Companies (Cost Records and Audit) Rules, 2014 – Simplified
Applicability – Rule 1(2) specifies applicability from the date of publication in official gazette i.e. June 30, 2014.
Cost Records – Rule 2(e) lays down cost records as 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 as provided in section 148 of the Act and these rules.
Application of Cost Records – Rule 3 & Rule 4
Following companies, including foreign companies shall be required to include cost records in their books of accounts.
| Sector / Industry | Threshold Limit | Industry Type |
| Strategic Sector | Net Worth > Rs. 500 croreOR Turnover > Rs. 500 crore | Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item or items; Turbo jets and turbo propellers; Arms and ammunitions; Propellant powders; prepared explosives, (other than propellant powders); safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators; Radar apparatus, radio navigational aid apparatus and radio remote control apparatus; 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; |
| Industry regulated by a Sectoral Regulator or a Ministry or Department of Central Government | Multi-product or a multi services companyAny product or a service for which the Individual turnover > Rs. 50 crore A company, producing any one specific product or service Net Worth of the company > Rs. 150 crore OR Turnover > Rs. 25 crore Companies engaged in an industry regulated by a sectoral regulator The requirements of sectoral regulator regarding cost records shall be taken into account. | Port services of stevedoring, pilotage, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered by a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports under section 111 of the Major Port Trusts Act, 1963(38 of 1963); 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); 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 (other than broadcasting services) and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003), other than for captive generation (as defined under the Electricity Rules 2005); Steel; Roads and other infrastructure projects; Drugs and Pharmaceuticals; Fertilisers; Sugar and industrial alcohol; Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006(19 of 2006); Rubber and allied products being regulated by the Rubber Board. |
| Areas involving public interest | Multi-product or a multi services companyAny product or a service for which the Individual turnover > Rs. 50 crore A company, producing any one specific product or service Net Worth of the company > Rs. 150 crore OR Turnover > Rs. 25 crore | Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment's of all kind; Mineral products including cement; Ores; Mineral fuels (other than Petroleum), mineral oils etc.; Base metals; Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals; Jute and Jute Products; Edible Oil under Administrative Price Mechanism; Construction Industry; Companies engaged in health services viz. functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories; Companies engaged in education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business. |
| Companies (including foreign companies other than those having only liaison offices) engaged in the production, import and supply or trading of medical devices | Multi-product or a multi services companyAny product or a service for which the Lesser of: Individual turnover > Rs. 10 crore OR 1/3rd of Turnover A company, producing any one specific product or service Net Worth of the company > Rs. 150 crore OR Turnover > Rs. 25 crore | 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; and Urethral Stents. |
Non-Applicability – Rule 7
♥ Companies covered under Rule 3
AND
♥ Revenue from exports, in foreign exchange, > 75% of its total revenue
OR
♥ Operating from a special economic zone
Maintenance of Records – Rule 5
- To be maintained in respect of each financial year of applicable entity commencing on or after April 1, 2014 in respect of very applicable entity, its units and branches
- Format of Cost Records – Form CRA-1 to be maintained on regular basis
- Should facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities
- Should be prepared for every financial year on monthly or quarterly or half-yearly or annual basis
Cost Audit – Rule 6
- Cost auditor to be appointed within 180 days from the commencement of every financial year
- Form CRA-2 of Appointment of Cost Auditor needs to be filed – Earlier of
Thirty days from the Board meeting in which such appointment is made
or
One hundred and eighty days of the commencement of the financial year.
- Tenure of Cost Auditor – Expiry of 180 days from the closure of financial year or submissions of cost audit report in Form CRA-3 for the financial year.
- Cost Auditor shall forward his report in Form CRA-3 to the Board of Directors within a period of 180 days, who shall thereafter, within a period of 30 days from the date of receipt of copy of report, furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein, in form CRA-4.
Extension for filing Form CRA-2
General Circular No. 42/2014 has been notified by MCA on November 12, 2014 in relation to matters relating to the Companies (Cost Records and Audit) Rules, 2014.
Due to delay in availability of Form CRA-2 on MCA website, the date of filing of the said form without late penalty/fee has been extended to January 31, 2015. Those companies who have filed Form 23C for the year financial year 2014-15, need not file Form CRA-2 afresh.
Matters expressed in this write-up and the compilations are on the basis of our understanding of the Companies Act, 2013 and the existing rules regulations issued in this regard.. While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. We will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within this write-up or any information accessed herein.
