1. Industries(Development and Regulation)Act, 1951.

          The conceptual and legal framework for small scale and ancillary industrial undertakings is derived from the IDR Act, 1951. Section 11B of the Act specifies the general requirements that are to be complied with by small scale units. The Section is quoted below:-

          The earliest definition of small scale industries was made in 1950. At that time, in addition to a limit on investment in fixed assets, there was also an employment stipulation. The employment condition was deleted in 1960. In 1966, the limit on investment in fixed assets was changed to a limit on investment in plant and machinery(original value ) only. The Table below indicatates the historical evolution of the definition of small and ancillary units.

TABLE

          For ancillary industries an additional condition is that the unit must supply or render not less than fifty per cent of its production of services to other industrial units. In April, 1991 a third category of unit, viz., Export orineted unit has also been introduced(Reference No. S. O. 232(E) dt. 2^nd April, 1991).

          Tiny enterprises were first defined in 1997 as one with an investment in plant and machinery upto Rs. One lac and located in rural areas of in urban areas with population of less than 0.50 lac as par the 1971 Census. The limit was enhanced to Rs. 2 lacs in 1980. In 1991, the locational restriction employed in defining tiny enterprise was dispensed with. Now all units with investment in plant and machinery upto Rs. 25 lacs, irrespective of location, are categorised as tiny enterprises.

           Service oriented enterprises were recognized as Small Scale Service Estabilishments(SSSE) from 1982 onwards. These included identified service related enterprises withan investment in fixed assets, excluding land and building, upto Rs. 2 lacs provided they were located in rural areas of in towns with a population upto 5 lacs. This category was reorganised in 1991 as industry related Small Scale Service and Business and Enterprises(SSSBE’s) including units with investment in fixed assets, excluding land and building, upto Rs. 5 lacs and irrespective of location. SSSBE’s are entitled to all the incentives and facilities that are available to small scale units.

This limit has been enhanced to Rs. 10 lacs in 2000.

           Under the IDR Act, specified scheduled industries may be notified making it incumbent for such industries to obtain a licence from the Government of India to carry out the manufacturing activity. The industry sector in general has been substantially de-licensed with the issue of Notification No. S. O. 477(E) Dt. 25.7.91 and subsequent changes thereafter.

           In the small scale sector there are virtually no licensing restrictions. A Small Scale Unite, within the meaning of the Act, does not require any licence to manufacture any item which is

1. Exclusively reserved for production in the small scale sector(Schedule-III of the Notification No. 477(E) dt. 25.7.91).

2. Not included in either Schedule-I or Schedule-II of the above mentioned Notification.

           This, a small scale unit will require an industrial licence from the Government of India only if it undertakes to manufacture an item included in Schedule-II of the above stated Notification. But if a small scale unit employs less than 50/100 workers with of without power (in one or more factories ) then it would not require a licence from the government of India even for items included in Schedule-II of the Notification .

           Subject to the above, an entrepreneur can set up a small scale unit anywhere in the country without any restriction. The units are, of course, Subject to the locational restrictions in force under land use laws.

           The policy of reservation was first initiated in 1967. Under the policy, certain items have been exclusively reserved for manufacture in the small-scale sector. The objective in to protect small units engaged in the manufacturing of such items from unequal competition with medium and large scale units. In 1967, 47 items were included in the list. Since then, there have been additions to and deletions from the list, including charges in nomenclature, after the introduction of NIC codes. At present 797 items are reserved for exclusive manufacture in the small scale sector.

           The policy of reservation was given statutory backing by an amendment in the IDR Act in 1984. Section 29B of the Industries Development and Regulation Act, 1951, deals with policy of reservation in the small scale sector. The relevant sections are quoted below:-

2A           In particular, and without prejudice to the generality of the provisions of sub section(1), the Central Government may, if it is satisfied. After considering the recommendations made to it by the Advisory Committee constituted under sub section(2B), that it is necessary so to do for the development and expansion of ancillary, of small scale industrial undertakings, by notified order, direct that any article of class of articles specified in the First Schedule shall, on and from such date as may be specified in the notified order (hereafter in this section referred to as the "date of reservation"), be reserved for exclusive production by the ancillary, or small scale industrial undertaking (hereafter in this section referred to as "reserved article").

