A brief note on
Micro, Small and Medium Enterprises Development Act, 2006
Creation of New Ministry: The President under Notification dated 9 th May 2007
has amended the Government of India (Allocation of Business) Rules, 1961 and
pursuant to this amendment, Ministry of Agro and Rural Industries and
Ministry of Small Scale Industries have been merged into a single Ministry,
namely “MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES”.
MSMED Act, 2006:
An Act, called Micro, Small and Medium Enterprises Development Act, 2006
(MSMED Act) was enacted vide President assent on 16th June 2006 (No. 27 of
2006).
Objective of the Act : This is an Act for facilitating the promotion and
development and enhancing the competitiveness of micro, small and medium
enterprises and for matters connected therewith and incidental thereto.
The provisions of this Act came into force w.e.f. 2nd day of October 2006.
Vide Ministry Notification dated 26th September 2006 the National Board for
Micro, Small and Medium Enterprises Rules, 2006 was notified to come into
force w.e.f. 2nd day of October 2006.
Classification of Enterprises
As per Section 7(1) of the Act and Ministry Notification dated 29th September,
2006, the following enterprises (whether proprietorship, HUF,AOP, Co-op
Society, partnership or any other legal entity, by whatever name called) were
classified as micro, small and medium enterprises:
I. In the case of the enterprises engaged in the manufacture or production of
goods pertaining to any industry specified in the first schedule to the
Industries (Development and Regulation) Act, 1951:
a. Micro Enterprise: where the investment in plant and machinery is upto
Rs.25.00 lakhs.
b. Small Enterprise: where the investment in plant & machinery exceeds
25.00 lakhs but upto 5.00 crores.
c. Medium Enterprise: where the investment in plant & machinery exceeds
5.00 crores but upto10.00 crores.
II. In the case of the enterprises engaged in providing or rendering of
services:
a. Micro Enterprise: where the investment in equipments is upto Rs.10.00
lakhs.
b. Small Enterprise: where the investment in equipments exceeds 10.00 lakhs
but upto 2.00 crores.
c. Medium Enterprise: where the investment in equipments exceeds 2.00
crores but upto 5.00 crores.
Calculation of the investment in Plant & Machinery: Vide Ministry
Notification dated 5th October 2006, the Government notified the list of certain
items to be excluded or included while calculating the investment in Plant &
Machinery for the purpose of above classification.
Filing of Memorandum:
Section 8 of the MSMED Act provides for the filing of Memorandum by the
micro, small and medium enterprise. The section provides:
A. any person who intends to establish :
Micro or small Enterprise
may at his discretion
Medium enterprises engaged in providing or rendering may at his discretion
of services
Medium enterprises engaged in the manufacture or shall compulsorily
production of goods pertaining to any industry
specified in the first schedule to the Industries
(Development and Regulation) Act, 1951
file a Memorandum of micro, small or medium enterprise, as the case may be,
with the Specified Authority.
PROVIDED THAT,
Any person who, before the commencement of MSMED Act, establishedA Small Scale Industry (SSI) and obtained a may at
his
registration certificate
discretion,
An industry engaged in the manufacture or
Within 180 days
production of goods pertaining to any industry
from
the
specified in the first schedule to the Industries
commencement
(Development and Regulation) Act, 1951, having shall of this Act, i.e.,
investment in plant & machinery of more than rupees
2nd Oct. 2006,
one crore but not exceeding ten crore rupees and filed
Industrial Entrepreneurs’ Memorandum (IEM) with
SIA, DIPP, Ministry of Commerce and Industry,
file the Memorandum, in accordance with the provision of this MSMED Act with
the
specified
Authority.
To whom the Memorandum to be filed:
Specified Authority :
Vide Ministry Notification dated 29th September 2006, the Central Govt. has
specified –
The General Manager, District Industries Centre or any District level officer of
equivalent rank in the Directorate or the Department dealing with Micro, Small
and Medium Enterprises of the State Govt. or the UT administration, as the
specified Authority, with whom the Memorandum shall be filed.
