Thursday, 17 January 2013

Industries covered under cost audit for FY 2011-12 & 2012-13

Dear Professional Collegues :

Companies are required to disclose full particulars of the cost auditor along with the due date and actual date of filing of the Cost Audit Report by the cost auditor, in its Annual Report for each relevant financial year. Since the notification has made effective from April 1, 2011, companies under cost audit are required to furnish the details in its Annual Report from the financial year 2011-12.

But still there is confusion in the minds of professional whether their company is covered under cost audit or not and many of them has shown in their report that the company is not coming under cost audit though it is not that . To Here is a list of industries covered under cost audit which are 

INDUSTRIES COVERED UNDER COST AUDIT  for FY 2011-12 & 2012-13
List of Industry/Activity under Cost Audit as on date
Criteria : Effective on all Companies
having turnover of Rs. 20 crores or more
or
having net worth of Rs. 5 crore
or
listed or getting listed in any Stock Exchange

(MCA Order No. F.No.52/26/CAB-2010 dtd 2nd May 2011)  

S.No.
Name of the Industry
Description of Activity and Relevant Chapter Heading of the Central Excise Tariff Act, 1985
Effective from Financial Year commencing
1.
Telecommunication Industry
Act, process, procedure, function, operation, technique, treatment or method employed in relation to telecasting, broadcasting, telecommunicating voice, text, picture, information, data or knowledge through any mode or medium
1st April 2011
2.
Petroleum Industry
Chapter 27 of CETA 1985 or
Production, processing, manufacturing or mining of crude oil, gases [including Natural Gas, Compressed Natural Gas, Liquefied Petroleum Gas and regasified gases, etc. as defined in the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006)] or Biogas or any other petroleum products
1st April 2011
3.
Electricity Industry
Generation of electricity from any source of energy, and includes transformation, transmission, distribution, and/or supply of electricity by any mode, or medium
1st April 2011
4.
Sugar Industry
Chapters 17 and 22 of CETA 1985 or
Production, processing, or manufacturing of any form or grade of sugar, molasses, or alcohol (including ethyl alcohol, rectified spirit, absolute alcohol, denatured alcohol, power alcohol, or solvent blends etc. but excluding potable alcohol) by using any raw materials
1st April 2011
5.
Fertilizer Industry
Chapter 31 of CETA 1985 or
Fertilizers as defined in clause (h) of Section 2 of the Fertilizer (Control) Order, 1985 made under Section 3 of the Essential Commodities Act, 1955 (10 of 1955)
1st April 2011
6.
Pharmaceutical Industry
Chapters 29 and 30 of CETA 1985 or
Production, processing, or manufacturing of bulk drugs or formulations and includes the meaning assigned to them under the Drugs (Prices Control) Order 1995
1st April 2011




List of Industry/Activity under Cost Audit as on date
Criteria :Effective on all Companies
having turnover of Rs. 100 crores or more
or
listed or getting listed in any Stock Exchange
(MCA Order No. F.No.52/26/CAB-2010 dtd 3rd May 2011)

SNo.
Name of the Industry
Description of Activity and Relevant Chapter Heading of the Central Excise Tariff Act, 1985
Effective from Financial Year commencing
7.
Cement
Chapter 25, 38 and 68 of CETA 1985
1st April 2011
8.
Tyres & Tubes
Chapter 40 of CETA 1985
1st April 2011
9.
Steel
Chapter 72 and 73 of CETA 1985
1st April 2011
10.
Paper
Chapter 47 and 48 of CETA 1985
1st April 2011
11.
Insecticides
Chapter 38 (includes all classes of Insecticides as defined under clause (e) of section 3 of the Insecticides Act, 1986 (46 of 1968) and included in the schedule annexed to the said Act and as amended from time to time.
1st April 2011
12.
Glass
Chapter 70 of CETA 1985
1st April 2011
13.
Paints & Varnishes
Chapter 32 of CETA 1985
1st April 2011
14.
Aluminum
Chapter 76 of CETA 1985
1st April 2011

Procedure for Appointment of Cost Auditor:

Step 1:Certificate from Cost Auditor
Obtain Certificate from Cost Auditor regarding compliance of section 224 (1- B) of the Companies Act, 1956.

Step 2: Board Resolution
Pass Board Resolution proposing appointment of cost auditor

Step 3:File Form 23C and Due date of filing Form 23C
The Company shall e-file its application with the  Central Government on www.mca.gov.in portal, in the prescribed Form 23C within ninety (90) days from the date of commencement of each financial year, along with the prescribed fee as per the Companies (Fees on Application) Rules, 1999 as amended from time to time and other documents as per existing practice i.e.
(i)            certified copy of the Board Resolution proposing appointment of cost auditor;
and
(ii)           copy of the certificate obtained from the cost auditor regarding compliance of section 224 (1- B) of the Companies Act, 1956
However where a company is covered under cost audit for the first time vide cost audit order dated 2nd may 2011 , 3rd may 2011 , 30th june 2011 or 24th jan 2012 , the period of 90 days shall be counted from the date of concerned order. Every company has to follow the procedure prescribed vide MCA Circular No.15/2011 dated April 11 , 2011.

