Starting a manufacturing facility in India requires compliance with several regulations to ensure the safety and welfare of workers. One of the crucial requirements is obtaining a factory license as per the Factories Act 1948. This authorization document is mandatory for any facility where ten or more workers are involved in a manufacturing process with the aid of power or at least twenty workers are involved in a manufacturing process without power. In this blog post, we will discuss the process of obtaining a factory license in India and its significance, especially for the MSME sector.
A. Definition of Factory License in India
In India, a Factory License is a legal document required by every factory owner to carry out manufacturing activities in their premises. According to the Factories Act 1948, any premises where 10 or more workers are involved in manufacturing activities with the aid of power or 20 or more workers are involved in manufacturing activities without aid of power must obtain a Factory License. The license acts as an approval document provided by authorities to ensure the safety of employees. The Department of Factories and Boilers issues the license after ensuring compliance with the legislative requirements of the Factories Act 1948 and Factories Rules 1950. Obtaining a Factory License involves submitting the application form and required documents, obtaining approval from the labour and employment department for the building plan, and paying the licensing fee. The Factory Act 1948 also lays down rules on the guidelines and regulations that factories must adhere to. Regular renewal of the license is essential to ensure the continuation of manufacturing activities without penalty.
B. Purpose of the Factory Act 1948
The main purpose of the Indian Factories Act 1948 is to ensure the welfare and safety of workers in factories. The Act lays down provisions for regulating the working conditions in factories, including the number of working hours, weekly holiday, and necessary precautions for protecting the health of workers. It also mandates that every factory must be kept clean, well-lit, ventilated, and have adequate temperature control.
Moreover, the Act stipulates rules and regulations concerning the fencing of machinery, the prohibition of young people from working with dangerous machinery, and the provision of facilities for washing for the welfare of workers. The Factories Act 1948 applies to any manufacturing unit whereon ten or more workers are working or were working on any day of the preceding twelve months and in any part of which a manufacturing process is being carried out with the aid of power or is ordinarily so carried out.
In summary, the primary goal of the Factory Act 1948 is to promote the safety, hygiene, and welfare of workers in factories and to ensure their fair treatment and protection from exploitation.
C. Registration process for obtaining a Factory License
The process for obtaining a Factory License entails three crucial steps. Firstly, the entrepreneur must obtain consent for establishment. This involves getting approval of the plan and permission to construct or extend an existing building as a factory. Secondly, the entrepreneur must obtain consent for manufacturing. This involves registering the factory and obtaining a license under the Factories Act 1948. This step is mandatory for factories using power-driven machinery in a manufacturing process where ten or more workers are employed or working on any day of the previous year. Finally, payment of licensing fees must be made to complete the registration process. The fees for registering a factory are given in three schedules, Schedule A, B, and C. The fees payable for West Bengal Factory Registration is Rs. 1000, and the Grant of License and Renewal of License for Factories declared under section 85 of the Factories Act is Rs. 1000. The applicant can get the West Bengal Factory Registration fee online on the home page by selecting the option License Fee, where you can see the different schedules of the factory registration fee. It is important to note that the factory licensee needs to renew the license every year, and the due date of renewal of the factory license is 31st December of the year before the year for which the license is required.
II. Guidelines for Factories
A. Rules and regulations for factories under the Factory Act 1948
Factories in India are required to follow certain rules and regulations under the Factory Act 1948 to ensure the safety and well-being of employees. Some of the key rules and regulations for factories include:
1. As per the Act, a factory is defined as any premises where 10 or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried out with the aid of power, or is ordinarily so carried on.
2. The Act also outlines specific provisions for employees, including rules pertaining to young people and female employees, employee pay, work hours, etc.
3. As part of the registration process for obtaining a factory license, clearance from the labor and employment department for its building plan must be obtained.
4. The Act also requires factory license registration and renewal, which is necessary when the number of employees reaches 10/20 in a place where at least 20 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.
5. The major goal of acquiring a factory license is to ensure that necessary safety precautions are taken to advance the health, safety, and welfare of the workers.
