CA Debasis Sahoo
Currently the Government is more emphasising on monitoring the financial health of MSME by introducing very stringent rules in respect of transaction entered with MSME.
The Micro, Small and Medium Enterprise Development (MSMED) Act, 2006 protecting the interest of MSME by giving them privilege to get the payment with in time. The Act is not only gives them a shelter for getting payment but also facilitate them to get many privileges in different areas.
REPORTING ASPECTS :
The reporting Aspect of Transactions with Micro or Small Enterprises ( MSEs) are being categorically divided into Three area
(1). Disclosure to MCA through ROC: Disclosure of Amount Due and Reason of Delay payment to ROC Vide MSME-I form as Notified by MCA on 22-01-2019.
(2) Disclosure about Trade payable vide Schedule-III of Companies Act 2013 : The detail disclosure in Trade payable category in Balance Sheet as well as on Notes to Account regarding dues of MSEs
(3) Disclosure about Transaction vide Order of Public Procurement Policy for MSEs 2012 : Every Central ministry, Department, Public Sector Undertakings are required to Purchase minimum 20% of their annual procurement through MSEs. Now As per the recent Order dated 09-11-2018 vide MSMED act 2006 the 20% has been increased to 25%.
BIRDS EYE VIEW ABOUT THE ABOVE REPORTING AREAS
> Now The recent order i.e. Specified Companies (Furnishing of Information about payment to Micro & Small Enterprises Supplier ) order, 2019, Notified vide MCA Notification dt 22-01-2019 regarding filling of Information’s on (i) Amount of Dues to Micro & Small Enterprises (ii) Reason of delay payment, through MSME-I form to the ROC has a significant impact on companies .
Time Limit for Filling of MSME-I data
|Sl no||Time Period||Due date|
|1||Initial Period||30 Days from the date of Notification of order i.e. 21ST February -2019|
|2||April-September||31st October : Half yearly|
|3||October-March||30th April : Half yearly|
> The disclosure as per Schedule –III of Companies act 2013, on Balance Sheet under Trade Payable Category which is specifically required disclosure on Total Outstanding Dues of Micro & Small Enterprises.
Under Notes to accounts Trade payable category detail disclosure about the principal & Interest amount due to MSEs required to be disclose under Annual report.
Therefore, a detail analysis need to be done before reporting in MSME-I form for October – March 19 as the same data will also may linked to the reporting under Annual report.
> Under Public Procurement Policy 2012 as amended vide MSME Notification No S.O.5670(E) dated 09-11-2018, Every Ministries or Department or Public Sector Enterprises under their annual procurement plan shall required to Purchase minimum 25% of their annual Value of Goods or services from Micro or Small Enterprises. Out of this 25% , minimum 3% target shall be earmarked for procurement from MSME owned by Women.
Few Important Points Which Need To Be Addressed Before Filling &Disclosure On MSEs
A. Who Is MSME :
As per Section -7 of MSMED Act 2006
(i) 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.
|Investment in Plant & Machineries||Investment in Plant & Machineries||Investment in Plant & Machineries|
|Not Exceeding : Rs 25.00 Lakh||More than Rs. 25.00 Lakh Upto Rs 5.00 Crores||More than Rs 5.00 Crores Upto Rs 10.00 Crores|
(ii) in the case of the enterprises engaged in providing or rendering of SERVICES, a
|Investment in Equipment||Investment in Equipment||Investment in Equipment|
|Not Exceeding : Rs. 10.00 Lakh||More than Rs. 10.00 Lakh Upto Rs 2.00 Crores||More than Rs. 2.00 Crores Upto Rs. 5.00 Crores|
Provided While calculating the Investment in P&M / Equipment certain item need to be excluded Like (i) equipment like tools, Jigs , dyes mould etc, (ii) Installation cost of P&M (iii) Power Generation Set or Extra Transformer etc as per the list envisaged vide MSMED Notification no S.O.1722 (E) dated 06.10.06
NOTE :The order for filling MSME-I form clearly specify the disclosure about dues against MICRO & SMALL enterprise. Therefore MEDIUM Enterprises are out of scope.
B. Whether Filling of Memorandum is Compulsory for Enterprises to avail MSEs Benefit.
YES , As per Section 8 of MSMED Act 2006, any person intends to established a MSE need to file memorandum with the prescribed authority.
However, Ministry of Micro, Small and Medium Enterprises vide Notification S.O. 85(E) dated 10th January, 2017 specifies that any micro, small and medium enterprise Shall file Udyog Aadhaar Memorandum, referred to as the memorandum in Form I.
The registration form can be obtained through online vide udyog aadhar portal and the same form can be verified from the udyogaadhar portal also.
