1. Micro, Small & Medium Enterprises Development Act, 2006
Baroda Branch of WIRC of ICAI
Baroda CPE Study Circle
10th May, 2018
Micro, Small & Medium Enterprises Development Act, 2006
CA. Kejal Pandya
(Partner)
CNK & Associates LLP
Chartered Accountants

2. Contents Introduction to MSMED Act, 2006 Growth of MSME in India
Registration
Delayed payments to Micro and Small Enterprises
Effect of GST
Advantages under Income Tax Act, 1961
Reporting requirements
Penalties u/s 27 of the MSMED Act, 2006
Important websites

3. Introduction to MSMED Act, 2006
Objectives of MSMED Act, 2006
To facilitate promotion and development of MSME
To enhance competitiveness among MSME
To concentrate on matters related and incidental to MSME
Operational since 2nd October, 2006

4. Introduction to MSMED Act, 2006
Categories of enterprises
Sr. No.
Enterprises
Investment in Plant & Machinery (Manufacturing)
Investment in Equipment
(Services) 1
Micro
Upto ` 25 Lakhs
Upto ` 10 Lakhs 2
Small
Above ` 25 Lakhs & Upto ` 5 Crore
Above ` 10 Lakhs & Upto ` 2 Crore 3
Medium
Above ` 25 Lakhs & Upto ` 5 Crore

5. Introduction to MSMED Act, 2006
Categories of enterprises…
Exclusions while calculating investment in P/M as per notification dated 5th December, 2006 by Ministry of SSIs
Installation expenses of P/M
Equipments for maintenance and cost of consumable stores
Research and development equipments and pollution control equipments
Power generation set and extra transformer installed by the enterprise as per the regulations of the state electricity board
Bank charges and service charges paid to the national or state small industries corporation
Procurement and installation charges for certain items
Gas producer plants
Fire fighting equipment

6. Introduction to MSMED Act, 2006
Categories of enterprises…
Exclusions while calculating investment in P/M as per notification dated 5th December, 2006 by Ministry of SSIs….
Transportation charges for indigenous machinery from the place of their manufacture to the site of the enterprise
Charges paid for technical knowhow for erection of plant and machinery
Storage tanks used for storage of raw material and finished goods and not linked with manufacturing process
Other items of PPE not covered in deriving investment in P/M

7. Introduction to MSMED Act, 2006
Categories of enterprises…
Gross or net value of investment to be considered?
New or second hand plant and machinery?
For imported machinery, all costs incurred to bring the P/M to its location are to be included

8. Introduction to MSMED Act, 2006
Development and promotion of MSME
Credit facilities
Procurement preference policy
Funds
Grants by Central Government

9. Introduction to MSMED Act, 2006
Major schemes for MSME
Prime Minister’s Employment Generation Programme(PMEGP)
Credit Linked Capital Subsidy Scheme (CLCSS)
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
A Scheme for Promoting Innovation and Rural Enterpreneurship (ASPIRE)
Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
National SC ST Hub (NSSH) Scheme
Micro and Small Enterprises – Cluster Development Programme (MSE- CDP) Scheme
Technology Centre Systems Programme (TCSP)
Coir Vikas Yojna

10. Growth of MSME in India
As per NSSO survey, there are 6.34 crore MSMEs in India
Contribution of MSME to other sectors has been immensely instrumental.
It is the biggest employer after agriculture sector, despite the fact that agriculture sector’s contribution to GDP is less than MSME, which is one of the principal contributors to GDP.
Employs over 8 crore people
Sr. No.
Sector
(%) Share 1
Manufacturing 45 2
Export 40 3
Employment 69

11. Growth of MSME in India Specific policy measures taken to boost MSME
Reservation of Items for Exclusive Manufacturing in small sector.
Preferential Credit Support.
Fiscal Concessions.
Infrastructural Development like development in industrial estates, testing labs, common facility centers.
Entrepreneurship Development.

