Introduction
Managing reporting requirements for Micro, Small, and Medium Enterprises (MSMEs) can be a daunting task. With the MSME due date approaching on October 31st, understanding the intricacies is crucial. In this comprehensive guide, I aim to simplify the complexities and provide you with step-by-step guidance. I have also compiled frequently asked questions (FAQs) to address all your queries. Let’s navigate MSME reporting together!
Relevant Provisions: Pursuant to Order dated 22 January, 2019 issued under Section 405 of the Companies Act, 2013
1. Payment Terms: All companies dealing with MSMEs are mandated to make payments within 45 days from the date of acceptance or deemed acceptance of goods or services.
2. Reporting Requirement: Companies surpassing the 45-day payment term must submit a semi-annual return to the Ministry of Corporate Affairs through MSME Form I.
3. Filing Deadlines:
- For April to September period: Deadline is 31st October.
- For October to March period: Deadline is 30th April.
4. Information to be provided:
- Total outstanding amount to MSME suppliers.
- Name and PAN of each supplier.
- Amount due to every supplier.
- Date from which the payment is due.
- Reason for payment delays.
MSME Act Provisions: Clear Insights with Practical Examples
Section 15 – Understanding Payment Obligations under MSME Act
1. Payment Obligation: The payment must be made either on or before the agreed-upon date, if such an agreement is in writing, or before the “appointed day” if there’s no written agreement.
2. Maximum Payment Period: In cases where there’s a written agreement between the buyer and supplier, it’s essential to note that the maximum payment period allowed under the MSME Act is 45 days from the day the goods or services are accepted.
Understanding MSME Act Terms: A Practical Guide
1. Appointed Day: The “appointed day” signifies the day immediately following the expiration of the fifteen-day period from the day of acceptance or the day of deemed acceptance of goods or services by a buyer from a supplier.
2. Day of Acceptance:
(a) If no objections are raised, the day of acceptance is when goods are physically delivered or services are rendered.
(b) If the buyer raises a written objection within fifteen days of delivery or service, the day of acceptance is when the supplier resolves the objection.
3. Day of Deemed Acceptance: If the buyer doesn’t raise any written objections within fifteen days of delivery or service, the “day of deemed acceptance” aligns with the actual day of delivery or service. In essence, if no objections are made within this period, acceptance is assumed on the day of delivery or service.
Example Scenarios for “Appointed Day”:
Scenario 1: No Objections Raised (Day of Deemed Acceptance = Day of Delivery/Service)
- Day of Delivery/Service: Goods are delivered or services are rendered on January 1st.
- Day of Deemed Acceptance: Buyer does not raise any objections within the fifteen-day period.
- Therefore, the Day of Deemed Acceptance is also January 1st.
- Appointed Day: The appointed day is the day immediately following the expiration of the fifteen-day period from the day of acceptance or the day of deemed acceptance.
- In this case, the Appointed Day is January 16th (January 1st + 15 days).
Scenario 2: Objections Raised and Resolved (Day of Deemed Acceptance = Day Supplier Resolves Objection)
- Day of Delivery/Service: Goods are delivered or services are rendered on February 1st.
- Day of Objection: Buyer raises a written objection on February 5th.
- Supplier Resolves Objection: Supplier resolves the objection, and the buyer accepts the goods/services on February 10th.
- Day of Deemed Acceptance: The day of deemed acceptance is February 10th.
- Appointed Day: The appointed day is the day immediately following the expiration of the fifteen-day period from the day of acceptance or the day of deemed acceptance.
- In this case, the Appointed Day is February 25th (February 10th + 15 days).
Section 16 Date from which and rate at which interest is payable
- Payment Default: The buyer must pay compound interest monthly, starting from the appointed day or the agreed date (whichever is applicable).
- Interest Rate: The interest rate is three times the bank rate (6.75% as on date) notified by the Reserve Bank of India.
Example for Section 16 – Date and Rate of Interest Calculation:
Let’s consider a scenario where a buyer fails to make a payment for goods as per Section 15. The terms outlined in Section 16 come into play for calculating the interest payable by the buyer.
- Day of Delivery: Goods are delivered to the buyer on March 1st.
- Day of Deemed Acceptance: The buyer does not raise any objections within the fifteen-day period, so the Day of Deemed Acceptance is also March 1st.
- Agreed Payment Date: The buyer and supplier had agreed upon a payment date of March 20th.
- Bank Rate: The Reserve Bank of India has notified a bank rate of i.e. 6.75%.
- Appointed Day: According to Section 16, the appointed day is the day immediately following the expiration of the fifteen-day period from the day of acceptance or the day of deemed acceptance. In this case, it is March 16th (March 1st + 15 days).
