Understanding Form MSME-1 Filing: A Crucial Compliance Requirement

Navigating Form MSME-1 Filing: A Crucial Compliance Requirement for Companies

Compliance with regulatory requirements is a critical aspect of corporate governance, ensuring transparency, accountability, and ethical business practices. One such essential compliance requirement under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, is the filing of Form MSME-1. This form mandates companies to report their dues to Micro and Small enterprises. Non-compliance can result in significant penalties. In this blog, we explore the filing process, deadlines, mandatory information, and penalties for non-compliance.

Understanding the MSME Classification

The MSMED Act, 2006, classifies enterprises into Micro, Small, and Medium based on their investment in Plant and Machinery or Equipment and their turnover:

• Micro Enterprises: Investment ≤ ?1 crore and turnover ≤ ?5 crore.
• Small Enterprises: Investment ≤ ?10 crore and turnover ≤ ?50 crore.
• Medium Enterprises: Investment ≤ ?50 crore and turnover ≤ ?250 crore.

Regulatory Framework and Filing Requirements

Section 9 of the MSMED Act empowers the Central Government to issue necessary notifications, guidance, or instructions to develop, promote, and enhance the competition of MSMEs. In exercise of these powers, the Central Government issued the following notifications:

• Notification dated November 2, 2018: Companies receiving supplies from Micro and Small enterprises must submit a half-yearly return to the Ministry of Corporate Affairs (MCA) if the payment due exceeds 45 days from the date of acceptance or deemed acceptance of the supply.
• Notification dated January 22, 2019: The order called Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019, directs companies to furnish information about outstanding dues exceeding 45 days by filing a half-yearly return in Form MSME-1 with the Registrar of Companies

Filing Deadlines for Form MSME-1

Form MSME-1 must be filed twice a year within 30 days from the end of each half-year:

• For the period April to September: On or before October 30
• For the period October to March: On or before April 30

Mandatory Information in Form MSME-1

When filing Form MSME-1, companies must include the following information:

1. Amount of Payment Due: Specify the amount owed to the Micro or Small enterprise.
2. Reasons for the Delay: Provide reasons for the delay in payment exceeding 45 days.
3. Name of the Supplier: Mention the name of the supplier (Micro or Small enterprise).
4. PAN of the Supplier: Include the Permanent Account Number (PAN) of the supplier.
5. Date from Which the Amount is Due: Indicate the date from which the payment is due.

Penalties for Non-Compliance

Non-compliance with the filing requirements under Section 405 of the Companies Act, 2013, can lead to severe penalties:

• Initial Penalty: A fine of ?25,000 for the company.
• Continuing Failure: An additional penalty of ?1,000 for each day after the first during which the failure continues, subject to a maximum of ?3,00,000.

Importance of Compliance

Filing Form MSME-1 is essential for ensuring timely payment and transparency in transactions with Micro and Small enterprises. Adhering to these regulations promotes good corporate governance and fosters a healthy business environment by supporting MSMEs, which are vital to the economy.

Conclusion

Compliance with Form MSME-1 filing requirements is crucial for companies to avoid substantial penalties and ensure transparency in their dealings with Micro and Small enterprises. Companies must proactively meet filing deadlines and accurately report the required information. Staying informed about these regulatory requirements helps maintain a smooth and compliant business operation.

By understanding and adhering to the requirements for Form MSME-1 filing, companies can contribute to the sustainable growth and development of MSMEs, fostering a robust and competitive business landscape.