B. Two sub-categories for factories based on the process
Under the Factory Act 1948, factories in India are categorized into two sub-categories based on the process. The first sub-category consists of factories that involve any material handling process, such as manufacturing and processing of goods or substance, packaging, labeling, loading, unloading, and other related works. The second sub-category comprises factories that are not involved in any material handling process, such as utility service providers, inspection agencies, research and development centers, and others. Under the Factory Act, both sub-categories are required to obtain a factory license to ensure the safety of employees and compliance with rules and regulations. This license is mandatory and needs to be renewed every year. The license is granted by the state government only after the approval of the manufacturing plant plan and clearance from the labor and employment department. By obtaining a factory license, employers can ensure the safety of their employees and maintain compliance with the act’s provisions.
C. Importance of obtaining a Factory License to ensure safety measures for employees
Obtaining a Factory License is crucial for ensuring the safety of employees working in various factories across India. It is mandatory for factory owners to register their premises with the local governing authority before the start of their business. The Chief Inspector of the Labour Commissioner Organization shall grant a Factory License after registration of the factory. This license helps the government keep an eye on factories, the number of workers working there, and their safety measures. It is an essential document for running a factory and helps in applying for other licenses as well.
By adhering to the guidelines given by the government, factories can ensure that the appropriate safety measures are adopted to promote the safety, health, and welfare of their employees. Obtaining a Factory License also protects the owner from penal provisions laid down under the Factories Act 1948. It covers all the aspects related to the labor class, including health, welfare, safety, licensing, etc. Thus, obtaining a Factory License is not only beneficial for the government but is also essential for maintaining the well-being of employees working in factories.
V. Registration procedure for Factory License in India
A. Clearance from labor and employment department
Before starting a manufacturing business, every factory owner must obtain clearance from the labor and employment department for their building plan. The Factories Act of 1948 mandates this requirement to ensure worker safety and welfare. The clearance process involves submitting the factory building plan with necessary documents such as identity and address proof, specifications of machinery and raw materials, and flowcharts of the manufacturing process. Once the plan is approved by the labor and employment department, the factory owner can proceed with the registration process. Failure to obtain clearance can result in penalties, including imprisonment or a fine. Obtaining clearance from the labor and employment department not only meets statutory requirements but also helps in obtaining other licenses. It is a crucial step in ensuring the legal compliance necessary for running a successful factory business.
B. Approval of manufacturing plant plan by state government
After on the location and layout of the manufacturing plant, the next step is to get approval of the plan from the state government. As per the Factories Act 1948, obtaining approval from the Director of Factories is mandatory before starting the construction work of the factory. The Director functions under the administrative control of the Commissioner of Labour. Manufacturers must submit site plans, building layouts, and plant & machinery layouts for approval. The applications and plans will be scrutinized by the department and if found okay, the plans will be approved within forty-five days. However, if any incomplete or wrong information is furnished, the application will be rejected. The application process requires an allotment letter from MIDC or NOC from the local authority and a site approval from the Director of DISH in case of solvent extraction plant. After receiving the plans for approval, the DISH scrutinizes the application and approves it or clarifies any doubts with the factory management. Once the plans are approved, the occupier/factory manager can apply for a factory license.
C. Application for approval for factory registration
The application for approval for factory registration in West Bengal is a crucial step towards obtaining a factory license. The process entails various steps that need to be followed by eligible applicants. Firstly, the entrepreneur should apply for approval of the factory plan and obtain permission to construct or extend the existing building as a factory. Once the application has been accepted, the entrepreneur can register the factory and apply for a factory license. The applicant needs to get consent for establishment, approval of plan, and permission to construct or extend the building before commencing manufacturing operations. The clearance from the labor and employment department is also mandatory. Additionally, the manufacturing plant plan needs to be approved by the state government along with the payment of licensing fees. The West Bengal factory registration and license fee is calculated based on the number of workers employed and installed power in HP or KW of the machinery. Finally, the factory licensee needs to renew the license every year. Obtaining approval for factory registration is a vital step towards securing employment for numerous individuals while maintaining proper safety measures.
