Labour Welfare Cess is imposed under the provisions of the Building and Other Construction Workers’ Welfare Cess Act, 1996 (BOCW Cess Act), and is typically levied at the rate of 1% on the total value of construction works executed by a contractor. This cess is collected for the welfare of construction workers and is payable to the respective State Labour Welfare Board.

In terms of GST law, the treatment of Labour Welfare Cess is governed by Section 15 of the CGST Act, 2017, which lays down the principles for determining the value of taxable supply. According to Section 15(2)(a), any taxes, duties, cesses, fees, or charges levied under any other law (excluding GST) and charged separately by the supplier shall be included in the value of supply for the purpose of GST computation. Therefore, even if the 1% Labour Welfare Cess is shown separately on the works contract invoice, GST remains payable on the entire invoice value, inclusive of the cess component.

To illustrate, if the base value of the works contract is ₹X and Labour Welfare Cess is ₹Y, then the total taxable value for GST will be ₹ (X + Y). The contractor must discharge GST on this composite value, and the cess cannot be deducted or excluded from the GST base. There is no exemption under the GST law that permits the exclusion of such statutory cesses from the value of supply.

This position has also been affirmed in the ruling of M/s Shree Construction [AAR Maharashtra, 2020], wherein it was held that Labour Welfare Cess, though statutory in nature, is part of the consideration for the supply and thus liable to GST.

In summary, Labour Welfare Cess forms part of the taxable value of the works contract and is not exempt from GST. Accordingly, GST is to be charged on the total amount, including the cess, and must be remitted in accordance with the provisions of the CGST Act.