Recently, the Madras High Court in the case of M/s.Eicher Motors Limited Vs Superintendent of GST and Central Excise vide W.P.Nos.16866 & 22013 of 2023 and W.M.P.No.32200 of 2023 dated 23.01.2023, has held that the deposit of tax in Electronic Cash Ledger would amount to payment of tax and would not tantamount to failure to remit GST in time. Also, the Explanation (a) to Section 49 of GST Act, also clarifies that the deposit to ECL is nothing but deposit in Government Account maintained with RBI. The Court set aside the order of revenue, levying the interest u/s 50 of the Act on the self-assessed tax on the ground that the petitioner had belatedly filed the return in Form GSTR-3B, when the actual payment of tax made to the Government in terms of the explanation (a) to Section 49(11) of the Act.
The new clause (h) to Section 43B of the Income Tax Act, 1961 states that “any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2006” shall be allowed as deduction while calculating the Income from business or profession based on the previous year in which such sum is actually paid by the assessee. There is no relaxation for the assessee with respect to payment till the due date for furnishing of return of income under Section 139(1) of the Income Tax Act.
Going ahead with the Criteria for Micro and Small Enterprises –
Composite criteria of investment and turnover would be applied for classification as micro and small and enterprise.
Micro Enterprises: Turnover > 5cr and Investment in Plant and Machinery >1cr Small Enterprises: Turnover >50cr and Investment in Plant and Machinery >10cr
It would be safe to say that purchase of goods/services from an enterprise which has turnover above Rs. 50 crores would not be covered by section 43B(h). Similarly, purchase of goods/services from an enterprise which has investment in plant and machinery or equipment above Rs. 10 crores would not be covered by section 43B(h).
Section 2(e) “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services; As per the definition of enterprises, only persons dealing in either Manufacturing of Goods or providing any services will be classified as an Enterprise. One could surely take a stand that trader /Retailer/Distributor, etc would not be classified as an Enterprise and would not be covered under the Micro or Small Enterprise definition. On simple reading the Office Memorandum No. 5/2(2)/2021-E/P & G/Policy) date 02/07/2021 issued by Government of India, Ministry of MSME.
“Retail and wholesale trades as MSMEs and they are allowed to be registered on Udyam Registration Portal.”
“For the application of section 43B(h) the supplier should registered under MSMED Act, 2006 as a Micro and Small Enterprises as a Manufacturer and/or Service Provider.”
Time Limit
Section 15 of the MSMED Act mandates payments to MSMEs within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days.
In case of written agreement between buyer/service receiver and seller/ service provider –
• Date Agreed or
• 45 days from the date of acceptance deemed acceptance
If no Agreement entered between buyer/service receiver and seller/ service provider –
Payment shall be made within 15 days of acceptance / deemed acceptance of goods/services.
STEP TO BE TAKEN BY THE COMPANY: –
1. At the year-end Company should assess the status of their outstanding creditors to categorized as the Micro and small enterprise and as well as Manufacturer, service providers and Traders/retailers.
2. At the year-end define age of outstanding creditors like
• below 15 days,
• more than 15 days but below 45 days
• more than 45 days
3. It is highly recommended to obtain MSME certificate along with declaration on the classification of an enterprise from a supplier along with written agreement. Like Micro, Small and Medium Enterprises, Turnover of preceding year etc.
This would necessitate prompt action on part of private limited companies to reach out to the shareholders for converting their securities into Demat form so as to enable subsequent issue / transfer / buyback / bonus / rights issue of shares. Needs to be completed latest by September 30, 2024 or within 18 months from the end of financial year in which it is not a small company.
If not implemented within due date, could significantly impact the future fund raise plans of a startups (not being a small company), and closely held private companies.
Finance Minister Nirmala Sitharaman said that more than 10 million assessees particularly the small salary earners shall secure the long-due notices for the dues pertinent to the income tax, wealth tax, and gift tax withdrawn.
In an amnesty plan, it shall attain the dues of up to ₹25,000 in cases prior to the 2009-10 financial year and up to ₹10,000 for cases between then and 2014-15 disposed of.
In her Interim Budget speech in the Parliament, she announced, “I propose to withdraw such outstanding direct tax demands up to twenty-five thousand rupees ( ₹25,000) pertaining to the period up to the financial year 2009-10 and up to ten-thousand rupees ( ₹10,000) for financial years 2010-11 to 2014-15. This is expected to benefit about a crore tax-payers,”
Sitharaman mentioned that there are many “petty [amounts], non-verified, non-reconciled or disputed direct tax demands, many of them dating as far back as the year 1962, which continue to remain on the books, causing anxiety to honest taxpayers and hindering refunds of subsequent years”.
The objective is to lessen the bigger number of old litigations that take tax departments’ time and energy, as per the officials. Revenue secretary Sanjay Malhotra expressed these demands include notices “pending with respect to income tax, wealth tax and gift tax. Many of these demands are very, very old, dating from 1962… Because these demands are very old, many of them are unreconciled because of systemic issues.”
Issues take place as the tax payment records were missed before all the tax records were centralized in 2010-11. The government calls the same notices withdrawal instead of tax waiver, she added.
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