D. Payment of licensing fees
After completing the registration process for obtaining a Factory License, the next step is to pay the licensing fees. The fee structure for obtaining a Factory License varies depending on the power load of the factory. The rulebook of the DMC Act 1957 mandates that entrepreneurs who wish to engage in the manufacturing process with ten or more workers using power and factories that use twenty or more workers without using power need to register under the Factories Act 1948. The MCD has implemented a uniform rate for license fees for opening a new factory or renewing an existing one. The Factory License fees are automatically increased by 15% every three years of implementing the policy and can be renewed within 30 days from the date of expiry without any penalty. However, if renewed after 30 days, a penalty of 5% per month is charged. The importance of obtaining a Factory License from the appropriate government authorities ensures safety measures for employees and creates a healthy work environment in India’s MSME sector.
E. Renewal of factory license
Once you have obtained a factory license, it is important to ensure that it is renewed on time to prevent any hindrances or penalties. To renew the factory license, the owner needs to fill out a fully-filled Form No. 2 and submit it for scrutiny. If all the documents and information are in place, the application process shall begin, and the license will be renewed by the designated authority. Corrections, if any, can be made at this stage. The renewal of a factory license ensures that the safety and welfare measures continue to be in place to safeguard the workers. The license shows the employees that the owner provides them with a sound work environment and ensures their safety and well-being. It also ensures that every employee gets equal rights, treatment, and benefits. In case the license has expired, the owner must follow the renewal process to avoid any legal actions.
VI. Is Factory License Mandatory for MSME Sector?
A. Definition of MSME Sector in India
In India, MSME stands for Micro Small and Medium Enterprises. These businesses are classified into two divisions based on their engagement in either the manufacturing or production of goods or in providing or rendering services. According to the MSMED Act of 2006, Micro enterprises are those with investments in plant and machinery up to INR 1 crore, while small enterprises are those with investments in plant and machinery between INR 1 crore and INR 10 crore. Medium enterprises have investments between INR 10 crore and INR 50 crore. MSMEs are essential for improved access to domestic and export markets. They also support product development, design innovation, and packaging elements of a business. MSMEs play a vital role in providing employment opportunities and credit limits or funding support to various banks in the country. Since MSMEs contribute significantly to the economy of India, the government has implemented several benefits to aid MSME businesses through MSME registration and relaxation of rules and regulations.
B. Relaxation of rules and regulations for the MSME sector
In India, MSMEs are recognized as the backbone of the economy and are given certain benefits to aid their growth and development. To make it easier for MSMEs to do business, the government has reduced licensing regulations for several manufacturing sectors. Except for tobacco products, defense equipment, hazardous chemicals, and industrial explosives, no license is necessary for the manufacturing of goods. This change is expected to benefit MSMEs significantly by removing the need for them to seek permits for manufacturing smaller items.
Moreover, eligible businesses in the MSME sector are not required to obtain a factory license in 2022. This is in line with the Indian government’s focus on ease of doing business and promoting the growth of the economy. Small-scale industries with an investment in plant and machinery not exceeding rupees three crores can operate without a factory license to manufacture Schedule III items. It is also important to note that safety measures are still crucial in the MSME sector to ensure the well-being of employees.
C. Importance of safety measures in the MSME sector
The MSME sector is crucial to the economy of India as it contributes to 45% of the country’s manufacturing output and 40% of its total exports. With this significant role, it is essential to ensure that safety measures are implemented in these businesses. As per the Safety Management Practices in Small and Medium Enterprises in India study, safety management practices are inadequate in most SMEs due to financial constraints, resistance to change, and lack of training for employees. However, implementing healthy working conditions can create positive impacts on economic and social development. It is crucial to create awareness and educate MSMEs on the importance of safety issues and best practices. Besides, safety measures can improve market competitiveness, promote better efficiency, reduce risks, and ensure compliance with stringent laws. Therefore, it is essential to obtain a Factory License to ensure safety measures for employees in the MSME sector. The government has reduced licensing regulations for several manufacturing sectors, making it easier for MSMEs to do business. However, the importance of safety measures cannot be overlooked, and businesses should prioritize implementing them.
