Guide to Entrepreneurs

2.1 The principle objective of the policy frame work for the industrial sector in Karnataka is to provide an enabling environment for the growth of industry. One of the key reform measures is to simplify the regulatory frame work so as to enable ease of doing business in the State.

2.2 In order to simplify the regulatory frame work and to remove procedural impediments at the entry and implementation level and also to reduce maintenance and submission of repetitive documents during the operational level several reform measures have been introduced by the State Government. To provide a legal frame work for the deregulation measures Karnataka has enacted a facilitating Act, namely, the Karnataka Industries (Facilitation) Act, 2002 and the relevant Rules called the Karnataka Industries (Facilitation) Rules, 2003.

Following are the salient features of this Act:

Now starting a venture in Karnataka is more easy. General procedures to be followed by the investors are indicated below:

2.3 Definitions

As per the Micro, Small and Medium Enterprises Development Act, 2006, industries are classified as follows:

a. In the case of the Enterprises engaged in the manufacture or production goods

b. In the case of the Enterprises engaged in providing or rendering of services

In calculating the investment in plant & machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification shall be excluded.

c. Large Industries

An industrial unit which is not classified as Micro, Small and Medium Scale are classified as Large Scale Industry.

d. 100% Export Oriented Units / Export Oriented Units:

A 100% Export Oriented Unit is one which undertakes to export its entire production of goods, subject to relaxation, as permitted by the Govt. of India from time to time. Such units may be set up either under the Export Oriented Units or under EPIP [ Export Promotion Industrial Park] Scheme or under the EHTP [ Electronic Hardware Technology Park ] Scheme or Software Technology Park Scheme or in the Special Economic Zone.

e. Mega projects:

Projects with an investment of Rs.100 crore and above.

2.4 The Industrial policy reforms of Government of India since 1991, have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment. All industrial undertakings are exempt from obtaining an industrial license to manufacture, except the following four categories:

(1) Industries reserved for the Public Sector

(2) Industries retained under compulsory licensing, viz.,

(3) If the items of manufacture are reserved for the small scale sector:

At present, only 35 items are reserved for manufacture in the Micro and small scale sector. Items reserved for SSI are allowed to be manufactured by large and medium scale industries, subject to the condition that they export at least 50% of the production, and

(4) locational Policy

No industrial approval is required from Government of India for locations not falling within 25 kms of the periphery of cities having population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries can be located within 25 kms of the periphery of the cities with more than one million population.

2.5 The application for Industrial Licence (in Form FC-IL) has to be submitted to the Secretariat for Industrial Assistances (SIA), Department of Industrial Policy and Promotion, Ministry of Industry, Udyog Bhavan, New Delhi - 110 001, through the Joint Director (ID), Department of Industries and Commerce, Bangalore. Part ‘A’ of the Form is only for Foreign Collaboration, Part ‘B’ only for Industrial Licence and both Part ‘A’ and Part ‘B’ for FC +IL. If the products proposed involve items reserved for SSI, a Letter of Intent (LoI) will be issued at the first instance, which will be converted to industrial Licence after the unit executes Legal Undertaking regarding 50% export obligation with the Director General of Foreign Trade (DGFT).

(Application Form FC-IL is available with Karnataka Udyog Mitra and can also be downloaded from the Website of the SIA (http:// http://www.dipp.nic.in). Nine Sets of Application in form FC-II are required to be submitted along with fees of Rs.2,500/- drawn in favour of the "Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhavan, New Delhi.

2.6 Other than compulsory licensable items

(A) Industrial Entrepreneur Memorandum (IEM)

(B) Carry on Business (COB) Licence

COB licence is required when an SSI exceeds the investment in plant and machinery, prescribed for SSI, by way of natural growth and continues to manufacture small scale reserved item(s). Also, if exemption from industrial licensing granted for any item is withdrawn, the industrial undertakings manufacturing such items (s) require COB license. For COB licence, form EE is to submitted in six sets to SIA, Department of Industrial Policy and Promotion, along with a crossed demand draft of Rs.2,500/- drawn in favour of the Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry, payable at the State Bank of India, Nirman Bhavan, New Delhi.

2.7 As per the Section-8 of the Micro, Small and Medium Enterprises Development Act, 2006, any person establishing micro, small or medium enterprises need to file an Entrepreneurs’ Memorandum (EM) in the Form prescribed - Schedule-I vide Notification No. SO 1643 (E),dtd. 30.9.2006.

