The government may rectify the present system of selective cost audit that covers only a few companies while many others, mainly those in the private sector, are left out, according to a senior official in the Ministry of Corporate Affairs (MCA).

For instance, in the petroleum sector, only the public sector companies are covered, leaving out the private sector producers. “Private companies have been kept out of the purview of cost audit. While there is no clear explanation on this from the Ministry of Petroleum and Natural Gas, it does seem illogical to us,” said a senior official of the state-owned Indian Oil Corporation (IOC).

Conceding that this was illogical, a senior MCA official claimed ignorance of the order to this effect, which was issued in early 2007.

“State-owned oil firms are compensated for selling fuel at a loss. There are under-recoveries involved and thus an understanding of the costs involved is necessary,” said Petroleum Secretary RS Pandey, adding that this was not the case with private oil companies.

The petroleum industry is not the only sector that is facing this anomaly. In the power sector, too, none of the companies engaged in power generation through non-conventional sources, captive power plants resorting to sale of power and mini-hydro plants, among others, have been covered.

In fact, there are several industries where no cost audit orders have been issued so far, like the mining and metallurgy, and telecommunications sectors. As of today, of the 0.9 million registered companies, about 50,000 are covered by 44 cost accounting record rules (CARRs), while cost audit orders under Section 233B have been issued for less than 2,000 companies, which amounts to just 4 per cent of 50,000. Section 233B talks about audit of cost accounts in certain cases only.

In many other industries, very few cost audit orders exist, despite a very large number of companies falling within the scope of relevant CARR. For example, in the steel industry, a majority of the primary and secondary steel producers are not covered.

This phenomenon might change if the government accepts the recommendations of an eight-member Expert Group constituted by the MCA in 2008 to review the existing cost accounting record rules, cost audit report rules and formats, and the cost accounting standards.

The expert group is of the view that such a practice has led to a sense of discrimination. “This gets aggravated after knowing that many large companies and multinationals have been left out, while other relatively smaller ones have been covered. Many instances of even one’s next-door neighbour not covered for cost audit have been noticed,” the report said.

Moreover, selective coverage within a particular industry does not give any major advantage to the government for carrying out anti-dumping studies, tariff related studies, pricing studies, anti-competitive studies, subsidy related studies, sectoral studies or economic analysis for the simple reason that fully representative data of the industry is not available.

Industry associations have also been requesting the government for granting exemption to their member units that have been selectively covered so far.

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January 2021