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The conceptual and legal framework for small scale and ancillary industrial undertakings is derived from the Industries Development and Regulation Act, 1951. The Small and Medium Enterprises Development Bill 2005 which was enacted in June 2006 was renamed as “Micro, Small & Medium Enterprises Development Act, 2006” aims at facilitating the promotion and development of small and medium enterprises. MSMEs are governed by Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act, 2006 – hereafter referred as “Act”) which came into force w.e.f. 02.10.2006.
Salient Feature of the Act:
According to the Act, Enterprise means an Industrial undertaking or a business concern or any other establishment, by whatever name called engaged in manufacture or production of goods, or engaged in providing or rendering of any service or services (Earlier concept of Industries have been changed to Enterprises). Thus broadly MSME are classified in two categories:
1. Manufacturing Enterprises: 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)1 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use.
2. Service Enterprises: The enterprises engaged in providing or rendering of service.
Section 2(e) of the Act ” enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services.
Classification of Enterprises
An Enterprise is classified as Micro, Small or Medium on the basis of Investment made in Plant and Machinery / Equipment2. Accordingly, the section of Act, the ceiling on investment and turnover to be classified as micro, small or medium enterprises is as under.
For Manufacturing Enterprises
|S.No.||Enterprises||Investment in Plant and Machinery|
|1.||Micro Enterprises||Does not exceed Rs. 25 lacs|
|2.||Small Enterprises||More than Rs. 25 lacs but does not exceed Rs. 5 crore|
|3.||Medium Enterprises||More than Rs. 5 Core but does not exceed Rs. 10 crore|
For Service Providers
|S.No.||Enterprises||Investment in Equipment|
|1.||Micro Enterprises||Does not exceed Rs. 10 lacs|
|2.||Small Enterprises||More than Rs. 10 lacs but does not exceed Rs. 2 crore|
|3.||Medium Enterprises||More than Rs. 2 Core but does not exceed Rs. 5 crore|
On 13/05/2020, FM have announced to revise the basis on which enterprises is to be classified as Micro, Small and Medium Enterprises. Investment Limit will be revised upwards and additionally criteria of turnover being introduced. Distinction between manufacturing and service sector to be eliminated. (Amendment in Act is awaited). Clarification from Government would be required on, whether Investment and Turnover Criteria to be read as “AND” or “OR” as this will impact lots of MSME and whether Trading is also included in definition of MSME.
Revised Classification: (Composite Criteria: Investment and Annual Turnover)
|Manufacturing and Service||Investment< Rs. 1 cr.
Turnover < Rs.5 cr.
|Investment< Rs. 10 cr.
Turnover < Rs.50 cr.
|Investment< Rs. 20 cr.
Turnover < Rs.100 cr.
Computation of Investment limit in Plants & Machineries or in Equipment’s for the purpose of MSMED Act, 2006
As per Ministry of Small Scale industries notification dated 5th day of October, 20063, the investment in Plant and Machinery referred to in respective limits is the Original Price, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;
Further, as per the said notification, the following are excluded while calculating the investment in Plant and Machinery
Further, investment in Land, Building, Vehicles, Furniture and fixtures, Office Equipment etc. shall not be considered in determining the threshold limit of plant and machinery or Equipment as the case may be.
1. Earlier, Small Industries were defined under Industries (Development and Regulation) Act, 1951
2. S.O. 1642(E) dtd.30-09-2006 : Classification of Enterprises
3. Notification No.S.O.1722 (E) dated 06.10.06 Items to be excluded for the purpose of calculations of investment in Plant & Machinery of MSMEs.