Supreme Court dismisses MSME plea against 45-day credit extension rule

NEW DELHI : The Supreme Court on Monday declined to hear a challenge by micro, small and medium enterprises (MSMEs) against Section 43B(h) of the Income Tax Act rule that restricts them from extending credit to buyers beyond 45 days.

The rule aims to regulate credit practices in the MSME sector and ensure timely payments to address working capital issues these businesses often face. Under the provision, if an MSME registered under the MSMED Act of 2006 allows a credit period of over 45 days to a buyer when selling goods or services, it faces penalties. 

Some MSME groups had petitioned the Supreme Court, arguing the rule could lead larger buyers to avoid registered small suppliers and instead purchase from unregistered enterprises to bypass the 45-day limit. However, the Supreme Court declined to admit the petition challenging Section 43B(h), keeping the tax provision in force.

The government has aimed the 45-day credit limit at improving MSME working capital by discouraging delays in payments from buyers. But some businesses argue it is an excessive regulatory restrictions.