How is an SSI defined?

SME CHATROOM/ An SSI is defined in terms of investment and equity pattern

Ours is a private limited company, manufacturing items reserved for SSI units, and the shareholding pattern of our company is 50 per cent with an MSI unit (Ltd Company) and 50 per cent with an SSI unit (Pvt Ltd Company). Please advise if the ownership pattern contravenes any of the government guidelines so that our status as an SSI unit is not threatened.

An industrial undertaking can get registered as SSI if the investment in fixed assets in plant and machinery whether held on ownership terms, on lease or on hire purchase, does not exceed Rs 1 crore, subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking.

Where industrial undertakings are set up by companies under the Companies Act, 1956, an industrial undertaking shall be considered to be controlled by other industrial undertaking if the equity holding by other industrial undertaking in it exceeds 24 per cent of its total equity.

So, from the details that you have given, it appears that your unit does not meet the conditions for recognition as SSI because of the ownership pattern.

The revised criteria regarding ownership was introduced vide Notification S.O. 2(E) dated 1.1.1993 issued under the Industries (Development and Regulation) Act, 1951 and it comprehensively deals with various other possibilities of ownership or control also. The ministry of industries has issued circular No. 4(1)/92-SSI Bd. (4) dated May 17, 1993, clarifying various situations of control and ownership.

For more details on the definition of SSI as well as the legal framework, you may access the website of the Ministry of Industries i.e. ssi.nic.in.

In the October 21, 2005 issue, we have noticed that the Small and Medium Enterprises Rating Agency (SMERA) is doing rating process with an inaugural offer of Rs 7,500 plus taxes as fee for rating an SME. We want to do the rating of our company and also our firm. Please inform the detailed address and papers to be submitted for rating process

For getting SMERA rating, you can approach Small Industries Development Bank of India (SIDBI), SME Development Center, C-11, G-Block, Bandra-Kurla Complex, Bandra (E), Mumbai 400 051; Tel : 022 5553 1311; Fax : 022 5553 1312 ; Email : info@smera.in. You may also approach any of the SIDBI offices located at several cities in the country. The website sidbi.com gives the various SIDBI office addresses. mailto:info@smera.inmailto:info@smera.in

You may visit the website smera.in for more details. You can download the application form and get the details of documents to be submitted from the same website.

As per Regulation 10 of Special Economic Zones (Customs Procedures) Regulation notified vide Notification No.53/2003-Customs (NT) w.e.f.11.05.2004, the SEZ units can have following three options for procurement of goods from Domestic Tariff Area (DTA): -

1. Procurement of goods from DTA against filing of bill of export through the SEZ Customs and subjecting it to all the Customs procedures on par with physical exports out of India attracting export incentives like DEPB / Drawback / DFRC / Advance Licence etc.

2. Procurement of goods from DTA without payment of Central Excise duty against pre-authenticated domestic procurement certificate (filing of bill of export procedure will not be require in these cases and such supplies will not be entitled for export benefits like DEPB / Drawback / DFRC / Advance Licence etc.

3. Procurement of duty paid or nil duty goods from DTA against supplier's invoice without claiming Central Excise exemption or export benefits like DEPB / Drawback / DFRC / Advance Licence etc.

We would like to know whether the goods under para 1 above can be procured from DTA without payment of Value Added Tax (VAT) as such supplies are subject to filing of bill of exports and compliance of customs procures on par with physical exports out of India and export benefits like DEPB / Drawback / DFRC / Advance Licence etc. are also granted against such supplies.

As far as CST is concerned, the Finance Act, 2005 amended the sub-section (6) of Section 8 of Central Sales Tax Act, 1956 ; it now says that no tax under the CST Act shall be payable on supplies made to a SEZ developer or SEZ unit. For claiming the exemption, the 'Form 'I' procedure prescribed under Rule 11 of the Central Sales Tax (Registration and Turnover) Rules, 1957 will have to be followed. For text of the revised Rule 11 and the Form 'I', kindly refer to notification dated May 23, 2003.

Regarding VAT, let me only refer to the Maharashtra VAT Act, 2005. Provisions similar to Maharashtra VAT might be found in the VAT enactments in the other states, as well.

Section 8 (a) (ii) of the Maharashtra VAT Act, 2005, says that nothing in this Act or the rules or the notifications shall be deemed to impose or authorise the imposition of a tax or deduction of tax at source on any sale or purchase of any goods, where such sale or purchase takes place in the course of the import of goods into the territory of India or the export of the goods out of such territory.

The relevant part of the explanation to the said Section 8 says that principles specified in sections 3. 4 and 5 of the Central Sales Tax Act, 1956 will apply for determining whether a sale is in the course of import or export. The relevant Section 5 (1) of the CST Act, 1956 says that a sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of document of title to the goods after the goods have crossed the customs frontiers of India.

Section 2(ab) of the CST Act, 1956 defines "crossing the customs frontiers of India'' as crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities and the explanation adds that for the purposes of this clause, "custom station'' and "customs authorities" shall have the same meanings as in the Customs Act, 1962;

Reading all the above provisions together harmoniously, and considering the fact that SEZ entry and exit points have been notified as land customs stations under Section 7 and 8 of the Customs Act, 1962, a case may be made out to treat all sales from DTA to SEZ as sales in the course of export.

Trade Circular no. 33-T of 2005 (file no. VAT/ACT/VD-1) dated October 21, 2005, issued by the Maharashtra govt. deals with provisional and early refunds of VAT (under section 51 of the VAT Act and Rules 60 and 61 of the VAT Rules) claimed by dealer who is an exporter within the meaning of sub-section (1) of section 5 of the CST Act. I request you to be guided by the same as I can find no authority on the basis of which I can opine that you need not pay VAT on DTA sales to SEZ units.

This is the eighth column on SME-related queries. TNC Rajagopalan will answer questions from readers on SME-related issues pertaining on taxes, exim policies or registrations/reservations, etc. This will be a fortnightly column to be run every alternate Wednesday on the Accent page. Due to a technical glitch, the ID smequeries@business-standard.com was not receiving mails. The error has been rectified and readers can now send mails.