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SC Junks Traders’ Petition Against MSME Payments clause in I-T Act

The Supreme Court on Monday refused to entertain a petition by traders’ associations, challenging the constitutionality of Section 43B(H) of the Income Tax Act that requires businesses to settle their dues with micro, small and medium enterprises (MSMEs) within 45 days to claim tax benefits.

A bench led by Chief Justice DY Chandrachud instead as ked the petitioners Federation of All India Vyapar Mandal, Federation of Madras Merchants and Manufacturers Association, and Confederation of West Bengal Trade Associations to move the high court for any relief.

The new rule has come into force from April 1. Federation of All India Vyapar Mandal had challenged the constitutionality of Section 43B(H), citing its negative impact on the business community, particularly MSMEs such as Gujarat-based textile, chemical, and engineering units.

Seeking reconsideration of the provision due to its adverse effects on MSMEs, the trader body said the provision discriminates against MSMEs by granting medium-scale industries more flexibility in extending credit, thus causing MSMEs to lose market share. Traders also alleged that the amendment unfairly penalized small enterprises by restricting them from offering credit as per their discretion.

The petition also said large companies were cancelling their orders to MSMEs registered under the Micro, Small, and Medium Enterprises Development Act, 2006, and instead were placing them with un- registered ones as it gave them flexibility not to abide by the mandatory provisions and al- so allowed them to continue with a longer payment cycle of 90-120 days.

To ensure timely payments and address working capital shortages in the sector, the Finance Act 2023 introduced an amendment to the Income Tax Act by adding clause (h) to Section 43B. Accor ding to this clause, buyers purchasing goods from MSMEs are required to settle the outstanding amount within 45 days. Otherwise, they will not qualify for any tax deductions until the payment is made.

S-ET Image Source: Google

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