Change in form MSME-1 – Exhaustive disclosure framework! - MMJC

Introduction:

In its constant endeavour to bring ease of doing business, the Ministry of Corporate Affairs (MCA) has been in the process of shifting all the e-forms from V2 version of MCA portal to V3 version of the Portal wherein all the forms are in the format of web based forms. MCA has already shifted forms relating to deposits, charges and various other filings of companies and al LLP related filings to V3 portal. Now MCA with effect from 15^th July 2024, has shifted 9 more forms namely, MGT-6, BEN-2, Form MSME-1 & IEPF related forms to V3 portal. In this brief article, we shall try to understand the changes that have taken place in Form MSME-1 in the process of shifting from V2 to V3 portal.

Background of Form MSME-1:

This form MSME-1 filing requirement comes from MCA circular dated 22^nd January 2019. It is a filing to be done within 30 days from the end of every half year. This circular requires the companies who receive supplies of goods/services from Vendors registered as micro or small enterprises under MSME Act, 2006 and have not paid them within 45 days of receipt of goods / services, to intimate about such outstanding payment to ROC through this form MSME-1. The governing section for filing of this form is Section 405 of the Companies Act 2013 which specifies a penalty on companies and their officers in default for not filing this form of Rs. 20,000/- and a continuing penalty of Rs. 1000/- per day during which the default continues

Existing contents of the form:

Earlier when this Form MSME-1 was on V2 portal of MCA, the companies filing this form were required to give details of such payments outstanding as at the end of half year, towards Vendors registered as micro and small enterprises which were outstanding for a period exceeding 45 days from the date of receipt of goods or services. Hence, all those companies which used to make payments to all these vendors after a period of 45 days of receipt of goods / services but within the end of each half year were not required to file this form, because in such case there would not be any dues outstanding to vendors registered as micro or small enterprises, as at the end of half year.

Additions to revised form MSME-1 in V3 portal:

The new V3 version of Form MSME-1 asks for below additional details regarding payments to vendors registered as micro and small enterprises: –

1. Micro and Small vendors to whom payment has been done during half year and within 45 days
2. Micro and Small vendors to whom payment has been done during half year but after a period of 45 days
3. Micro and small vendors whose payment is outstanding as of end of half year, but 45 days are not yet over (o/s for less than 45 days)
4.  Micro and small vendors whose payment is outstanding as of end of half year, and 45 days are over (o/s for more than 45 days)

Earlier, in V2 version, the form asked only about the details mentioned in point number 4 above. So if companies did not keep any payment outstanding as at the end of half year for Vendors who are registered as Micro or small enterprises, then this form was not to be filed even if during the half year, any payment was done to any of such vendors beyond 45 days. However, now the form asks additionally about points 1 to 3 as well.

Insertion of Clarificatory Proviso in MCA Notification (Order) under section 405 under which this form is prescribed:

MCA had, vide its Notification dated 22^nd January 2019 issued the Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019, under which the requirement of filing this Form MSME-1 was prescribed. In that notification, ‘specified company’ was defined[1] and in Point 3 of the Order, it was prescribed that “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.”

Now while prescribing the contents of the Form MSME-1 in V3 version of MCA portal, a notification dated 15^th July 2024 is issued by MCA wherein a Proviso has been added to the above-mentioned Point 3 of this Order saying “Provided that only those specified companies which are having payments pending to any micro or small enterprises for more than 45 days from the date of acceptance or the date of deemed acceptance of the goods or services under section 9 of the MSME Act shall furnish the information in MSME Form-1”

This clarificatory proviso read with the additional contents inserted in the Form MSME-I clarifies that if in a company during a particular half-year, there is even one instance in case of even one vendor who is registered as micro or small enterprise, where payment is made after a period of 45 days from the date of acceptance / date of deemed acceptance, then that company is required to file this Form MSME-1 for that particular half year. This filing requirement is irrespective of whether any amount is outstanding for more than 45 days to any such registered micro or small vendors or not, as on the last date of that half year. If any payment to be made to any vendor registered as micro or small vendor is outstanding for a period of more than 45 days, as on the last date of half year, then in such case also, this form is required to be filed (as was the case when the form was in V2 version of MCA portal)

But if there is not a single instance in the entire half year, where payment was done to any vendor registered as micro or small enterprise after a period of 45 days as mentioned above, and there is no amount payable to such vendors outstanding for more than 45 days as on the last date of the half year, then as per this newly inserted proviso, a view may be taken that this form filing requirement does not arise.

Effects of change in form:

This additional information asked in the form is a significant change.  By this change, if multiple payments are made during a particular half year to a particular Vendor (who is registered as micro or small enterprise), and even if all other payments are done within 45 days, but even if a single payment is done after 45 days, then the details of all other payments done to that Vendor within 45 days also need to be disclosed in the Form, along with the details of all payments outstanding as on the last date of half year, irrespective of whether 45 days period has been completed or not. Similarly, if any payment is outstanding for any such vendor for more than 45 days period, then all the details of payments done to that vendor during the half year period and also the details of outstanding dues which have not crossed 45 days period also need to be disclosed.

In such situation, a question arises that whether the details of all other vendors registered as micro or small enterprises also needs to be given in the form, in respect of whom there has been no instance of payment made after 45 days period during the said half year and there are no dues outstanding for more than 45 days as on the last date of the half year? Looking at the newly inserted proviso, a view may be taken that the disclosure requirement is only for those vendors where there have been instances of payments delayed beyond 45 days or outstanding payments for more than 45 days, and hence companies may choose not to disclose the details of all other vendors registered as micro or small enterprises for whom there have been no such instances anytime during the said half year period.

Conclusion:

In the Budget 2024, the Honorable Finance Minister had announced that, no income tax deduction shall be available on amounts not paid to micro and small enterprises within 45 days. The data collected from this form may also be useful in enforcing this income tax related amendment. Hence, it is very important that all companies have a system for identifying and collating data about their Vendors as to whether they are registered as Micro or small enterprises? If yes, then the data about payments made to them need to be maintained systematically and companies need to ensure that payments are done to such vendors within the completion of such 45 days period.

ROCs have already started initiating Adjudications against companies who have not filed this form if it was applicable. With this transition from V2 to V3 portal, ROCs will have more and more data about this, and they will be in better position to Adjudicate any lapses in this regard. 

[1] In MCA Notification dated 22^nd January 2019, the term ‘Specified Company’ is defined as ‘companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of MSME Act, 2006’