Rules governing maintenance of cost accounting records and cost audit as per Section 148 of the Companies Act, 2013:
COST AUDIT:
Rule 4 states that cost audit would be applicable to a company if the classification of company falls under Industry / Sector / Product / Service provided in Table A or Table B and:
(a) Overall annual turnover from all products / services is of Rs. 50 crore or more and aggregate turnover from individual product / services for which cost records are required to be maintained is Rs. 25 crore or more – if the classification falls under Table A, and
(b) Overall annual turnover from all products / services is of Rs. 100 crore or more and aggregate turnover from individual product / services for which cost records are required to be maintained is Rs. 35 crore or more – if the classification falls under Table B.
This means that Cost Audit shall be applicable to those companies whose products / services falls under the sectors which are mentioned in the tables (Table A – Regulated sectors and Table B – Non-regulated Sectors) to the Companies (Cost Record and Audit) Amendment Rules 2019 dated 15-10-2019.
For any company to fall under the requirement of Cost Audit following two tests shall apply:
a. Coverage under Table – A and / or Table – B.
Company’s product / services shall fall under one or more categories given under Table A and / or Table B. AND the respective Central Excise Tariff Act (CETA) headings (wherever applicable).
b. Turnover:
(i) If the products or services of the company falls under Table A – Regulated sectors:
Overall annual turnover from all products and /or services is Rs. 50 crore or more AND aggregate turnover from individual product or services for which cost records are required to be maintained is Rs. 25 crore or more, during the immediately preceding financial year;
(ii) If the products or services of the company falls under Table B – Non-regulated Sectors:Overall annual turnover from all products and / or services is Rs. 100 crore or more AND aggregate turnover from individual product or services for which cost records are required to be maintained is Rs. 35 crore or more, during the immediately preceding financial year.
Exemption from applicability of Cost audit:
The requirement of Cost Audit under these rules shall not apply to a company which is covered in Rule 3, and –
i. whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or
ii. which is operating from a special economic zone.
Table (A) – Regulated Sectors
| S. No. | Industry / Sector / Product / Service | CETA Heading (wherever applicable) |
|---|---|---|
| 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; including activities that require authorisation or license under the Indian Telegraph Act, 1885. | Not applicable |
| 2 | Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 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. |
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
| S. No. | Industry / Sector / Product / Service | CETA Heading (wherever applicable) |
|---|---|---|
| 1 | Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding ancillary items; companies supplying exclusively under this clause are deemed covered. | 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 |
Notes:
- The thresholds for applicability of cost record rules are based on either turnover or net worth, as specified in Rule 3.
- “Net worth” and “turnover” shall have the meanings assigned to them in the Companies Act, 2013.
- The Central Government may, by notification, amend the schedule of products and services from time to time.
Provided that nothing contained in serial number 33 shall apply to foreign companies having onlyliaison offices.
Provided further that nothing contained in this rule shall apply to a company which is classified as amicro 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).
Disclaimer:
The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts made to provide authentic information, it is suggested to cross-check the relevant sections, rules under the Companies Act, 2013 for better understanding.