Compensatory Allowances Included in Overtime Wages Under Factories Act | SC

Case Details: Union of India vs. Heavy Vehicles Factory Employees’ Union [2026] 182 taxmann.com 563 (SC)

Judiciary and Counsel Details

• Rajesh Bindal & Manmohan, JJ.
• P. S. Patwalia, Sr. Adv., Ms Aastha Mehta, Premal Joshi, Ms Prerana Mohapatra, Ms Prina Sharma, Advs. & Anshuman Srivastava, AOR for the Petitioner.

Facts of the Case

In the instant case, the Respondents were employee unions of government factories engaged in the production of defence equipment under the Ministry of Defence. The dispute concerned whether compensatory allowances such as House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA) and Small Family Allowance (SFA) were to be included in ‘ordinary rate of wages’ for computing overtime under Section 59(2) of the Factories Act, 1948. The Executive communications reflected varying positions over time.

The Respondents filed multiple Original Applications before the Central Administrative Tribunal challenging the exclusion of such allowances from the ‘ordinary rate of wages’ for overtime computation. The Tribunal dismissed applications.

Thereafter, Respondents filed writ petitions before the High Court. The High Court set aside the Tribunal’s order. Then, an appeal was made before the Supreme Court.

It was noted that different Ministries of the Government of India cannot assign different meanings to a provision in the Act of Parliament, which otherwise is clearly evident from the plain reading of Section 59(2) of the Act. Further, none of the sections empowers the Central Government to even frame rules.

Supreme Court Held

The Supreme Court observed that all power is vested in the State Governments. Further, all that the Central Government can do is to issue directions to State Governments.

The Supreme Court held that the sudden exclusion of these allowances via Office Memorandum lacked legal authority and was contrary to the literal mandate of Section 59 of the Act. Therefore, no case was made out for interference with the impugned judgment of the High Court.

List of Cases Reviewed

• Order of Division Bench of Madras High Court in W.P. Nos. 609, 1276, 1466, 1980, 1981, 1982 and 21035 of 2011, dated 30-11-2011 (para 17) affirmed
• Bridge and Roofs Co. Ltd. v. Union of India 1962 SCC Online SC 164 (para 11)
• Union of India v. Suresh C. Baskey (1996) 11 SCC 701 (para 11.1)
• Govind Bapu Salvi v. Vishwanath Janardhan Joshi (1995) Supp (1) SCC 148 (para 11.2) distinguished
• V.E. Jossie v. FLAG OFFICERS COMMANDING-IN-CHIEF NAVAL BASE [2011] 7 taxmann.com 898 (Kerala)/2011 SCC OnLine Ker 4030 (para 16) disapproved

List of Cases Referred to

• Bridge and Roofs Co. Ltd. v. Union of India 1962 SCC Online SC 164 (para 5)
• Union of India v. Suresh C. Baskey (1996) 11 SCC 701 (para 5),
• Govind Bapu Salvi v. Vishwanath Janardhan Joshi (1995) Supp (1) SCC 148 (para 5)
• Rajasthan State Industrial Development & Investment Corpn. v. Subhash Sindhi Coop. Housing Society (2013) 5 SCC 427 (para 6.4)
• Gujarat Mazdoor Sabha v. State of Gujarat [2020] 10 taxmann.com 1689 (SC) (para 6.4)
• V.E. Jossie v. FLAG OFFICERS COMMANDING-IN-CHIEF NAVAL BASE [2011] 7 taxmann.com 898 (Kerala) (para 16).