How far do I have to go in checking whether my supplier is a micro or small enterprise, and is it 15 days or 45?
Fifteen days where there is no written agreement, and the agreed period — capped at forty-five days — where there is one, both counted from the day of acceptance or deemed acceptance, not from the invoice date. The clause only bites for a supplier who is a micro or small enterprise and has filed a memorandum, so a Udyam certificate showing the activity as trading takes the supplier outside it. The buyer is not expected to go behind the Udyam certificate.
The corpus already holds the rule itself — CBDT Circular 1/2024, the MSME Office Memorandum on traders, and the writ petition against the provision. What is actually being fought in assessments is narrower, and it comes down to three questions: whose status, which clock, and how much diligence the buyer owed.
Whose status. s.43B(h) borrows the time limit in s.15 of the MSMED Act, and s.15 speaks of a "supplier". That word is defined in s.2(n) as a micro or small enterprise which has filed a memorandum with the authority referred to in s.8(1). Two consequences follow. First, the enterprise must be registered; the benefit does not attach to an unregistered micro enterprise. Second, and this is the point most often missed, registration is not retrospective — the Supreme Court's decision in Silpi Industries v. Kerala State Road Transport Corporation [2021] 129 taxmann.com 228 is cited for the proposition that the protection runs in respect of goods supplied on or after the date of registration. A supplier who registers in March cannot pull the whole year's invoices into s.15. A medium enterprise is outside clause (h) altogether.
Traders. Retail and wholesale traders are permitted to register on the Udyam portal, but the Ministry's Office Memorandum No. 5/2(2)/2020/E/P&G/POLICY dated 2 July 2021, read with OM No. 1/4(1)/2021-P&G Policy dated 1 September 2021, confines that registration to priority sector lending and excludes the other benefits, including the delayed payment provisions of the MSMED Act. The working conclusion is that where the Udyam certificate shows the activity only as trading, s.43B(h) does not apply to what you owe that supplier. The corpus holds the Office Memorandum itself as msme-office-memorandum-2021-traders-43bh; cite it, because officers do not always know it.
Which clock. s.15 provides that "the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance." So a written agreement can fix any period up to forty-five days and no more; a sixty-day credit term is read down to forty-five. Where there is no written agreement, the appointed day under s.2(b) is the day following the expiry of fifteen days from the day of acceptance or deemed acceptance. The day of acceptance is the day of actual delivery of the goods or rendering of the services, or, where the buyer objects in writing within fifteen days of delivery, the day on which the supplier removes the objection. Deemed acceptance is the day of actual delivery where no written objection was raised within those fifteen days. None of these dates is the invoice date, and the purchase order date is not the agreement unless the credit term is in writing.
How much diligence. The practical answer on the sources I could open is that the buyer is not required to go behind the Udyam certificate; but the certificate can only be verified on the Udyam portal if you have the supplier's Udyam number, so the diligence has to be built into vendor onboarding rather than attempted at audit time. The other line taken in the professional writing is that the burden is on the supplier to disclose its status — an advisory of 2008 asked micro and small enterprises to print their memorandum number on their letterheads, invoices and supply order sheets — so a supplier who never disclosed is a point worth taking, though it is an argument, not authority.
Where it surfaces. The disallowance is reported by the auditor in clause 22 of Form 3CD, which the CBDT amended for this purpose — the corrigendum is Notification No. 34/2024 dated 19 March 2024, which brought the s.43B(h) disallowance into clause 22 alongside interest inadmissible under s.23 of the MSMED Act. That clause is where the notice comes from. It is also worth remembering that s.23 of the MSMED Act separately disallows the interest payable to the supplier on delayed payment, which is a different disallowance from clause (h) and is not cured by paying it later.
The first cycle of clause (h) assessments is running now, and the disputes are not about the principle but about status and dates. A buyer who has the Udyam certificates on file and computes from the acceptance date has a defensible position; one who has computed from invoice dates and treated every registered supplier as covered will have both over-disallowed and under-disallowed, and will have signed a clause 22 that does not match its ledgers.
I paid the sales tax after year-end but within the time the statute allows. Can the AO disallow it?
I paid the PF contribution after year end but before the return due date. Is the deduction gone?
I heard the 45-day MSME payment rule was challenged in the Supreme Court. Was it struck down?
Can I claim a deduction for unutilised MODVAT credit sitting in my books at the year end?
My lender took equity shares against the outstanding interest. The Assessing Officer says there was no actual payment under section 43B. Is he right?
I paid my MSME supplier late but before filing my return. Is the expense disallowed this year?
My supplier is a trader with Udyam registration. Does the 43B(h) disallowance apply to him?
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