Step 4 : Approval by Central Govt.
Prior approval would be deemed to have been granted if the Central Government does not raise any query within 30 days of filing of Form 23C.
In case the Central Government raises any query within the said period of 30 days, the company would be required to clarify the issues and re-submit the Form 23C. The period of 30 days, in this case, would run from the date of resubmission of Form 23C.

Step 5  Formal letter of appointment to the Cost Auditor
After obtaining approval of the Central Government (deemed or otherwise),the Company will be required to issue a formal letter of appointment to the cost auditor.

Step 6 File Form 23D by Cost Auditor
The Cost Auditor is required to inform the Central Government within thirty days of receipt of formal letter of appointment from the Company. Such intimation is required to be done in prescribed e-Form 23 D along with a copy of such appointment.

Other Points

(a)  Competent Authority :
As per provisions of section 233B(2), the Board of Directors of a Company can appoint a cost auditor after obtaining prior approval of the Central Government. Under the revised procedure, the first point of reference will be the Audit Committee to ensure that the cost auditor is free from any disqualification as specified under section 233B (5) read with section 224 and sub-section (3) or sub-section (4) of section 226 of the Companies Act, 1956. The Audit Committee should also ensure that the cost auditor is independent and is at arm's length relationship with the company. After ascertaining the eligibility, the Audit Committee will recommend to the Board of Directors for appointment of the Cost Auditor.
In those companies where constitution of an Audit Committee is not required by law, the functions of the "Audit Committee" as per the procedure will be discharged by the "Board of Directors".

(b)  Disclosure to be made by Company in Annual Report:

The Company is required to disclose full particulars of the cost auditor along with the due date and actual date of filing of the Cost Audit Report by the cost auditor, in its Annual Report for each relevant financial year. Since the notification has made effective from April 1, 2011, companies under cost audit are required to furnish the details in its Annual Report from the financial year 2010-11.

Since the cost audit report of a particular financial year may not have been submitted before publication of the Annual Report, relevant details of due and actual date of filing for the last financial year and the due date of filing for the current year may be published in the Annual Report.

© Additional Fee for Late filing of Form 23C
Till 6th August 2012 , there were no penal provisions in the companies ( Fees on Applications) Rules, 1999 for delay in filing of Forms but as per MCA  notification dated 7th August 2012 , the penal provisions have been made applicable which are given below.

Period of Delay                                Fee Payable with the Application

Up to 30 days
          Two times of normal fee
More than 30 days and up to 60 days
           Four times of normal fee
More than 60 days and up to 90 days
           Six times of normal fee
More than 90 days
           Nine times of normal fee

(d) Normal Fee as per the Companies (Fees on applications ) Rules , 1999 :

Application made by  :                                                             Amount of Fees to be paid(Rs.)
1              A Company having an Authorised Share Capital of
(a)   Less than Rs.25 Lakh                                                                            500.00
(b)   Rs.25 Lakh  or more but less than Rs.5 Cr                                            1000.00
(c)   Rs. 5 Cr or More                                                                                   2000.00
     2.         A company limited by Guarantee but not having a share capital                   500.00
     3.         By an Association or proposed company for issue of licence
     under section 25 of the Act                                                                           500.00
     4.      By a company having a valid licence issued under section 25 of the Act          500.00
     5.      By a Foreign Company                                                                                   1000.00

PENAL PROVISIONS FOR NON-COMPLIANCE:
NON-COMPLIANCE BY COMPANY
If a Company contravenes any provision of this circular, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of Section 209 of the Act shall be punishable as provided under sub-section (2) of Section642 read with sub-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956.

Relevant provisions of Section 209 of the Companies Act, 1956 are as follows:

Sub-section (5) of Section 209 provides that if any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company there under, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeking that those requirements were complied with and was in a position to discharge that duty:

Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

Sub-section (6) of Section 209 provides that the persons referred to in sub-section (5) are the following, namely:—

(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and
(d) where the company has neither a managing director nor manager, every director of the company;

Sub-section (7) of Section 209 provides that  if any person, not being a person referred to in sub-section (6), having been charged by the managing director, manager or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which my extend to six months, or with fine which may extend to ten thousand rupees, or with both.

Relevant provision of  Section 642 of the Companies Act 1956 is as under:

Sub-section (2) of Section 642 provides that any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.

Non compliance by Cost Auditor:

If default ismade by the cost auditor in complying with the aforesaid provisions, he shall be punishable with fine, which may extend to five thousand rupees

compiled by :

CMA Krishna Dasan.A
Mob: 98711-28831
Email: aknair2002@cmaglobal.net.in
Website: www.cmaglobal.net.in