Applicability of maintenance of Cost Records and applicability of Cost Audit as per Companies Act, 2013

In this article, we will discuss the importance of maintaining cost records and the necessity of a cost audit. Section 148 of the Companies Act of 2013 outlines the regulations for cost records and cost audits. To better understand these regulations, we will review Subsections 1 and 2 of Section 148, as well as Rules 3 to 5 of the Companies (Cost Records and Audit) Rules, 2014. As detailed understanding of these regulations is crucial for Companies to comply with the law

There are ten sections (Section 139 to Section 148) in Chapter X (Audit and Auditors) of the Companies Act, 2013. Section 148 of the Companies Act pertains to the Central Government specifying the audit of items of cost for certain companies.

According to subsection 1 of Section 148, the Central Government may require that certain information be included in the books of account maintained by a class of companies that are involved in the production of goods or the provision of services, as may be prescribed. This information pertains to the use of labor or materials, or other cost items as may be prescribed.

The proviso to subsection 1 of Section 148 states that if the class of companies is regulated under a special act, the government shall consult with the regulatory body established under such act.

As per subsection 2, the Central Government may mandate that the audit of the cost records of a class of companies covered by subsection (1) be carried out in the manner specified in the order if it determines that doing so is necessary. This applies to companies that have a net worth or turnover of the amount prescribed.

In summary, subsection 1 deals with the maintenance of Cost Records by the class of companies as may be prescribed, and subsection 2 is about the audit of Cost Records of the class of companies specified in subsection 1 that have a net worth or turnover of such an amount as may be prescribed.

Companies (Cost Records and Audit) Rules, 2014

The Companies (Cost Records and Audit) Rules, 2014 (CCRA Rules) were notified by the Government of India, based on the powers conferred under sub-sections (1) & (2) of Section 469 and Section 148 of the Companies Act, 2013. CCRA Rules comprises of six rules, which are:

1. Short title and commencement

2. Definitions

3. Application of Cost Records

4. Applicability of Cost Audit

5. Maintenance of Records

6. Cost Audit

To understand these rules better, let’s start with Rule 3 of CCRA Rules, 2014.

Rule 3: Application of Cost Records

Rule 3 of CCRA Rules, 2014 pertains to the application of cost records and specifies the product, service, industry, and sector to which they are applicable. There are two tables in this rule, namely Table A and Table B. The “Regulated Sector” refers to the activities listed in Table A, whereas the “Non-regulated Sector” refers to the activities listed in Table B.

The application of cost records to a company is based on two conditions. Firstly, if the company is engaged in the production of goods or providing services specified in Table A & B (Regulated & Non-regulated sectors). Secondly, if the overall turnover from all its products and services is Rs.35 crore or more during the immediately preceding financial year.

To include cost records in the company’s books of accounts, both of the aforementioned requirements must be met. It is important to understand these conditions to determine whether the companies are required to maintain cost records and comply with the regulations.

Chart Representation of Rule 3 of CCRA, 2014

Chart Representation of Rule 3 of CCRA, 2014

 

 

Note: As per the second proviso to Rule 3 of CCRA, 2014 nothing contained in this rule applies to a company that is classified as a Micro-enterprise or small enterprise including as per turnover criteria under sub-section 9 of section 7 of MSME Development Act, 2006.

A list of Activities under each table (Table A: Regulated Sectors & Table B: Non-Regulated Sectors) is provided at the end for your reference.

Let’s look into understanding how Table A and Table B are classified

Example in Table A (Regulated Sectors) – Has list of activities from Sl. No. 1 to 6

Example 1: In Table A (Regulated Sectors) against Sl. No.1 it has been mentioned that

Sl. No.

Industry /Sector/ Product/Service Customs Tariff Act 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 and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); including activities that requires authorisation or license issued by the Department of Telecommunications, Government of India under Indian Telegraph Act, 1885 (13 of 1885); Not Applicable

In the context of the “Application of Cost Records,” the determining factor is whether the sector is regulated under a special act. According to the regulations, telecommunication services are considered regulated sectors and are regulated by TRAI under the Telecom Regulatory Authority of India Act, 1997. Additionally, activities that require authorization or licenses issued by the Department of Telecommunications (DoT), Government of India, under the Indian Telegraph Act, 1885 (13 of 1885) are also covered under the maintenance of cost records or audit of cost records.