2B           The Central Government shall, with a view to determining the nature of any article of class of articles of articles that may be reserved for production by the ancillary or small scale, industrial undertakings. Constitute an Advisory Committee consisting of such persons as have in the opinion of that Government, the necessary expertise to give advice on the matter.

2C           The Advisory Committee shall, after considering the following matters, communicate its recommendations to the Central Government namely:-

1. the nature of any article or class of articles which may be produced economically by the ancillary, or small scale, industrial undertakings;



2. the level of employment likely to be generated by the production of such article or class of articles by the ancillary, or small scale, industrial undertakings;

3. the possibility of encouraging and diffusing entrepreneurship in industry;

4. the prevention of concentration of economic power to the common detriment; and

5. such other matter as the advisory Committee may think fit.

2D           The production of any reserved article of class of reserved articles by any industrial undertaking (not being an ancillary, or small scale industrial undertaking) which, on the date of reservation, is engaged in, or has taken effective steps for the production of any reserved article or class of reserved articles, shall, after the commencement of the Industries (Development and Regulation) Amendment Act. 1984. Or as the case may be the date of reservation, whichever is later, be subject to such conditions as the Central Government may, by notified order, specify.

2E           While specifying any condition under sub-section(2D), the Central Government may take into consideration the level of production of any reserved article of class of reserved articles achieved, immediately before the date of reservation, by the industrial undertaking referred to in sub-section(2D), and such other factors may be relevant.

2F           Every person of authority, not being the central government, who of which, is registered under section 10 or to whom, or to which, a licence has been issued of permission has been granted under section 11 for the production of any article or class of articles which has, of have been subsequently reserved for the ancillary, or small scale, industrial undertakings, shall produce. Such registration certificate, licence or permission, as the case may be, within such period as the Central Government may, by notified order, specify in this behalf, and the Central Government may enter therein all or any of the conditions specified by it under sub-section(2D), including the productive capacity of the industrial undertakings and other prescribed particulars.

2G           The owner of every industrial undertaking (not being an ancillary, or small scale, industrial undertaking ) which, immediately before the commencement of the Industries (Development and Regulation) Amendment Act, 1984, or the date of reservation, whichever is later:-

1. was engaged in the production of any article or class of articles, which has or have, been reserved for the ancillary, or small scale, industrial undertaking, or

2. had before such commencement or before the date of such reservation, as the case may be, taken effective steps for commencing the production of such reserved article or class or class of reserved articles, without being registered under section 10 or in respect of which a licence or permission has not been issued under section 11, shall refrain from the production of such reserved article of class of reserved articles, on and from the date of expiry of three months from such commencement of from the date of such reservation, whichever is later.

2H           Every notified order made under sub-section(2A) shall be lied, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days, which may be comprised in one session or in two or more successive session aforesaid, both House agree in making any modification in the notified order of both Houses agree that the notified order should not be made, the notified order shall thereafter have effect only in such modified form or be of no effect, as the case may be; so. However that any such modification or annulment shall be without prejudice to the validity of anything previous done under that notified order.

           Medium or large scale units can be allowed to undertake manufacture of items reserved for exclusive production in the small scale sector, only if they undertake to export not less than 50% of their total production.

           Therefore, there can be only four situations in which medium of large units can manufacture items reserved for exclusive production in the small scale sector. These are:

1. When an item is reserved for the small-scale sector there may be existing medium or large industrial undertakings manufacturing that item. In such a case, these units are to obtain a ‘Carry on Business’ (COB) license to continue to manufacture such reserved item. The capacity in the COB license is however, pegged at the highest production level achieved by such a unit in the 3 years preceding the date of reservation of the item.

2. When existing small scale units manufacturing a reserved item graduate by their process of growth, into medium or large scale undertaking, then they have also to obtain a COB license to enable them to continue manufacturing of such reserved items. In such cases also their capacity is pegged with respect to the date on which it became incumbent on the unit to apply for and obtain a COB license.

3. Medium of large industrial units are allowed to take up manufacture of items reserved for the SSI, provided they undertake to export a minimum of 50% of their production.