12. Growth of MSME in India
Specific policy measures taken to boost MSME in Union Budget
Corporate tax rate reduced from 30% to 25% for companies with turnover upto Rs.250 crores in FY The advantage of reduced tax rate will reach 99% of the companies filing income tax returns.
The budget has allowed an allocation of Rs 3,794 Crores for credit support, capital and interest subsidy, and innovations in the sector.
Capital infusion is key for take-off of any entity. To aid these financial needs of MSME sector in better way, the Government has profoundly participated to ease the fund raising through registered institutions such as SIDBI and State Financial Corporations.
Schemes such as PradhanMantri Mudra (Micro Units Development and Refinance Agency) Yojna are implemented. The Mudra Scheme has been launched in April, 2015 that aids small businesses with loans ranging from Rs 50,000 to Rs 10 Lakh for a period of 5 – 7 years.

13. Growth of MSME in India Effect of MSME sector growth to Indian Economy
Creates large scale employment.
Economic stability in terms of Growth and leverage Exports.
Encourages inclusive growth.
Cheap labor and minimum overhead.
Simple management structure for enterprises as it does not require huge capital amount.
Plays an important role in making “Make in India” possible.

14. Registration MSME Registration
All classes of enterprises, can apply for the registration and get qualified for the benefits provided under the Act.
Can a trust register as an MSME?
(industrial undertaking, business concern or any other establishment).

15. Registration Objectives of the registration
To enumerate and maintain a roll of small industries to which the package of incentives and support are targeted.
To provide a certificate enabling the units to avail statutory benefits mainly in terms of protection.
To serve the purpose of collection of statistics.
To create nodal centers at the Centre, State and District levels to promote SSI.

16. Registration
Section 8(2) provides that the form of the memorandum, the procedure of its filing and other matters incidental thereto shall be such as may be notified by the Central Government after obtaining the recommendations of the Advisory Committee in this behalf.
Section 8(3) states that the authority with which the memorandum shall be filed by a medium enterprise shall be such as may be specified by notification, by the Central Government.
Section 8(4) provides that the State Government shall, by notification, specify the authority with which a micro or small enterprise may file the memorandum.
As per Section 8(5) the authorities specified under sub-sections (3) and (4) shall follow, for the purposes of this section, the procedure notified by the Central Government under sub-section (2).

17. Registration
Ministry of Micro, Small and Medium Enterprises (MSME) has notified the Udyog Aadhaar Memorandum (UAM) under the MSMED Act, 2006 vide gazette notification [SO No. 2576(E)] dated in order to promote ease of doing business for MSMEs.
Salient features of Udyog Aadhaar
Registration is online and user-friendly
Udyog Aadhaar Memorandum (UAM) can be filed on self-declaration basis
No documentation required
No Fee for filing
File more than one Udyog Aadhaar with same Aadhaar Number

18. Registration Registration procedure
Udyog Aadhar Memorandum (UAM) shall be filed online at after establishing the unit, obtaining all regulatory approvals and starting commercial operations
Any number of activities including manufacturing or service or both may be specified in the memorandum;
Aadhar and PAN requirement
Type of entity
AADHAR Number
PAN
Proprietor
Self NA
Partnership Firm
Managing partner
HUF
Karta of HUF
Company/LLP/society/trust
Authorised signatory
Company

19. Registration Registration procedure…
An OTP for verification of the fresh memorandum as well as amending of the existing memorandum shall be sent on mobile phone linked to the Aadhaar Number of the applicant and the applicant shall enter the OTP in the form before submitting the memorandum.
The memorandum shall be filed on self certification basis and no additional document is required to be uploaded at the time of such filing: Provided that the Central Government or the State Government or such person as may be authorized in this behalf may seek documentary proof of the information provided in the memorandum, wherever necessary.
Udyog Aadhaar Acknowledgment in Form I to this notification along with a unique Udyog Aadhaar Number (UAN) shall be generated and mailed to the address provided in the memorandum.

