Is Factory License mandatory for MSME Sector?

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Factory License in IndiaBefore launching a business, each factory owner is required under the Factory Act, 1948 to register their premises with municipal authorities. A factory license is an authorization document issued by authorities to carry out manufacturing activity.
According to the Factories Act, of 1948, before registering a factory, a plant must receive clearance from the labor and employment department for its building plan. This statute also requires factory license registration and renewal to protect worker safety. In this article, we will be discussing Factory Licenses in India and Is Factory Licenses mandatory for MSME Sector?

Table of Content

Short Glimpse

A variety of relaxation has been offered to a number of organizations in India. The same is true for India’s MSME sector. The Factory Act, of 1945 requires factory owners to register their facilities with municipal authorities before starting a company. A Factory License is an official government document that authorizes manufacturing activity.
Before, we shall discuss Factory License in India and Is Factory License mandatory for MSME Sector? Let us first discuss the literal meaning of Factories.

Meaning of Factory

The term ‘factory’ applies to any area, including its surroundings—

  • In any sector where a manufacturing operation is being carried out with the use of electricity or is normally carried out, and where ten or more employees are working or have worked in the previous twelve months;
  • A factory license registration is necessary when the number of employees reaches 10 / 20 in a place where at least twenty people are employed or have been employed, on any given day during the previous year and where a manufacturing process is being carried out without the use of electricity or is regularly carried out in this manner.

Rules that the Factories must follow

The Government has established the regulations that must be obeyed by those factories which-

  • Possess consumer power and a minimum of 10 employees.
  • Have no power consumption and at least 20 employees.

Depending on the procedure, the factories are often classified into two subcategories:

  • Hazardous
  • Non-hazardous

 Advantages of Getting a Factory License

The major goal of acquiring a factory license is to make sure that the necessary safety precautions are taken to advance the health, safety, and welfare of the workers. Below are some advantages of obtaining a factory license.

Specific Provisions Are Made For Employees: The Act outlines the rules pertaining to young people and female employees, employee pay, work hours, and other aspects of the workplace.

Utilizes legal advantages: The factory owner is eligible to get the legal benefits that the government offers through various programs.

Improving Productivity: The productivity of the workforce is increased through proper implementation of the requirements and principles of the Factories Act, 1948.

Regulates a variety of Things: It aids in controlling a number of things, including:

  • Hours worked, 
  • Wages and payments, 
  • Leaves, and holidays
  • Recruitment of young people and women
  • The hiring and firing of employees,
  • Other terms of service or other rules pertaining to those who work in stores, businesses, public entertainment venues, etc.

Equality in Benefits: Every employee enjoys equal advantages when the Factories Act is properly followed.

Documents needed to apply for a Factory License

The following list contains the documents needed to get a factory license:

  • Form-1 (Particular of Room in The Factory)
  • A copy of the factory building plan, evidence of the applicant’s identity and address
  • A thorough list of each director
  • Resolutions from the Board, MOA, and AOA
  • Any partnership agreements
  • Account information
  • Expected beginning date of the work,
  • Payment stubs
  • Land titles
  • The agreement of all authorities
  • Specifications of the machinery Specifications of the hazardous and non-hazardous wastes
  • Information about the raw ingredients, the products themselves, and the finished goods, as well as a flowchart of the process.
  • Tax invoice.

How to Register for a Factory License in India?

The State government may oversee the licensing and registration requirements of the factories Act under Section 6 of the Act.

  • A factory description or business strategy must be filed with the relevant state government entity.
  • Any replacement or enlargement of machinery or plant that is in good operating order is free of charge.

The Indian government has established a straightforward procedure to obtain a Factory license. For hazardous factory licenses and non-hazardous factory licenses, the procedures differ. The following actions are required to get a factory license: 

  • Application filing.
  • submission of documentation
  • Paying the required fees.
  • Getting your license

Prior to applying, the applicant must get the appropriate authorities’ approval of the manufacturing plant. The applicant can begin the process of getting a factory license after receiving this permission.

The following steps could be followed for registering the License in India:

Step: 1: Plan Submission: The plan must be presented in accordance with the state government’s regulations. The State Government or Chief Reviewer must first provide their approval before any industrial facility may be expanded or built.

Step: 2: Owner Details: The owner is obliged to furnish the following information:

  • Type of Manufacturing Process
  • Number of personnel

The factory’s name and who owns it:

  • Factory’s address
  • The manager’s name
  • Information on the machinery used

Step: 3: Application filing: The application for approval must be filed in Form -1 and must include all essential supporting documentation that has been officially signed.

Step: 4: Fee payments: Once the application has received approval, the licensing cost must be paid.