4. Where an industrial license has already been issued to a medium or large unit undertaking to manufacture an item, prior to the date reservation of that item. Such units can manufacture the reserved item up to the capacity endorsed on the license.

          There is, however, no restriction on the marketing of products reserved for exclusive manufacture in the Small Scale Sector by large units or big companies.

           In most cases, it is easy to determine whether an industrial activity is eligible to be registered as SSI or not. But sometimes, doubts are raised in marginal cases or in cases where the said activity is "covered" by some other statutory agency, Board or body. A list of activities which were recognised as SSIs after clarifications is presented below for purpose of convenience. Therefore the list is, by no means a comprehensive list of all SSI’s.

1. "….In calculating the value of plant and machinery for the purposes of this Notification, the original price there of irrespective of whether the plant and machinery are new of second hand shall be taken into account.

2. In calculating the value of plant and machinery, the following shall be excluded, namely:-

1. The cost of equipments such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores.

2. The cost of installation of plant & machinery.

3. The cost of Research and Development (R & D) equipment and pollution control equipment.

4. The cost of generation sets, extra transformer, etc., installed by the undertaking as per the regulations of the State Electricity Board.

5. The bank charge and service charge paid to the National Small Industries Corporation or the State Small Industries Corporation.

6. The cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers/ miniature circuit breakers etc., which are necessarily to be used for providing electrical power to the plant and machinery/ safety measures.

7. The cost of gas producer plant.

8. Transportation charges (excluding of taxes e.g. Sales Tax, Excise etc.) for indigenous machinery from the place of manufacturing to the site of the factory.

9. Charges paid for technical know-how for erection of plant and machinery.

10. Costof cush storage tanks which store raw-materials finished products only and are not linked with the manufacturing process; and

11. Cost of fire fighting equipment.

3.            In the case of imported machinery, the following shall be included in calculating the value, namely:-

   1. Important duty (excluding miscellaneous expenses as transportation from the port to the site of the factory, demurrage paid at the port):

   2. The shipping charges;

   3. Customs clearance charges; and

   4. Sales tax.

1. Computation of original value of second hand imported machinery

The price of second- hand imported machinery will be computed as under:-

To determine the original price of second –hand import machinery, the original value of the said plant and machinery will be taken in foregin currency terms.

The value of foreign currency will be converted in to Rupees using the "current" exchange rate i.e. exchange rate prevalent at the time of i mport.

The import duty will be added on the basis of "current " rate of import duty i.e. the rate of import duty prevalent at the time of import.

(Ref. Dc(SSI) Circular 4(1) / 93-SSI Bd. Dated 27.8.93).

2. Exclusion of wind electric generator sets

"…it is clarified that as per entry at Note-2 b) (iv), the value of those items of plant and machinery will beexcluded while computing the investment limits for Small Scale Industries, which have been installed purely purely for purpose of generation of power using non-conventional sources of energy such as wind, solar energy, ocean waves, bio-gas etc."

(Ref. DC(SSI) Circular No. 4(1)/91-Bd. Dated, 24.1.94).

          The registration scheme for small scale industries was introduced in the early 1960s mainly to provide a Single Window Service to the small scale sector in availing incentives, facilities and other services offered by Central and State Governments for their promotion. Guideline were issued by the Development Commissioner (Small Scale Industries) in 1975 to introduce a uniform procedure for registration. Subsequent detailed guidelines were issued in 1989 that prescribed a coded Performa application form for both provisional as well as permanent registration. In 1992, further simplification and rationalisation has been carried our in the procedures for registration. New and simplified registration forms have been introduced for utilisation by State/UT Governments. The new forms have come in force from January 1994.

          The Registration Scheme does not have a statutory basis. It is not mandatory for a small scale unit to register itself. The units would normally get registered to avail the benefits. Incentives or support given either by State of Central Government.

          The objectives of the Scheme are:-

1. To enumerate and maintain a roll of small industries to which the package of incentives and support are targeted.

2. To provide a certificate enabling the units to avail the statutory and other benefits.

3. To serve the purpose of collection of statistics

4. To create nodal agencies at the Central, State and District levels to promote small scale indusries.

5. To provide Single Window Service to small scale industries.

          The district Industries Centres are the registering authorities. Therefore, any small scale unit can get itself registered in the district in which it is located. There are two types of registration;

1. In the pre-production stage, a provisional registration certificate is given. To obtain this, a unit has to apply for provisional registration.