Delayed Payment by Buyer to Micro and Small Enterprises
Time frame
Section 15 of MSMED Act provides the time frame upto when payment shall be
made by the BUYER to Micro or small enterprise supplier:
Where any supplier (supplier means, a micro or small enterprise, which has
filed a memorandum with the specified authority and interalia includes persons
engaged in selling goods produced by micro or small enterprises and rendering
services which are provided by such enterprises) supplies any goods or renders
any services to any buyer, the buyer shall make payment therefore on or before
the date agreed upon between him and the supplier in writing or, where there is
no agreement in this behalf, shall make payment before the appointed day
(appointed date means, the day following immediately after the expiry of the
period of 15 days from the date of acceptance / deemed acceptance of any
goods or service by a buyer from a supplier).
Provided, in no any case the period agreed between the supplier and the buyer
in writing shall exceed 45 days from the day of acceptance/ deemed acceptance.
HERE:
‘the day of acceptance’ meansthe day of actual delivery of goods or the rendering or services, or
where any objection is made in writing by the buyer regarding acceptance of
goods or services within 15 days from the day of the delivery of goods or the
rendering of services, the day on which such objection is removed by the
supplier.
‘the day of deemed acceptance’ means –
where no objection is made in writing by the buyer regarding acceptance of
goods or services within 15 days from the day of the delivery of goods or the
rendering of services, the day of the actual delivery of goods or the rendering of
services.
Payment of interest
Section 16 of the Act, provides for the payment of compound interest by the
Buyer in case of failure to make the payment as required under Section 15.
Notwithstanding anything contained in any agreement between the buyer and
supplier or in any law for the time being force, Where any buyer fails to make
payment of the amount to the supplier as required under section 15, the buyer
shall be liable to pay compound interest with monthly rest to the supplier on
that amount from the appointed day or from the date immediately following the
date agreed upon,---@ 3 times the Bank Rate.
Disclosure of facts of delayed payment etc. in audited annual statement of
accounts
As per Section 22 of the Act, where any buyer is required to get his annual
accounts audited under any law for the time being in force, such buyer shall
furnish the following additional information in his annual statement of
accounts, namely: the principal amount and the interest due thereon (to be shown separately)
remaining unpaid to any supplier (micro or small enterprise)as at the end of
each accounting year;
the amount of interest paid by the buyer along with the amounts of the
payment made to the supplier beyond the appointed day during each
accounting year;
the amount of interest due and payable for the period of delay in making
payment (‘payment’ here means the payment which have been made but
beyond the appointed day during the year and without adding the interest
thereon specified under this Act for the period of delay);
the amount of interest accrued and remaining unpaid at the end of each
accounting year; and
the amount of further interest remaining due and payable even in the
succeeding years, until such date when the interest dues as above are actually
paid to the small enterprise, for the purpose of disallowance as a deductible
expenditure under section 23.
Disallowance of interest under Income Tax Act, 1961
As per Section 23 of the Act: Notwithstanding anything contained in the
Income Tax Act, 1961 the amount of interest payable or paid by any
buyer, under or in accordance with the provisions of this Act, shall not be
allowed as deduction for the purpose of computation income under the
I.T.Act, 1961,
Miscellaneous Provisions:
Contravention:
I)
Whoever intentionally contravenes or attempts to contravene or
abets the contravention of any of the provisions contained in section 8(1),
regarding filing of Memorandum with specified authority, shall be
punishable:
in case of first conviction- fine which may extend to Rs. 1000/in case of any second or subsequent conviction- fine which shall not be
less than Rs. 1000/- but may extend to Rs.10,000/-.
II)
Where a buyer contravenes the provisions of section 22, regarding
the disclosure of information related to delayed payments, in audited
annual account statement, he shall punishable with fine which shall not be
less than Rs.10000/Checklist:
Being a Micro, Small or Medium Enterprise – to file Memorandum
(Entrepreneurs Memorandum) as per the provisions of Section 8 of MSMED
Act, 2006.
Being a Buyer:
a.
To get the status of suppliers, to know whether the particular supplier is
micro, small or medium enterprise.
b.
If the supplier is micro or small enterprise – Arrange to make payment as
per section 15, i.e. within 15 days from the date of delivery of good or
rendering of services by them or within the period as agreed in writing
(which should not in any case be above 45 days from the date of delivery
of goods or rendering of services), otherwise liable for payment of interest
at the rate of 3times of the Bank Rate, as provided by Section 16.
c.
