RECAPITULATION OF FORM MSME- I AND RELATED PROVISIONS

[SHIVANSH MEHRA]

    RECAPITULATION OF FORM- 1 MSME AND RELATED PROVISIONS

1. Every Company who get supplies of goods or services from Micro or Small enterprise supplier and whose payments to such entities remain due for more than 45 days from the date of acceptance or the date of deemed acceptance of the goods or services shall submit a half yearly statement in Form- 1 MSME to Ministry of Corporate Affairs disclosing the following:

           (i) Amount of payment due; and

           (ii) Reasons for delay

2. Such return in Form MSME-1 is required to be filed on half yearly basis i.e., by 31st October for April to September and by 30th April for the period October to March.

3. This form was notified on 22nd January, 2019 vides The Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019. Importantly, an initial return of all the outstanding dues to Micro or Small Enterprises Suppliers should be filed within 30 days from publication of this order i.e., by 21st February, 2019, though the said form is not yet made available by the Central Government.

4. In the initial return, details such as Name of suppliers, their PAN, amount outstanding as on 22.01.2019, date from which such amount is O/s and most importantly, reason for delay in payments due are to be provided. Almost same particulars of details are to be provided in the periodic six monthly returns. Another important point is that the aforementioned details are still to be provided in the return even if the dues stood unpaid for more than 45 days but were eventually paid as per terms of agreement or otherwise, and thus, were not outstanding on 30th September or 31st March

5. Tackling such compliance in an efficient manner and in such short span of time is of utmost importance. Though no certification from a professional is required but still caution should be taken. Few suggestions of managing such compliances is as follows:-

• Company should ask for MSME registration or Udyog Adhaar memorandum as furnished under Section 8 of the MSMED Act, 2006 from its suppliers.
• A declaration should be taken from each and every supplier of their status and they should also declare therein that they will intimate the company as and when their status changes.
• In case of new suppliers, Udyog Adhaar and declaration/undertaking should be taken prior to release of payment or before that even if transaction with such supplier is a one time event.
• Professionals like Chartered Accountants or Company Secretaries could be engaged and asked to submit a certificate in this behalf whenever necessary.
• All such communications should be done via e-mail, letters, etc. so that proper paper trail and documentation could be held on recorded so as to safeguard the company's interest.

6. This return is to be filed only when a company has a micro or small enterprise suppliers and not any other type of enterprises. This decision can only be taken on the basis of the above mentioned documents and details.

7. Section 2 read with Section 7 of the MSMED Act 2006 defines micro and small enterprises. For manufacturing enterprises, classification criteria in addition to investment in plant & machinery is that such manufacturing enterprise should be 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. Thus, additional task of the company is to identify whether such supplier is engaged in the manufacture or production of the Scheduled goods to classify them as micro or small enterprise for reporting purposes.

8. There may be certain situations where the agreed payment settlement period exceeds 45 days because of terms or agreements, industry norms or otherwise. It can be interpreted that in such situations too, there is a requirement to declare such details in Form MSME-1 pertaining to the aforesaid transactions. Word used in the notification is 'Due' and not 'overdue.' 'Due' gets the meaning from section 15 read with Clause (b) of Section 2 of the MSMED Act, 2006.

1. As per my understanding, traders are covered in a restricted sense under this notification, if following conditions are satisfied-

• (A) Company, Co-operative Society, Trust or a body, by whatever name called, registered or constituted under any law for the time being in force and
• (B) Engaged in selling goods produced by micro or small enterprises and
• (C) Rendering sources provided by such enterprises.

           Refer Clause (n) of Section 2 of The MSMED Act, 2006.

10. Another important aspect to consider is that in order to satisfy as a "Supplier" one should have filed Udyog Aadhaar memorandum as referred in sub section (1) to Section 8 of the MSMED Act, 2006.

11. Auditors need to give a special emphasis to the requirements of Section 22 to 24 of the MSMED Act 2006 while auditing a company. Additionally, Form 3CD under the Income Tax Act 1961 has a requirement wherein interest inadmissible under section 23 of the MSMED Act 2006 has to be provided. It is often seen that auditee companies do not provide or adhere to the requirements of Section 22 to 24 of MSMED Act 2006. In such cases, auditors should evaluate the circumstances and after carrying the necessary audit procedures, should form a 'True and Fair' opinion on the financial statements of the company.

(Refer SA 230- Audit Documentation, SA 250- Consideration of Laws & Regulations in an Audit of Financial Statements, SA 315- Identifying & assessing the risks, SA 320- Materiality in Planning & Performing as audit, SA 500- Audit Evidence)

Relevant extracts of The MSMED Act, 2006

- Section 2 (b): "appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Explanation.-For the purposes of this clause,-

(i) “the day of acceptance” means,-

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or

services within fifteen 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;

(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen 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.

- Section 2 (e): “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services.

- Section 2 (h): “micro enterprise” means an enterprise classified as such under sub-clause (i) of clause (a) or sub-clause (i) of clause (b) of sub-section (1) of section 7;

- Section 2 (m): “small enterprise” means an enterprise classified as such under sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b) of sub-section (1) of section 7;

- Section 2 (g): “medium enterprise” means an enterprise classified as such under sub-clause (iii) of clause (a) or sub-clause (iii) of clause (b) of sub-section (1) of section 7;

- Section 2 (n): “supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,-

(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);

(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956;

(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;

- Section 7: Classification of enterprises.-(1) Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951),the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called,-

(a) 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 (65 of 1951),as-

(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees;

(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or

(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

(b) in the case of the enterprises engaged in providing or rendering of services, as-

(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or

(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Explanation 1.-For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

Explanation 2.-It is clarified that the provisions of section 29B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall be applicable to the enterprises specified in sub-clauses (i) and (ii) of clause (a) of sub-section (1) of this section.

- Section 8:  Memorandum of micro, small and medium enterprises.-(1) Any person who intends to establish,

(a) a micro or small enterprise, may, at his discretion; or

(b) a medium enterprise engaged in providing or rendering of services may, at his discretion; or

(c) a medium enterprise 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 (65 of 1951),

shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section (4) or the Central Government under sub-section (3):

Provided that any person who, before the commencement of this Act, established-

(a) a small scale industry and obtained a registration certificate, may, at his discretion; and

(b) an industry 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 (65 of 1951),having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) number S.O. 477(E), dated the 25th July, 1991 filed an Industrial Entrepreneur's Memorandum, shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in accordance with the provisions of this Act.

- Section 9:  Measures for promotion and development.-The Central Government may, from time to time, for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, particularly of the micro and small enterprises, by way of development of skill in the employees, management and entrepreneurs, provisioning for technological upgradation, marketing assistance or infrastructure facilities and cluster development of such enterprises with a view to strengthening backward and forward linkages, specify, by notification, such programmes, guidelines or instructions, as it may deem fit.

- Section 15: Liability of buyer to make payment- Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

- Section 16: Date from which and rate at which interest is payable.-Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

- Section 17: Recovery of amount due- For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.

- Section 22: Requirement to specify unpaid amount with interest in the annual statement of accounts- 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:-

(i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;

(ii) the amount of interest paid by the buyer in terms of section 16, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;

(iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;

(iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and

(v) 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.

- Section 23: Interest not to be allowed as deduction from income- Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

- Section 24: Overriding effect- The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Please feel free to revert back in case of any queries.

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CA SHIVANSH MEHRA

Email: ca.smehra@gmail.com