The computerization of MCA records on the one side had brought smiles on the faces of compliance officers of the companies on the other hand it also gave the headache to them, as now it has become very easy for the regulators to press a button and send notices across thousands of companies for non-compliance of specific provisions. Same is the case with GST/Income tax non-compliances. Now the defaulters get notices at the same time from the department.
Though Companies Act mandated the maintenance of Cost Records and Cost Audit for companies fulfilling certain criteria, however, the companies used to ignore the mandate by simply mentioning in the Director’s Report and CARO report that Section 148 is not applicable. But no more such mis-declarations now as the with the use of software the companies are being identified and notices are being issued. It’s the right time for the companies to check the applicability clause from Companies Cost Records and Audit order 2014 as amended till date and appoint cost auditors before 17th September 2022, if required and for earlier years too.
The companies can approach us to check the applicability, if required.
Cost Audit has been mandated by the government to create cost consciousness and to ensure optimal utilization of resources in this competitive world. Apart from the above, the Government collects data for policy decision making from various sources and one of the main source of collection of HSN codewise data is cost audit annexures which are filed alongwith cost audit report in XBRL on MCA portal.
Many companies avoid appointment of cost auditors though the cost audit is applicable exposing the Directors/other KMP to the action for not following the provisions of the Companies Act.
Section 148 of the Companies Act 2013 deals with the applicability of Cost Records and Cost Audit. Now the MCA has started identifying the companies who have not complied with the provisions with regard to the appointment of Cost Auditor due to ignorance or otherwise and have started issuing the notices like the one as is given below as preliminary Notices for the year FY 2017-18. It is important to note that the non-compliance should be identified at the earliest by the management itself and it appoints the cost auditors before they receive any notice from the MCA in this regard.
As the cost audit applicability is determined on the basis of Previous Year’s turnover, the notice for 2017-18 contains the reference to the AOC 4/AOC-4 XBRL for the year 2016-17. It also mentions that the company meets the criteria.
Next the notice mentions about the penal provisions for not filing for CRA-2
In the next para it asks for the reasons for not filing the CRA-2 in the specific format and intimate to the department.
Steps to handle notices
Notice may be for non-appointment of cost auditor or non-filing of CRA-4 i.e cost audit report and annexures in xbrl format.
We are explaining the steps where the reference of the turnover has been given for understanding only, reasons for other type of non-compliance may need to be explained accordingly.
1. Check the reason given in the notice for non-compliance.
2. Cross verify the same with the data furnished by the company to MCA with its own records
3. In case the notice contains the reference to the turnover, check the HSN codewise turnover as per GST returns, it is required to be reported in the reply.
4. Map the same with the Financial turnover of the company
5. Once the HSN codewise turnover is identified, check the same with the Table A or Table B of the notification as provided at https://taxguru.in/company-law/companies-cost-records-audit-rules-2014.html
6. In case it is found that the company has received the notice by mistake, please identify the mistake and provide the response like in one case the company received the notice despite the fact that turnover was less than Rs One Hundred Crores, the company simply provide the HSN codewise details with a request to close the proceedings
7. If the company has actually defaulted, immediately the company should appoint the cost auditor, file form CRA-2 and generate SRN No.
8. Once the SRN No. is generated, file the reply with the MCA
9. Submission of reply with compliance will certainly help in case and further proceedings are launched against the company for non-compliance.
10. Identify justified reasons for non-compliance of section 148 of CA 2013 with regard to appoint of cost auditor and mention the same in the reply.
11. Keep and preserve the copy of all correspondence, it may help at any later stage.
12. Please correlate the reply with the declarations given by the directors and auditors in the Directors’ Report and Auditor’s report.
Many a times companies think of getting back dated consent forms and try to file the CRA-2 now, the company needs to be very careful as the same may have to face the scrutiny by MCA and the person giving the consent may also get into trouble.
The most appropriate remedy is to
1. to conduct the Board meeting,
2. appoint the Cost auditor in current date and
3. file the for CRA-2 immediately and
4. submit the reply to the MCA incorporating this fact.
The extract of the notices being issued in given below.
Sub: – Preliminary Notice for non-compliance u/s 148 of Companies Act, 2013 -Non- Appointment of Cost Auditor for FY 2017-18 ……..-reg.
