DISCLOSURE IN RESPECT OF MICRO, SMALL & MEDIUM ENTERPRISES IN ANNUAL FINANCIAL STATEMENT

DISCLOSURE IN RESPECT OF MICRO, SMALL & MEDIUM ENTERPRISES IN ANNUAL FINANCIAL STATEMENT

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 strengthens provisions relating to delayed payments to MSME’s by specifying a maximum credit period and higher penal interest if payment is delayed beyond that period. If there is a delay in payment, companies will have to mention the reason for such delay in the statement of accounts. The provisions relating to disclosure requirement are discussed below

Relevant definitions under Micro, Small and Medium Enterprises Development Act 2006 

Section 2(b) “appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Explanation.—For the purposes of this clause,—

(i) “the day of acceptance” means,—

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;

(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

 Section 2(d) “buyer” means whoever buys any goods or receives any services from a supplier for consideration;

Section 2(e) “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;

Section 2(n) “supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in clause (a) of sub-section (1) of section 8, and includes, –

– the National Small Industries Corporation, being a company, registered under the Companies Act, 1956;

– the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956;

– any company, cooperative society, society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;

 Classification of MSME: 

Section 7 of the Act provides for the following classification in respect of industries engaged in production or manufacture of goods or rendering service enterprises:

Category (a) Enterprises engaged in the manufacture or production, processing or preservation of goods and whose investment in plant and machinery are as specified below: (b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) are specified below.
micro enterprise does not exceed Rs. 25 lakh; does not exceed Rs. 10 lakh;
small enterprise is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
medium enterprise is more than Rs.5 crore but does not exceed Rs.10 crore. is more than Rs. 2 crore but does not exceed Rs. 5 crore.

 

Notification No. S.O.1722 (E) dated October 5, 2006: In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries.

 In terms of Ministry of MSME, GoI, Office Memorandum (OM) F. No. 12(4)/2017-SME dated March 8, 2017, it is clarified that for ascertaining the investment in plant and machinery for classification of an enterprise as Micro, Small and Medium, the following documents could be relied upon:

(i) A copy of the invoice of the purchase of plant and machinery; or

(ii) Gross block for investment in plant and machinery as shown in the audited accounts; or

(iii) A certificate issued by a Chartered Accountant regarding purchase price of plant and machinery.

Further, the Ministry has clarified that for the investment in plant and machinery for the purpose of classification of an enterprise as Micro, Small or Medium, the purchase value of the plant and machinery is to be reckoned and not the book value (purchase value minus depreciation).

 Provisions relating to DELAYED PAYMENT

Section 15: Liability of buyer to make payment.-

Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Section 16: Date from which and rate at which interest is payable

Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed uponat three times of the bank rate notified by the Reserve Bank.

Section 17: Recovery of amount of due

 For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.

Section 18: Reference to Micro and Small Enterprises Facilitation Council

Notwithstanding anything contained in any other law for time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.

Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.

MSME disclosure requirements in Annual statement of accounts

 Section 22: Requirement to specify unpaid amount with interest in the annual statement of accounts.

Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:—

– the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;

– the amount of interest paid by the buyer in terms of section 16, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;

– the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;

– the amount of interest accrued and remaining unpaid at the end of each accounting year; and

– the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of dis allowance as a deductible expenditure under section 23.

Dis-allowance under Income Tax Act, 1961

Section 23: Interest not to be allowed as deduction from income 

Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

Section 24: Overriding effect.

The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Clarification regarding return to be filed for MSME’s by all specified companies

Ministry of Corporate Affairs issued a recent notification dated 22nd January, 2019 in continuation of notification issued by Ministry of Micro, Small and Medium Enterprises dated 2nd November, 2018 for filling of half yearly return by specified companies.

Every Specified company shall file a return as per MSME Form I annexed to this order, by 31st October for the period from April to September and by 30th April for the period from October to March.

“Specified Companies” All the Companies who get supplies of goods or services from Micro or small enterprises and the payment not made with-in 45 days from the date of acceptance or the date of deemed acceptance of goods or services.

“Date of acceptance” means,

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;

“Date of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

For companies in addition to the disclosures mentioned in the schedule III of the Companies Act, 2013, the following disclosures to be given in the notes to the financial statements of company.

Sl. No Particulars As on
March 31,2019 March 31, 2020
1 Principal amount due to suppliers registered under the MSMED Act and remaining unpaid as at year end
2 Interest due to suppliers registered under the MSMED Act and remaining unpaid as at year end
3 Principal amounts paid to suppliers registered under the MSMED Act, beyond the appointed day during the year
4 Interest paid, other than under Section 16 of MSMED Act, to suppliers registered under the MSMED Act, beyond the appointed day during the year
5 Interest paid, under Section 16 of MSMED Act, to suppliers registered under the MSMED Act, beyond the appointed day during the year
6 Interest due and payable towards suppliers registered under MSMED Act, for payments already made
7 Further interest remaining due and payable for earlier years

 

Compiled By

CA. Dhanush D Bolar

Date : 31.01.2020