As per the proviso to Subsection 1 of Section 148, if the class of companies is regulated under a special act, the government shall consult with the regulatory body established under such special act. In this case, the special acts are the TRAI Act, 1997, and the Indian Telegraph Act, 1885.

Example 2: In Table A (Regulated Sector) against Sl. No.2

Sl. No. Industry /Sector/ Product/Service Customs Tariff Act Heading (wherever applicable)
2 Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003); Generation – 2716;

Other Activity – Not

Applicable

In the context of identifying whether an industry, sector, product, or service is covered under cost audit, the relevant activity is the generation, transmission, distribution, and supply of electricity. If this activity is regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003) and falls under CTA Heading 2716, it is covered under the Companies (Cost Records and Audit) Rules, 2014.

However, if the activity is regulated under the Electricity Act, 2003 but falls under a different CTA heading, it is not covered under these CCRA rules.

Example in – Table B (Non-Regulated Sectors) – Has list of activities from Sl. No.1 to 33

Example 3: In Table B (Non-Regulated Sector) against Sl. No .1

Sl. No.

Industry /Sector/ Product/Service Customs Tariff Act Heading (wherever applicable)
1 Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding and ancillary item or items; Explanation – For the purposes 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; 8801 to 8805; 8901 to 8908

In this example, the applicability of cost audit is determined based on the first four digits of the CTA heading. If a company is engaged in the production of any product falling under CTA heading 8401, 8801 to 8805, or 8901 to 8908, it will be covered under cost audit subject to Rule 4 of the Companies (Cost Records and Audit) Rules, 2014.

Rule 4: Applicability of Cost Audit

As per Rule 4(1) and Rule 4(2) of CCRA, the applicability of Cost Audit is based on two criteria. Turnover of the company (from all its products or services) and Turnover from products or services covered under cost audit as per Rule 3.

The below table helps to understand:

Rule of CCRA Table (As per Rule 3 of CCRA) Overall annual turnover of the company from all its products and services during the immediately preceding financial year The aggregate turnover of the individual product or products or service or services for which cost records are required to maintained
(Criteria 1) (Criteria 2)
Rule 4(1) Table A

(Regulated Sector)

Rs. 50 Crore Rs. 25 Crore
Rule 4(2) Table B (Non-Regulated Sector) Rs. 100 Crore Rs. 35 Crore

(As per subsection 91 of section 2 of the Companies Act, 2013 “turnover” means the aggregate value of the realization of the amount made from the sale, supply, or distribution of goods or on account of services rendered, or both, by the company during a financial year.)

Two criteria mentioned above have to be satisfied to get an audit of cost records. If either one of the conditions is not satisfied cost audit is not applicable.

As per sub-rule 3 of rule 4 of CCRA, 2014, Cost audit does not apply to a company which is covered in Rule 3 if

i) whose revenue from exports, in foreign exchange, exceeds seventy-five percent of its total revenue; or

ii) which is operating from a special economic zone.

iii) which is engaged in generation of electricity for captive consumption through Captive Generating Plant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005.

Diagrammatic Representation of Rule 4 of CCRA, 2014^

Applicability of Cost Audit- Rule 4

^The above chart (Diagrammatic Representation) is taken from a note on Companies (Cost Records and Audit) Rules, 2014 (as amended up to 15th July 2016) issued by The Institute of Cost Accountants of India (ICMAI).

Rule 5: Maintenance of Cost Records

1) Maintenance of Cost Records of a company has to be as per Form CRA 1. Cost Records has to be maintained for all its units and branches

2) Cost records have to be maintained in such a manner to enable calculation of cost per unit of production, Cost of operations, cost of sales, and margin of each of its products and activities for every financial year on a monthly, quarterly, half-yearly, or annual basis.

3) Cost records maintenance has to enable the company to exercise control over the various operations and to achieve optimum utilization of resources.

Let’s try out a few scenarios/examples to understand Subsections 1 & 2 of Section 148 of the Companies Act and Rule 3 to Rule 5 of Companies (Cost Records and Audit) Rules, 2014.

Example 4:

Question:

Private Ltd company engaged the in production of the product mentioned in Table A (Regulated sector) (CTA Heading 2901). Turnover from the Regulated sector is Rs.40 Cr. And its overall turnover from all its products or services is Rs.45 Cr.

The company is a small company as per the MSME Act, 2006. Whether maintenance of cost records and audit of cost records is applicable?