The EM, in four copies, are to be filed with Joint Director of respective District Industries Centre. As per the MSMED Act, filing EM is optional for micro & small enterprises (both manufacturing and services) and also for medium enterprises engaged in services. Incase of medium enterprise engaged in manufacturing, the filing of Entrepreneurs’ Memorandum is compulsory.

Part – I of the Entrepreneurs’ Memorandum is for expressing the intent of setting up an enterprise and Part –II to be filed after commencement of production / activities.

D. Registration of IT & BT Projects

2.8 In case of IT / BT projects, initial clearance / approvals from SLSWCC / SHLCC need to be obtained. Once the clearances are obtained, the Karnataka Information Technology and Bio technology Services (K-BITS) will issue an Approval Certificate based on which the industry may be setup. After setting up the industry, the Company should be registered with the Directorate of IT & BT (DIT). Once the Company is registered with DIT, a certificate will be issued for availing eligible concessions and incentives. (For more details visit:www.bangaloreitbt.in )

2.9 The District Level Single Window Clearance Committees generally known as DLSWCC were constituted as per Sec.9 of The Karnataka Industries (Facilitation) Act, 2002 and are functioning under the Chairmanship of the respective Deputy Commissioners and this DLSWCC is monitoring the approval and implementation of industrial projects with investment of less than Rs.3 crore each at the district level.

2.10 The State Level Single Window Clearance Committee (SLSWCC), was constituted as per Sec. 6 of The Karnataka Industries (Facilitation) Act, 2002 to consider and accord approval for the projects with investment more than Rs.3.00 crores and upto Rs.50.00 crores each. The approval given by the committee shall be binding on other concerned departments / authorities and such departments / authorities will issue required clearances within the prescribed time limit.

2.11 Heads of major departments and agencies concerned with industries are represented in this committee. The Principal Secretary to Government, C&I department is the Chairman of SLSWCC and KUM is providing the secretarial services to the Committee. Managing Director, Karnataka Udyog Mitra, is the Member Convenor of SLSWCC.

2.12 KUM will circulate the filled-in Application Form received from the investors, well in advance to the members of SLSWCC. Investors will be invited for the meeting in order to seek any clarifications, if required. Once the project proposal is approved by the SLSWCC, the investor will be intimated accordingly. The meeting of SLSWCC takes place generally once in a month (on the third Monday) and the application submitted to KUM before 15 days of the meeting will be placed in the ensuing meeting. At this stage, KUM will give a Combined Application Form (CAF) enabling the investors to obtain required clearances/approvals and coordinate such clearances from various departments/authorities.

2.13 The State High Level Clearance Committee [SHLCC] was constituted by the Government as per Sec. 3 of the Karnataka Industries (Facilitation) Act, 2002, to examine and accord approval for the projects, where the investment is in excess of Rs.500 million each. The SHLCC is chaired by the Chief Minister of Karnataka with the concerned Ministers / Officers as members. The committee has representatives from all the departments / authorities concerned.

