WRITE UP ON MSME CONSEQUENT TO NOTIFICATION NO.S.O.2119(E) DATED 26TH JUNE 2020

The Central Government issued Notification No.S.O.2119(E) dated 26.6.2020 notified certain criteria for classifying the enterprises as micro, small and medium enterprises and specifies form and procedure for filing Memorandum (“Udyam Registration”), with effect from 1st July 2020.

CLASSIFICATION OF ENTERPRISES:

An enterprise shall be classified as micro, small and medium enterprise on the basis of following criteria:

Nature of enterprise Investment in Plant and Machinery or equipment (Amount in Rs.) Turnover

(Amount in Rs.)

Micro Not exceeding Rs.1 crore Not exceeding Rs.5 crore
Small Not exceeding Rs.10 crore Not exceeding Rs.50 crore
Medium Not exceeding Rs.50 crore Not exceeding Rs.250 crore

The term “AND” is used between the two conditions. Therefore, an enterprise should satisfy both the conditions to qualify to a Micro, Small or Medium enterprise as the case may be. In other words, the conditions are composite in nature.

If an enterprise exceeds the ceiling limits (either of the two criteria of investment or turnover) specified for its present category, it shall cease to exist in that category and placed at the next higher category. However, no enterprise will be allowed to be placed under the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment and turnover.

In the case of an enterprise having multiple units, all units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as a single enterprise. The turnover and investment values of each of the units shall be aggregated to determine the nature of enterprise viz., micro, small and medium.

HOW INVESTMENT IN PLANT & MACHINERY OR EQUIPMENT IS CALCULATED?

Existing Enterprise:

The value of investment in Plant & Machinery or Equipment shall be linked to the Income Tax Return (ITR) of the previous year filed under the Income Tax Act, 1961.

The expression “Plant and Machinery or Equipment” of the enterprise, shall have the same meaning as assigned to the Plant and Machinery in the Income Tax Rules, 1962 and shall include all tangible assets other than land and building and furniture and fittings.

However, cost of certain items specified in Explanation I to sub-section (1) of Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 shall be excluded from the cost of calculating the value of Investment in plant and machinery.

Explanation to sub-section (1) of Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 is reproduced below:

Explanation 1.—For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

New Enterprise:

A new enterprise shall be registered based on the self-declaration of the promoter of the enterprise. It will be valid till the Income Tax Return for the first financial year end is filed.

The purchase / invoice value of plant and machinery or equipment (either first or second hand) shall be taken into account excluding the GST, on self-declaration basis, if the enterprise is a new one without any ITR.

HOW TURNOVER IS CALCULATED?

Information as regards turnover and export turnover shall be linked to the Income Tax Act OR Central Goods and Service Tax Act (CGST) and the GSTIN.

However, for the purpose of calculating “Turnover”, export turnover (goods and services or both) shall be excluded for the purpose of determining whether micro, small or medium enterprise.

The turnover related figures such enterprise which do not have PAN will be considered on self-declaration basis for the period up to 31st March 2021. Thereafter PAN and GSTIN is mandatory.

REGISTRATION:

Bird’s eye view:

Any person who intends to establish a micro, small or medium enterprise:

  • File Udyam Registration online in Udyam Registration Portal based
  • Based on self-declaration
  • No documents, papers, certificates or proof required to be uploaded.
  • On Registration, a permanent identification number will be assigned known as “Udyam Registration Number” (URN).
  • An enterprise is called as “Udyam” in Udyam Registration Portal.
  • An e-certificate (“Udyam Registration Certificate”) will be issued on completion of the Registration.

Detailed Registration Process for new enterprise:

1. The form of registration shall be provided in the Udyam Registration Portal.

2. No filing fees for Registration.

3. Aadhaar Number shall be required for Registration.

4. Proprietor for the Proprietorship concern

5. Managing Partner for Partnership firm or  Karta for the Hindu Undivided Family (HUF

6. In the case of Company or Limited Liability Partnership or Cooperative Society or a Society or Trust, the organization or its Authorized Signatory shall provide its GSTIN and PAN along with its Aadhaar number.

7. In case an enterprise is duly registered as an Udyam with PAN, any deficiency of information for the previous years when it did not have PAN shall be filled up on self-declaration.

8. Any number of activities including manufacturing and service or both may be specified or added in ONE Udyam Registration.

9. No enterprise can file more than one Udyam Registration.

PENALTY:

Whoever intentionally misrepresents or attempts to suppress the self-declared facts and figures appearing in the Udyam Registration or updation process shall be liable to such penalty as specified under Section 27 of the Act.

REGISTRATION OF AN EXISTING ENTERPRISES:

1. All existing enterprises registered under EM-PART-II or UAM shall register again on the Udyam Registration portal on or after the 1st day of July 2020.

2. All enterprises registered prior to 30th June 2020, shall be valid only for a period up to the 31st March 2021. All existing enterprises shall be reclassified in accordance with this notification.

3. An enterprise registered with any other organization under the Ministry of Micro, Small and Medium Enterprises shall register itself under Udyam Registration.

UPDATION OF INFORMATION AND TRANSITION PERIOD IN CLASSIFICATION:

An Enterprise having URN shall update its information online in the Udyam Registration portal, including the details of ITR and the GST Return for the previous financial year and such other additional information as may be required, on self-declaration basis.

If the enterprise fails to update the relevant information within the specified period in the portal will render the enterprise liable for suspension of its status.

Based on the information furnished or gathered from Government’s source including ITR or GST return, the classification of the enterprise will be updated.

In case of graduation (from the lower to higher category) or reverse-graduation (from the higher to lower category) of any enterprise, a communication on the change in status will be sent to the enterprise.

In case of graduation (upward change in terms of investment in plant and machinery or equipment or turnover or both), and consequence re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the Registration.

In case of reverse graduation (downward change in terms of investment in plant and machinery or equipment) or as a result of re-classification and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year which such change took place.

FACILITATION AND GRIEVANCE REDRESSAL OF ENTERPRISES:

The Champions Control Rooms functioning in various institutions and offices in the Ministry of Micro, Small and Medium Enterprises including Development Institutes (MSME-DI) shall act as SINGLE WINDOW SYSTEM for facilitating the registration process and further handholding the MSM enterprises in all possible manner.

The District Industries Centers (DICs) will also act as Single Window Facilitation System.

Lack of Aadhaar Number: A person can approach the Single Window System facility along with copies of the documents required for Aadhaar registration. The Single Window System will facilitate generate the Aadhaar number and process Udyam Registration.

In case of any discrepancies or complaints, the General Manager of the District Industries Centre of the concerned district shall undertake an enquiry for verification of the details of the Udyam Registration submitted by the enterprise and therefore forward the matter along with his remark to the Director or Commissioner or Industry Secretary concerned of the State Government who after issuing 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 Micro, Small or Medium Enterprises, Government of India, for cancellation of Udyam Registration Certificate.

The present notification supersedes previous notification numbers S.0.1702(E) dated 1.6.2020, S.O.2052(E) dated 30.6.2017, S.O.3322(E) dated 1.11.2013 and S.O.1722(E) dated 5.10.2006.

*** THANK YOU ***

Author Bio

Qualification: CS
Company: G Ramachandran & Associates
Location: Chennai, Tamil Nadu, IN
Member Since: 27 Jun 2020 | Total Posts: 1

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