MCA enlarges the list of cases where companies should get their cost records audited

Section 233B of the Companies Act, 1956 – Audit of cost accounts in certain cases – Order under section 233B

Order [F. No. 52/26/CAB-2010], Dated 6-11-2012

Consequent upon notification of the Product or Activity Group classification published vide S.O. 1747(E) dated 7th August, 2012 and in supersession of the earlier Orders issued vide even number dated 2nd May 2011, 3rd May 2011, 30th June 2011 and 24th January 2012, the Central Government hereby makes the following Order.

2. In exercise of the powers conferred by sub-section (1) of section 233B of the Companies Act, 1956 (1 of 1956), the Central Government being of the opinion that it is necessary to do so, hereby directs that all companies to which the following Rules apply,

(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;

and which are engaged in the production, processing, manufacturing or mining of the products/activities included in the said Rules or covered in the following product or activity groups [Table-I] and wherein 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, shall get its cost accounting records, in respect of each of its financial year commencing on or after the 1st day of January, 2013, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959 (23 of 1959).

Table-I

3. In exercise of the powers conferred by sub-section (1) of section 233B of the Companies Act, 1956 (1 of 1956), the Central Government being of the opinion that it is necessary to do so, hereby directs that all companies to which the Companies (Cost Accounting Records) Rules, 2011 apply, and which are engaged in the production, processing, manufacturing or mining of the products/activities included in the following product or activity groups [Table-II], and wherein the aggregate value of the turnover made by the company from sale or 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 the 1st day of January, 2013, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959 (23 of 1959).

Table-II

Notes:

(a)  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.

(b)  In respect of those Product or Activity Groups mentioned in Table-I above corresponding to which no CETA Chapter Headings are applicable, the product/activity groups shall include all such activities that fall under the meaning of the respective product/activity group and are covered by the related Cost Accounting Records Rules mentioned in para 2 above.

(c)  In case of all such activities that are covered under the Cost Accounting Records Rules mentioned in para 2 above that are also covered under cost audit but for which no Product or Activity Group has been indicated in Table-I above, companies would use the appropriate Product or Activity Group code as given in the notification issued vide S.O. 1747(E) dated 7th August, 2012.

(d)  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.

(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 as per the terms mentioned in para 2 above.

(f)  Product Group No. 2008 – Electrical Energy mentioned in Table-I above would mean and be understood as generation of electrical energy or generation of electricity.

(g)  Product Group No. 1026 – Alcoholic Beverages mentioned in Table-II above would mean and include all products/activities covered in the Chapter Headings 2203 to 2208 of the Customs Tariff Act, 1975 (51 of 1975), excluding products of CETA Chapter Heading 2207 to the extent these are covered in the Cost Accounting Records (Sugar Industry) Rules, 2011.

(h)  In case of any Product or Activity Group where multiple units of measurement are in use for the products or activities covered therein, then the relevant Product or Activity Group shall be repeated against each unit of measurement separately.

 (i)  Wherever same CETA Chapter Headings have been shown against two or more Product or Activity Groups, the actual details shall be shown against the most appropriate Product or Activity Group.

4. Every company to which these orders apply shall get its cost accounting records audited in respect of each of its financial year commencing on or after the 1st day of January 2013, irrespective of whether the same was covered or not, either under the company specific cost audit orders issued prior to 31st March 2011 or under the industry specific cost audit orders issued after 1st April 2011 till date.

5. All companies that were earlier covered under industry specific orders dated 2nd May 2011 or 30th June 2011 or 24th January 2012 [subject to their meeting with the qualifying criteria mentioned therein] shall continue to comply with the earlier orders upto the financial year commencing prior to the 1st day of January 2013 and in continuum, with these orders in respect of each of its financial year commencing on or after the 1st day of January 2013.

6. Every company to which these orders apply shall follow the revised procedure for appointment of cost auditor as laid down vide Ministry of Corporate Affairs’ General Circular No. 15/2011 dated 11th April 2011 [as amended vide General Circular No. 36/2012 dated 6th November 2012].

7. The audit shall be conducted in such manner as will enable the cost auditor to prepare the report in accordance with the Companies (Cost Audit Report) Rules, 2011 read with the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2011, both as amended. The report of the cost auditor shall be forwarded to the Central Government, either by himself or by the lead cost auditor, in the prescribed XBRL format within the time stipulated under the Companies (Cost Audit Report) Rules, 2011.

8. If a company contravenes any provisions of these orders, the company and every officer thereof who is found to be in default, including the persons referred to in sub-section (6) of section 209 of the Companies Act, 1956, shall be punishable as per provisions under sub-section (2) of section 642 read with sub-section (11) of section 233B of the Companies Act, 1956 (1 of 1956).

9. These orders are subject to various clarifications issued by the Ministry of Corporate Affairs on the subject of cost audit; to the extent these are relevant and applicable. Any specific exemptions granted earlier to certain class of activities shall remain in force till further orders.