount to the Board would not only make it available for poor workers' welfare but also generate substantial interest income to fund schemes. Nearly a decade later, the problem remains unresolved.
According to information obtained under the Right to Information Act, as of June 30, 2025, the state government had released only ₹3,434.96 crore to the Board as Grant-in-Aid out of the total cess collected. Activists argue that had the full amount been transferred to the Board's account as legally required, the interest alone would have significantly funded welfare schemes for construction workers.
Six-Point Demand for Immediate Action
Citing the CAG report, Supreme Court directions, and the PAC's earlier observations, the letter demands the following immediate steps:
1. Statewide Special Investigation: A comprehensive inquiry into cess assessment, collection, and arrears for all major commercial, residential, industrial, and public construction projects since 2006, including verification that 1% of actual total cost was levied. Differential amounts must be recovered with interest under Rule 4(4).
2. Universal Assessment: Complete assessment and collection across all jurisdictions, including Municipal Corporations, Municipalities, District Panchayats, Taluka Panchayats, and Gram Panchayats, with recovery of arrears where illegal exemptions were granted.
3. Full Public Disclosure: Detailed figures from 2006 to the present—covering total cess assessed, collected, deposited by various authorities, amounts held in the treasury, amounts transferred to the Board, and outstanding arrears—must be compiled and made public.
4. Constitute the Welfare Fund: Immediate formation of the "Building and Other Construction Workers' Welfare Fund" and transfer of all un-transferred cess amounts, along with accrued interest, to the Board's separate bank account as required by law.
5. Online Transparency Portal: Launch a public dashboard displaying project-wise details, including developer/contractor names, construction location, total cost, assessed cess, collected amounts, and collection dates, ensuring proactive disclosure without citizens needing to file RTI applications.
6. Accountability and Action: Time-bound investigation into all irregularities flagged by the CAG and disciplinary action against responsible officers.
The letter concludes with an appeal to the Labour Secretary to act immediately in the interest of Gujarat's 25 lakh construction workers and to inform the organization of the steps taken.
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