Introduction
Cost records play a vital role in the field of accounting and finance. In India, cost accounting records are mandated by the government, and guidelines have been established to ensure their proper maintenance. In this article, we will discuss the applicability of cost records under Indian law, the legal provisions governing them, and the procedures for maintaining them in compliance with the latest amended rules and laws.
What are Cost Records?
Cost records are records that show the cost of producing goods or providing services in a company. These records include all the direct and indirect costs associated with the production or provision of services, such as raw material costs, labor costs, overheads, depreciation, and other expenses. The cost records are used to determine the actual cost of goods or services, which is crucial for pricing decisions, cost control, and profitability analysis. Cost Records are records relating to the utilization of various resources for manufacture of goods or provision of services by the companies.
Applicability of Cost Records
The applicability of cost records under Indian law is determined by the turnover of the company and the industry it operates in. The following are the criteria for applicability:
Regulated Sectors
a) List of Products / Services Covered
| S. No. | Industry / Sector / Product / Service | CTA heading (wherever applicable) |
| 1 | Telecommunication services made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature (other than broadcasting services) and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997) | N.A. |
| 2 | Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003), other than for captive generation (as defined under the Electricity Rules 2005); | Generation : 2016
Other Activity: N.A. |
| 3 | Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006); | 2709 to 2715
Other Activity : N.A |
| 4 | Drugs and Pharmaceuticals; | 2901 to 2942, 3001 to 3006 |
| 5 | Fertilisers | 3102 to 3105 |
| 6 | Sugar and industrial alcohol; | 1701,1703, 2207 |
b) Applicability Regulated Sector
| Applicability for Cost Records | Applicability for Cost Audit |
|
Company’s Overall turnover from all its products and services exceeds Rs.35 Cores, in the immediately preceding year. |
Company’s Overall turnover from all its products and services exceeds Rs.50 Cores and Aggregate turnover of the individual product(s)/ service(s) for which cost records are required to be maintained exceeds Rs.25 Cores. |
Non-Regulated Sectors
a) List of Products / Services Covered
| S. No. | Industry / Sector / Product / Service | CTA heading (wherever applicable) |
| 1. | Machinery and mechanical appliances used in defense, space and atomic energy sectors excluding any ancillary item or items
Explanation- For the purpose of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules. |
8401 to 8402, 8801 to 8805, 8901 to 8908 |
| 2. | Turbo jets and turbo propellers | 8411 |
| 3. | Arms and ammunitions | 3601 to 3603, 9301 to 9306 |
| 4. | Propellant powders; prepared explosives, (other than propellant powders); safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators | 3601 to 3603 |
| 5. | Radar apparatus, radio navigational aid apparatus and radio remote control apparatus | 8526 |
| 6. | Tanks and other armored fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles, that are funded (investment made in the company) to the extent of ninety per cent. or more by the Government or Government Agencies; | 8710 |
| 7. | Port services of stevedoring, pilot age, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered by a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports under section 111 of the Major Port Trusts Act, 1963(38 of 1963) | N.A. |
| 8. | Aeronautical services of air traffic management, aircraft operations, ground safety services, ground handling, cargo facilities and supplying fuel rendered by airports and regulated by the Airports Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008) | N.A. |
| 9. | Steel | 7201 to 7229, 7301 to 7326 |
| 10. | Roads and other infrastructure projects corresponding to Para No. (1)(a) as specified in Schedule VI of the Companies Act, 2013 | N.A. |
| 11. | Rubber and allied products being regulated by the Rubber Board constituted under the Rubber Act, 1947 (XXIV of 1947) | 4001 to 4017 |
| 12. | Coffee and tea | 0901 to 0902 |
| 13. | Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signaling equipment’s of all kind | 8601 to 8608 |
| 14. | Cement | 2523, 6811 to 6812 |
| 15. | Ores and Mineral Products | 2502 to 2522,
2524 to 2526, 2528 to 2530, 2601 to 2617 |
| 16. | Mineral fuels (other than Petroleum), mineral oils etc. | 2701 to 2708 |
| 17. | Base metals | 7401 to 7403, 7405 to 7413, 7419, 7501 to 7508, 7601 to 7614, 7801 to 7802, 7804, 7806, 7901 to 7905, 7907, 8001, 8003, 8007, 8101 to 8113 |
| 18. | Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals | 2801 to 2853, 2901 to 2942, 3801 to 3807, 3402 to 3403, 3809 to 3824 |
| 19. | Jute and Jute Products | 5303, 5310 |
| 20. | Edible Oil | 1507 to 1518 |
| 21. | Construction Industry as per Para No.(5)(a) as specified in Schedule VI of the Companies Act, 2013 | N.A. |
| 22. | Health services, namely, functioning as or running hospitals, diagnostic centers, clinical centers or test laboratories | N.A. |
