{"id":30724,"date":"2021-05-20T13:08:16","date_gmt":"2021-05-20T07:38:16","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=30724"},"modified":"2024-05-24T14:58:04","modified_gmt":"2024-05-24T09:28:04","slug":"analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes\/","title":{"rendered":"Analyzing Provisions under MSMED Act for Payment Dues Toward MSMEs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The MSMED Act, 2006 was introduced on 16th June 2006 by the Indian government via notification in the official Gazette. The MSMED Act (aka Micro, Small, and Medium Enterprises Development) underpins the norms for the deferred payments to <a href=\"https:\/\/corpbiz.io\/msme-registration\"><strong>MSME<\/strong><\/a> by providing a maximum credit timeline &amp; higher penal interest in prolonging delay. <\/p>\n\n\n\n<p>The companies will be held answerable for\ncausing unnecessary payment delay. They are required to mention the reason for\nthe same in the statement of accounts. Before we start to unwrap the MSME &amp;\ndiffered payment concept, let us explore the prevailing norms for\nNon-Disclosure of dues payable to MSMEs.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes\/#What_is_the_MSME_Classification\" >What is the MSME Classification?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes\/#What_are_the_Provisions_Regarding_the_Deferred_Payments\" >What are the Provisions Regarding the Deferred Payments?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes\/#Underlining_Disclosure_Prerequisites_in_the_Accounts_Annual_Statement\" >Underlining Disclosure Prerequisites in the Account\u2019s Annual\nStatement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/analyzing-provisions-under-msmed-act-for-payment-dues-toward-msmes\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_MSME_Classification\"><\/span>What is the MSME Classification?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per the Section 7 of the MSMED Act, the\nindustries involved with the production of goods or providing services must be\nclassified as mentioned in the table below:-<\/p>\n\n\n\n<p><strong><em>The classification of Composite criteria is mentioned below-<\/em><\/strong><\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Classification<\/strong><strong><\/strong>\n  <\/td><td>\n  <strong>Micro<\/strong><strong><\/strong>\n  <\/td><td>\n  <strong>Small<\/strong><strong><\/strong>\n  <\/td><td>\n  <strong>Medium<\/strong><strong><\/strong>\n  <\/td><\/tr><tr><td>\n  <strong>Manufacturing<\/strong>\n  <strong>&nbsp;<\/strong>\n  <strong>&amp;<\/strong>\n  <strong>Service<\/strong>\n  <\/td><td>\n  <strong>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment\n  Less Than Rs. 1 Cr.<\/strong>\n  <strong>And<\/strong>\n  <strong>2.&nbsp;&nbsp;&nbsp;Turnover Less Than Rs. 5\n  Cr.<\/strong>\n  <\/td><td>\n  <strong>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment\n  Less Than Rs. 10 Cr.<\/strong>\n  <strong>And<\/strong>\n  <strong>2.&nbsp;&nbsp;&nbsp;Turnover Less Than Rs. 50\n  Cr.<\/strong>\n  <\/td><td>\n  <strong>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment\n  Lessthan Rs. 50 Cr.<\/strong>\n  <strong>And<\/strong>\n  <strong>2.&nbsp;&nbsp;&nbsp;Turnover Less Than Rs. 250\n  Cr.<\/strong>\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p>The investment in plant &amp; machinery should adhere to the original cost, excluding the cost of land &amp;items mentioned by the Ministry of Small Scale Industries.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/union-budget-2021-for-msme-sector\/\">Key Measurers Enlisted in the Union Budget 2021 for MSME Sector <\/a><\/mark><\/p>\n\n\n\n<p><strong><em>Take the following documents into account while\ndetermining the enterprise\u2019s classification:&nbsp;<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>Copy of invoice related to the purchase of plant &amp; machinery,<\/li>\n\n\n\n<li>Gross block related to investment as reflected in the audited books<\/li>\n\n\n\n<li>Certificate issued by certified Charted Accountant vis-\u00e0-vis purchase of plant &amp; machinery.<\/li>\n<\/ul>\n\n\n\n<p>Lastly, the Ministry has to provide\nclarification that the investment is for the enterprise\u2019s classification. The\npurchase value will play a vital role in this regard.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Provisions_Regarding_the_Deferred_Payments\"><\/span>What are the Provisions Regarding the Deferred Payments?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>The given norms revolve around the delayed payment cites in the MSMED Act:-<\/strong><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Section 15: Buyer\u2019s Liability to Make Payment<\/strong><\/h3>\n\n\n\n<p>The buyer is accountable for making payment on\nthe agreed date. The payment terms should not surpass 45 days from the\nacceptance\u2019s date regardless of whether the same terms are agreed in writing or\nnot.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Section 16: Date &amp; rate related to the Interest<\/strong><\/h3>\n\n\n\n<p>Suppose the buyers do not make the payment, as\ncited in Section 15, within the prescribed date. In that scenario, the buyer\nwill be held accountable for paying compound interest along with monthly rests\non the amount due on the appointed day or agreed on a date, at three times the\nbank related provided by the Reserve Bank.