Disclosure of information in audited annual accounts regarding delayed
payment, interest etc. as per Section 22 of the Act.
(Buyer means whoever buys any goods or receives any services from a
supplier (micro and small enterprise) for consideration.)
Compiled by:
CS Anand Khandelwal, Company Secretary, BCH Electric Limited, New Delhi
Mobile : 09810511150
( S a m ple c o nfir ma ti o n let ter)
( To be se n t b y B u yer t o S up pl ier s f or c onf ir mi n g t hei r s ta tu s)
Da t e :
To
_______________
_______________
_______________
Sub: Co nfi r ma t i o n re ga r di n g Ca te g o ry o f E nte rp ri se f o r the Pu rp ose o f the
Mi c r o, S ma l l a nd Me d ium En te r pri se s De ve lopme nt A c t, 2 0 0 6
Dea r s ir
In view of the newly enacted, Micro, Small and Medium Enterprises Development Act, 2006 the
enterprises has been classified into three categories, i.e., micro, small and medium enterprise,
based on the amount of investment in Plant & Machinery. The basis of classification is
reproduced below:
I. In the case of the enterprises engaged in the manufacture or production
of goods pertaining to any industry specified in the first schedule to the
Industries (Development and Regulation) Act, 1951:
a. Micro Enterprise : where the investment in plant and machinery is upto Rs.25.00 lakhs.
b. Small Enterprise : where the investment in plant & machinery exceeds 25.00 lakhs but upto
5.00 crores.
c. Medium Enterprise : where the investment in plant & machinery exceeds 5.00 crores but
upto10.00 crores.
II. In the case of the enterprises engaged in providing or rendering of services:
a. Micro Enterprise: where the investment in plant and machinery is upto Rs.10.00 lakhs.
b. Small Enterprise: where the investment in plant & machinery exceeds 10.00 lakhs but upto
2.00 crores.
c. Medium Enterprise: where the investment in plant & machinery exceeds 2.00 crores but upto
5.00 crores.
Please provide us the status of your enterprise in the enclosed format
Thanking You,
Yours faithfully,
For XYZ Limited
(Authorised Signatory)
Encl: as above
Da t e :
To,
X Y Z Li mi t e d
A cco unt s De pa rt me nt ,
Sub: Co nfi r ma t i o n re ga r di n g Ca te g o ry o f E nte rp ri se f o r the Pu rp ose o f the
Mi c r o, S ma l l a nd Me d ium En te r pri se s De ve lopme nt A c t, 2 0 0 6
Dea r S ir ,
Wi t h ref ere nc e t o y ou r le tte r da t ed _ _ _ _ _ _ _ _ I / w e c o nf ir m a s u nd er:
1 . M y / Our e nt erpr i se f a ll s i n ca te g or y a ga i n st w h ic h I / we ha v e p ut t ic k
ma r k (√ ) i n th e ta bl e b el o w.
Sr
No .
i)
ii)
ii i)
iv)
Ca te g or y
of
En ter pri se
M icr o
S ma ll
M edi u m
No n e
of
th e a b ov e
En ter pri se
e n ga g e d
M a n uf a c tur i ng g o od s
in
En ter pri se
ser vic es
pr ov idi n g
2 . Th e S ta tu s wi t h ref e ren ce t o Re g is tra ti o n / Re co g ni t io n of m y/ o ur e nt erp ri se
is a s u nder :
a ) M e mo ra ndu m f i led wi t h spe cif ied A u t ho ri ty: Y es / N o / A pp li e d fo r.
b) Re gi s tra t i o n / r ec o g ni ti o n r ece iv ed fr o m th e spe cif ied A u t h ori t y: Ye s /
No .
I cer tif y t ha t t he a b o v e sta ted i nfo r ma t i on i s tr ue t o t he be st of m y k n o wle dg e
a nd be lief .
F or _ _ _ _ _ _ _ _ _ _ _ _ _ _ ( c o mpa n y / e nt erp ri se na me)
S ig n:
Na me:
A ut h or is ed si g na t or y:
Off ic ia l S ta mp / S ea l of th e e nt erp ri se
Compiled by:
CS Anand Khandelwal, Company Secretary, BCH Electric Limited, New Delhi
Mobile : 09810511150