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Small
Scale Undertakings
Definition
of Small Scale Undertaking
An
industrial undertaking is defined as a small scale unit
if the investment in fixed assets in plant and machinery
does not exceed Rs. 10 million.
Registration
Small
scale units can get registered with the Directorate
of Industries/District Industries Centre in the State
Government concerned. Such units can manufacture any
item including those notified as exclusively reserved
for manufacture in the small scale sector.
Small
scale units are free from locational restrictions. However,
a small scale unit is not permitted more than 24 per
cent equity in its paid up capital from any industrial
undertaking either foreign or domestic.
Manufacture
of reserved items by non- small scale units
Manufacture
of items reserved for the small scale sector can also
be taken up by non-small scale units, if they apply
for and obtain an industrial license. In such cases,
it is mandatory for the non-small scale unit to undertake
an export obligation of 50 per cent. In addition, if
the equity holding from another company (including foreign
equity) exceeds 24 per cent, even if the investment
in plant and machinery in the unit does not exceed Rs.10
million, the unit loses its small scale status.
IEM/Industrial
License
An
IEM is required to be filed in such a case for de-licensed
industries, and an industrial license is to be obtained
in the case of items of manufacture covered under compulsory
licensing.
Carry
on Business (COB) License/Industrial License
A
small scale unit manufacturing small scale reserved
item(s), on exceeding the small scale investment ceiling
in plant and machinery by virtue of natural growth,
needs to apply for and obtain a Carry-on-Business (COB)
License. No export obligation is fixed on the capacity
for which the COB license is granted. However, if the
unit expands its capacity for the small scale reserved
item(s) further, it needs to apply for and obtain a
separate industrial license.
Where
a chemical or a bye-product recoverable through pollution
control measures is reserved for the small scale sector,
an application shall have to be made for grant of an
Industrial License for such reserved items which would
be considered for approval by the Government without
necessarily imposing the mandatory export obligation.
Foreign
Investment in Small Scale Sector
Under
the small scale sector policy, equity holding by other
units including foreign equity in a small scale undertaking
is permissible up to 24 per cent. However, there is
no bar on higher equity holding for foreign investment
if the unit is willing to give up its small scale status.
In case of foreign investment beyond 24 per cent in
a small scale unit which manufactures small scale reserved
item(s), an industrial license would need to be obtained.
Under
FEMA Regulation 5(1) Schedule 1, a company which is
a small scale industrial unit and which is not engaged
in any activity or in manufacture of items included
in Annexure A, may issue shares or convertible debentures
to a person referred to in paragraph 1 of the Schedule,
to the extent of 24% of its paid up capital:
Provided
that such a company may issue shares in excess of 24%
of its paid up capital if-
- it
has given up its small scale status;
- it
is not engaged or does not propose to engage in manufacture
of items reserved for small scale sector; and
- it
complies with the ceilings specified in Annexure B.
Procedure
for obtaining Carry on Business (COB) Licence
A
COB license is required when a small scale unit exceeds
the prescribed small scale limit of investment in plant
and machinery by way of natural growth and continues
to manufacture small scale reserved item(s).
Also,
if exemption from industrial licensing granted for any
item is withdrawn, the industrial undertakings who are
manufacturing such item(s) require COB license.
The
application for COB license should be submitted in prescribed
form "EE" to the S.I.A., Department of Industrial
Policy and Promotion, along with a crossed demand draft
of Rs.2500/- drawn in favour of the Pay & Accounts
Officer, Department of Industrial Development, Ministry
of Industry, payable at the State Bank of India, Nirman
Bhavan, New Delhi.
Submission
of Monthly Production Returns
In
the case of small scale industrial undertakings, the
monthly production return should be submitted to the
appropriate State Government or the Commissioner of
Industries and to the Department of Small Scale and
Agro & Rural Industries, Government of India along
with a copy to the Small Scale Industries Service Institute.
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