Introduction

 The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 is a crucial legislation in India aimed at promoting, developing, and enhancing the competitiveness of micro, small, and medium enterprises (MSMEs). Its objective is to provide Promotion and development, enhancing Competitiveness of MSMEs.

 Applicability:

Under the MSME Development Act, 2006; vide notification dated 26^th June, 2020 the revised definition of MSME is notified as under:

• Micro Enterprises includes investments of Rs.1 crore in Plant and Machinery or equipment and turnover of Rs.5 crores.
• Small unit’s includes investment in Plant and Machinery or equipment of Rs.10 crore and turnover of Rs.50 crore.
• Medium Enterprises includes investment in Plant and Machinery or equipment of Rs.50 crore and turnover of Rs.250 crore.

 

 Key points of Micro, Small and Medium Enterprises Development Act, 2006:

a. Liability of buyer to make payment within 45 days of acceptance/deemed acceptance

Where any supplier 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, before the appointed day.

The period agreed upon for payment cannot exceed forty five days from the day of acceptance or the day of deemed acceptance.

“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.

b. Requirement to specify unpaid amount with interest in the annual statement of accounts.

Buyers required to get their annual accounts audited under any law must furnish additional information in their annual statement which includes:

a.  The principal amount and interest due remaining unpaid to any supplier.

b.  The amount of interest paid by the buyer as per section 18, and payments made to the supplier beyond the appointed day during each accounting year.

c.  The amount of interest due and payable for delay in payment beyond the appointed day, excluding interest specified under this Act.

d.  The amount of interest accrued and remaining unpaid at the end of each accounting year.

e.  The amount of further interest due and payable in succeeding years until the interest dues are fully paid to the small enterprise.

As per Section 23 of MSME Act, Interest paid for delayed payment will not be allowed as expenditure under Income Tax Act, 1961

c. Companies with a turnover of more than Rs. 500 crore and all Central Public Sector Enterprises shall be required to get themselves on boarded on the Trade Receivables Discounting System platform

1. Applicable to all companies registered with the Companies Act, 2013 (18 of 2013) with a turnover of more than Rs. 500 Crores and all Central Public Sector Enterprises
2. Companies are required to get on boarded on the Trade Receivables Discounting System platform
3. The Registrar of Companies in each State shall be the competent authority to monitor the compliance of these instructions by companies under its jurisdiction and the Department of Public Enterprises,

 

Key points of Micro, Small and Medium Enterprises Development Act, 2006 under the Companies Act, 2013:

a. Filing of Half Yearly return with MCA for providing details of delay in payments to MSME beyond 45 days

Pursuant to Order dated 22 January, 2019 issued under Section 405 of the Companies Act, 2013-Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019:

All companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) (hereafter referred to as “Specified Companies”), shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

a.  the amount of payment due and

b.  the reasons of the delay;

Every specified company shall file a return as per MSME Form I, by 31st October for the period from April to September and by 30th April for the period from October to March.

 

Key points of Micro, Small and Medium Enterprises Development Act, 2006 under the Income Tax Act, 1961 and Income Tax Rules, 1962:

a. Certain deductions to be only on actual payment made to micro or small enterprise.

The new clause (h) added in section 43B of Income tax act 1961 is added for timely payments to MSME, this clause states that any sum payable by the assessee to a Micro & Small Enterprise beyond the time limit specified in Section 15 of the MSMED Act shall be allowed as a deduction only in the previous year in which the sum has been actually paid. The accounting method followed does not affect the provision of this clause.

Section 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

(h)any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

Provided that nothing contained in this section except the provisions of clause(h) shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return

 

Key points of Micro, Small and Medium Enterprises Development Act, 2006 under the Goods and Services Act, 2017:

a. GST ITC – Reversal

The recipient would get added to his output tax liability when recipient is not able to pay to the supplier i.e. the amount for the supply value including the tax applicable on it in the duration of 180 days from the issuance date of the invoice.

The related provision is applicable for the failure of the registered person to pay the vendor within 180 days duration from the invoice date in case of failure the identical amount to the ITC would get summed to the output tax liability including the interest on it,

Provisions u/s 16(2) of GST for input tax credit along with rule 37

Rule 37. Reversal of input tax credit in the case of non-payment of consideration.-

(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply whether wholly or partly, along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall pay or reverse an amount equal to the input tax credit availed in respect of such supply proportionate to the amount not paid to the supplier along with interest payable thereon under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice:

Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:

Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.

(2) Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax credit referred to in sub-rule (1).]

Section 16. Eligibility and conditions for taking input tax credit.-

(2)  Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.

 

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