Guide To Entrepreneurs
Part II Deregulation of Business Environment 2.1 The principle objective of the policy frame work for the industrial sector in Karnataka is to provide an enabling environment for the growth of industry. One of the key reform measures is to simplify the regulatory frame work so as to enable ease of doing business in the State. 2.2 In order to simplify the regulatory frame work and to remove procedural impediments at the entry and implementation level and also to reduce maintenance and submission of repetitive documents during the operational level several reform measures have been introduced by the State Government. To provide a legal frame work for the deregulation measures Karnataka has enacted a facilitating Act, namely, the Karnataka Industries (Facilitation) Act, 2002 and the relevant Rules called the Karnataka Industries (Facilitation) Rules, 2003. Following are the salient features of this Act: Constitution of single point clearance committees for facilitating new investments, viz: State High Level Clearance Committee, under the Chairmanship of the Chief Minister to consider and clear projects with an investment of Rs 50 crore and above. State Level Single Window Clearance Committee under the Chairmanship of the Principal Secretary to Government, C&I Department to consider and clear the projects with investment of more than Rs 3 crore and less than Rs 50 crore. District Level Single Window Clearance Committees under the Chairmanship of respective Deputy Commissioners to consider projects with investment upto Rs three crore. Karnataka Udyog Mitra has been appointed the Nodal Agency at State level and District Industries Centres at the District level to undertake investment promotional activities. Introduction of Combined Application Form (CAF) in order to reduce the number and duplication of application forms required to be filed at entry level. Introduction of Self Certification by the entrepreneurs, which shall be accepted by the departments and authorities for purpose of issuing clearance and granting benefits to the entrepreneurs. Rationalization of inspections to be undertaken by different levels of authorities under the provisions of applicable Acts to reduce the Inspector Raj. Further, inspections from the office of the Labour Commissioner, Directorate of Factories & Boilers, KSPCB, ESIC and EPF are to be conducted jointly, based on random selection of units. Provision of deemed approval, in case any department / authority fails to issue clearance, within the stipulated time limit, enabling the entrepreneurs to go ahead with their project as envisaged. Now starting a venture in Karnataka is more easy. General procedures to be followed by the investors are indicated below: 2.3 Definitions As per the Micro, Small and Medium Enterprises Development Act, 2006, industries are classified as follows: a. In the case of the Enterprises engaged in the manufacture or production goods Micro Enterprise – where the investment in plant and machinery does not exceed Rs. 25 lakhs. Small Enterprise – where the investment in plant and machinery is more than Rs.25 lakhs but does not exceed Rs. 500 lakhs. Medium Enterprise – where the investment in plant and machinery is more than Rs.500 lakhs but does not exceed Rs. 1000 lakhs. b. In the case of the Enterprises engaged in providing or rendering of services Micro Enterprise – where the investment in equipment does not exceed Rs. 10 lakhs. Small Enterprise – where the investment in equipment is more than Rs.10 lakhs but does not exceed Rs. 200 lakhs. Medium Enterprise – where the investment in equipment is more than Rs.200 lakhs but does not exceed Rs. 500 lakhs. In calculating the investment in plant & machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification shall be excluded. Top c. Large Industries An industrial unit which is not classified as Micro, Small and Medium Scale are classified as Large Scale Industry. d. 100% Export Oriented Units / Export Oriented Units: A 100% Export Oriented Unit is one which undertakes to export its entire production of goods, subject to relaxation, as permitted by the Govt. of India from time to time. Such units may be set up either under the Export Oriented Units or under EPIP [ Export Promotion Industrial Park] Scheme or under the EHTP [ Electronic Hardware Technology Park ] Scheme or Software Technology Park Scheme or in the Special Economic Zone. e. Mega projects: Projects with an investment of Rs.100 crore and above. Top B. Licensing from Govt. of India 2.4 The Industrial policy reforms of Government of India since 1991, have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment. All industrial undertakings are exempt from obtaining an industrial license to manufacture, except the following four categories: (1) Industries reserved for the Public Sector Atomic Energy Railway transport (2) Industries retained under compulsory licensing, viz., Distillation and brewing of alcoholic drinks. Cigars and cigarettes of tobacco and manufactured tobacco substitutes. Electronic aerospace and defence equipments: all types. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches. Hazardous chemicals Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994). (3) If the items of manufacture are reserved for the small scale sector: At present, only 35 items are reserved for manufacture in the Micro and small scale sector. Items reserved for SSI are allowed to be manufactured by large and medium scale industries, subject to the condition that they export at least 50% of the production, and (4) locational Policy No industrial approval is required from Government of India for locations not falling within 25 kms of the periphery of cities having population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries can be located within 25 kms of the periphery of the cities with more than one million population. 