MSMED s.15

MSMED s.15 — the law in short

What the courts have decided on section MSMED s.15, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• NBCC (India) Ltd v State of West Bengal Supreme CourtCuts both waysNo later treatment found
  You are told the Supreme Court has settled that a supplier must be registered before the contract. Is that safe to rely on?
  Not without qualification. A two-Judge Bench set out the proposition as it appears in Mahakali Foods, held that the question had never been formulated, discussed or decided in the earlier cases, and read s.18 as speaking of 'any party to a dispute' rather than of a supplier. It said it was open to it to hold that Silpi Industries and Mahakali Foods are not binding precedents on the point, but chose not to decide that and referred to a three-Judge Bench whether an enterprise can invoke the s.18 remedy without prior registration under s.8.
• Gujarat State Civil Supplies Corporation Ltd v Mahakali Foods Pvt Ltd Supreme CourtCuts both waysUnder appeal
  Your supplier registered on Udyam after the goods were supplied. Does the MSMED Act still apply to those supplies?
  On this judgment, no. The Supreme Court held that a party who was not a 'supplier' within s.2(n) of the MSMED Act on the date of entering into the contract cannot claim any benefit as a supplier under the Act. It also held that Chapter V of the MSMED Act overrides the Arbitration and Conciliation Act 1996 and that an independent arbitration agreement does not bar a reference to the Facilitation Council.
• Silpi Industries v Kerala State Road Transport Corporation Supreme CourtCuts both waysUnder appeal
  The supplier registered under the MSMED Act part-way through the relationship. Which supplies does the Act protect?
  Those made after registration. The Supreme Court refused the appellant the benefit of the Act because there was no acceptable material to show that any supply of goods or rendering of services had taken place after it was registered as a unit under the MSMED Act. The Court also held that a counter-claim is maintainable before the statutory authorities under the Act.
• SRK Metals and Plastics (P) Ltd v State of Assam High CourtHelps taxpayerNo later treatment found
  What exactly does the buyer owe once the payment window under s.15 closes?
  The buyer must pay within the period agreed in writing or, absent agreement, before the appointed day, and the agreed period cannot exceed forty-five days from acceptance or deemed acceptance. Once that is breached, the buyer is statutorily liable to compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. The Court directed the authorities to determine and release the interest.
• Dhruv Anand v State of U.P. High CourtCuts both waysHigh Courts differ
  The buyer says the 1 September 2021 Office Memorandum takes your trader-supplier outside the delayed-payment machinery. Is that right?
  The Allahabad High Court held it is not. The Office Memorandum relied on is specifically in respect of lending and not for any other purpose, and where the dispute concerns a supply of goods for which payment has been delayed the memorandum is 'not at all applicable'. The remedy is the one the MSMED Act provides under ss.15, 17 and 18, and the criminal proceeding against the buyer was quashed on that footing.
• Luxe Panel Distributors v Additional Commissioner of Customs High CourtHelps departmentHigh Courts differ
  Your client is a trader holding Udyam registration as a micro enterprise. Does that registration carry any benefit beyond priority sector lending?
  On the Kerala High Court's reading, no. Wholesale and retail trade was excluded from the MSMED Act in 2017, re-included by the Office Memorandum of 2 July 2021, and that re-inclusion was for the limited purpose of priority sector lending only. The Court refused a trader the micro-enterprise exemption in a Quality Control Order because, registration notwithstanding, nothing beyond priority sector lending could be claimed.
• Anupam Industries Ltd v State Level Industry Facilitation Council High CourtCuts both waysNo later treatment found
  How does s.15 actually work - fifteen days, or forty-five, and what if the supplier registered after the invoices?
  Section 15 obliges the buyer to pay by the date agreed in writing and, where there is no such agreement, before the appointed day, which is fifteen days from acceptance or deemed acceptance; the proviso caps any agreed period at forty-five days. On the facts, the supplier's registration post-dated the invoices by a wide margin, the invoices running from 17 May 2013 to 15 July 2015 against registration with effect from 31 December 2016.
• Wadhwa Group Holdings Pvt Ltd v PCIT (Central), Mumbai-3 ITATHelps taxpayerNo later treatment found
  The Commissioner has revised your assessment for a year before AY 2024-25 saying the officer never verified MSME trade payables. Can s.43B(h) support that?
  No. Clause (h) of s.43B was inserted by the Finance Act 2023 with effect from 1 April 2024 and operates prospectively from AY 2024-25. For AY 2022-23 the Tribunal held the Commissioner could not found prejudice to the Revenue on the non-application of a provision that did not apply, and set the s.263 order aside.
• CBDT Circular 1/2024 CBDT Circulars & InstructionsHelps departmentSuperseded by amendment
  I paid my MSME supplier late but before filing my return. Is the expense disallowed this year?
  Yes, it is deferred. For a sum payable to a micro or small enterprise beyond the time limit in s.15 of the MSMED Act, the proviso to s.43B is expressly switched off, so paying before the return due date does not rescue the deduction. You get it only in the year you actually pay.
• MSME Office Memorandum 1/4(1)/2021 CBDT Circulars & InstructionsCuts both waysHigh Courts differ
  My supplier is a trader with Udyam registration. Does the 43B(h) disallowance apply to him?
  No. The Ministry of MSME's memorandum confines the benefit of Udyam registration for wholesale and retail traders to Priority Sector Lending; the delayed-payment provisions of the MSMED Act, including s.15, are excluded. Since clause (h) works by reference to the s.15 time limit, purchases from traders fall outside it.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.