C. Whether any person is exempted to file memorandum ?
Hon’ble High Court of Delhi in the case of Ramky Infrastructure Pvt Ltd V/s Micro & Small Enterprises Facilitation Council & ANR & Hon’ble Supreme Court in the case of Thalappalam Service Cooperative Bank Limited is of the view that
Filling of memorandum U/s 8 (1) of MSMED ACT is Compulsory however, one of the supplier as define in Section 2(n)of MSMED Act 2006 i.e. company, co-operative society, trust or a body which is engaged in selling goods produced by micro or small enterprises or rendering services provided by such enterprises is not required to file memorandum.
Therefore the above category person without filling memorandum are entitled to get the privilege of MSEs.
D. Whether the amendment in MSME registration possible?
As per MSME Notification No S.O. 2052(E) dated 30th June,2017 “ In case of Change in address or Addition or Deletion of activities by the enterprises or for other Changes , the proprietor or the managing partner or authorized person may apply for amendment of the existing memorandum in accordance with the guideline for filling of online .udyog aadhar memorandum.“
Now, from the above clarification it is clear that:
(a). If enterprises enter into different sphere of activities and intend to avail the MSEs benefit out of the above activities, the enterprise need to amend its Udyog Aadhar memorandum indicating the new activities.
(b) The Other Changes as mentioned in the Notification may be taken into view that the Udyog Aadhar Memorandum already filled by MSEs would contain the Value of Investment for MSEs therefore, if there is a change in investment value also the enterprises need to amend udyog aadhar memorandum by filling form through online.
E. Which type of transactions are covered under ambit of the msmed & public procurement policy ?
If a specified company having transaction with Micro or Small Enterprises ( MSEs) the transaction should either be Supply Of Goods or Supply of Services
> In case of Supply of Goods:The Goods should be manufactured by the MSE which is covered under MSME Registration.
> In case of Supply of Services:The Services should be rendered by the MSEs which is covered under MSME registration.
Now Question Arises Whether Works Contracts are covered under the Scope of MSME
There is no specific guideline available in MSMED Act regarding scope & coverage of Works Contract under MSEs . There are several judgments in different high courts are being pronounced against woks contract coverage in MSME scope
The definition covered under Section -7 of MSMED Act 2006 covers about Manufacture or Production and rendering of services only.
As per the Office Memorandum No F No .22(1)/2012-MA dated 24th October 2016 vide FAQ on public Procurement Policy for MSEs , Order,2012 the Ministry in its FAQ No 18 specifically mentioned that the Public Procurement Policy is meant for only goods Produced and service rendered by MSEs
FAQ-18 : Whether this Policy is applicable for works /trading activities also?
Ans : Policy is meant for procurement of Only Goods Produced and service rendered by MSEs . However, trader is excluded from the purview of Public Procurement Policy.
Hon’ble Allahabad high court in the case of Rahul Singh Vs. Union of India dtd 25-01-2017 ,held that provisions of Section 11 of the 2006 Act relate to the procurement of goods and services produced and provided by MSEs. It was further held that:
” 6. A reconstruction of Section 11 bears out that it empowers the Central Govt. to formulate preference policies in respect of (a) procurement of goods produced by MSE and (b) services provided by a MSE. The words “Services Provided” as used in the said provision must necessarily be read as disjunctive to the expression “Goods Produced”. It cannot possibly be disputed that a “Work Contract” forms completely different and distinct genre then a contract for supply of goods, or for that matter a contract for providing services.
A works contract is essentially a indivisible contract which may involve not just the supply of goods but also the provision of labour and service. … In our considered opinion, the provisions of 2006 Act and more particularly Section 11 thereof , only contemplates and brings within its hold contracts for supply of goods and provision of service simplicitor “
7. No provision of the 2006 Act bids usto deconstruct a works contract into elements relating to supply of goods and provision of service. Neither section 11 nor the Public Procurement Policy, 2012 appears to envisage a composite and distinct category of contract such as a work contract actually is.”
Considering the scope and object of the Act and the relevant provisions under the Act and the Public Procurement Policy, we are of the considered view that the purchase preference is restricted only to “goods and services” provided by MSEs.
Similar type of Judgment are being pronounced in several Hon’ble High courts like
(1) Ho’ble High court of Delhi in the case of M/S Shree Gee Enterprises v/s Union of India and ANR 02-11-2015
(2) Hon’ble Bombay High court in the case of M/s Sterling & Wilson Pvt Ltd V/s Union of india,MSME & Nuclear Power Corporation of India Ltd.
All the cases pronounced that The MSMED Act & Public Procurement Policy Provide for Privilege over the Goods Manufactured or Services Rendered by the MSEs , however Both Act &Policy is not covered for Works Contract Service as per the judgment of different courts.
Now due to very stringent conditions imposed by the Government on Central Department & Public Sector Enterprise by way of multiple disclosure in different forum with impute financial implications, the eligible enterprises should take utmost precaution during assessment of transaction with MSEs. Mere disclosure as MSME by the supplier should not entail them to get the shelter of MSME Benefit. Proper evaluation of their Eligibility Criteria of MSEs and the Transactions entered with MSEs need to be scrutinize properly before disclosure under MSMED Act.
(Author is working in a PSU and can be reached at email@example.com)