Wednesday, 21 November 2012

Applicability of Cost Accounting Record Rules to Construction Industry :


There is still confusion in the industry regarding applicability of Companies (Cost Accounting) Records  Rules 2011 . To clear the confusion I would like to invite attention of all concerned to the clarification given by Sh.B.B.Goyal , Advisor Cost to the Secretary General, Construction Federation of India, 1103 ,Antriksh Bhawan, 22,KG Marg, New Delhi -110001 vide Letter No. 52/1/cab/2012 of Ministry of corporate affairs, Cost audit Branch dated 25th may 2012. ( a copy of the letter reproduced below for your reference)

Salient  Features :

1.       All companies engaged in the construction and / or development (real Estate ) businesses who meet with the threshold limits laid down in Rule 3 of the Companies (Cost Accouning Recors) Rules ,2011 shall be required to maintain cost accounting records and file Compliance report with the Central government .

2.       Companies engaged in construction business as contractors or subcontractors wherein they are paid only the conversion charges are exempted from the applicability of companies (Cost accounting Records) Rules,2011

3.       These Rules do not apply to Non-Corporate entities (entities which are not registered under companies Act)

4.       No cost Audit applicable on the companies engaged in the construction and or development (Real Estate ) Business as on date.




Example of  Construction Industry Categories:

Construction involving civil and heavy engineering
Industrial and mining infrastructure
 Highways, roads, ports, railways, airports etc.
Rapid Mass Transport System,
Water Supply System,
Bulk Material Handling System,
River Linking Projects,
Sewerage System,
Solid Waste Management
Power systems
Irrigation and agriculture system
Telecommunication system
Real estate and Property development
Commercial real estate
Housing, schools, hospitals, Land and Township Infrastructure Development,
Construction projects involving specialty trades
Refineries, Chemical plants, Fertilizer plants including complex and heavy
process plant equipment
Oil and Gas projects including fabrication of Process Platforms, construction
of sub‐sea and other pipelines
Floating systems
Power projects
Nuclear Power Plant Construction
Transmission and distribution lines
Electrical Construction


Construction Project Models:

1                   Public Private Partnership (PPP) mode

BOO ‐ Build Own Operate
 BOLT ‐ Build Own Lease Transfer
 BOOST ‐ Build Own Operate Share Transfer
 BOT‐ Build, Operate and Transfer
 BOOT‐ Build, Own, Operate and Transfer
BOLT ‐ Build Own Lease Transfer
BLOT‐ Build, Lease, Operate and Transfer
DBFO ‐ Design Build Finance Operate
DBFOT‐ Design, Build, Finance, Operate and Transfer
EPC‐ Engineering, Procurement and Construction.
OMT ‐ Operate Maintain Transfer

2                   Real Estate Development model
3                   EPC  (Engineering, Procurement ,Construction)
      4.        Construction involving in-house fabrication or manufacturing
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                                                                              F.NO.52/1/CAB-2012
                                                                                Government of India
                                                                       Ministry of Corporate Affairs
                                                                                Cost Audit Branch

                                                                                                                                  
                                                                                                                              B-1 Wing,2ND Floor,                                                                                                                                                              
                                                                                                                              Paryavaran Bhavan,                                                                                                                                                                      
                                                                                                                              CGO Complex,                                                                                                                                                                
                                                                                                                              New Delhi-110003 
                                                                                                                              Dated the 25th May, 2012
To,
                The Secretary General,
                Construction Federation of India,
                1103, Antriksh Bhawan,
                22, K.G.Marg,
                New Delhi-110001

Subject: Exemption from applicability of Cost Accounting Records Rules to the Construction Industry.
Sir,
Please refer your letter dated 23rd March, 2012 on the subject cited.CFI had earlier made a similar reference on 19th December, 2011 and the matter was discussed in MCA on 11th January, 2012 with the representatives of CFI and of few leading construction/development companies wherein it was observed that all such companies are already maintaining cost accounting records for their internal requirements. Cost Accounting Records Rules 2011 do not visualize companies to change their cost accounting system if already in- place; but they are required to comply with the Generally Accepted Cost Accounting Principles and Cost Accounting Standards issued by the institute of Cost Accountants of India, to the extent these are found to be relevant and applicable and also file compliance report with the Central Government. It was also observed that existence of structured & verified cost accounting records would enable the companies to fulfill regulatory requirements; comply with the Tax Accounting Standards; and assist is their tax assessments.
2.            Based on the discussions held, detailed clarifications were issued on 16th January,2012 that       were duly acknowledged by the CFI vide their letter dated 27th January,2012 and also conveyed to all their member companies for implementation.
3.            However, the matter has been once again examined in the Ministry and it has been decided that there appear no reasons for granting any special exemption to the construction (incl. development or real estate) industry from the applicability of the Companies (Cost Accounting Records) Rules 2011.Hence the decisions already conveyed earlier vide letter dated 16th January, 2012 are being reiterated as under:
a)            All companies engaged in the construction and/or development (real estate) businesses who meet with the threshold limits laid down in Rule 3 of the Companies (Cost Accounting Records) Rules, 2011 shall be required to maintain cost accounting records and file compliance report with the Central Government in accordance with the provisions of these Rules. This includes companies undertaking construction jobs with the use of own materials(whether self manufactured/produced or procured from outside) and /or development of residential, commercial or industrial estates i.e. development of township, residential units, commercial complex, office blocks, industrial parks [including SEZ],etc. or construction of highways,rails,roads,bridges,industrial & no n-industrial under BOT/BOOT mode, or the projects undertaken as EPC contractor or the projects undertaken abroad by a company incorporated in India.
b)            As per MCA’s General Circular No.67/2011 dated 30th November 2011, companies engaged in construction business as contractors or sub-contractors wherein they paid only the conversion charges are exempted from the applicability of Companies (Cost Accounting Records) Rules,2011.
c)            Companies (Cost Accounting Records) Rules, 2011 do not apply to such Joint Ventures that are non-corporate entities [i.e. not companies registered under the Companies Act] or to unlisted companies that are below the specified threshold limits or to a body corporate governed by any special Act.
d)            As on date, no cost audit is applicable on the companies engaged in the construction and/or development (real estate) business.Hence, these companies are only required to maintain cost accounting records and file compliance report with the Central Government that can be signed by their employee cost accountant as defined in Rule 2( c ) of the Companies (Cost Accounting Records) rules,2011.

                                                                                                                                                                               





CMA Krishna Dasan.A
Mob: 98711-28831