- Date by which payment should have been made as per the Act: March 20th (Appointed date or Agreed date, as the case may be)
Calculation of Interest:
- The buyer fails to make the payment by the agreed date/ appointed date.
- The interest calculation starts from the March 21st.
- The interest rate is three times the current bank rate, i.e., 3 × 6.75% = 20.25% per annum.
- To calculate monthly interest: 20.25% ÷ 12 months = 1.6875% per month.
- Interest for the month of March (from March 21st to March 31st) would be calculated at the rate of 1.6875% for this period.
- If the payment is still not made, the interest for subsequent months would be calculated similarly, compounding monthly at the rate of 1.6875% on the outstanding amount.
Section 18: Micro and Small Enterprises Facilitation Council
1. Dispute Resolution: Parties in payment disputes can seek resolution through the Micro and Small Enterprises Facilitation Council.
2. Conciliation Process: The Council conducts internal or external conciliation following Arbitration and Conciliation Act, 1996 guidelines.
3. Arbitration: If conciliation fails, the Council resorts to arbitration, following the Arbitration and Conciliation Act, 1996, as initiated under Section 7(1).
4. Timeframe: Disputes referred must be resolved within 90 days, ensuring a swift resolution process.
In essence, Section 18 establishes a robust framework for resolving payment disputes efficiently, emphasizing conciliation and arbitration within a strict 90-day timeline for prompt resolution.
FAQ on MSME-1 Form
Q1: How to check the requirement for filing MSME-1 form?
A1: To determine if your company needs to file MSME-1, consider the following criteria:
1. Micro and Small Registered Vendor: Check if your company has any registered vendors classified as Micro and Small Enterprises (MSMEs).
2. Outstanding Payments: Verify if there are any outstanding payments due to these MSME vendors.
3. Delay in Payment: Assess if your company has delayed payments to these vendors for more than 45 days.
If all criteria are met (i.e., if there are Micro and Small registered vendors, outstanding payments, and delays exceeding 45 days), your company is required to file MSME-1. Otherwise, filing is not necessary.
Q2: How can we find out if a creditor is registered under MSME or not?
A2: There is no specific option available on government websites or any other online platforms to check if a vendor is registered under MSME. The only way to confirm this information is by directly contacting the vendor (creditor) through methods such as phone calls, emails, or other communication modes. The vendor should be able to provide confirmation of their MSME registration status.
Q3: If a vendor is registered under MSME but falls under the ‘Medium’ category, should the company consider such vendor for MSME-1 reporting?
A3: No, according to the MCA (Ministry of Corporate Affairs) notification, companies are required to provide details of only ‘Micro and Small’ registered vendors in MSME-1. If a vendor is registered as ‘Medium’ category under MSME, there is no need to mention them in the MSME-1 form. The reporting obligation specifically pertains to transactions with ‘Micro and Small’ enterprises.
Q4: Are any types of companies exempted from filing e-form MSME-1? Are small companies exempt from this requirement?
A4: No, there are no exemptions for any type of company, including small companies, from filing MSME.
Q5: If the company has made payment to the MSME vendor beyond 45 days, will it be included in the MSME-1 form if the payment is not outstanding as of September 30, 2023?
A5: Since the MSME-1 form specifically requires details of outstanding amounts as of the reporting date, payments that have been made and are not outstanding as of September 30, 2023, not need to be reported in the form.
However, if the company chooses to report such payments, an attachment specifying the details of the payment made can be enclosed for clarification.
Q6: If payment to MSME is pending from the first half year, should we report these details in the second half year MSME-1 filing?
A6: It doesn’t matter which period or year the payment is related to. If a payment is pending to an MSME vendor for more than 45 days, it is required to be mentioned in the MSME-1 form of that respective half-year period.
Q7: If in any particular half year, there are no outstanding dues to MSME vendors, does the company have to file form MSME-1?
A7: There is no need to file MSME-1 in case of nil transactions or if there are no outstanding dues to MSME vendors during a specific half year period.
Q8: If there is more than 1 invoice pending for any MSME vendor, should all the bills be mentioned as a single entry, or does each invoice need to be recorded separately?
A8: As per the MSME-1 form requirements, the company must make entries invoice-wise. Entries cannot be made based on entity-wise classification.
Q9: If the company has made a part payment of any invoice, does the company need to file MSME-1 form for the pending amount?
A9: Yes, the company is required to file MSME-1 for each and every pending payment to the MSME vendor. Therefore, the company should mention the entry of the pending part payment in MSME-1.
Q10: If the agreement terms for payment are 30 days, and the payment is made after 30 days, should it be reported under MSME-1 Form?
