1
2A simple, fast and inexpensive compliance management tool designed for small and medium business
What Generally Constitutes Manufacturing?
Manufacturing is the value added production of merchandise for use or sale using labour and machines, tools, chemical and biological processing, or formulation. The term may refer to a range of human activity, from handicraft to high end technology.
What do judicial pronouncements say?The question that what comprises manufacturing process has been subject to many judicial examinations. Some of the activities listed below have been considered to be manufacturing processes.
• The work of composition in printing business • Cooking and preparing food in the kitchen of a hotel• Breaking up of boulders • Activities of electricians, pipe-line fitters, cleaners, watchmen, etc. engaged in a
water supply scheme.• Commercial establishment receiving the products in bulk and after unpacking
the products, pack them as per the need of the customer’s requirement.
3A simple, fast and inexpensive compliance management tool designed for small and medium business
Manufacturing Under Law
Statutory Definition Judicial Pronouncements
“Manufacturing process" under Section 2(k) of Factories Act, 1948 means any process for-
(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use sale, transport, delivery or disposal, or
(ii) pumping oil, water, sewage or any other substance;
(iii) generating, transforming or transmitting power; or
(iv) composing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;
(v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
(vi) preserving or storing any article in cold storage,
• Mohan Singh and Ors. v. The Chairman Railway Board and Ors. MANU/SC/0829/2015A
The definition of "manufacturing process" does not mandate that the manufacturing activities should be carried on in one building alone.
• Satnam Overseas Ltd. v. Commissioner. of Central Excise MANU/SC/0419/2015
Process of manufacture:
(i) Process would be treated as "manufacture" only if new product known to market came into existence with original product losing its original character.
(ii) Mere addition in value, after original product had undergone certain process, would not bring it within the definition of 'manufacture' unless its original identity also underwent transformation and it became a distinctive and new product.
(iii) Mere addition to addition would not make it different product if the primary and essential character of the product after addition still remained same. There has to be a transformation of the product into new commodity, commercially known as a distinct and separate commodity.
4A simple, fast and inexpensive compliance management tool designed for small and medium business
Compliances on the Basis
of Activity
Start of Operations
Ongoing Compliances
Shifting/Closure of Operations
• Registrations• Approvals• Permissions• Licenses• Consents
• Periodic Filings• Display Requirements• Maintenance of Registers and
Records• Maintenance of policy documents• Payment obligations
• Sending Notices• Notice of Closures• Full & Final
Settlements
Compliances on the Basis of Activity
5A simple, fast and inexpensive compliance management tool designed for small and medium business
Factors that Influence Compliance
IndustryLocations
Employee/ Workmen Strength
• Food• Pharmaceutical• Cement• Automobile• Machinery• Construction• Chemical• Oil and Gas
• Central Act and State Rules• State Act and State Rules
Factories Act read with State RulesContract Labour Act read with State RulesState Shops and Establishments Act and RulesState Labour Welfare Fund Act and Rules
• Contract Labour Act• Employees Provident
Fund Act• Employees State
Insurance Act• Compliances under
Factories Act
Compliances on the Basis of Other Aspects
6A simple, fast and inexpensive compliance management tool designed for small and medium business
Representative Sample for Law Applicability for Manufacturing Sector
Definitely Applicable May be Applicable
• Factories Act, 1948• Electricity Act, 2003• Industrial Disputes Act, 1947• Legal Metrology Act, 2009• The Air (Prevention And
Control Of Pollution) Act, 1981• The Water (Prevention And
Control Of Pollution) Act, 1974
• Boilers Act, 1923• Petroleum Act, 1934• Bureau of Indian Standards Act,
1983• Bio-medical Waste Management
Rules, 2016• E-waste (Management) Rules,
2016• Motor Vehicles Act, 1988
7A simple, fast and inexpensive compliance management tool designed for small and medium business
Statutory Mandate for ensuring sound compliance – Representative Examples
Some of the important statutory mandates you will find are as follows:
In addition to the above compliances a company has the following additional obligation to ensure that it is compliant under every applicable Statute : Companies Act, 2013 (Section 134(5)f) -“Directors needs to ensure that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such system were adequate and operating effectively”.
Factories Act, 1948 (Central Act read with State Rules)
Shops and Establishments (State Act read with State Rules)
Welfare statutes like Employees Provident Fund Act, 1952 (Central Act read with Central Rules)
Penalties
Has several compliances like Compulsory approval, licensing and registration of
factories, measures on health, safety and welfare, working hours, leaves etc.
Has compliances like registration requirements, working hours, opening and closing hours,
overtime, leaves etc.
Mandates Filing Declaration and Nomination Form, Preparing Contribution Cards, Filing
statement of contribution every month.
Under the Factories Act, it extends to and includes fine up to Rs. One Lakh and Imprisonment up to Two Years, whereas under the Employees Provident Fund Act, 1952 it extends to and includes fine up to Rs. Ten
Thousand and Imprisonment up to Three Years.
1 2
3 4
A simple, fast and inexpensive compliance management tool designed for small and medium business
Regulation of the employment and other conditions of service of employees employed in small factories.