Answer:

As per proviso to rule 3 of CCRA, 2014, Micro and Small enterprises including as per turnover criteria as per under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). MSME Act, 2007 broadly classifies companies into Micro, Small, and Medium enterprise, and classifies companies based on Turnover and Investment.

As given in the question, since company is a small company as defined in the MSME Act, 2006. Maintenance of Cost Records and Audit of Cost Records are not applicable.

Note: Maintenance of cost records and audit of cost records is not applicable only in the case of Micro and Small Companies. Exclusion is not provided for medium enterprises.

Example 5:

Question:

Company is a foreign company as per clause 42 of Section 2 of companies and it is engaged in the business of import and Trading of goods mentioned in Sl. No. 33 of Table B (CTA Heading 9018) overall turnover is Rs.200 Cr and Turnover from CTA Heading is Rs.195 Cr. Whether maintenance of cost records and audit of cost records is applicable?

Answer:

As per Sl. No. 33 of Table B is not only about production but also includes the Import, Supply, and trading of medical devices mentioned in the same (CTA Heading 9018 to 9022). Cost Audit is applicable even in the case of a foreign company except where it has only a liaison office. Since we assume this company does not only have a liaison office but also has an office for another purpose. Hence, a cost audit is applicable for this company.

Note: Cost Audit is not applicable for Sl. No. 33 in Table B in case a foreign company has only liaison offices.

Example 6:

Question A: The company is engaged in the Production of the following goods (Previous year turnover)

Product
(CTA Heading)
Turnover

(Produced in house)
(Rs. In Crs)

7003 24
7002 21
7011 27
7017 33
Total 105

a) Check whether maintenance of cost records and audit of cost records are applicable.

Answer to Question A:

It is not mentioned whether the sale is a domestic sale or an export sale. Assume it is a domestic sale. Turnover from products covered under Table B (Non-Regulated Sector) is more than Rs.35 Crs (CTA Heading 7003 is Rs 24 Crs and CTA Heading 7011 is Rs.27 Crs = Total Turnover is Rs. 51 Crs) and also overall turnover of the company is Rs.105 Crs (which is more than Rs.100 Crs mentioned in Rule 4(2)). Hence, both Maintenance of Cost Records and Audit of Cost Records are applicable.

Question B:

In case turnover details are revised as below (Previous year turnover)

Product
(CTA Heading)
Domestic (Produced in house) Turnover
(Rs. In Crs)
Export (Produced in house) Turnover
(Rs. In Crs)
Total Turnover
(Rs. In Crs)
7003 0 24 24
7002 21 0 21
7011 0 27 27
7017 33 0 33
Total 54 51 105

Check whether maintenance of cost records and audit of cost records are applicable.

Answer to Question B:

Maintenance of Cost Records applies to this company because the overall turnover of the company is more than Rs.35 Crore and it is engaged in the production of Products mentioned in Table B.

Audit of Cost Records:

As per Rule 4(3), The requirement for cost audit under these rules shall not apply to a company that is covered in Rule 3, and-

(i) whose revenue from exports, in foreign exchange, exceeds seventy-five percent of its total revenue;

However, there is uncertainty regarding how to calculate the export revenue as a percentage of total turnover. The question is whether to consider the company’s total turnover, including activities not listed in Tables A or B, or just the total turnover of activities listed in Tables A or B.

Opinion 1:

Total Revenue = Total Revenue of the company as a whole (including activities that are not given in Table A or Table B)

For calculation of % of revenue from exports, revenue from exports & total revenue of the company has to be taken as below

Total Revenue from exports Rs.51 Crs
Total Revenue of Company Rs.105 Crs
% of Revenue from Exports 48.57%

Based on the given information, the company is not eligible for the exclusion mentioned in Rule 4(3)(i) as the revenue from export is less than 75% of total revenue. Therefore, the audit of cost records is applicable.

Opinion 2:

Total revenue = Total revenue of the activities given in Table A and / or Table B

For calculation of % of revenue from exports, revenue from exports of the products covered & total revenue of products covered in Rule 3 (Table A & Table B) has to be taken.

Total Revenue from exports Rs.51 Crs
Total Revenue of the company from the products covered in Table B (CTA Heading 7003 & 7011) Rs.51 Crs
% of Revenue from Exports 100%

Based on the provided working, it seems that the company in question qualifies for an exclusion as per Rule 4(3)(i) since revenue from exports exceeds 75% of the total revenue. Therefore, the audit of the cost records is not necessary for this company.