It has been noted from the details filed by your company in Form AOC-4/ AOC-4 (XBRL) filed for FY 2016-17, that the annual aggregate turnover of the company for the goods covered under maintenance of cost records under Companies (cost records and audit) Rules, 2014 is Rs. XXXXXXX and the total turnover of the company is Rs. XXXXXXXXX. Accordingly, your company is meeting the prescribed criteria for appointment of cost auditor and conducting cost audit for the FY 2017-18.
2. It may be noted that appointment of Cost Auditor for conducting the cost audit and filing of e-form CRA-2 i.e. “Form of intimation of appointment of cost auditor by the company to Central Government” is mandatory under Section 148 of the Companies Act, 2013 read with Companies (cost records and audit) Rules, 2014 as amended from time to time. Non-compliance of the above provisions shall attract penal provisions against the company and its officers in default under Section 148(8) of the Act and Rules made thereunder.
3. In view of the above, you are requested to explain the reasons for non-appointment of Cost Auditor/ non-filing of e-form CRA-2 for FY 2017-18, within twenty-one days from the date of issue of this letter, through e-mail only at XXXXXXXXXX. The reply shall be furnished only in the prescribed format enclosed herewith.
Response to the preliminary notice for non-appointment of Cost Auditor for FY 2017-18
| 1. | Name of the Company | ||
| 2. | CIN of the Company | ||
| 3. | Financial Year | 2017-18 | |
| 4. | Annual turnover of the company during FY 2016-17 | ||
| 5. | 4 digit CETA heading wise annual turnover of the company during FY 2016-17 | ||
|
6. |
(a) | If e-form CRA-2 already filed, state the SRN and date of CRA-2 | |
| (b) | If e-form CRA-2 not yet filed, state the reasons for non-appointment of Cost Auditor/ non-filing of CRA-2 | ||
| (c) | Other response, if any | ||
| 7. | Whether e-Form GNL-3 is filed by the Company. If filed, state the SRN and date of the same. | ||
Signature:
Name:
Designation:
DIN/PAN:
Note: Attention is drawn to provisions of Section 448 read with Section 447 of Companies Act, 2013.
We need to keep in mind that the declaration/statement with regard to the applicability of cost records is required to be made every year through two different documents.
One is Companies (Auditor’s Report) Order and another is Director’s Report
In the Companies (Auditor’s Report) Order, 2020 further in the section Matters to be Included in the Auditor’s Report, the auditor is required to answer the following
Whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act and whether such accounts and records have been so made and maintained; [Paragraph 3(vi)]
Apart from the above, the disclosures by the directors are also required with regard to the applicability and maintenance of Cost Records. It’s high time for the organisations and concerned directors to realise that central government is placing high importance to the costing within the organisations. The notification no. GSR E 725 issued by Ministry of Corporate Affairs on 31st July 2018 was a testimony to the same.
Ministry of Corporate Affairs, Government of India had notified the amendment in the Companies (Accounts) Rules, 2014 which mandates the directors to report on requirement and the maintenance of cost records under section 148 of the Companies Act 2013. Extract is given below:
In the Companies (Accounts) Rules, 2014, in rule 8, (i) In sub-rule (5), after clause (viii) the following clauses shall be inserted, namely: –
“(ix) a disclosure, as to whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained,
The disclosure with regard to cost records is in two parts
1) whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company
2) Whether accounts and records have been made and maintained accordingly (please note that for this companies have to refer to CRA-1 issued by the MCA vide notification no 425 dated 30 June, 2014 as amended till date).
The maintenance of accounts/cost records is the responsibility of the management of the company. It is the top management of company which has to ensure that it is complying with the provision of the Companies Act.
The notice invites the attention towards section 448 read with section 447 of the Companies Act 2013 which talks about false statement and if now it is proved that the maintenance of cost records/cost audit was applicable but some the management and or the auditors have given the false statements, it will be really difficult for them to save themselves from adverse actions.
448. Punishment for false statement.
Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement, —
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material,
he shall be liable under section 447.
The Auditors/Directors may review the applicability of Cost Records and Cost Audit every year and better it would be if a certificate is taken from Practising Cost Accountant with regard to the applicability of section 148 of the Companies Act so as to avoid any adverse action at later stages.
The explanations given above are based on our understanding of the provisions and authorities/any other person may have different point of view. Readers are requested to check all the relevant provisions and feel free to contact us at navneetic@yahoo.com.
Author Bio
Need A certificate from a practicing Cost Accountant that the Company, which we have(are the auditors) audited need NOT have to appoint a CWA, as though the turnover is more than 100 crores , it is purely Trading in Caustic soda .9821087475