CMA Arif Farooqui


As per notification issued by Ministry of Corporate Affairs, dated 3rd June, 2011; The Companies (Cost Accounting Records), Rules 2011 shall apply to every company, including a foreign company, which is engaged in ……..

a)      Production

b)     Processing

c)      Manufacturing

d)     Mining Activities

And satisfied any one of the following conditions —-

        i.            The aggregate value of Net Worth as on last date of immediately preceding financial year, exceeds Rs 5 Crores or

      ii.            Aggregate value of turnover during immediately preceding financial year, exceeds Rs 20 Crores or

    iii.            Company’s Equity or Debt Securities are listed or in the process of listing on any Stock Exchange, whether in India or Outside India

Applicable from: Financial Year 2011- 2012

“Production Activity” includes any act, process, or method employed in relation to –

a)    Transformation of tangible inputs (raw materials, semi-finished goods, or sub-assemblies) and intangible inputs (ideas, information, know how) into goods or services; or

b)    Manufacturing or processing or mining or growing a product for use, consumption, sale, transport, delivery or disposal; or

c)    Creation of value or wealth by producing goods or services.

“Processing Activity” includes any act, process, procedure, function, operation, technique, treatment or method employed in relation to

a.             Altering the condition or properties of inputs for their use, consumption, sale, transport, delivery or disposal; or

b.             Accessioning, arranging, describing, or storing products; or

c.              Developing, fixing, and washing exposed photographic or cinematographic film or paper to produce either a negative image or a positive image; or

d.              Printing, publishing, finishing, perforation, trimming, cutting, or packaging; or

e.             Pumping oil, gas, water, sewage or any other product; or

f.               Transforming or transmitting, distributing power or electricity; or

g.             Harboring, berthing, docking, elevating, lading, stripping, stuffing, towing, handling, or warehousing products; or

h.             Preserving or storing any product in cold storage; or

i.                Constructing, reconstructing, reconditioning, repairing, servicing, refitting, finishing or demolishing of buildings or structures; or

j.                Farming, feeding, rearing, treating, nursing, caring, and stocking of living organisms; or

k.              Telecasting, broadcasting, telecommunicating voice, text, picture, information, data or knowledge through any mode or medium; or

l.                Obtaining, compiling, recording, maintaining, transmitting, holding or using the information or data or knowledge; or

m.           Executing instructions in memory to perform some transformation and/or computation on the data in the computer’s memory.

“Manufacturing Activity” includes any act, process or method employed in relation to –

a)      Transformation of raw materials, components, sub-assemblies, or parts into semi-finished or finished products; or

b)     Making, altering, repairing, fabricating, generating, composing, ornamenting, furnishing, finishing, packing, re-packing, oiling, washing, cleaning, breaking-up, demolishing, or otherwise treating or adapting any product with a view to its use, sale, transport, delivery or disposal; or

c)      Constructing, reconstructing, reconditioning, servicing, refitting, repairing, finishing or breaking up of any products.

“Mining Activity” includes any act, process or method employed in relation to the extraction of ores, minerals, oils, gases or other geological materials from the earth’s crust, including sea bed or river bed.

Exception: Provided that these rule shall not apply to a company

v  Body corporate governed by any Special Act;

v  Provided further that these rules shall not apply to the activities or products covered in any of the following rules,-

a)      Cost Accounting Records (Bulk Drugs) Rules, 1974

b)      Cost Accounting Records (Formulations) Rules, 1988

c)      Cost Accounting Records (Fertilizers) Rules, 1993

d)     Cost Accounting Records (Sugar) Rules, 1997

e)       Cost Accounting Records (Industrial Alcohol) Rules, 1997

f)       Cost Accounting Records (Electricity Industry) Rules, 2001

g)      Cost Accounting Records (Petroleum Industry) Rules, 2002

h)      Cost Accounting Records (Telecommunications) Rules, 2002

The companies covered under the above mentioned 8 rules (a to h) will continue to maintain cost records as mentioned in the respective rules and be subject to Cost Audit every year as per the MCA (Cost Audit Branch) Cost Audit Order dated 2nd May 2011.

CARR 2011, are not applicable to companies doing business in -:

Wholesale or retail trading.

Banking & Financial






Tourism, Travel &


Business/ Professional Consultancy

IT & IT enabled services

Research & Development

Postal/ Courier Services


Job Work

 Unless any of these have been specifically covered under any other Cost Accounting Records Rules.

Maintenance of Cost Records

a)      Every company to which these rules apply, including all units and branches thereof shall, in respect of each of its financial year commencing on or after the 1st day of April, 2011, keep cost records.

b)     The cost records shall be kept on regular basis in such manner so as to make it possible to calculate per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly/quarterly/half-yearly/annual basis.

c)      The cost records shall be maintained in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards (CAS) issued by The Institute of Cost Accountants of India; to the extent these are found to be relevant and applicable.

d)     All such cost records and cost statements, maintained under these rules shall be reconciled with the audited financial statements for the financial year specifically indicating expenses or incomes not considered in the cost records or statements so as to ensure accuracy and to reconcile the profit of all product groups with the overall profit of the company. The variations, if any, shall be clearly indicated and explained.

e)      All such cost records and reconciliation statements maintained under these rules, shall be kept in good order to a period of not less than eight financial years or where the company had been in existence for a period less than eight years, in respect of all the preceding years.

