Recent Updates in the Micro Small and Medium Enterprises Sector
On account of COVID-19, Government of India on May 13, 2020, announced a slew of incentives and reforms for the Micro, Small and Medium Enterprises (“MSMEs”). Some of these reforms include:
1. Sanctioned INR Three Lakh Crores Collateral-Free Automatic Loans with a tenure of 4 years which will have a One-year moratorium on repayment.
INR Twenty Thousand Crores of Subordinate Debt;
INR Fifty Thousand Crores of Equity Infusion;
Widened the definition of MSMEs and whilst computing the turnover for any category of MSME unit, exports of such enterprises shall be excluded;
Disallowance of Global Tender for projects upto INR Two Hundred Crores; and
Other reforms relating to E-Market linkages, honouring the receivable of MSMEs within 45 days.
Thereafter, on 26th June, 2020 Government of India, Ministry of Micro Small and Medium Enterprises (“MSME”) issued a consolidated notification no. S.O. 2119(E) (“Notification”), notifying the new criterias for classifying the enterprises as MSMEs and has perscribed procedure for filing of memorandum for new and existing MSMEs at portal which is know as Udyam Registration portal, which is effective from 1 st July, 2020.
Classification of the enterprise
The Ministry of MSME, through the said Notification has increased the celing limit for the classification of the enteprises as under:-
| Category | Investment | Turnover |
|---|---|---|
| Micro | 1 Cr | 5 Cr |
| Small | 10 Cr | 50 Cr |
| Medium | 50 Cr | 250 Cr |
It is pertinent to note that only manufacturing and service enterprises have been included for the
classification of enterpise into Micro, Medium and Small category. The trading enterprises have
been excluded from its perview.
II. Introduction of composite criteria for classification
As per the said Notification, both the investment and turnover will be considered for the classification of the enterprise into micro, small and medium. Further, if the enterprise exceeds the threshold limit as provided either in investment or turnover criteria, it will cease to be in that category and will be inculded in the higher one. However, in order to be placed in the lower category, decrease in the threshold limit in both the criteria i.e. investment and turnover will be mandatory.
III. Calculation of investment and turnover
The investment in „Plant and Machinery or Equipment‟ will be linked to the Income Tax Return (“ITR”) filed in the previous years. Plant and machinery or equipment (including all tangible assets other than land and building, furniture and fittings) of the enterprise, will have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962. For new enterprise, with no ITR available, investment will be based on self declaration till 31st March of the Financial Year. Also, for such new enterprises, purchase (invoice) values of the plant and machinery or equipement excluding Goods and Service Tax (“GST”) will also be considered on self declaration basis.
The Notification also intends to exclude export of goods and/or services while calculating the turnover of any MSME for purpose of classification. Furthurmore, the information regarding turnover or exports turnover will be linked to to the Income Tax Act (“IT Act”) or the Central Goods and Services Act (“CGST Act”) and the Goods and Service Tax Identification Number (“GSTIN”). Where the enterprises do not have Permanent Account Number (“PAN”), turnover related information will be considered upto 31st March, 2021 after which PAN and GSTIN will become mandatory.
All the units having same PAN for more than one GSTIN will be treated as one enterprise and only aggregate value of the investment and turnover of all the units such enterprise will be considered for their classification into MSME.
IV. Registration process for a new enterprise as an MSME
A person who intends to establish a MSME will be required to file a form available on Udyam Registration portal. The Registration will be free and based on self declaration. Adhaar number will be required for registration. Upon registration, an enterprise will be assigned a Udyam Registration Number (“URN”).Therafter, an e-certificate, namely, Udyam Registration Certificate will be issued on completion of the registration process.
Each Enterpise will be allowed only one Udyam Registration, however, any number of activities including manufacturing & services may be added in one URN. Supression of material facts or misrepresentation of the self declared facts or figures could attract penal provisions under the Micro, Small and Medium Enterprises Act, 2006 (“MSME Act”) in contravention to the said Notification.
V. Registration process for exisiting MSME.
All exisiting MSMEs registered under EM- part II or UAM will be required to register again on the Udyam Registration Portal on or after 1st July, 2020. It is pertinent to note that enterprises registered till 30th June, 2020, will be re-classified in accordance with this notification.The existing enterprises registered prior to 30th June, 2020, will continue to be valid only for a period up to the 31st March, 2021. Further, An enterprise registered with any other organisation under the Ministry of MSME shall register itself under Udyam Registration.
VI. Updation of information and transcition period in classification:
An enterprise having URN will require to update its information including ITR and GST Return and any other additional information as required, on slef declaration on Udyam Registration portal. In case of failure to update the relevant information within the period specified in the online Udyam Registration portal, the enterprise will be liable for suspension of its status. It is important to note that based on information furnished, the classification of the enterprise will be updated. In case of upward or downward change in the status on an enterprsie, a communication will be sent to the enterprise. The said Notification also provides a transition period, for change in the upward or downward status of an enterprise.
VII. Facilitation and grievance redressal of enterprises.
The Champions Control Rooms functioning in various institutions and offices of the Ministry of MSME will act as Single Window Systems for facilitating the registration process and further handholding the Micro, Small and Medium enterprises in all possible manner. The District Industries Centres (“DIC”) will also act as Single Window facilitation Systems in their Districts.
The Single Window Systems will facilitate the process including getting an Aadhaar number and thereafter in the further process of Udyam Registration for a person who is unable to file for Udyam Registration. In case of any discrepancy or complaint against an enterprise, the General Manager of the DIC is empowered undertake an enquiry for verification of the details of Udyam Registration submitted by the enterprise and thereafter forward the matter with remarks to the Director or Commissioner or Industry Secretary concerned of the State Government, who after issuing a notice to the enterprise and after giving an opportunity to present its case and based on the findings, may amend the details or recommend to the Ministry of MSME, for cancellation of the Udyam Registration Certificate.
VIII. Conclusion
The Reforms introduced by the Government of India as discussed herein primarily focusses on the increase of the threshold limit for classification as a Micro, Small and Medium Enterprise. These Reforms will be beneficial to a large number of manufacturing and service enterprises, who will be able to avail benefits/exemption as provided under the MSME Act.
News flash dated 1.7.2020
DISCLAMER: This news flash has been written for the general interest of our clients and professional colleagues and is subject to change. This newsflash is not to be construed as any form of solicitation. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to the newsflash. For further clarification and details on the above, you may write to Mrs. Ankita Singh (Partner) at asingh@anppartners.in and/or Ms. Priyanka Sinha (Partner) at psinha@anppartners.in.