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Section 17: Recovery for the Due Amount&nbsp;<\/strong><\/h3>\n\n\n\n<p>The buyer should make payment along with interest\nfor the services provided and goods supplied.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Section 18 (1): Reference to Micro &amp; Small Enterprises\nFacilitation Council<\/strong><\/h3>\n\n\n\n<p>The state government driven MSEFC (Micro and\nSmall Enterprises Facilitation Council) is established to consider and settle disputable\ncases regarding delayed payment. Thus, parties involved with the dispute may\napproach this council for proper reconciliation of the case.&nbsp;<\/p>\n\n\n\n<p>Apart from the erstwhile provisions cites under\nthe MSMED Act, 2006, the Indian government has introduced a web-based portal,\nviz MSME Samadhaan to deal with a disputable matter regarding delayed payment.\nIt helps individual to file an application under MSMED Act with ease.&nbsp;<\/p>\n\n\n\n<p>The MSMEs with a valid UAM, i.e. UdhyogAadhaar\nMemorandum, can file an online application via the above system. After dropping\nthe complaint on the portal, the concerned official will scrutinize the same\nfor authenticity and issue directions accordingly to the defaulter, i.e.\nbuyer.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlining_Disclosure_Prerequisites_in_the_Accounts_Annual_Statement\"><\/span>Underlining Disclosure Prerequisites in the Account\u2019s Annual\nStatement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The buyers, who provided services &amp;\npurchased goods from the MSMEs, must scrutinize their annual account by a\nconcerned professional as per Section 22 of the MSMED Act, 2006.<\/p>\n\n\n\n<p><strong><em>The disclosure of the following particulars is\nmandatory for the buyers in the account\u2019s annual statement concerning\nMSMEs.&nbsp;<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>The\nunpaid amount as well as the interest due to the supplier till the appointed\ndate;<\/li>\n\n\n\n<li>The\ninterest addressed by the buyer owing to delayed payments;<\/li>\n\n\n\n<li>The\nprincipal amount &amp; the interest due post appointed date for the delay\nperiod;<\/li>\n\n\n\n<li>The\ninterest amount cumulated and is payable to suppliers at the end of each year;<\/li>\n\n\n\n<li>The\nleftover dues and the interest payable in the subsequent years until the\ninterest is paid to the suppliers, i.e. MSMEs.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p><strong><em>The Ministry of MSME is vested with rights that\nallow it to issue direction to all entities who:<\/em><\/strong><\/p>\n\n\n\n<ul>\n<li>Receives supplies of goods &amp; services from entity registered as MSME and;&nbsp;<\/li>\n\n\n\n<li>who has caused payment delay and surpassed 45 days from the acceptance\u2019s date or deemed acceptance;&nbsp;<\/li>\n\n\n\n<li>file half-yearly returns with the <em><strong>Ministry of Corporate Affairs<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Ministry_of_Corporate_Affairs\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> stating the amount &amp; the reason for the delay.<\/li>\n<\/ul>\n\n\n\n<p>Section 405 of the Companies Act specifies that\nsome companies need to provide the MCA requirements, as cited earlier.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The MSMED Act, 2006 obligates the buyers to make\nthe amount and interest due to the supplier within the stipulated timeframe as\ncited in the Act. Prolong delay in this context will accrue interest on the\nbuyers in accordance with Act. The buyer must adhere to transparency in terms\nof financial transaction. As per Section 22 of the Act, the buyer must disclose\nthe delayed payable to MSMEs in their financial statement.&nbsp; <\/p>\n\n\n\n<p>Let us know what you think about of the current predicament faced by the MSMEs in the Covid 29 era. Any insight or info coming from our readers would be appreciated. Use the comment box located below to drop your concerns or thought. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/msme-udyam-registration-portal-everything-you-need-to-know\/\">MSME Udyam Registration Portal: Everything you Need to Know<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The MSMED Act, 2006 was introduced on 16th June 2006 by the Indian government via notification in the official Gazette. The MSMED Act (aka Micro, Small, and Medium Enterprises Development) underpins the norms for the deferred payments to MSME by providing a maximum credit timeline &amp; higher penal interest in prolonging delay. The companies will [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":30785,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[176],"tags":[1755],"acf":{"service_id":"71"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":5359,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30724"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=30724"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30724\/revisions"}],"predecessor-version":[{"id":64413,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30724\/revisions\/64413"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/30785"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=30724"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=30724"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=30724"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}