Whether conveyance allowance should not be included in wage for ESI calculation

Whether conveyance allowance should not be included in wage for ESI calculation in view of recent judgment i.e. In re Cosmopolitan Club, dated 30.6.2011.decided by division bench Madras High Court.

A discussion:


Hon’ble Madras High Court has given very confronting opinion at the subject issue from time to time.

1. Management Of Oriental Hotels ... vs Employees' State Insurance  (Madras High Court on 14 November, 2000)

“While confirming the judgment of the learned single Judge in so far as the house rent allowance is concerned, we set aside that part of the judgment which holds that  conveyance allowance is also part of wages on which contributions are payable. The L.P. Appeal is allowed in part.”

2. Regional Director, Employees' ... vs Sundaram Clayton Ltd. And Ors. (Division Bench, Madras High Court on 10 December, 2003)

“From the above said decision, it is clear that though such a payment towards conveyance allowance falls within the ambit of additional remuneration, it will come under the exclusion clause as provided under the above said definition. The conveyance allowance paid to the employees for the purpose of being utilised on the travel from the place of residence to the place of work has to be construed as travelling allowance and thereby it cannot be construed as wages, as travelling allowance has been excluded from the purview of the said definition. We agree with the said decision reported (supra), and so the Employees' Insurance Court is correct in holding that the conveyance allowance cannot be construed as "wages" and the respondents are not liable to pay contribution taking into consideration the said amount as "wages."”


1. The Assistant Regional Director vs Chandrasekarapuram Co. Op Madurai Bench of Madras High Court on 10 March, 2006)

“Hence, I hold on the point that the short payment, temporary daily wages, incentive payments, subsistence allowance, batta, meals expenses, conveyance charges etc., as mentioned in Ex.P.1, notice, will come under the definition of Section 2(22) of the E.S.I.Act and the respondent is liable to pay E.S.I Contribution to the appellant and that the order passed in E.S.I.O.P.No.22 of 1994 is liable to set aside in respect of the short payment, temporary wages, incentive payments, subsistence allowance, batta, meals expenses and conveyance. The point is answered accordingly”.

4. Cosmopolitan club.V. Deputy director…… (single bench, Madras High Court on 17.09.2009)

“ The learned Consel appeasring for the petitioner would rely on a judgment of the Hon’ble Supreme Court in regional Director Employees’ State insurance Corporation Madras vs. Sundaram Clayton Ltd., Moppet Division, Madras reported in 2004 (1) L.L.N. 630 wherein the Hpn’ble Supreme Court has held that Conveyance allowance shall not form part of the wages for the purpose of ESI Act”.


“ In view of the above said law laid down by the Hon’ble Supreme Court, the writ petition is allowed and the impugned order is quashed. It is made clear that conveyance allowance shall not form part of the wage for the purpose of ESI Act. Connected miscellaneous petitions are closed”

5. Deputy director…….V. Cosmopolitan club (Divison bench, Madras High Court on 30.06.2011) (LPA against the decision of single bench in item no.4)

After hearing the learned counsels for the parties, we do not find any merit in this writ appeal, which is accordingly dismissed. There will be no order as to cost”

6. The Management Of  Magus Customer Dialog Private Limited vs The Deputy Director (Madras High Court on 15 February, 2011)

“A reading of the above passage shows that there was an error found while describing the Sundaram Clayton's judgment as the judgment of the Supreme Court.”


“Further, it cannot be said that Sundaram Clayton's case sets out the law on the field.”


“As held in Sundaram Clayton's case, unless it is proved that the amount was paid only in lieu of travelling allowance or the petitioner is paying the actuals of the expenditure incurred by the employees and in the absence of these ingredients, there cannot be any automatic presumption in favour of the petitioner's company and that a direction to the respondent must be issued to desist from passing final orders.”

“In the present case, whether conveyance allowance can be treated as travelling allowance coming within the definition of Section 2(22)(b) of the ESI Act is essentially a question of fact for which evidence will have to be let in by the parties as was done in the case of M/s.Sundaram Clayton.”

Other High Courts


Hon’ble Karnataka High Court in The Regional Director, ... vs I.T. Solutions (India) Private ... on 6 August, 2002 held that

“I refer to the decision of Hon'ble Supreme Court rendered in M/s. Harikar Poly fibres v. Employees' State Insurance Corporation,  In the said case, the Supreme Court has held that house rent allowance, night shift allowance, incentive allowance and heat and dust allowance fall within the definition of wages in Section 2(22) of the Act. Therefore, since the applicant-employer is paying a certain fixed amount as conveyance allowance to every employee working in its concern, in terms of contract of employment, there is no impediment to hold that the conveyance allowance forms part and parcel of wages within the definition of Section 2(22) of the Act. Therefore, I answer the point raised by me in the affirmative.”

Hon’ble Kerala High Court in The Regional Director,Esi ... vs M/S.Tony Harris Sea Foods Ltd on 22 January, 2009 held that

“Therefore I am inclined to agree with the decision rendered by the Karnataka High Court in preference to the decision of the Madras High Court for the INAP 40/2007 -:7:- reasons stated in the previous paragraphs of the judgment. Therefore the appeal is allowed and the order passed by the E.I. Court is set aside and it is held that conveyance allowance forms part and parcel of wages and it shall be taken into consideration for the purpose of fixing the ESI contribution.”

Hon’ble Andhra High Court in The Dy. Director, Esi ... vs Amrutanjan Limited, Hyderabad, on 18 February, 2009 held that

“The learned Tribunal, on appreciation of evidence available on record P.W.1, R.W.1, R.W.2; Exs.P-1 to P-16, Exs.R-1 to R-6, recorded findings in detail, dealt with the definition of wages, referred to the decision in Harihar Polyfibres v. Regional Director, ESI Corporation ((1984) 4 SCC 324) and came to the conclusion that the conveyance allowance and washing allowance must be treated and included as wages and further dealt with Regulation No.40 and further came to the conclusion that the payment of contribution in respect of 40 employees had been paid due to pressure and when the amount of contribution was paid under such circumstances Amrutanjan Limited company is entitled for refund and accordingly allowed the E.I. Case No.41 of 2001.”

“In the light of the legal position referred to supra and also in the light of the factual matrix and the clear findings recorded by the Tribunal in elaboration on appreciation of the oral and documentary evidence, this Court is satisfied that the findings recorded by the Tribunal cannot be found fault while allowing the E.I. case of the Amrutanjan Limited. Hence, the said findings are hereby confirmed.”

ESIC View:

Fixed conveyance allowance flowing out of a wage settlement or as per terms and conditions of employment should be treated as wages under section 2(22) for all purposes except:

1.  Amount towards conveyance paid or reimbursed to any employee for incurring expenses for specific duty related journey

2.  Reimbursement of actual cost of conveyance for coming to work and going from work on production of ticket or season ticket and subject to proof of actual expenditure

3.  Payment of certain amount for maintenance of vehicle depending upon cadre of the official and category of vehicle and subject to production of records for actually maintaining the vehicles

4.  Fixed allowance paid at an interval exceeding 2 months, unless such payment is made as per contract or agreement.


In general Conveyance allowance should be considered as part of Wages as defined under section 2 (22) of the ESI Act, as most of the High Court and also ESIC has considered.


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Niraj Kumar 
on 05 November 2011
Published in Labour & Service Law
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