2. Once the units comes into production, a permanent registration certificate is given to the unit upon application.

          The provisional Registration Certificate enables the unit to obtain various benefits equired in the pre-production stage:-

1. Obtaining term loans and working capital limits from Banks/ financial institutions under priority sector lending.

2. Facilities for accommodation, land and other statutory approvals of permissions.

3. Obtaining necessary NOCs and clearance from Regulatory Bodies such as Pollution Control Boards, Labour Regulation etc.

          The Permanent Registration Certificate enables a unit to get various incentives and concessions :-

1. Price and Purchase Preference.

2. Availability of raw material depending on existing policies.

3. Access to various schemes of Government of India for SSIs

4. Other incentives and concessions given by State Governments e.g. capital investment subsidies. Power subsidy interest subsidy, etc.).

          The registration certificate issued under the scheme is recognised by other authorities such as Banks. Pollution Control Deptt. Sales tax Deptt. Etc. The procedure to obtain either provisional or permanent registration is fairly easy. The application forms are simple. Help is extended by the DIC staff to fill up the forms. If there are no location restrictions, then, generally, the provisional registration certificate can be obtained from the registering authority within 24 hours. The permanent registration certificate is given within 30 days of application. The validity of the provisional registration certificate is for a period of 5 days or till the date of starting of production by the unit, whichever is earlier. The permanent registration certificate is issued in perpetuity subject to some conditions.

Dated 10.11.93

SUBJECT: -   Monitoring of export obligation of registered small scale export-oriented unites.

REFERENCE:-

          A new category of ‘Small Scale Industrial Undertakings was introduced in the notification of the Ministry of Industry, Deptt. of Industrial Development No. So. 232(E) dated 2^nd April, 1991 wherein it was defined that an Industrial undertaking with an investment in fixed assets in plant and machinery upto Rs. 75 lacs shall be registered as a small scale industrial undertaking provided the unit undertakes to export at least 30% of the annual production by the end of the 3^rd year from the date of its commencing production. Such units are generally known as export –oriented small scale industrial units. As you are aware, the investment limit in case of other small scale industrial undertaking is Rs. 60 lacs.

2. In the explanatory memorandum circulated vide Do letter No. 4/91-SSI-Bd. Dated 7.5.1991 it had been stated, inter-alia, that the monitoring of the export-obligation will be done by the office of the Chief Countroller of Imports & Exports.

3. The question of monitoring of the export obligation has been examined and reviewed carefully in this office. Upscaling of the investment limits for export oriented small scale units was done to give a boost to exports and to encourage small scale units to undertake exports competitively. Exports have now assumed critical importance in the national economy. Keeping these facts in mind, monitoring of export obligation becomes of importance. It has now been decided that the monitoring of the export obligation will be done by the administrative department and the authorities responsible for registation of such industrial undertakings. In other words, the monitoring of export obligation of so registered small scale industrial undertakings will be undertaken by the state Director of industries and, in particular, the General Managers of the District Industries Centres of whoever may be the designated authorities to register such units.

4. Hence, to give effect to this decision the following set of guidelines and clarigications are being issued for implementation and incorporation in the procedures for export oriented small scale industrial units :-

1. A small scale industrial undertaking with an investment limit in plant and machinery upto Rs. 75 lacs is registered as such if it undertakes to export at least 30% of the annual production by the end of the 3^rd year from the date of its commencing production. Such a unit may now be termed as an "Export Oriented Unit" (EOU).

Entry to his effect is made in the application from/ certificate of permanent registration in the space provideed for category / status of the unit. (Circular No. 5(1)/ 93-SSI Bd. & Polocy, dated 25.10.93)

2. Since such a unit is registered on the basis of the declared export obligation, the same will have to be incorporated in the affidavit submitted by the applicant alongwith the application form for permanent registration certificate as a necessary condition. Hence in the format for affidavit (Ref. Circular No. 5(1)/93-SSI.Bd. dated 25.10.93) an additional condition may be incroporated for EOUs after para 14 as follows:-

"That I/We undertake an export obligation as contained in Notification No. S.O. 232(E) dated 2.4.1991 and that this obligation is in perpetuity; and that I/We undertake to submit to the Director of Industries/Registering Authority all such returns and documents periodically as may b required and asked for in proof of fulfilling the said export obligation."