A10: Yes, if the payment is made after the agreed-upon payment terms, such as 30 days in this case, it is considered a delayed payment. Delayed payments should be reported under MSME-1 Form.
Q11: If the agreement is made to make payment within 60 days, but as of the date of filing the return, the amount is outstanding for more than 45 days but less than 60 days. Is reporting required in this scenario?
A11: Yes, reporting is required in this case. According to the MSME Act, the payment period cannot exceed 45 days. If the payment is outstanding for more than 45 days, it should be reported in the MSME-1 Form, even if it’s within the 60-day period mentioned in the agreement.
Q12: What criteria apply if there is no agreement regarding payment terms?
A12: If there is no agreement specifying payment terms, the default criteria as per the MSMED Act will be applicable. According to the Act, the payment must be made within 15 days from the “acceptance date” (as per the MSMED Act) when there is no specific agreement in place and the reporting shall be made accordingly.
Q13: Do the term “outstanding dues” include both principal and interest amounts?
A13: Yes in my view, the term “outstanding dues” includes both principal and interest components as per the terms of agreement between the Vendor and the Company. However, the Company may report according to its accounting methods.
Q14: If the Company has outstanding dues to 10 MSME suppliers and the dues to one supplier is outstanding for more than 45 days, while the dues to the remaining nine suppliers are outstanding for less than 45 days, how should this situation be handled according to MSME-1 requirements?
A14: In this scenario, the company is required to report the outstanding payment to the one supplier whose dues are outstanding for more than 45 days in the MSME-1 form.
Q15: Can the vendor and the company mutually agree on a credit period beyond 45 days?
A15: No, as per the Act, the credit period between the seller and buyer should not exceed more than 45 days.
Q16: Can the vendor waive off the interest on late payments as per Section 15?
A16: No, the buyer is liable to pay compound interest regardless of any agreement between them.
Q17: Does Section 15 apply to security deposit amounts held by the company from vendors?
A17: No, Section 15 applies specifically to outstanding payments for the supply of goods and services. Security deposit amounts held by the company from vendors are not required to be reported under this section, and no interest liability arises on security deposits.
Q18: What is the process for resolving disputes related to pending payments under the MSME Act?
A18: In case of disputes regarding any amount due, a reference must be made to the Micro and Small Enterprises Facilitation Council constituted by the respective State Government.
Q19: For MSME-1 form, what is the financial year period: 1st April to 31st March of the year under consideration or the specific half-year under consideration?
A19: The financial year “from” date for MSME-1 form is 1st April and the financial year “to” date is 31st March.
Q20: MSME-1, should it be filed on MCA V2 or MCA V3?
A20: MSME-1 is required to be filed on the MCA V2 Portal, following the old method of filing.
Q21: How many entries can be made for vendors in a single MSME-1 form?
A21: A maximum of 99 entries can be made for vendors in a single MSME-1 form. However, multiple forms can be filed.
Q22: Is there any fee associated with filing the MSME-1 form with the Registrar of Companies (ROC)?
A22: No, there are no fees for filing the MSME-1 form. There are no Registrar of Companies (ROC) fees associated with this form. Companies can file this form free of cost. Additionally, even if a company files the form after the due date, there are no additional fees prescribed.
Q23: What are the penalties for non-compliance with MSME-1 reporting under Section 405 of the Companies Act, 2013?
A23: The penalty for non-compliance with filing MSME-1 under Section 405(4) of the Companies Act, 2013 shall be:
- Penalty for Initial Non-Compliance: If a company fails to file MSME-1, the company and every officer in default will be liable to a penalty of Rs. 20,000/-.
- Continuing Failure: In case of continuing non-compliance, the company and every officer in default will face an additional penalty of Rs. 1,000 for each day the failure continues, up to a maximum of Rs. 3 lakh.
Conclusion
I hope this guide has been helpful in your understanding of MSME reporting and provided the clarity you needed! Your support is vital; kindly consider liking, sharing, and commenting to enhance its reach. Don’t hesitate to roll out your questions. Together, we can make MSME compliance a breeze!”
About Author: Author is a Qualified Company Secretary, with over five years of comprehensive experience and knowledge in navigating complex Act, Rules and Regulations, including but not limited to The Companies Act, 2013, FEMA, LODR, PIT, SEBI ICDR and more. With a strong passion for law and ongoing pursuit of an LLB degree, possess a comprehensive understanding of legal principles and practices. Author can be connected at [email protected].
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Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. For legal advice, please consult with a Qualified Company Secretary familiar with the relevant laws and regulations. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the article or the information contained in it.
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