Applicability of Cost Records and Cost Audit

By / / Companies Act

1. What are Cost Records?

  • “Cost Records” means books of account relating to utilisation of materials, labour and other items of cost as applicable to the production of goods or provision of services
  • A company should maintain cost records in Form CRA-1. Form CRA-1 is categorised into 30 main headings under which the details can be maintained

2. What are the 30 main headings as prescribed in Form CRA-1?

1. Material Cost11. Research and Development expenses21. By Products and Joint Products
2. Employee Cost12. Quality Control Expenses22. Adjustment of Cost Variances
3.Utilities13. Pollution Control Expenses23. Reconciliation of Cost and Financial Accounts
4. Direct Expenses14. Service Department Expenses24. Related Party Transactions
5. Repair and Maintenance15. Packing Expenses25. Expenses or Incentives on Exports
6. Fixed Assets and Depreciation16. Interest and Financing Charges26. Production records
7. Overheads17. Any other item of Cost27. Sales records
8. Administrative Overheads18. Capacity Determination28. Cost Statements
9. Transportation Cost19. Work-in-progress and finished stock29. Statistical Records
10. Royalty and Technical Know-how20. Captive Consumption30. Records of Physical Verification

3. Who should maintain Cost records?

  • As per Rule 3 of Companies (Cost Records and Audit) Rules, 2014, Cost Records are required to be maintained:
    1. If a company falls under the Regulated Sectors or Non-Regulated Sectors specified in Table A and B of the Companies (Cost Records and Audit) Rules, 2014 and
    2. The aggregate turnover of the company from all its production or service is more than Rs.35 crores during the immediately preceding financial year.

4. Does Rule 3 of Companies (Cost Records and Audit) Rules, 2014 relating to maintenance of Cost records apply to Micro, small or medium enterprises?

  • No, nothing contained in this rule shall apply to a company which is classified as a micro enterprise or a small enterprise as section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006.
  • However, the same shall apply to a medium enterprise as per section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006

5. What are all the regulated sectors as contained in Table A of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014?

Sl. NoIndustry/ Sector/ Product/ Service
1Telecommunication 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 requires authorization or license issued by the Department of Telecommunications, Government of India under Indian Telegraph Act, 1885.
2Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003.
3Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006.
4Drugs and pharmaceuticals
5Fertilizers
6Sugar and industrial alcohol

6. What are all the Non – Regulated sectors as contained in Table B of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014?

Sl. No Industry/ Sector/ Product/ Service
1 Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any 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.
2 Turbo jets and turbo propellers
3 Arms and ammunitions and Explosives
4
  • Propellant powders
  • Prepared explosives (other than propellant powders)
  • Safety fuses
  • Detonating fuses
  • Percussion or detonating caps
  • Igniters
  • Electric detonators
5
  • Radar apparatus
  • Radio navigational aid apparatus and
  • Radio remote control apparatus;
6 Tanks and other armoured fighting vehicles, motorised, 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
7
  • Port services of stevedoring
  • Pilotage
  • Hauling
  • Mooring
  • Re-mooring
  • Hooking
  • Measuring
  • Loading and unloading services rendered for a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports;
8
  • Aeronautical services of air traffic management
  • Aircraft operations
  • Ground safety services
  • Ground handling
  • Cargo facilities and supplying fuel

rendered by airports and regulated by the Airports Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008);
9 Iron and Steel
10 Roads and other infrastructure projects corresponding to para No. (1) (a) as specified in Schedule VI of the Companies Act, 2013.
11 Rubber and allied products being regulated by the Rubber Board constituted under the Rubber Act, 1947.
12 Coffee and tea
13
  • Railway or tramway locomotives
  • Rolling stock
  • Railway or tramway fixtures and fittings
  • Mechanical (including electro mechanical) traffic signalling equipment’s of all kind
14 Cement
15 Ores and Mineral products
16 Mineral fuels (other than Petroleum), mineral oils etc.
17 Base metals
18
  • Inorganic chemicals
  • Organic or inorganic compounds of precious metals
  • Rare-earth metals of radioactive elements or isotopes and
  • Organic Chemicals
19 Jute and Jute Products
20 Edible Oil
21 Construction Industry as per para No. (5) (a) as specified in Schedule VI of the Companies Act, 2013.
22 Health services, namely

  • Functioning as or running hospitals
  • Diagnostic centres
  • Clinical centres or test laboratories
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.
24 Milk powder
25 Insecticides
26 Plastics and polymers
27 Tyres and tubes
28 Pulp and Paper
29 Textiles
30 Glass
31 Other machinery and Mechanical Appliances
32 Electricals or electronic machinery
33 Production, import and supply or trading of following medical devices, namely;

  • Cardiac stents
  • Drug eluting stents
  • Catheters
  • Intra ocular lenses
  • Bone cements
  • Heart valves
  • Orthopaedic implants
  • Internal prosthetic replacements
  • Scalp vein set
  • Deep brain stimulator
  • Ventricular peripheral shud
  • Spinal implants
  • Automatic impalpable cardiac deflobillator
  • Pacemaker (temporary and permanent)
  • Patent ductus arteriosus, atrial septal defect and ventricular septal defect closure device
  • Cardiac re-synchronize therapy
  • Urethra spinicture devices
  • Sling male or female
  • Prostate occlusion device
  • Urethral stents

Provided that nothing contained in serial number 33 shall apply to foreign companies having only liaison offices.

7. Applicability of Cost Audit

  • In respect of companies in the Regulated sectors as contained in Table A of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 shall get its cost records audited if the
    1. Overall annual turnover of the company from all its products and services during the immediately preceding financial year is 50 crore or more and
    2. Aggregate turnover of the individual products or service for which cost records are required to be maintained under Rule 3 is 25 crore or more.
  • In respect of companies in the Non-regulated sector as contained in Table B of Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 shall get its cost records audited if the
    1. Overall annual turnover of the company from all its products and services during the immediately preceding financial year is 100 crore or more and
    2. Aggregate turnover of the individual products or service or services for which cost records are required to be maintained under Rule 3 is 35 crore or more.

8. Non applicability of Cost Audit for a company

  • The requirement for cost audit under these rules shall not apply to the following companies
    • For which maintenance of cost records is applicable under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 AND
      1. whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue or
      2. which is operating from a special economic zone
      3. which is engaged in generation of electricity for captive consumption through Captive Generating Plant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005”.

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