This condition should also be incorporated as Para 9 below the permanent registration certificate in the application forms.

CALCULATION OF YEAR FOR FULFILMENT OF OBLIGATION

3. Under the provision of the notification, the unit has to achieve 30% export obligation at the end of the third year from the date of its commencing production. For the purpose of monitoring, the financial year will be taken into account and the ‘relevant year’ is defined as follows:

RELEVEANT YEAR: It is reckoned as the financial year in which and beyond which (in perpetuity of till the unit is deregistered ) the unit will be under obligaion to export at least 30% of its production.

1. In case of existing units the relevant year is defined as the financial year during which the cut off date falls. Cut off date is defined as "date of endorsement plus three years." E.g. a unit already in production obtains endorsement on 5.4.1991. The cut off date is 5.4.1994. Relevant year is financial year 1994-95.

(Explanation: For units with investment limits less than 60 lacs, the word ‘endorsement’ be used. For units with investment limits between 60 and 75 lacs, the word ‘certificate’ be used.)

2. In case of new units the relevant year is defined as the financial year succeeding the year dyring which the cut off date falls. Cut off date is defined as "date of commencement of production plus 3 years", e.g. unit commences production on 5.4.91. The cut off date is 5.4.94. Relevant year is financial year 1995-96.

STATEMENT OF EXPORTS

4. Each such export-oriented unit shall be mandatorily required to furnish a yearly "Statement of Exports" in the prescribed format as given at Annexure – ‘A’. This statement shall be submitted by the concerned unit by the 30^th June every year pertaining to the performance details of the preceding year. Every unit shall be required to furnish this statement once it commences production irrespective of whether it has reached the "relevant year". This will enable the registering authority to monitor the growth of exports.

5. It is clarified that the export obligation of 30% has to be verified in totality and it is irrespective of whether the same exports have also been taken into account in respect of any other export obligation imposed on the unit. In other words, the registering authority need not concern himself with any other export obligation on the unit for the time being in force.

6. The calculation of 30% will be done in terms of current value of production and exports.

7. The registering authority shall maintain suitable records in this regard and the Director of Industries shall prescribe suitable procedures for monitoring of export obligation at their end. The registering authorities are required to ensure that the units are actually fulfilling their export obligation.

8. It shall be the responsibility of the registering authority to ensure that the export obligation are fulfilled by the units. If the units is not found to fulfil the export obligation at any time, steps will be immediately and necessarily taken to de-register the unit, or de-categories the unit as EDU, as the case may be. A copy of such orders of de-registration shall also be communicated to the office of DC(SSI).

In such cases of non-fulfillment of export obligation no other action need be taken except its deregistration or decategorisation of status as EOU. However, a unit once deregistered, should not be granted fresh registration as an export oriented unit.

9. Director of industries shall compile and keep the data in respect of export obligation and furnish to this office an annual statement in respect of the monitoring of export obligation in the proforma placed at Annexure ‘B’.

          It is requested that action as above may be initiated immediately. While the base guidelines have been indicated above, Director of industries may incorporate detailed guidelines and evolve detailed procedures to carry out the monitoring of the export obligation.

          This step is not intended as an over reaching policing device and adequate care needs to be taken to see that small industries are not put to undue hardship and made victims of unnecessary red tape. While it is necessary to monitor export obligation, it may be ensured that the regulatory procedure is not mechanical. Cases of breach of export obligation will need to be seen in the context of the overall export performance of the unit over a period of time. Simultaneously, States may take steps to nurture and promote such identified export oriented units.

STATEMENT OF EXPORTS

Date of Commencement of production:

Relevant year:

NOTE:

1. Average exchange rates may be taken to convert foreign exchange amount into Rupees.

STATEMENT ON MONITORING OF EXPORT OBLIGATION

STATE

YEAR ENDING

1. No. of export oriented units registered

2. Total production of units;

3. Total exports of units;

4. No. of units in the "less than 3 years" category:

5. No. of units to be monitored: