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Friday, 14 September 2012

Micro Small and Medium Enterprise (MSME)

As per the MSME (Micro, Small and Medium Enterprise) Act 2006 which has replaced the SSI Act manufacturing/ service enterprise can be considered to be a MSME if it fulfills the following criteria of investment in plant and machinery/ Equipments:

Manufacturing 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, shall be considered to be either a Micro, Small or Medium enterprise depending on the investment in plant and machinery, as below:.

-          Micro Enterprises   - where the investment in plant and machinery does not exceed Rs.25 lakh.
-          Small Enterprises  - where the investment  in plant and machinery is more than  Rs.25 lakh but does not exceed Rs. 5 crore
-          Medium Enterprises - where the investment in plant and machinery is more than Rs. 5 crore but does not exceed Rs. 10 crore.

Service enterprises: engaged in rendering or providing services, shall be considered to be either a Micro, Small or Medium enterprise depending on the investment in equipments, as below:.

-          Micro Enterprises     - where the investment in equipment does not exceed Rs.10 lakh.
-          Small Enterprises  - where the investment  in equipment is more than  Rs.10 lakh but does not exceed Rs. 2 crore
-          Medium Enterprises - where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

Registration:

Even if a company falls under MSME, it is at the discretion of the company to get itself registered as MSME or not.

Advantages and Disadvantage

Sr No
Advantages
Dis-advantages
1
To avail of some benefits, incentives or support given either by the Central or State Govt. Eg.
-       Credit prescription (Priority sector lending), differential  rates of interest etc
-       Excise Exemption Scheme - Exemption under Direct Tax Laws.
-       Statutory support such as reservation and the Interest on Delayed Payments Act.

(It is to be noted that the Banking Laws, Excise Law and the Direct Taxes Law have incorporated the word MSME in their exemption notifications. Though in many cases they may define it differently. However, generally the registration certificate issued by the registering authority is seen as proof of being MSME)
Ambiguities in reverse charge mechanism will hurt MSMEs' (applicable to Service Industry), like any other service industry. (No specific exemption provided )

Reverse Charge Mechanism:

Generally, it is the service provider that is liable to pay service tax to the Central Government. However, the Government can also notify the service recipient as the entity liable to pay service tax. This is popularly known as the Reverse Charge Mechanism.
2
States/UTs have their own package of facilities and incentives for small scale they are as follows:

-       development of industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support.

Both the Centre and the State, whether under law or otherwise, target their incentives and support packages generally to units registered with them.

MSME can not invest more than 10 Crore
3
Credit Guarantee Fund Scheme for Micro and Small Enterprises

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was launched by the Government of India to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.

4
Establishment of Trust:

The Ministry of Micro, Small and Medium Enterprises 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 scheme was formally launched on August 30, 2000 and is operational with effect from 1st January 2000.

5
Prompt payment for Goods Supplied / Services provided
All businesses are required to disclose the amounts due for more than such period to MSMEs in their financials and it is part of most Bank/ financing documentation. This has been done with  a view to ensure that the precious Working Capital of such small businesses does not get blocked with larger industries/ businesses


Investments:

-  An industrial undertaking which is an MSME, i.e., a company with interests in industry can invest upto 24% equity in a MSME unit.

-  If such investment in another industrial undertaking in form of equity exceeds 24%, the industrial unit loses its MSME status.

Ceasing to be a MSME:

Manufacturing enterprise: When the investment in the plant and machinery exceeds more than Rs. 10 Crores it shall cease to be a MSME and all the privileges and advantages ceases accordingly.

Service enterprise: When the investment in the equipment exceeds more than Rs. 5 Crores it shall cease to be a MSME and all the privileges and advantages ceases accordingly.

Conclusion


Even though many privileges are envisaged in the Act, in practice most Banks are reluctant to extend loans to such Micro/ Small / Medium enterprises. Due this factor and the ever increasing clamour for FDI, in every sector, this breed of small scale industries, is becoming more endangered, and one tends to fear it may become obsolete like the original SSI Act, to be replaced only by the MNCs and conglomerates of the world.

4 comments:

  1. Wow really its a good Awesome Article but can you let me know how we can done on MSME Registration for avail above the advantages.

    ReplyDelete
  2. You got to get yourself registered under MSME regulation and while engaging into any transaction and while raising an invoice mention that you are a MSME so that the other party would be aware of your status and can not deny ignorance of the fact/ your status.

    ReplyDelete
  3. Very beautiful blog.. It's help to all.

    We provide the guidelines for SME, MSME business software and government schemes for MSME’s etc.

    ReplyDelete
  4. It is really interesting and informative article. Afleo.com provides MSME and other company registration services at affordable rates. You can visit our website for more information.

    ReplyDelete