Question C:

In question B, in case if the revenue from export is INR and not in Foreign Exchange. Check whether maintenance of cost records and audit of cost records are applicable.

Answer to Question C:

Based on the information provided, the maintenance of Cost Records is applicable to this company since it has an overall turnover of more than Rs.35 Crore and it is engaged in the production of products mentioned in Table B.

However, the revenue from export is mentioned to be in INR and not in foreign exchange, which is required as per Rule 4(3)(i) for the exclusion from the audit of cost records. Therefore, the exclusion provided in Rule 4(3)(i) is not available to this company and hence, the audit of the cost records is applicable.

Question D:

Below is the revised turnover (Previous year), Check whether maintenance of cost audit and audit of cost records applicable?

Product
(CTA Heading)
Domestic (Produced in house) Turnover

Rs. In Crs

Domestic (Trading) Turnover

Rs. In Crs

Export (Produced in house) Turnover

Rs. In Crs

 

Total Turnover

Rs. In Crs

 

7003 0 24 0 24
7002 21 0 0 21
7011 0 0 27 27
7017 33 0 0 33
Total 54 24 27 105

Answer to Question d:

As per Rule 3 of CCRA, 2014, the maintenance of cost records is applicable to companies engaged in production of goods or providing services specified in Table A & B, having an overall turnover from all its products and services of Rs.35 crore or more during the immediately preceding financial year. In this case, the company’s overall turnover is more than Rs.35 crore and is engaged in the production of items mentioned in Table A and Table B. Hence, the maintenance of cost records is applicable.

As per Rule 4(2), companies with an overall annual turnover of Rs.100 crore or more and aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under Rule 3 is Rs.35 crore or more are required to get their cost records audited in accordance with these rules.

Here, the company’s overall turnover is more than Rs.100 crore and the turnover from products or services for which cost records is required to be maintained under Rule 3 is also more than Rs.35 crore.

However, there is ambiguity in the calculation of Rs.35 crore turnover for products mentioned in Table B, whether it should include in-house manufactured products or it can also include traded goods.

Opinion 1 suggests that as per Rule 4(2), the company is required to get its cost records audited for both CTA Heading 7003 and 7011, even though the former is traded goods. Hence, the audit of cost records is applicable for both traded goods and in-house manufactured goods.

Opinion 2 suggests that for the calculation of Rs.35 crore of aggregate turnover of the individual product or products as set out in Rule 4(2), traded products are to be excluded (except activities mentioned in Sl. No.33 of Table B). Hence, the audit of cost records is not applicable for the company.

Therefore, depending on which opinion is followed, the audit of cost records may or may not be applicable for the company.

Note: Please note that in the CCRA Rules of 2014, the amount of Rs. 35 Crore is mentioned in two places.

1) In Rule 3, which pertains to the Application of Cost Records, it is stated that for activities mentioned in Table A & Table B, the total turnover of the company should be more than Rs. 35 Crores.

2) In Rule 4(2), for the applicability of Cost Audit for activities mentioned in Table B (Non-regulated sectors), the aggregate turnover of individual products or services for which cost records are required to be maintained under rule 3, is Rs. 35 Crore or more. 

Below is the extract of Bare Act of Subsection 1 & 2 of Section 148 of the Companies Act, 2013 and Rule 3 to Rule 5 of the Companies (Cost Records and Audit) Rules, 2014.

Subsection 1 & 2 of Section 148

148. Central Government to specify audit of items of cost in respect of certain companies:—(1) Notwithstanding anything contained in this Chapter, the Central Government may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies:

Provided that the Central Government shall, before issuing such order in respect of any class of companies regulated under a special Act, consult the regulatory body constituted or established under such special Act.

(2) If the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct that the audit of cost records of class of companies, which are covered under sub-section (1) and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

Rule 3 to Rule 5 of Companies (Cost Records and Audit) Rules, 2014

Rule 3 – Application of Cost Records:- For the purpose of sub-section (1) of Section 148 of the Act, the class of companies, including foreign companies defined in clause (42) of section 2 of the Act, engaged in the production of the goods or providing services, specified in the Table below, having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year, shall include cost records for such products or services in their books of account, namely:-

(A) Regulated Sectors

Sl. No. Industry /Sector/ Product/Service Customs Tariff Act 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 and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); including activities that requires authorisation or license issued by the Department of Telecommunications, Government of India under Indian Telegraph Act, 1885 (13 of 1885); Not Applicable
2 Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003); Generation – 2716; Other Activity – Not Applicable
3 Petroleum products; including activities 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 – Not Applicable

4 Drugs and pharmaceuticals; 2901 to 2942; 3001 to 3006
5 Fertilisers 3102 to 3105
6 Sugar and industrial alcohol; 1701; 1703; 2207.

