In this article, Colin Fernandes, currently pursuing Lawsikho Diploma in Entrepreneurship Administration and Business Laws discusses the setting up of a micro enterprise under the MSMED Act.

Introduction

The MSME sector is the backbone of the growth story of the Indian economy. It contributes around 6.11% of the manufacturing GDP and 24.63% of the Service GDP. They provide employment to approx 120 million people and contribute around 45% of the overall exports (Source: CII).

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

In order to promote the MSME sector, the Micro, Small and Medium Enterprises Development (MSMED) Act was enacted in 2006. This Act addresses the various policy issues affecting MSMEs as well as their coverage and investment ceiling of the sector. The Act tries to incorporate the development of the enterprises while trying to enhance the competition among the businesses. The Act provides for the first time a legal framework for the recognition of the term “enterprise” which comprises of both manufacturing and service entities.

The Act also provides for the following:

• The establishment of specific funds for the promotion, development and enhancing the competitiveness of enterprises,
• The notification of schemes/programmes for this purpose,
• Progressive credit policies and practices, preference in Government procurements to products and services of the micro and small enterprises,
• Effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and assurance of a scheme for easing the closure of business by these enterprises

Ministry of Micro, Small & Medium Enterprises is an apex body under the Central Government which plays a crucial role in promoting growth and development of the MSME Sector together with the cooperation from State Governments and other Stakeholders.

What is a micro enterprise?

The Definition of the Micro enterprises is provided under Section 7 of the MSMED Act 2006 as:

Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below: ○      A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh; ○      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 vide its notification No.S.O.1722(E) dated October 5, 2006

Enterprises engaged in providing or rendering of services and whose investment in equipment are specified below: ○      A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;.

Eligibility of a micro enterprise to be set up under MSMED Act

Registration under the MSMED Act is discretionary.

Types of Business: Proprietorships, HUF, Partnership firms, One Person Company, LLP, Private Limited / Limited Companies, Association of Persons, Co-operatives Societies are eligible to be registered under the MSMED Act.

Criteria: Only those entities which can be classified as Micro, Small or Medium Enterprise under the Act are eligible to register under the MSMED Act.

Entities engaged in manufacturing or production of goods

• Micro enterprise: Any entity wherein the investment in plant and machinery does not exceed rupees twenty-five lakhs.

Entities engaged in provision or rendering of Services

• Micro enterprise: Any entity wherein the investment in equipment does not exceed rupees ten lakhs.

Benefits of registering your enterprise  under the Act

In order to compete with the Large Enterprises and also to improve India’s ranking in Ease of Doing Business, there are various benefit offered by the Government for MSMEs registering under the Act as under:

A. Purchase & Price Preference Policy

1. 358 items are exclusively reserved for purchases from MSMEs by Central Govt.
2. If registered with NSIC, then there is an exemption from payment of purchase of tender documents, depositing earnest money and security deposit.
3. As per the Govt’s Public Procurement Policy, Central Govt ministries, PSU’s
   shall procure a minimum of 20% of their purchases from MSMEs.
4. MSME are allowed to supply 20% of the total tender value if their price quoted in the tender document is 15% higher than the lowest bid. However, their price needs to be matched to the lowest bid price.

B. Assistance in faster recovering of overdue Invoices

1. Ability to charge compounding interest rate 3 times more than the bank rate
2. No income tax relief for the buyer on the interest paid to the MSME enterprise on overdue Invoices Avenues for faster dispute resolution by referring such matters to a Micro & Small Enterprises Facilitation Council. Disputes to be resolved within 90 days from the date the matter is referred to the council.
3. The Act also attempts to ensure that MSME’s viability is not impacted during the pendency of the case (malafide intention of Large enterprises to delay payments by dragging cases for long periods). As per the Act, the defaulting entity cannot appeal against the decision of the council/arbitrator unless it has deposited 75% of the amount it is required to pay.
4. Disclosure for companies who have overdue Invoices payable to MSMEs in the Audit reports.
5. In order to benefit from this policy, it is advisable for MSME to state its MSMED registration number on Invoices, bills and any other relevant documents. (see notification here)

C. Lower Corporate Tax rate of 25%

In the Budget for 2018, the government has proposed to cut the Tax rate from existing 30% to 25%

Schemes offered by the Central Government

A. National Manufacturing Competitiveness Programme (NMCP)

This scheme was launched in order to revive the manufacturing sector, especially small and medium enterprises, and to enable them to adjust to the competitive pressures caused by liberalization and moderation of tariff rates. Ten schemes have been drawn up including schemes for promotion of ICT, mini tool room, design clinics and marketing support for SMEs.

The schemes can be found here

B. Micro & Small Enterprises – Cluster Development Programme (MSE-CDP)

Objectives of the Scheme

1. This scheme was formulated to support the sustainability and growth of MSEs by solving  issues such as:

• improvement of technology,
• skills and quality,
• market access,
• access to capital, etc.

2. The scheme also helps to build the capacity of MSEs for common supportive action through:

• formation of self-help groups,
• upgradation of associations, etc.