2.5 The application for Industrial Licence (in Form FC-IL) has to be submitted to the Secretariat for Industrial Assistances (SIA), Department of Industrial Policy and Promotion, Ministry of Industry, Udyog Bhavan, New Delhi - 110 001, through the Joint Director (ID), Department of Industries and Commerce, Bangalore. Part ‘A’ of the Form is only for Foreign Collaboration, Part ‘B’ only for Industrial Licence and both Part ‘A’ and Part ‘B’ for FC +IL. If the products proposed involve items reserved for SSI, a Letter of Intent (LoI) will be issued at the first instance, which will be converted to industrial Licence after the unit executes Legal Undertaking regarding 50% export obligation with the Director General of Foreign Trade (DGFT). (Application Form FC-IL is available with Karnataka Udyog Mitra and can also be downloaded from the Website of the SIA (http:// http://www.dipp.nic.in). Nine Sets of Application in form FC-II are required to be submitted along with fees of Rs.2,500/- drawn in favour of the "Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at the State Bank of India, Nirman Bhavan, New Delhi. 2.6 Other than compulsory licensable items (A) Industrial Entrepreneur Memorandum (IEM) All industrial undertakings (in the medium and large scale sector) exempt from the requirements of industrial licensing, including existing units undertaking substantial expansion, need to file information in the prescribed Form IEM, in six sets with crossed D.D. for Rs.1000/- drawn in favour of "The Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry", payable at State Bank of India, Nirman Bhavan, New Delhi, to the SIA or through Karnataka Udyog Mitra. Part "B" of the Memorandum is to be filed in six copies, with the SIA, while commencing commercial production (no fee is required). (B) Carry on Business (COB) Licence COB licence is required when an SSI exceeds the investment in plant and machinery, prescribed for SSI, by way of natural growth and continues to manufacture small scale reserved item(s). Also, if exemption from industrial licensing granted for any item is withdrawn, the industrial undertakings manufacturing such items (s) require COB license. For COB licence, form EE is to submitted in six sets to SIA, Department of Industrial Policy and Promotion, along with a crossed demand draft of Rs.2,500/- drawn in favour of the Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry, payable at the State Bank of India, Nirman Bhavan, New Delhi. Top C. Registration with State Directorate of I&C. 2.7 As per the Section-8 of the Micro, Small and Medium Enterprises Development Act, 2006, any person establishing micro, small or medium enterprises need to file an Entrepreneurs’ Memorandum (EM) in the Form prescribed - Schedule-I vide Notification No. SO 1643 (E),dtd. 30.9.2006. The EM, in four copies, are to be filed with Joint Director of respective District Industries Centre. As per the MSMED Act, filing EM is optional for micro & small enterprises (both manufacturing and services) and also for medium enterprises engaged in services. Incase of medium enterprise engaged in manufacturing, the filing of Entrepreneurs’ Memorandum is compulsory. Part – I of the Entrepreneurs’ Memorandum is for expressing the intent of setting up an enterprise and Part –II to be filed after commencement of production / activities. D. Registration of IT & BT Projects 2.8 In case of IT / BT projects, initial clearance / approvals from SLSWCC / SHLCC need to be obtained. Once the clearances are obtained, the Karnataka Information Technology and Bio technology Services (K-BITS) will issue an Approval Certificate based on which the industry may be setup. After setting up the industry, the Company should be registered with the Directorate of IT & BT (DIT). Once the Company is registered with DIT, a certificate will be issued for availing eligible concessions and incentives. (For more details visit:www.bangaloreitbt.in ) E. DLSWCCs and SLSWCC 2.9 The District Level Single Window Clearance Committees generally known as DLSWCC were constituted as per Sec.9 of The Karnataka Industries (Facilitation) Act, 2002 and are functioning under the Chairmanship of the respective Deputy Commissioners and this DLSWCC is monitoring the approval and implementation of industrial projects with investment of less than Rs.3 crore each at the district level. 2.10 The State Level Single Window Clearance Committee (SLSWCC), was constituted as per Sec. 6 of The Karnataka Industries (Facilitation) Act, 2002 to consider and accord approval for the projects with investment more than Rs.3.00 crores and upto Rs.50.00 crores each. The approval given by the committee shall be binding on other concerned departments / authorities and such departments / authorities will issue required clearances within the prescribed time limit. 2.11 Heads of major departments and agencies concerned with industries are represented in this committee. The Principal Secretary to Government, C&I department is the Chairman of SLSWCC and KUM is providing the secretarial services to the Committee. Managing Director, Karnataka Udyog Mitra, is the Member Convenor of SLSWCC. 2.12 KUM will circulate the filled-in Application Form received from the investors, well in advance to the members of SLSWCC. Investors will be invited for the meeting in order to seek any clarifications, if required. Once the project proposal is approved by the SLSWCC, the investor will be intimated accordingly. The meeting of SLSWCC takes place generally once in a month (on the third Monday) and the application submitted to KUM before 15 days of the meeting will be placed in the ensuing meeting. At this stage, KUM will give a Combined Application Form (CAF) enabling the investors to obtain required clearances/approvals and coordinate such clearances from various departments/authorities. F. State High Level Clearance Committee 2.13 The State High Level Clearance Committee [SHLCC] was constituted by the Government as per Sec. 3 of the Karnataka Industries (Facilitation) Act, 2002, to examine and accord approval for the projects, where the investment is in excess of Rs.500 million each. The SHLCC is chaired by the Chief Minister of Karnataka with the concerned Ministers / Officers as members. The committee has representatives from all the departments / authorities concerned. ************ Top
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