Step: 5: License is issued: The license is issued by the Department upon payment of fees and inspection, provided that the Department is satisfied that all papers and the application form comply with the required regulations and norms.

Meaning of MSME

The term “MSME” refers to very small, small, and medium-sized companies. With the passage of MSMED, the Indian government officially recognized micro, small, and medium-sized companies (MSME) (the MSMED Act, 2006). MSMEs are companies that process, manufacture, and store goods and commodities, according to the legislation’s definition.

Advantages of registering for MSME

The advantages of MSME registration are as follows:

  • Government expenses for trademark and patent registration are reimbursed Collateral-free business loans
  • Utilizing the Overdraft Facilities is simple.
  • Protection from sluggish payments
  • Payment for ISO Certification Costs
  • Electricity Bill Subsidy

MSME Registration and Its Importance

In developing nations like India, micro, small, and medium-sized companies (MSME) are the backbone of the economy. Or to put it another way, as these companies grow, the economy of the nation prospers. The MSME Act, 2006 permits registration regardless of whether the firm is in the manufacturing or service sectors. Given the significance of MSMEs to India’s economy, the government offers a number of perks to support MSME enterprises through MSME Registration.

You may get all the services you need from Legal Window under one roof, together with all the registration you need and guidance for additional compliances. For MSME Registration, contact our staff at 072407-51000 or by email at admin@legalwindow.in.

Is Factory License mandatory for the MSME sector?

According to Notification No. 412 from the Ministry of Industry [Department of Industrial Development] dated July 25, 1991, the small-scale industry is not required to get a license to produce schedule III items (Industry in which investment in plant & Machinery does not exceed three crore rupees). The list of pertinent items is provided below.

A license is not required for any item that is compulsorily licensable and is reserved for exclusive manufacture in the small-scale sector, even if the number of employees is greater than 50/100 with/without the aid of power, according to a notification dated 4(1)/92-SSI issued by the Ministry of Industry [Department of Industrial Development].

Following are the items on the list that are reserved for small-scale industries and mentioned in the aforementioned paragraph but do not require a factory license:

  • 319911 Writing inks and fountain pen inks 
  • 387101 Ballpoint pens 
  • 387103 Fountain pens 
  • 387104 Pen nibs 
  • 387105 Fountain pens and ball pens components excluding metallic tips 387201 Pencils 
  • 387401 Hand stapling machine 
  • 387501 Paper pins 
  • 387601 Carbon paper 
  • 38760210 Typewriter ribbon for mechanical typewriters 
  • 387901 Hand numbering machines 
  • 387903 Pencil sharpeners 
  • 387907 Pen holders. 
  • 303843 Pencil boxes 
  • 324902 Chalk crayons including tailor’s chalk
  • 260103 Cotton socks 
  • 260203 Woollen socks 
  • 260310 Synthetic knitted socks 
  • 301201 shoes
  • 291101 leather shoes 
  • 30392801 Bags

An important point to be kept in Mind

According to the aforementioned notification, a small-scale industry is defined as an industrial undertaking where the investment in fixed assets in plant and machinery, whether held on ownership terms, on a lease, or on hire purchase, does not exceed Rs. 3 crores. An ancillary industrial undertaking is defined as an industrial undertaking that is engaged or is proposed to be engaged in the manufacturing or production of parts components, sub-assemblies, and tooling for intermediate products.

To one or more other industrial operations, depending on the situation, whose investment in fixed assets in equipment and machinery, whether held on ownership terms, on a lease, or on hire purchase, does not exceed approximately three cores.

Impact of Factory License not Mandatory for MSME Sector

Multiple industrial sectors now have fewer licensing requirements, which makes doing business easier. The government has declared that no license would be required for the production of commodities, with the exception of industrial explosives, tobacco products, defense equipment, hazardous chemicals, and equipment used in the military.

The modification is projected to considerably help micro, small, and medium-sized enterprises (MSMEs) by removing the requirement for them to apply for permits in order to manufacture smaller items.

Additionally, MSME Businesses may register as MSMEs and profit from a number of things.

MSME Registration in JaipurTakeaway

The MSME sector in India makes a hidden contribution to the national economy and acts as a safety net against shocks and adversities in the global economy. We may thus contend that India is advancing toward a robust global economy through a silent revolution powered by MSMEs.

Neelansh Gupta is a dedicated Lawyer and professional having flair for reading & writing to keep himself updated with the latest economical developments. In a short span of 2 years as a professional he has worked on projects related to Drafting, IPR & Corporate laws which have given him diversity in work and a chance to blend his subject knowledge with its real time implementation, thus enhancing his skills.

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