• Seeks to consolidate 14 Labour Acts to establish a single labour law
• Exclusion of person performing administrative, supervisory or managerial functions
• Payment of wages before 7th of the succeeding month
• Electronic deposit of wages in the bank account of the worker
• Tracking of attendance and late coming
• Mandatory insurance for all workers
• Registers may be maintained in hard or soft form.
Small Factories (Regulation of Employment and Conditions of Services) Bill, 2014
8
9A simple, fast and inexpensive compliance management tool designed for small and medium business
Driven by Leadership
This is critical because otherwise there will be no prioritization and the entire effort will be lost
Does the company
wish to be compliant?
YES NO
Building positive reputation
Higher productivity incompany
Avoidance of Statutory hassles
Affects reputation
May adversely affectbusiness opportunities
Discourage investors
Exposing your business to unpredictability
• This has to be driven by the leadership because this is not something that will see immediate return like revenue from seller
• Compliance means long term return in terms of peace of mind • Compliance is a corporate culture that is built overtime.
10A simple, fast and inexpensive compliance management tool designed for small and medium business
Create effective Compliance Management System:
• Create appropriate structures reporting directly to the leadership or the Management/Board of Directors
• An effective compliance management system mitigates the adverse impacts on achieving objectives.
1
2
3
Gap Analysis:
• In case of an existing/ going concern if you already have a system in place to follow the compliances then you should do a gap analysis between laws you already follow and the laws that you need to follow.
• In case you do not have any system in place then you need to understand the nature of your business operation and identify the laws applicable.
Bespoke Compliance Landscaping :
• Identify the applicable Statutes that your company or organization has to comply with.
• Detect if any exemptions as notified by the Central or State Government is applicable to your unit or company, for example factories located at SEZs get tax exemptions.
Steps for end-to-end Compliance Management
11A simple, fast and inexpensive compliance management tool designed for small and medium business
Prevention of Sexual Harassment at workplace
Align company policies with the statutory compliances that are either existing or are identified as applicable
Waste Management policies
Maternity benefit
Leave policy
IT policy
Company Ethics
4
1
2
3
4
5
6
Steps for end-to-end Compliance Management
12A simple, fast and inexpensive compliance management tool designed for small and medium business
• Forms one of the most integral part of compliance management within a company.
• There should be a proper system in place to educate the employees about the organization’s compliance program and its policies and the way the company handles compliance management.
• Training has to be provided at every level of the company starting with the management to the employees through formal or informal staff meetings.
• Legal mandates should be explained to the employees properly so that they are aware of their obligations as well as the procedure to execute them.
• All the compliance activities need to be segregated and allocated department wise. For e.g., The Human Resource Management Department will take care of the Labour and Employment related Laws, the Finance Department will take care of the Fiscal Compliances, The Company Secretarial Department will manage the corporate compliances etc.
• The company should have an effective mechanism in place to review and keep a check on the compliance activities done by the personnel to whom it was allocated and the same should be done before the due date of the compliances arrive.
Training and education:
Allocation of Duties: 6
5
Steps for end-to-end Compliance Management
13A simple, fast and inexpensive compliance management tool designed for small and medium business
Plan out a compliance map for contingent events
Documentation and Preservation of Records
• All the compliance activity revolving around contingent events that is to be carried out in a particular year needs to be assessed beforehand.
• A review of whether the contingency has occurred has to be conducted as frequently as one apprehends the contingent event to occur.
• It is of utmost importance to keep a proper record of the filings done and registrations obtained along with all the documents relating to compliances.
• Law mandates every license, permits, registers, books of account be kept at a proper place in the office of the person concerned.
• Documents must be kept in order so that there are no hassles during inspector visits and preserved for the period as prescribed under the various laws.
7
8
14A simple, fast and inexpensive compliance management tool designed for small and medium business
• Periodical audits of all operating units.
• Discussions with the stakeholder on gaps observed.
• Correction of those gaps.
• Report generation to the top management/ board of directors.
A CoE can help by:
• Continuously monitoring and identifying non-compliance.
• Ensure these non-compliances do not recur by augmenting or creating new policies and procedures.
• Training and creating awareness across various teams on the processes being followed to ensure compliance.
Ongoing compliance monitoring:9
Having Centers of Excellence (CoE) 10
15A simple, fast and inexpensive compliance management tool designed for small and medium business
Fully-automated compliance
solution
SimpleQuick
Inexpensive
Comprehensive Compliance Checklist
CentralState
Municipal
For Small & Medium
Businesses
EfficiencyPenaltyAvoid
Surprises
Critical Compliances
across modules
HR Tax
CorporateEnvironment
Industry-specific
Hassle-free Updates &
Task Management
Email Reminders
Calendar ViewGenerate Reports
About Komplify
1 2 3 4 5
16A simple, fast and inexpensive compliance management tool designed for small and medium business
• Know the applicable critical compliances online
• Move up or drill down the applicable compliances by various variables
• Real-time compliance status of your organization
• Generate customized compliance reports
• Slice and dice reports basis your requirements
• Get online compliance certificates
• No complicated workflows
• Easy to allocate compliances through quick links, bulk allocation, etc.
• Get email alerts well before compliance date
• Get compliance alerts from your calendar
• Stay updated about regulatory amendments
Identify laws online
Easily manage compliances
Ahead-of-time alerts
Management by exception
How Komplify can help MSMEs ?
17A simple, fast and inexpensive compliance management tool designed for small and medium business