Cost Audit Applicability for financial year starting on or after Jan 1, 2013

TG Team 26 Mar 2013 8,394 Views 0 comment Print CA, CS, CMA | Articles

MCA issues Cost Audit Order in suppression of earlier Cost Audit Orders

During the year 2011-12, MCA issued various cost audit orders wherein maximum industries were brought under cost audit net. It needs attention that to bring uniformity in reporting,the MCA had issued a notification vide S.O. 1747(E) dated 7th August, 2012 mentioning Product or Activity Group classification for standardization of product/service categories. All the cost audit orders were issued prior to August 2012 and therefore the cost audit orders did not contain product/activity group classifications.

With the issue of the Cost Audit order dated 6^th Nov 2012, MCA has put at rest all the confusions etc.. governing Cost Audit applicability.

Key Points in the New Cost Audit Order dated 6^th Nov 2012 are:

a) All the earlier Cost Audit orders will be in force for the financial years upto 31^st Dec 2012.

b) Cost Audit order dated 6^th Nov 2012 will be applicable in respect of each of the financial year commencing on or after the 1st day of January, 2013. Now the companies can relax and just check onle one order dated 6th Nov 2012 to check the applicability of cost audit.

c) The order contains two tables

I Cost Audit with relation to Specific Industries like Sugar, Power, Telecom, Fertilizers, Pharma And Petroleum

II Cost Audit of other industries

d) One of the most important point in the order date 6^th Nov 12 is that The Product or Activity Groups referred to in Table I & II above shall include all products/activities included in the corresponding CETA Chapter Headings mentioned therein irrespective of whether Central Excise Duty is levied or not.

So, now the companies cannot take the plea that the product being manufactured is not covered under excise so cost records are also not applicable.

e) Any company engaged in the storage, transportation or distribution of crude oil or gases or biogas or any or all types of petroleum products, and is covered by the Cost Accounting Records (Petroleum Industry) Rules, 2011 shall be subject to cost audit

Through this order the logistic companies related to petroleum sector have been brought under cost audit.

f) The Companies manufacturing any organic or inorganic chemical which is meant for pharmaceutical use/applications (as covered under CARR Pharmaceutical 2011) will be covered under cost audit as per the criteria mentioned for pharma product evenif the CETA code is mentioned in Table II. Any company engaged in the production, processing or manufacturing of such inorganic or organic chemicals or any other substances that are primarily meant for pharmaceutical applications/use and are covered under the Cost Accounting Records (Pharmaceutical Industry) Rules 2011 shall be subject to cost audit as per the terms mentioned in para 2 above, irrespective of whether these are covered in the Product or Activity Groups mentioned in Table‐II above

There are 27 product/activity groups under cost audit which are given in Table I and 125 product/activity groups in Table II running into hundreds of 4digit CETA codes.

Precondition for applicability of Cost Audit: The companies which are engaged in the production, processing, manufacturing or mining of the products/activities included any of the Seven Cost Accounting Cost Accounting Record Rules and fulfill the criteria mentioned below are required to get their Cost Audit Conducted.

Products Covered in	Criteria for cost audit applicability	Comments
Table I Table I covers the products /services covered under Industry Specific Cost Accounting Record Rules i.e. (a) Cost Accounting Records (Telecommunication Industry) Rules 2011; (b) Cost Accounting Records (Petroleum Industry) Rules 2011; (c) Cost Accounting Records (Electricity Industry) Rules; 2011; (d) Cost Accounting Records (Sugar Industry) Rules; 2011; (e) Cost Accounting Records (Fertilizer Industry) Rules 2011; (f) Cost Accounting Records (Pharmaceutical Industry) Rules 2011;	the aggregate value of the net worth of the company as on the last date of the immediately preceding financial year exceeds five crore of rupees;or wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crore of rupees; or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India	Networth or turnover of the preceding previous year need to be seen not for the year being considered under audit. E.g if the applicability for the year 2013-14 is to be determined, the turnover or networth of 2012-13 will be consideredSo far as third condition is considered the words “immediately preceding financial year” are missing
Table 2 Table 2 covers the products covered under Companies (Cost Accounting Records) Rules. The products or services which are not covered under Table I have been broadly covered under Table 2 subject to certain exclusions	wherein the aggregate value of the turnover made by the company from saleor supply of all its products or activities during the immediately preceding financial year exceeds hundred crore of rupees; or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India, shall get its cost accounting records, in respect of each of its financial year commencing on or after the1!st day of January, 2013	Networth or turnover of the preceding previous year need to be seen not for the year being considered under audit. E.g if the applicability for the year 2013-14 is to be determined, the turnover or networth of 2012-13 will be consideredSo far as third condition is considered the words “immediately preceding financial year” are missing