The Federation of All India Vyapar Mandal has filed a petition in the Supreme Court against Section 43B(H) of the Income Tax Act. The same newly introduced provision, part of the Finance Act 2022, limits Micro and Small Enterprises (MSEs) from extending credit to buyers beyond 45 days. Any buyer surpassing the same limit encounters tax penalties and compound interest charges at 3 times the bank rates notified by the Reserve Bank of India.
As per Jayendra Tanna, the national president of the federation, the same provision places an undue load on MSEs, causing them to comply with the 45-day credit limit while proposing no statutes for the prompt payment of pending dues to such MSE suppliers.
He cited, that the new provision introduced makes the classification among the manufacturers towards the credit extension to the buyers. He stated that “On micro, small, and medium enterprises all over India, the Centre has made a classification between manufacturers who can provide the credit to buyers only for 45 days and manufacturers who can furnish the credit to buyers for more than 45 days or for an unlimited time.”
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Also, it has been added that the provision discriminates against the MSEs by favouring the medium-scale industries which suffer no limitation on extension of credit. The same sort of discrimination may provoke small-scale industries to lose market share to their medium-scale counterparts.
Section 43(B)(h) violates the fundamental rights of MSEs to conduct business on their terms and grant credit as they consider fit, Tanna argues.
The federation that filed the petition challenges the constitutionality of this section, quoting its harmful impact on the whole business community, specifically Gujarat-based textile, chemical, and engineering units.
These concerns have been raised by various industry associations before the Centre, underscoring the adverse effects of the provision on MSEs and advising for its reconsideration.
