The e-form MSME-1 has sparked numerous queries among professionals regarding the specifics of transactions to be mentioned. In this editorial, the author shall discuss the transactions with examples required to be mentioned in MSME-1, along with the following questions:
I. If a company itself is registered in MSME, does it need to file the MSME-1 form?
II. If payment is not made to an MSME vendor within 45 days and is still pending at the end of the half-year, does such a transaction need to be mentioned in the MSME-1 form?
III. If payment is made to an MSME vendor after 45 days but before the end of the half-year, does such a transaction need to be mentioned in the MSME-1 form?
Language of Circular:
The MSME-1 form was introduced by the MCA notification dated January 22, 2019. According to this notification, companies are required to file this form with the ROC every half-year.
All companies that procure goods or services from micro and small enterprises and whose payments to such 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) (referred to as “Specified Companies”), must submit a half-yearly return to the Ministry of Corporate Affairs.
A. ANALYSIS OF NOTIFICATION
According to the notification, if a company has delayed payments to micro and small enterprises for more than 45 days, it is required to report such transactions in the MSME-1 form.
B. ANALYSIS OF MSME Act:
As per Section 15 and 16 of the MSME Act, 2006, if a buyer of goods/services makes payment to an MSME vendor after 45 days, the buyer shall be liable to pay compound interest with monthly rests to the supplier.
C. EFFECT OF AMENDMENT
1. If a Company itself registered in MSME. Whether such company needs to file MSME-1 form:
To find out requirement of applicability of MSME-1, Company have to check following criteria: –
i. Company must have MSME Vendor.
ii. Company must have made default in payment to such MSME vendor by 45 days.
If both the above criteria fulfilled, then such company have to file MSME-1 form with ROC. Whether Company registered under MSME doesn’t affect the requirement of filing MSME-1
2. If payment is not made to an MSME vendor within 45 days and is still pending at the end of the half-year, does such a transaction need to be mentioned in the MSME-1 form?
As per the combined reading of the notification by MCA and the MSME Act, 2006, the answer to the question shall be:
i. According to Section 15 of the MSME Act, the company must make payment to an MSME registered vendor within 45 days of the acceptance of goods/services.
ii. As per Section 16 of the MSME Act, if the company fails to make payment to an MSME registered vendor within 45 days, then the company must make payment to such a vendor along with interest.
iii. As per the MCA notification, companies that receive supplies of goods/services from MSMEs and whose payments exceed 45 days need to file MSME-1 with the Registrar of Companies.
Therefore, one can opine that all payments pending to MSME vendors delayed by more than 45 days as of March 31st and September 30th need to be mentioned in the MSME-1 form.
Example:
Company has received an invoice along with supply of services on 10th July and such invoice paid on 15th October.
As the invoice was paid on 95th day instead of within 45 days. Therefor it is default as per Section 15 of MSME Act, 2006. MCA by MSME-1 form want to get information of all such transaction. Therefore, this transaction need to mention in MSME-1
3. If payment is made to an MSME vendor after 45 days but before the end of the half-year, does such a transaction need to be mentioned in the MSME-1 form?
As per the question, payments have already been made to the MSME vendor before the end of the half-year. Therefore, payments are not pending at the end of the half-year. However, the important point is payments made after 45 days.
To answer this question, we have to understand the intent of the MCA notification in correlation with the MSME Act, 2006. The purpose of the MSME Act, 2006, is to protect MSME registered vendors and to ensure they receive payment for their supplies/services within 45 days.
If a company does not make payments within 45 days, then they have to pay interest to the vendor as per Section 16 of the MSME Act, 2006.
Extract of language of MCA Notification
“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”
Therefore, one can opine that all the payments made to MSME vendor during the half year delayed by more than 45 days are required to mentioned in MSME-1 form.
Example:
The company received an invoice along with the supply of services on July 10th, and the invoice was paid on September 15th, which is the 65th day instead of within the 45-day timeframe. Therefore, it constitutes a default as per Section 15 of the MSME Act, 2006. The MCA, through the MSME-1 form, seeks information on all such transactions. Hence, this transaction needs to be mentioned in the MSME-1 form.
One can opine that it doesn’t matter whether the payment is pending at the end of the half-year or not; if the payment is made after 45 days, it still needs to be mentioned in the MSME-1 form.
Conclusion: The requirement to disclose transactions in MSME-1 extends beyond pending payments at the end of a half-year period. Even payments made after 45 days, albeit before the reporting period’s end, must be reported. This underscores the significance of prompt payments and regulatory compliance in supporting the MSME sector.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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