| 23. | Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business | N.A. |
| 24. | Milk powder | 0402 |
| 25. | Insecticides | 3808 |
| 26. | Plastics and polymers | 3901 to 3914, 3916 to 3921, 3925 |
| 27. | Tyres and tubes | 4011 to 4013 |
| 28. | Paper | 4801 to 4802 |
| 29. | Textiles | 5004 to 5007, 5106 to 5113, 5205 to 5212, 5303, 5310, 5401 to 5408, 5501 to 5516 |
| 30. | Glass | 7003 to 7008, 7011, 7016 |
| 31. | Other Machinery | 8403 to 8487 |
| 32. | Electronics or Electrical Machinery | 8501 to 8507, 8511 to 8512, 8514 to 8515, 8517, 8525 to 8536, 8538 to 8547 |
| 33 | Production, import and supply or trading of following medical devices, namely:-
(i) Cardiac Stents; (ii) Drug Eluting Stents; (iii) Catheters; (iv) Intra Ocular Lenses; (v) Bone Cements; (vi) Heart Valves; (vii) Orthopedic Implants; (viii) Internal Prosthetic Replacements; (ix) Scalp Vein Set; (x) Deep Brain Stimulator; (xi) Ventricular peripheral Shud; (xii) Spinal Implants; (xiii) Automatic Impalpable Cardiac Deflobillator; (xiv)Pacemaker (temporary and permanent); (xv) patent ductus arteriosus, atrial septal defect and ventricular septal defect closure device; (xvi) Cardiac Re-synchronize Therapy ; (xvii) Urethra Spinicture Devices; (xviii) Sling male or female; (xix) Prostate occlusion device; and (xx) Urethral Stents. (Note : S.No.33 not applicable to Foreign Companies having only Liaison Offices) |
9018 to 9022 |
b) Applicability Regulated Sector
| Applicability for Cost Records | Applicability for Cost Audit |
| Company’s Overall turnover from all its products and services exceeds Rs.35 Cores, in the immediately preceding year |
Company’s Overall turnover from all its products and services exceeds Rs.100 Cores and Aggregate turnover of the individual product(s)/ service(s) for which cost records are required to be maintained exceeds Rs.35 Cores |
Procedures for Maintaining Cost Records
Identify the Applicable Cost Accounting Records: – Companies engaged in the production of goods or services must identify the cost accounting records that are applicable to them. The Companies (Cost Records and Audit) Rules 2014, specify the type of records that need to be maintained and the frequency of maintenance.
Design and Implement a Cost Accounting System: – Once the applicable cost accounting records have been identified, companies must design and implement a cost accounting system. The cost accounting system should be designed to capture all costs associated with the production of goods or services. This system should also enable the company to allocate costs to different products or services accurately.
Record all Relevant Cost Data: – Companies must record all relevant cost data in the cost accounting system. This includes the cost of raw materials, labor costs, overhead costs, and any other expenses related to the production of goods or services. It is essential to ensure that all cost data is recorded accurately and in a timely manner.
Maintain Documentation: – Companies must maintain documentation related to the cost accounting system. This includes documents related to the purchase of raw materials, invoices related to labor costs, and any other documentation related to expenses incurred in the production of goods or services. This documentation must be maintained for a minimum of eight years.
Reconcile Cost Accounting Records with Financial Statements: – Companies must reconcile the cost accounting records with the financial statements to ensure that there are no discrepancies. This reconciliation should be done on a regular basis, and any discrepancies should be resolved immediately.
Internal Audit: – Companies must conduct an internal audit of their cost accounting system to ensure that it is working efficiently and effectively. This internal audit should be conducted by an independent team to ensure its objectivity.
Responsibility
It is the responsibility of Every officer/Company to maintain the Cost Records as per the Companies (Cost Records and Audit) Rules, 2014. It must be mentioned in the Directors Report and financial Audit Report about the same. Recently MCA- Cost Audit Branch has issued Show Cause Notices to companies who had not prepared the Cost Records under 148 of the Companies Act, 2013.
Penalties for Non-Compliance
Companies failing to maintain cost records or conduct cost audits are subject to penalties under Indian law. If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to One Lakh Rupees.
Conclusion
In conclusion, cost records are an essential aspect of financial accounting, and companies engaged in the production of goods or services must maintain cost records and conduct cost audits. The Companies (Cost Records and Audit) Rules, 2014 provide detailed guidelines for the maintenance of cost records and the procedures to be followed for conducting cost audits. Non-compliance with these rules and regulations can lead to penalties, and therefore it is crucial for companies to ensure that they comply with these provisions. Companies should take the necessary steps to maintain accurate cost records and conduct cost audits to ensure optimal utilization of resources, reduce costs, and maintain profitability.
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