The pandemic has again brought the focus on the importance of cost management of resources in the most effective and most efficient manner. The government of India had already mandated the maintenance of Cost Records and Cost audits under Companies Act 2013. Through this article, we are trying to answer most of queries which a company can have with regard to cost records applicability or cost audit.
The relevant Acts/Rules/provisions with regard to cost records maintenance or cost audit or production of these documents before statutory authorities are given below
2) Companies Cost Records and Audit Rules 2014 as amended till date
5) Director’s Responsibility Statement
6) CGST/SGST Acts
Few queries which normally comes to the minds of the Directors/ CFOs/Compliance heads of organisations are given below with summarized replies
|1)||Whether the company has been mandated under section 148 of the Companies Act 2013 to maintain cost records||1st step is to check whether the company’s turnover is more than 35 Crores or not. If turnover exceeds Rs 35 Crores, then it needs to be checked whether any of the activities of the company are covered in any of the item under Table A or Table B of CCRAR 2014 (Refer Annexure 1). For this, firstly one needs to check the HSN code wise turnover of the company. This can be checked from the HSN codewise data which is being filed with the GST department through GSTR1. (to be consolidated on yearly basis for determination of overall turnover)
The companies engaged in the production of the goods or providing services, specified in the Tables below as per annexure 1, 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 accounts
|2)||What are cost records||Primarily, Cost Records are records (accounting and statistical) relating to the utilization of various resources for manufacture of goods or provision of services by the organisations.|
|3)||whether the cost audit is applicable or not||a) Every company specified in Table (A) of Annexure 1 shall get its cost records audited in accordance with CCRAR 2014 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 is rupees twenty five crore or more
b) Every company specified in table (B) of Annexure 1 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 CCRAR 2014 is rupees thirty five crore or more.
|4)||What to do if only maintenance of Cost Records is required||The financial auditor and directors are required to report about the applicability of section 148 and maintenance of cost records in the statutory documents viz Financial Audit Report and Director’s Responsibility Statement.|
|5)||What to do if Cost Audit is also applicable||Appoint Cost Auditor immediately and file CRA-2 with MCA|
|6)||When a company is required to appoint a Cost Auditor for statutory compliance under section 148||Please refer to the explanations below|
|7)||Within how many days the Cost Auditor should be appointed||The category of companies which are manufacturing goods or providing services falling under Table A or Table B and the thresholds limits laid down in rule 4,shall within one hundred and eighty days of the commencement of every financial year, appoint a cost auditor|
|8)||How the appointment has to be reported to MCA and by what time||Every company on which cost audit is applicable shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, through electronic mode, in form CRA-2|
|9)||Whether product level/ SKU wise/Itemwise data is required to be filed with MCA in case of multi product company||No, the data at eight digit HSN code is required to be filed with MCA in case of products and in case of services as per the relevant statutory requirement to the extent possible|
|10)||Whether service providers are also covered under cost audit||Yes, only some services are covered, which have been mentioned in Table A or Table B|
|11)||What type of data is required to be filed with MCA as part of Cost Audit||The data pertaining to costing, HSN codewise profitability, GST reconciliations, Related party Transactions, ratios, value addition etc. are required to be reported|
|12)||Whether Cost Audit Annexures and Cost audit Report is required to be approved by Board of Directors||The Cost Audit annexures are required to be approved by the board of directors before these are given to Cost Auditor for conducting cost audit.
The Cost Auditor is required to submit Cost Audit Report in CRA-3 form which is required to be considered and examined by Board
|13)||How to file the Cost Audit/data or report with MCA||The Cost Audit Report is required to be filed in XBRL format through CRA-4|
|14)||What are the due dates for issuing of Cost Audit Report & filing of cost audit annexures and cost audit report in CRA-4 with MCA||The cost audit report should be issued within 180 days of the close of the financials year to which the report relates.
(6) Every company covered under cost audit shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report alongwith full information and explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language format.
|15) 1||How the cost data will be used by MCA||The cost audit data is used by different stake holders for policy decision making.
HSN codewise costing and profitabilities are available only in cost audit data on which GST rates are based.
Primarily, turnover means gross turnover made by the company from the sale or supply of all products or services during the financial year. It includes any turnover from job work or loan license operations, any other operational income but exclude duties and taxes. Export benefit received should be treated as a part of sales
Simplified tables for the activities to be undertaken for compliance with section 148 of the Companies Act 2013 with regard to audit of Items of Cost in Respect of Certain Companies
Note 1: whether maintenance of cost records has been specified by the Central Government under subsection (1) of section 148 of the Companies Act and whether such accounts and records have been so made and maintained; (Reference: Companies (Auditor’s Report) Order, 2020.
Note 2: 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 (Reference: The Companies (Accounts) Rules, 2014)
The companies on which cost records maintenance is applicable may have to undergo cost audit in case further condition of aggregate turnover and tablewise turnover is achieved
Turnovers for the previous years are to be considered for the applicability of section 148 of the Companies Act 2013. Once the cost audit is applicable, it has to be continued even if turnover falls below the minimum criterion in any of the succeeding years.
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) will not be covered.
It is important to note that the cost statements, including other statements to be annexed to the cost audit report, shall be approved by the Board of Directors before they are signed on behalf of the Board by any of the director authorised by the Board, for submission to the cost auditor to report thereon
Through this article an attempt has been made to answer to many queries with regard to the applicability of cost records maintenance and cost audit under section 148 of the Companies Act 2013.
Companies manufacturing products or providing services as have been mentioned in Table A (Regulated Sectors) or Table B Non Regulated sectors will be covered under Section 148 after fulfilling the turnover criterion
Table (A) Regulated Sectors
|Sl.no||Industry /Sector/ Product/Service||Customs Tariff Act Heading
|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 – 2016;
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.|
Table (B) Non-regulated Sectors
|SN||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)10;||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, 530713, 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.|
|26.||Plastics and Polymers;||3901 to 3914; 3916
|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;
(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|
Penal provisions for non-compliances:
If any default is made in complying with the provisions of section 148,—
(a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147;
(the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees).
(b) the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147.
Summarised provision: (If cost auditor of a company contravenes any of the provisions of section 148, the cost auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less. Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less)
An attempt has been made to explain the provisions in simplified manner. The readers are requested to go through the provisions in details from the gazette notifications. The author has explained the provisions as per his understanding,
The readers may send mail for any enquiries/clarifications to firstname.lastname@example.org