Big Boost for Entrepreneurs as Central Government redefines criteria for enterprises to be classified as MSME

The Ministry of Micro, Small and Medium Enterprises has recently issued a Notification dated 1st June, 2020, notifying the criteria for classification of micro, small and medium enterprises.

Vide the said Notification, the Government has significantly amended the criteria for an enterprise to be classified as Micro, Small and Medium Enterprises.

The announcement for the change in definition was made on 13th May, 2020 by the Hon’ble Finance Minister when she announced a slew of measures under the flagship “Aatmanirbhar Bharat Abhiyan”.

The new definition and criterion will come into effect from 1st July, 2020.

New definition introduced vide Notification S.O. 1702 (E) dated 01.06.2020

Description Micro Enterprise Small Enterprise Medium Enterprise
Manufacturing and Services Investment< Rs. One Crore

Turnover< Rs. Five Crore

Investment< Rs. Ten Crore

Turnover < Rs. Fifty Crore

Investment< Rs. Fifty Crore

Turnover< Rs. Two Hundred and Fifty Crore

Old Definition as introduced vide Notification S.O. 1642 (E) dated 29.09.2006

Description Micro Enterprise Small Enterprise Medium Enterprise
  Investment Investment Invetment
Manufacturing Rs. Twenty Five Lakh Rs. Five Crore Rs. Ten crore
Service Rs. Ten Lakh Rs. Two Crore Rs. Five Crore

 

The old criterion for classifying entity as micro, small or medium enterprise was based on the MSMED Act, 2006. The said criterion only considers the amount of investment of the enterprise. Also, the earlier criterion for classification was different for manufacturing and services units. It was also very low in terms of financial limits. Since then, the economy has undergone significant changes. Now, there will be no difference between manufacturing and service sectors. Thus, the new criteria provided for classification is same for all the enterprises whether a manufacturing or service facility and the limits of investment has also been enhanced significantly.

The need for amendment in criteria was felt as there was fear amongst successful MSMEs that if they outgrow their size, they will loose benefits of MSME Act. Now with the upward revision in investment and turnover limits, the MSMEs need not worry about their growing size and even after substantial growth they will still get covered within the definition of MSME.

Amendment in General Financial Rules, 2017- Global Tender Enquiry

In consonance with the Economic Relief Package announced by FM on 13.05.2020, the Ministry of Finance vide Notification F. No. 12/17/2019- PPD dated 15.05.2020 has notified the amendment to General Financial Rules, 2017.

It has been provided that no Global Tender Enquiry shall be invited for tenders upto Rs. 200 crore. It has been further provided that in exceptional cases, the concerned Ministry or Department may seek prior approval for relaxation of the said criterion.

Due to existing Government procurement policies calling for Global Tender, there was unfairness in competition as the MSMEs were unable to cope with competition coming from abroad. By virtue of the said Amendment, the Tenders upto Rs. 200 crore will no longer be Global Tenders.

The above amendment further helps and supports the domestic industry developing in the form of MSMEs and aids the vision of “Aatmanirbhar Bharat” and adopts the #VocalforLocal campaign of the Government.

Dipankar Majumdar is an Advocate practicing in the sphere of GST, Customs and other indirect tax law litigation and advisory for more than 07 years. He is also a regular speaker on GST, Customs and other indirect tax subjects at various forums such as professional and trade bodies. Dipankar can be contacted on dipankar@alalegal.in and +91-9717359398.

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