20. Registration Registration procedure…
In case of non availability of Aadhaar number of applicant/authorised signatory / inability of online filing
A hard copy of the duly filled form I shall be submitted to the concerned District Industries Center (DIC) or to the Office of the Micro, Small & Medium Enterprise - Development Institute (MSME-DI) under the Development Commissioner, MSME and the concerned DIC or MSME-DI shall file the Udyog Aadhaar Memorandum online, on the behalf of such enterprise

21. Registration Registration procedure…
Existing enterprises which have filed Entrepreneurship Memorandum- II or the holders of Small Scale Industry registration, prior to the coming into force of the Micro, Small and Medium Enterprise Development Act 2006 (27 of 2006) shall not be required to file Udyog Aadhaar Memorandum, but if they so desire they may also file the Udyog Aadhaar Memorandum.
Change in address or addition or deletion of activities shall be intimated by following the amendment procedure which is same as that for filing new memorandum.
No enterprise shall file more than one memorandum.
In case of discrepancy found in memorandum submitted, a notice shall be issued by the General Manager of the District Industries Centre of the concerned district and an opportunity of hearing is given before amending or cancelling the memorandum.

22. Registration Registration procedure…
UAM registration has replaced Entrepreneurship Memorandum-If (EM- II) and small Scale Industry Registration for all purposes.
Central or State Government regulatory bodies, tax authorities, utilities providing water, power, etc. banks and other financial institutions and similar organisations should accept UAM in place of EM - II for all purposes.
Earlier there was a provision to take Enterprise Memorandum-I (EM-I) registration before setting up an enterprise. Applicants used to file applications for obtaining utilities, building plan approval from local bodies, consent to establish from State Pollution Control Board or applying for term loan from bank or a financial institution to set up the enterprise along with a copy of EM-I.

23. Registration Registration procedure…
UAM registration is given after an enterprise starts commercial operations. Now there is no registration before establishing an enterprise. The practice of EM-I registration is stopped. There is no counterpart document to EM-I.
Therefore, utilities, local bodies, regulatory bodies, tax authorities, banks and financial institutions and other similar bodies should not ask for EM-I from the applicants who want to set up an enterprise.

24. Registration Benefits of Registration as an MSME
Easy availability of finance from Banks without collateral requirement.
Protection against delay in payment from Buyers and right of interest on delayed payment.
Preference in procuring Government tenders.
Stamp duty benefits.
Waiver in Earnest Money (Security Deposit ) in Government tenders.
Reduction in rate of Interest from banks.
Concession in electricity bills.
Reservation policies to manufacturing / production sector enterprises.
Time-bound resolution of disputes with Buyers through conciliation and
arbitration.

25. Registration Benefits of Registration as an MSME…
Reimbursement of ISO Certification Expenses.
Priority sector lending, differential rates of interest etc.
Exemption under Direct Tax Laws.
Financial Assistance for setting up testing facilities through National Small Industries Corporation(NSIC).
Benefits not available to medium enterprises
Reservation of certain items for manufacture and production.
Protection against delayed payment by vendors and right to interest against delayed payment.
Time bound settlement of payment related disputes through conciliation and arbitration.
Preference policy for procurement of goods and services by state and central governments.

26. Delayed payments to Micro and Small Enterprises
Where any supplier has supplied goods or rendered any services to any buyer, the buyer shall make payment of the same within 45 days from the day of acceptance/deemed acceptance (section 15).
In case of failure to pay in time, 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 16).
Section 17 binds the buyer to pay the amount due to the supplier with interest.
In case of any dispute, reference can be made to the Micro and Small Enterprises Facilitation Council. Every such reference shall be decided within 90 days from the date of making such reference .

27. Effect of GST On borrowings
The implementation of Goods & Service tax Laws has formalised the existence of such entities through their registration. However, the formalisation of such entities has affected adversely on the cash flow of the entities leading to face difficulties in repayment of the obligation towards Banks & Financial Institutions.
As a measure of support to the entities, the Reserve Bank of India has liberalized the criteria of asset classification.
For the Micro, Small & Medium Enterprises are registered under GST as on , although the amount repayable to Banks & NBFC is overdue but not exceeding for a period of 180 days, it will be classified as Standard Assets in the books of such institutions.
This allows the repayment period of 180 days to the said entities.
The said enterprise shall also be accounted as Standard Assets as on 31st day of August, 2017.

28. Effect of GST Composition scheme
Composition scheme is introduced for small taxpayers with turnover less than 1.5 crores, covering 90% of taxpayer base who pay 5-6% of total tax.
The taxpayer can pay GST at a fixed rate of 1% (manufacturers and traders) and 5% (for restaurants not serving alchohol).
Rates of many other products have been reduced time and again keeping in mind SMEs.
Certain conditions have to be fulfilled for availing composition scheme.