(B) Non-Regulated Sectors

Sl. No. Industry/ Sector/ Product/ Service Customs Tariff Act Heading

(wherever applicable)

1 Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding and ancillary item or items; Explanation – For the purposes 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; 8801 to 8805; 8901 to 8908
2 Turbo jets and turbo propellers; 8411
3 Arms and ammunitions and Explosives; 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 armoured 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, pilotage, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered for9 a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports under the Major Ports Trusts Act, 1963 (38 of 1963) Not applicable.
8 Aeronautical services of air traffic management, aircraft operations, ground safety services, ground handling, cargo facilities and supplying fuel rendered at the11 airports and regulated by the Airports Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008) Not applicable.
9 Iron and 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 Not applicable.
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; 8609
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, 5307, 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 (18 of 2013) Not applicable.
22 Health services, namely functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories; Not applicable.
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. Not applicable.
24 Milk powder; 0402
25 Insecticides; 3808
26 Plastics and Polymers; 3901 to 3914; 3916 to3921; 3925
27 Tyres and Tubes; 4011 to 4013
28 Pulp and Paper; 4701 to 4704; 4801 to 4802
29 Textiles; 5004 to 5007; 5106 to 5113; 5205 to 5212; 5303; 5307;16 5310; 5401 to 5408; 5501 to 5516
30 Glass; 7003 to 7008; 7011; 7016
31 Other machinery and Mechanical Appliances; 8403 to 8487
32 Electricals or electronic 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) Orthopaedic implants

(viii) Internal prosthetic replacements;

(ix) Scalp vein set;

(x) Deep brain stimulator

(xi) Ventricular peripheral shud;

(xii) Spinal implants;

(xiii) Automatic impalpable cardiac defibrillators17;

(xiv) Pacemaker (temporary and permanent);

(xv) Patent ductusarteriosus, 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;

9018 to 9022

Provided that nothing contained in serial number 33 shall apply to foreign companies having only liaison offices. Provided further that nothing contained in this rule shall apply to a company which is classified as a micro enterprise or a small enterprise including as per the turnover criteria under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).

Rule 4 – Applicability for cost audit:- (1)Every company specified in item (A) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more.

(2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more.

(3) The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3, and-

(i) whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or

(ii) which is operating from a special economic zone.

(iii) which is engaged in generation of electricity for captive consumption through Captive Generating Plant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005;

Rule 5 – Maintenance of records:- (1) Every company under these rules including all units and branches thereof, shall, in respect of each of its financial year commencing on or after the 1st day of April, 2014, maintain cost records in form CRA-1.

Provided that in case of company covered in serial number 12 and serial numbers 24 to 32 of item (B) of rule 3, the requirement under this rule shall apply in respect of each of its financial years commencing on or after 1st day of April, 2015

(2) The cost records referred to in sub-rule (1) shall be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin or each of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis.

(3) The cost records shall be maintained in such manner so as to enable the company to exercise, as far as possible, control over the various operations and costs to achieve optimum economies in utilisation of resources and these records shall also provide necessary data which is required to be furnished under these rules.

*****

Disclaimer: This article is for informational purposes only and is not professional advice. The author, associates, and any third parties mentioned are not liable for any damages, losses, or liabilities that may arise in form or manner. The information provided is subject to errors, omissions and misstatement including facts, figures, opinions, views, bare acts, rules, and the interpretation of Acts, rules, and regulations, etc,. The author makes no warranties regarding the accuracy, completeness, or suitability of the information. Readers should seek professional advice and conduct their own research before making decisions based on the information provided. By using the information in this article, readers agree that the author and associates are not responsible for any consequences, financial or otherwise.

Author Bio

Qualification: CMA
Company: NK Rajprakash & Co
Location: Tamil Nadu, IN
Member Since: 11 Jul 2017 | Total Posts: 2

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