A. Recap of the importance of Factory License in India
In, obtaining a Factory License in India is mandatory for all factories as per the Factory Act 1948. The license acts as an approval document provided by authorities to carry out manufacturing activities. To register a factory, it is essential to get approval from the labor and employment department for building plans before applying for the license. The registration and renewal of the factory license are also necessary to ensure the safety of workers. The MSME sector is provided with relaxation of rules and regulations; however, the importance of safety measures is significant in this sector too. The checklist for factory license registration includes eligibility and document checklists, and the registration process can be done online. Non-compliance with the rules can lead to penalties and imprisonment. Obtaining a Factory License protects the owner from penal provisions under the Factory Act 1948 and ensures adequate safety measures for the workers employed in factories. Therefore, it is important for every factory owner to obtain a Factory License in India.
VIII. Documents required for Factory License in India
To obtain a factory license in India, the following documents are required:
1. Application Form: The first step in getting a factory license is to fill out an application form, which can be obtained from the local government authority.
2. Consent Letters: Consent letters from the Pollution Control Board and the Fire Department need to be obtained. These letters indicate that the factory is compliant with the environmental and safety norms and requirements.
3. Site Plan: A detailed site plan of the proposed factory needs to be submitted.
4. Building Plans: Copies of the building plans and design drawings including details on the construction materials used.
5. Machinery List: A list of all the machinery that will be installed in the factory.
6. Electrical Load Details: Detailed information on the electrical load that will be required in the factory.
7. Labor Compliances: Documentation indicating compliance with labor laws, social security laws, ESI and PF registration details.
8. NOC from Local Authorities: A No Objection Certificate from local authorities such as the local police is also required.
IX. Advantages of Factory License in India
1. Legal Compliance: Obtaining a factory license ensures that the factory is compliant with all relevant legal requirements.
2. Safety Measures: The installation of safety measures and the adherence to environmental norms help to prevent accidents and provide a safe working environment.
3. Tax Benefits: The Indian government offers various tax benefits and incentives to factories that are licensed and comply with all statutory norms.
4. Attracting Investors: A licensed factory is likely to attract more investment as it provides a sense of security and compliance.
X. Disadvantages of Factory License in India
1. Time and Cost: Obtaining a factory license in India can be a time-consuming and expensive process.
2. Bureaucratic Hassles: The process of obtaining a factory license in India can also involve dealing with lengthy bureaucratic procedures that can be cumbersome.
3. Compliance Issues: Sometimes, compliance with all the legal and environmental norms can be challenging and may involve additional costs to maintain.
XI. Process of getting Factory License in India
The process of obtaining a factory license in India involves the following steps:
1. Application: Submitting an application form to the local government authority.
2. Site Inspection: Officials from the government will visit the proposed site to inspect it for compliance with safety and environmental norms.
3. Approval: Once the site is approved, consent letters from the Pollution Control Board and Fire Department need to be obtained.
4. Submission of Documents: Documents such as building plans, machinery list, and labor compliances need to be submitted.
5. NOC from Local Authorities: A No Objection Certificate from local authorities such as the police is also required.
XII. Frequently Asked Questions about Factory License in India
1. Who needs a Factory License in India?
A. Any person or entity engaged in the production or processing of goods for commercial purposes requires a factory license in India.
2. How long does it take to obtain a Factory License in India?
A. The time required to obtain a factory license in India can range from a few weeks to several months, depending on the complexity of the project.
3. What are the penalties for not having a Factory License in India?
A. Penalties for not having a factory license can include heavy fines, imprisonment, or closure of the factory.
4. Can a Factory License be renewed in India?
A. Yes, factory licenses need to be renewed regularly, usually every five years.
5. What is the difference between a Factory License and a Trade License in India?
A. A factory license is required by entities engaged in production or processing of goods, while a trade license is required by entities engaged in trading or commercial activities.