29. Effect of GST The following can not opt for composition scheme:
Taxpayer supplying exempt supplies
Supplier of services other than restaurant related services
Manufacturer of ice cream, pan masala, or tobacco
Casual taxable person or a non-resident taxable person
Businesses which supply goods through an e-commerce operator
Return filing
Return filing is made quarterly for tax payers with turnover less than Rs.1.5 crores

30. Advantage under Income Tax Act, 1961
Income tax exemptions for small and medium enterprises MSME
Presumptive taxation scheme under section 44AD of the Income Tax Act is available for small and medium enterprises i.e non corporate businesses with turnover or gross receipts not exceeding two crore rupees.
This frees them from the burden of maintaining detailed books of account and getting audit done.

31. Applicability of Accounting Standards
There are no separate accounting standards for SMEs in India, however following accounting standards are yet not applicable for SMEs, i.e level II and level III companies
AS 3 – Cash flow statements
AS 17 – Segment reporting
AS 18 – Related party disclosures
AS 21 – Consolidated FS
AS 23 – Accounting for investments in associates in CFS
AS 24 – Discontinued operations
AS 27 – Financial reporting of investments in joint ventures (to the extent of requirement relating to CFS

32. Reporting requirements
The auditor is very much required to ensure the compliance of various provisions (for example, provision of interest under section 16, disclosures required under section 22, etc.) of the MSMED Act. This is evident from Auditing and Assurance Standard (AAS) 21, “Consideration of Laws and Regulations in an Audit of Financial Statements.”
The salient features of this AAS are given below:
When planning and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognise that the non‐compliance by the entity with the laws and regulations may materiality affect the financial statements. The term ‘non compliance’ as used in this AAS refers to acts of omission or commission by the entity being audited, either intentional or unintentional, which are contrary to the prevailing laws or regulations.

33. Reporting requirements
As per Sec 22 of MSMED act, 2006, if the buyer is required to get his annual accounts audited under any law, he shall furnish the following additional information in his annual statement of accounts
The principal amount and the interest due thereon remaining unpaid to any supplier as at the end of each accounting year
The amount of interest paid by the buyer under MSMED act, 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 (where the principal has been paid but interest under the MSMED act is not paid)
The amount of interest accrued and remaining unpaid at the end of each accounting year; and
The amount of further interest 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 u/s 23.

34. Reporting requirements
Disclosure Requirements u/s. 22 of the MSMED Act, 2006…
Companies Act, 2013
Part I of Schedule VI of the Companies Act, 2013 requires disclosure of break ‐up of Sundry creditors in the balance sheet as:
Total outstanding dues of small scale industrial undertaking(s); and
Total outstanding dues of creditors other than small scale industrial undertaking(s). The names of the small scale industrial undertaking(s) to whom the company owes any sum together with interest outstanding for more than 15 days.
The details of interest need to be disclosed in the notes to the accounts.
Income Tax Act, 1961
Interest paid u/s 23 of the MSMED Act is inadmissible under Income Tax Act, 1961 and needs to be reported under clause 22 of Form 3CD

35. Reporting requirements
Presentation in the financial statements of a company

36. Reporting requirements
Presentation in the financial statements of a company…

37. Reporting requirements
Presentation in the financial statements of a company…

38. Penalties u/s 27 of MSMED Act, 2006
Section 27 of the MSMED Act, 2006 provides for penalty for contravention of –
Section 8 – registration and submission of memorandum
Section 22 – reporting of unpaid interest by the buyer in annual statement of accounts
Section 26 – providing information to the designated officers
Penalty
For first conviction, fine upto Rs.1,000/-
For second and subsequent conviction, fine not less than Rs.1,000/- , but may extend to Rs.10,000/-
If any buyer contravenes Sec 22, he shall be punishable with a fine which shall not be less than Rs. 10,000. There is no maximum limit.

39. Important websites www.msme.gov.in www.udyogaadhar.gov.in

40. Never give up!!!