New Delhi: The Supreme Court on Monday declined a plea by micro, small and medium enterprises challenging a rule under the Income Tax Act under which businesses are prohibited from extending credit to buyers beyond 45 days..
Section 43B(h) of the Income Tax Act aims to regulate credit extension practices among MSMEs, ensuring timely payments and addressing working capital shortages in the sector.
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Failure to adhere to this timeframe would result in penalties, including compounded interest penalties at three times the bank rate set by the Reserve Bank of India (RBI). Moreover, they risk losing the ability to deduct payments made to MSEs from their taxable income.
This provision applies when a business purchases goods or avails services from an enterprise registered under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act).
Some MSMEs expressed concerns that this provision might lead larger buyers to bypass small and medium suppliers and instead opt to purchase from unregistered enterprises.
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The apex court allowed the Federation of All India Vyapar Mandal, which filed the plea on behalf of the MSMEs, to withdraw the petition and approach the high court.
In February, representatives from the traders’ body Confederation of All India Traders (CAIT) met finance minister Nirmala Sitharaman, requesting a one-year postponement of the clause’s implementation until April 2025.
In a memorandum to the finance ministry, CAIT expressed support for the government’s decision, emphasizing the importance of ensuring timely payments to the MSME sector within 45 days to maintain uninterrupted cash flow for traders.
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However, citing a “lack of clarity” regarding the applicability of the law to traders and other related provisions, CAIT urged the government to suspend the implementation of the clause until sufficient clarification and nationwide dissemination of information could be achieved.