Compliance Report

Every company to which these rules apply shall submit a compliance report, in respect of each of its financial year commencing on or after the 1st day of April, 2011, duly Certified by a Cost Accountant, along with the Annexure to the Central Government, in the prescribed form

Time limit for submission of Compliance Report – Every company shall submit the compliance report  to the Central Government within one hundred and eighty days from the close of the company’s financial year to which the compliance report relates days i.e. last date will be 30th September 2012.

Note – Ministry of Corporate Affairs vide their General Circular No. 18/2012 dated 26th July, 2012 has said that all Cost Auditors and the concerned Companies will be allowed to file their Cost Audit Reports and Compliance Reports for the year 2011-12 [including the overdue reports relating to any previous year(s)] with the Central Government in the XBRL mode, without any penalty, upto 31st December, 2012.

Authentication of Annexure to the Compliance Report – The Annexure prescribed with the compliance report, as Certified by the Cost Accountant, shall be approved by the Board of Directors before submitting the same to the Central Government by the company.


(a)   If a company contravenes any provisions of these rules, the company and every officer thereof who is in default,  shall be punishable as provided under sub-section (2) of section 642 read with sub-sections (5) and (7) of section 209 of Companies Act, 1956. Punishment includes fine or imprisonment or both.

(b)   If default is made by the Cost Accountant in complying with the provisions of these rules, he shall be punishable with fine, which may extend to five thousand rupees.

Sources:  Notification and Circulars issued by Ministry of Corporate Affairs

1. Notification dated 3rd June 2011.

2. General Circular No 67/2011, dated 30th November 2011.

3. General Circular No 68/2011, dated 30th November 2011.

(Author can be reached at [email protected])

More Under Income Tax


  1. shailendra says:

    SVS (Shriram value services) Solution to simplify maintenance of CAR
    SERVICES and Cost compliance certificate OFFERED

    OPTION 1: software COST~PRO with initial consulting & implementation by SVS

    Product Features – Cost~Pro

    Standalone software & Compatible with all ERP systems
    Allows for Import & Export options in multiple formats (MS Excel, CSV, Text)
    Closely integrated with Financial Accounts
    Flexibility in grouping of Account codes into Cost element & Overhead categories
    Multi user architecture & multi level access for improved accessibility & security
    Compliant with CAS & GACAP requirements

    Data capturing facility

    Product Features – Cost~Pro

    Software provides for separate screens to capture following information **
    Practical & Normal capacity definition at Plant & Individual machine level
    Actual Capacity utilization (men & Machines) on a Shift/daily/monthly/annual basis
    Machine particulars
    Machine cycle time & machine set up time
    Labour particulars
    No of labourers – machine/operation/department wise
    Labour cycle time
    Product particulars
    Product weight
    Actual production quantity – Machine/operation wise
    Maintenance particulars – machine down time – preventive & break down
    Data captured would be used as basis of allocation of costs
    ** Data can also be uploaded through MS Excel/CSV files

    Minimum data Requirements

    Trial Balance – Expenses particulars
    Production & Sales figures
    BOM particulars /Material Cost
    Driver information *
    Machine cycle time
    Labour time/numbers
    Product weight
    Maintenance information
    Equivalent units e.t.c
    Power consumption
    Line wise depreciation details
    Inventory details
    – FG & WIP Opening stock particulars

    OPTION 2: Outsource Processing of Cost records to SHRIRAM VALUE SERVICES.

    This would involve

    Visit to representative plants & discussions with Plant representatives
    Extent of data availability visa vis requirements to be verified
    Best possible scenario within given limitations to be arrived at
    SVS to Process the Reports for 1 location for each company in the Group
    Training to be provided to client’s staff for processing at Other locations


    Installation of software
    Initial processing & training for preparation of CAR using Cost~Pro
    OPTION 1: Outsource Processing of Cost records to SHRIRAM VALUE SERVICES.

    This would involve

    Visit to plants & discussions with Plant representatives by representatives from Shriram value services
    Review extent of data availability visa vis requirements
    Best possible scenario within given limitations to be arrived at
    Formats for submission of data required for processing to be given
    Processing of reports to be done at SVS end
    Discussion of results with Plant representative & finalization
    Reconciliation with Financial records & reasons to be furnished by client

    If required Certification of CAR (issue of Compliance Report) can be done at SVS end


    Reports – Compliant with requirements of FORM B & Annexure to Compliance report

    Segment wise Cost Report
    Cost of Production/Operations (COP)*
    Cost of Sales & Margin Report (COS)*
    FG Stock valuation report
    Reconciliation with Financial accounts (Annexure to Compliance report)
    Machinery/Manpower Utilization Report
    *Data would be made available at unit / product group level – as per requirements of Clause 2 & 3 of Form B

    Need more detail: Kindly mail me at [email protected].

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