Traders challenge Section 43B(h) Income Tax Act before Supreme Court against MSME Delayed Payment Clause [Read Order]

The Federation of All India Vyapar Mandal has filed a petition in the Supreme Court challenging Section 43B(h) of the Income Tax Act. This new provision, introduced under the Finance Act 2022, imposes restrictions on Micro and Small Enterprises ( MSEs ) regarding extending credit to buyers beyond 45 days. Violating this limit subjects buyers to tax penalties and compound interest charges set at three times the Reserve Bank of India‘s notified bank rates.

Jayendra Tanna, the national president of the federation, criticized this provision, stating that it unfairly burdens MSEs by enforcing a strict 45-day credit limit without addressing prompt payment regulations for pending dues owed to these MSE suppliers. He emphasized that this provision creates a disparity among manufacturers in extending credit, favoring medium-scale industries over MSEs. Tanna argued that Section 43(B)(h) discriminates against MSEs by granting medium-scale industries more flexibility in extending credit, potentially causing MSEs to lose market share.

He further contended that this provision infringes upon the fundamental rights of MSEs to conduct business and grant credit as per their discretion. The petition filed by the federation challenges the constitutionality of Section 43B(H), citing its negative impact on the business community, particularly Gujarat-based textile, chemical, and engineering units. Several industry associations have also voiced similar concerns to the Centre, urging a reconsideration of the provision due to its adverse effects on MSEs.

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