3. It was formulated in order to create/upgrade the infrastructural facilities in the industrial areas of MSEs which includes the setting up of Flatted Factory Complexes.

4. The scheme helps set up common facility centres.

C.   Credit Guarantee Fund Scheme for Micro and Small Enterprises

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) in order to make collateral-free credit to the micro and small enterprise sector easily available. Both the existing and the new enterprises are eligible to be covered under this scheme. The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises

The credit facilities which are eligible to be covered under the scheme are both term loans and/or working capital facility up to Rs.100 lakh per borrowing unit, extended without any collateral security and/or third party guarantee, to a new or existing micro and small enterprise.

D. Marketing Development Assistance Scheme for Micro & Small Manufacturing Enterprises / Micro & Small Exporters

Objectives of the Scheme

This scheme was introduced to encourage Small & Micro exporters in their efforts at entering and developing overseas markets.

It also helped in increasing the participation of representatives of small/ micro manufacturing enterprises under MSME India stall at International Trade Fairs/Exhibitions.

The scheme enhances exports from the micro manufacturing enterprises

It helps to popularise the adoption of Bar Coding on a large scale

E. Financial Assistance on Bar Code

Under this Scheme, the financial assistance is provided by reimbursing 75% of the one-time registration fee (Under SSI-MDA Scheme) w.e.f. 1st January 2002 and 75% of the annual recurring fee for the first three years (Under NMCP Scheme) w.e.f. 1st June 2007 paid by MSEs to GS1 India for using Bar Code.

There are many more schemes announced by Central & State Governments like establishments of industrial parks, land at cheap rates, credit facilities from State level Financial Institutions. You can find these under the website of Ministry of Micro, Small & Medium Enterprise and websites of respective State Government.

Step by step procedure on registering your enterprise

A Simple One-Page registration form has to be filed online on the portal – http://udyogaadhar.gov.in

Steps to be followed: (Aadhar is a must)

• Aadhar No.: Enter the 12 digit Aadhaar number issued to the applicant in the appropriate field
• Name as per Aadhar: Fill the name of Applicant as mentioned on the Aadhaar Card.
• Social Category: Select the Social Category of the applicant from the given options.
• Gender: Select the gender from provided option
• Physically Handicapped: Select the status from provided options
• Name of Enterprise / Business: Enter the Name of the Enterprise
• Type of Organization : Sole Proprietorship / HUF / Partnership / LLP / Company / Co-operative Society
• PAN: Fill 10 Digit PAN Number
• Location of Plant: Please fill the location address
• Office Address: Please provide office address, if address other than plant location.
• Mobile No: Fill the correct Mobile Number of Applicant
• Mail ID: Fill the correct Mail ID of Applicant
• Date of Commencement of Business: Fill the date of Commencement of Business which will get printed on MSME Certificate.
• Bank Account Number: Fill the Applicant’s bank account number.
• Bank IFS Code: Fill the Applicant Bank IFS Code. The IFS code is printed on the Cheque Books.
• Main Business Activity of Enterprise:.
• NIC 2 Digit Code: Select the 2 Digit NIC Code from the given options considering your business activity. Two or more activities can be added
• Additional details about Business: Fill Additional details about the business.
• Number of employees: Fill the total number of people been employed.
• Investment in Plant & Machinery / Equipment : (items to be excluded as per notification no. S.O. 1722 (E) dated 16^th Jan 2009).
• Attachment : Attach scan copy of Aadhaar card (jpg,png file < 200KB)

No fee is required to be paid. Once the form is submitted it will be reviewed and a      Lifetime MSME Udyog Aadhar Certificate will be issued to the registered email.

Option for Registration without AADHAR

An applicant who is not yet enrolled for Aadhaar shall have to apply for Aadhaar enrolment and in case he or she is entitled to obtain Aadhaar as per Section 3 of the Aadhaar Act such individual may visit any Aadhaar enrolment centre to get enrolled for Aadhaar.

Provided that till the time Aadhaar is assigned to the individual, UAM registration shall be filed by the concerned DIC or MSME-DI on behalf of such enterprise, subject to the production of the following documents as alternative and viable means of identification.

• If he has enrolled, his Aadhaar Enrolment ID slip; or
• A copy of his request made for Aadhaar enrolment,
• Any of the following documents, namely:-
  • Bank photo passbook; or voter ID Card; or passport; or driving license; or PAN card; or employee photo identity card issued by the Government

Conclusion

MSMEs are the backbone of the Indian Economy. They have to be protected from Large enterprises who in many cases are in direct competition with the MSMEs.

In a very recent case, the Delhi court has passed a judgement wherein it has held that an entity which falls within the definition of Micro / Small Enterprise will be treated as a “supplier” within the meaning of Section 2 (n) of the MSMED Act, 2006 even if it is not registered at the time of execution of the contract.

The MSMED Act was enacted to protect, promote development and growth of Micro, Small & Medium Enterprises in India. Although the registration under the Act is discretionary, enterprises must look at the advantages it offers as the cost of registration is nil and there are no compliance requirements.