Micro, Small and Medium Enterprises Development Act, 2006

Introduction
MSMED act has been established to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith. The Act has been operational from October 2, 2006. The MSMED Act is superior as compared to the provisions for SSI (Small Scale Industries) under the IDRA in many ways. The scope of the promotion and protection measures under the IDRA was restricted only to SSI. However, during last 60 years of independence, the norms for the promotions and development have changed and the requirement to motivate the higher and different versions of SSI is felt. The MSMED Act not only addresses these issues but it also takes care of Micro, Small and Medium Scale enterprises (MSM enterprises). Another major highlight of the MSMED Act is that the MSM enterprises in the service sector are also covered under the Act. Separate investment limit for plant and machinery has been prescribed for MSM enterprises in the service sector. The MSMED Act was framed with the following objectives: To facilitate the promotion and development of micro, small and medium scale enterprises (MSM enterprises) To enhance the competitiveness of MSM enterprises To concentrate on the related matters of MSM enterprises To extend the scope of benefits from SSI undertaking and ancillary industries to MSM enterprises To make provisions for ensuring timely and smooth flow of credit to small and medium enterprises

Enterprise And Its Classification

The earlier concept of Industries has been changed to Enterprises which have been classified as: 1. Enterprises engaged in the manufacture/production of goods pertaining to any industry 2. Enterprises engaged in providing/rendering of services

1) Manufacturing Enterprises have been defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into: a. Micro Enterprises investment up to Rs.25 lakh b. Small Enterprises investment above Rs.25 lakh & up to Rs. 5 crore c. Medium Enterprises investment above Rs.5 crore & up to Rs. 10 crore 2) Service Enterprises have been defined in terms of their investment in equipment (excluding land & buildings) and further classified into: a. Micro Enterprises investment up to Rs. 10 lakh b. Small Enterprises investment above Rs. 10 lakh & up to Rs. 2 crore c. Medium Enterprises investment above Rs.2 crore & up to Rs. 5 crore The investment in Plant & Machinery in respective limits is the original price, irrespective of whether the plant & machinery are new or second hand. In respect of imported machinery, the following is to be included in calculating the value: import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port) shipping charges customs clearance charges and sales tax or value added tax

The following are excluded while calculating the investment in plant & machinery: Equipments such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores Installation expenditure for plant & machinery Research & development equipment and pollution control equipment Power generation set and extra transformer installed by the enterprise as per the regulations of the state electricity board Bank charges and service charges paid to the national small industries corporation of the state small industries corporation

Procurement or installation of cables, wiring, bus bars, electrical control panels (not mounted on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant & machinery or for safety measures

Gas producer plants, Fire-fighting equipment Transportation charges (excluding sales-tax or value added tax and excise duty) for indigenous machinery from the place of their manufacture to the site of the enterprise Charges paid for technical know-how for erection of plant & machinery Storage tanks which store raw materials and finished products only and are not linked with the manufacturing process

Filling Of Memorandum
The cumbersome two-stage registration process of SSI has been substituted with an optional filing of memorandum by Micro, Small & Medium Enterprises. Filing of memoranda is optional for Micro and Small enterprises in manufacturing and service sector, Medium enterprises in Service Sector but mandatory for Medium enterprises in manufacturing sector. This will help the MSMEs to avail of the benefits under the Act immediately after setting up the unit. The memorandum has to be filed in the form Entrepreneurs Memorandum notified by the central government. It is in two parts i.e. Part-I and Part-II and is to be filed with the respective District Industries Centre (DIC). Any person who intends to establish Micro, Small & Medium enterprise engaged either in manufacturing of products or providing or rendering of services shall file Part-I. Once Enterprise starts the production or starts providing or rendering services then they shall file Part-II of the Entrepreneur Memorandum. Validity of Entrepreneurs Memorandum (Part-I) is two years. No Renewal is granted. In case of any change in investment in Plant & Machinery or in equipments, change of products & services or addition in product or services, the enterprises, which have already filed Entrepreneurs Memorandum, shall inform the District Industries Centre (DIC) about the same in writing within three months of the changes. Failure to do so is contravention of law and is punishable under the act.

Benefits Of Filling A Memorandum

If a micro or small enterprise has filed a memorandum with DIC of its area, then it stands to gain as to timely payment in respect of supply of goods or rendering of services to any buyer The Interest on delayed payments to small scale and ancillary industrial undertakings act, 1993 has been repealed to ensure timely payment by buyers. 2 effective provisions have been made for it: (i) Requirement to specify unpaid amount with interest in the annual statement of accounts (ii) Interest not to be allowed as deduction from income under Income-Tax Act, 1961

As per this act, if the buyer has purchased goods or availed services from micro or small enterprise, which has filed a memorandum with the authority, then the buyer shall make the payment on or before the date agreed upon between him and the supplier in writing. If no agreement is there in writing, then within a period of 15 days from the day the goods are delivered or services are rendered If the buyer and supplier have agreed in writing then such period shall not exceed 45 days from the day of delivery of goods or rendering of services. In brief, any credit term from a micro or small enterprise stipulating payment terms beyond 45 days, shall be in violation of the MSMED Act, 2006. The interest penalty is 3 times the bank rate notified by RBI

RBIs progressive credit policies for ensuring timely and smooth flow of credit (Lending by banks to medium enterprises is not considered as priority sector credit) Simplified exit scheme for closure of business by micro, small & medium enterprises RBIs progressive credit policies for ensuring timely and smooth flow of