The Ministry of Micro, Small and Medium Enterprises (MSME) has issued a crucial Office Memorandum No.2(18)/2007-MSME(pol) Date: 26-08-2008 addressing the challenges faced in identifying micro and small enterprise (MSE) suppliers as defined under Section 2(a)(ii)(n) of the MSMED Act, 2006. This memorandum is pivotal for the implementation of Instruction No. 12/2006 by the Central Board of Direct Taxes (CBDT) regarding the non-deductibility of interest from income for tax purposes.

Detailed Analysis:

The MSME policy division’s memorandum, dated 26th August 2008, outlines the difficulties in the clear identification of MSE suppliers in annual account statements. This identification is crucial for enforcing the provisions of Sections 22 and 23 of the MSMED Act, 2006, which mandate that the amount of interest payable or paid by any buyer to MSE suppliers should not be allowed as a deduction for the purpose of computing income under the Income-Tax Act, 1961.

To address these challenges, the memorandum advises that all micro and small enterprises prominently feature the Entrepreneurs Memorandum (EM) Number on their letterheads, invoices, bills, and other relevant documents. The EM Number is a unique identification allotted to MSEs upon filing a memorandum with the District Industries Centre (DIC) or other competent authorities.

This recommendation aims to facilitate the easy identification of MSE suppliers by buyers and auditors, ensuring that their dues are accurately reflected in annual financial statements. It underscores the government’s commitment to enhancing transparency and accountability in transactions involving MSE suppliers, thereby safeguarding their interests.

Conclusion:

The memorandum from the MSME policy division marks a significant step towards improving the operational framework for micro and small enterprises in India. By mandating the inclusion of the EM Number on key documents, the policy seeks to streamline the identification process of MSE suppliers, ensuring compliance with the MSMED Act’s provisions. This move not only aids in the proper implementation of tax-related instructions but also reinforces the economic ecosystem’s support for MSEs. Stakeholders across the board, including state governments, MSME associations, and the National Small Industries Corporation, are encouraged to disseminate this information widely to foster widespread compliance and awareness.

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MSME-POLICY DIVISION

Office Memorandum No.2(18)/2007-MSME(pol) Date:26-08-2008

Subject: Problems in identification of Micro and Small Enterprise (MSE) Suppliers {as defined Section 2(a)(ii)(n) of the MSMED Act, 2006} for implementation of Instruction No. 12/2006 issued by CBDT on 14.12.2006 in accordance with the provisions of Section 22 & 23 of MSMED Act, 2006 – “Interest not to be allowed as deduction from income”- suggest MSEs to print Entrepreneurial Memorandum Acknowledgement No on their letterheads/ bill books/vouchers, etc.

Sir,

In accordance with the Section 22 of Micro, Small and Medium Enterprises Development Act(MSMED), 2006, a buyer has to specify unpaid amount with interest in the annual statement of accounts. The amount of interest payable or paid by any buyer is not allowed to be deducted for the purpose of computation of income -Tax Act, 1961, as per the provisions in Section 23 in the said Act.

2. To ensure that the clear picture regarding the specific unpaid amount with interest to micro enterprises, is clearly reflected in the annual account statements of the buyers, the Central Board of Direct Taxes (CBDT) issued necessary instruction vide their Instruction No.12/2006 dated 14 December 2006, which were circulated to all concerned vide this office OM of even number dated 24 August 2007 (Copy enclosed). Similarly the Ministry of Corporate Affairs also issued notification under the provisions of the Companies Act, 1956, to make suitable alterations in Schedule VI so that the unpaid amount and interest to MSE suppliers is reflected in annual statement of account properly. The said notification was also brought to the knowledge of all concerned vide this OM of 14.12.2007(copy enclosed).

3. However, apprehensions have been expressed that in the absence of the identification of MSE Supplier on its supply order/ invoices and other documents may leave a scope for the buyer to omit their mention in the annual statement of accounts. The auditors while auditing the annual accounts may not be able to deduct such omissions from the available documents because of non-availability of identification. In terms of the provisions of MSMED Act, 2006, the MSE supplier is defined as under:

“As per Section 2(a)(ii)(n) of the MSMED Act, 2006 the “supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8.”

4. The matter has been examined. It is considered advisable that the Micro and Small Enterprises should mention/ get printed on their letter heads, supply order sheets, invoices, bills and other relevant documents, the Entrepreneurs Memorandum (EM) Number {as allotted after filing of the said Memorandum, by the District Industries Centre (DIC) or competent authority, as notified by their respective State Government/ UT administration}, so that there always remains an identification of being a MSE supplier.

5. This may please be brought to the knowledge of all micro and small enterprises, through respective Micro and Small Enterprises Associations in your State/ under your jurisdiction or all other possible means for creating awareness and sensitisation of micro and small enterprises on this issue, under intimation to this office, so that the provisions of Section 22 and Section 23 of the MSMED Act, 2006 are implemented in letter and spirit.

6. The contents of this OM be brought to the knowledge of District Industries Centres and others concerned in your State/UT.

Yours faithfully,

(P.K. Padhy)
Additional Development Commissioner &
Economic Adviser (MSME)
Tel: 23061069/ Fax: 23061611

1. The Secretary Industries/Director of Industries
All States/Union Territory Administrations

(2) Director, All MSME-Development Institutes Incharge, All Branch MSME Development Institutes.

(3) The President, All Micro and Small Enterprise (MSE) Associations with the request that the contents of this OM be brought to the knowledge of all their members.

(4) The Chairman & Managing Director, National Small Industries Corporation, New Delhi.

(5) All others as per mailing list.

(6) The Joint Secretary, Ministry of MSME, Udyog Bhavan, New Delhi, with the request that the contents of this OM be placed on MoMSME website.

(7) The Deputy Director (SENET), Office of the DC (MSME), New Delhi, with the request that the contents of this OM be placed on DC (MSME) Website immediately.

(8) All others as per mailing list.

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