The above has been compiled by CS Reema Jain, an Associate Member of ICSI. Her areas of interest include Corporate and Allied Laws and advisory services. For any queries or suggestions, she can be approached at reemajaincs@gmail.com
Full Judgment is also attachedrewith.Sec 292BB would operate prospectively as it curtails the right of the assessee
Hon'ble Hyderabad Bench has in the case of M/s. Ghanshyamdas Gems and Jewels v/s DCIT in IT(SS)A No. 16/Hyd/2011 has held that Section 292BB of the Income Tax Act, 1961 would operate prospectively as it curtails the right of the assessee.
Assessee submitted that the CIT(A) erred in holding that the provisions of section 292BB of the Act apply to the facts of the case and hence the assessment is in order, without considering the fact that the assessment is null and void for not issuing notice u/s. 143(2) in time. It was submitted that the provisions of section 292BB are prospective and the CIT(A) having accepted factual position that the notice u/s. 143(2) was issued beyond 12 months from the end of the month in which the return was filed, the CIT(A)should have noted that the assessment made was invalid.
Since the provisions of section 292BB curtails the right of the assessee it was held by the Special Bench of the Tribunal in Kuber Tobacco Products Pvt. Ltd. vs. DCIT, 117 ITD 273 that section 292BB would operate prospectively. Therefore, section 292BB will not apply to the notice issued on 29.4.2003 u/s. 144 r.w.s. 158BC of the Act. Further, in the case of CIT vs. Mr. Salman Khan in ITA(L) No. 2362 of 2009, the Bombay High Court held as under:
Held – Respectfully following the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Mr. Salman Khan in ITA(L) No. 2362 of 2009, we hold that the order of the CIT(A) is not sustainable as the provisions of s. 292BB cannot be invoked for the relevant period. As the notice u/s. 143(2) was served beyond the time limit prescribed by the Act, the subsequent scrutiny proceedings are null and void.
CHENNAI, NOV 14, 2014: THE issues before the Bench are - Whether in case a loan was taken from friend and repayment of the same was made in cash within the same financial year, it can be assumed that such taking of loan is for business exigency and it is not a case of undisclosed income and Whether the genuineness of the transaction to meet the immediate necessity can be accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B. And the verdict goes in favour of the assessee.
Facts of the case
The assessee, an individual, is engaged in the business of civil construction. It had filed its return of income for AY 2006-07, in which the assessee had debited various expenses like, payment of accounting charges, etc. According to AO, the assessee had to deduct TDS u/s 194J before making payment to the payee. It was claimed by the assessee that he was a labour supervisor and consequent to the sincere and dedicated work, he was awarded labour contract by his clients. He had no resources to finance the construction and hence he resorted to take loans from friends at time of emergency, particularly on Saturdays when labour payments had to be made. He also made certain payments in cash with regard to purchase of civil construction material and for accounting purposes without deducting TDS. AO disallowed the accounting charges paid u/s 40(a)(ia) and added the entire amount u/s 68 and imposed penalty u/s 271D and 271E. On appeal, CIT(A) confirmed the order of AO.
On further appeal, Tribunal allowed the appeals filed by the assessee - both in respect of quantum as well as penalty. Tribunal decided the quantum appeal holding that the payment made towards accounting charges to the site accountants was wrongly disallowed under Section 40a(ia) and it was not covered under Section 194J. The Tribunal held that the explanation of the assessee that Section 40a(ia) was introduced during the assessment year in question and the assesse's plea of bona fide mistake and impression that it will apply only for the next assessment year was accepted primarily on the ground that the assessee has admitted this amount as income and paid tax thereon and there is no loss to the Revenue and further more, the confusion in the mind of the assessee was justified on account of the fact that the provision was introduced from 01.04.2006. Hence, the Tribunal ordered deletion of this addition in the income. Insofar as the payment made to the Hardware company in cash, the Tribunal noticed that out of the total payment of Rs.41,53,008/-, a sum of Rs.74,647/- alone stands paid in cash and consequently, the Tribunal ordered deletion of the addition of Rs.14,647/- made u/s 40A(3). Insofar as taking loans from friends were concerned, the Tribunal reversed the findings of AO and that of CIT(A) that it should be added as an undisclosed income and concluded that the evidence given by the assessee in support of such short term loan within the assessment year was supported by individual affidavits of the persons from whom the amount was borrowed. The Tribunal observed that AO declined to look into those affidavits for paucity of time and summarily rejected the evidence, as not acceptable. The Tribunal found that AO did not deal with the explanation given by the assessee, which was based on individual affidavit of the persons from whom the money was borrowed, duly notarised. The Tribunal, however, gave credence to those statements made on oath and held that it was the duty of the Officer to examine the same before any decision is taken on the correctness or otherwise of the deposition made in the affidavit. Placing reliance on the decision reported in the case of Mehta Parikh & Co., reported in 30 ITR 181, the Tribunal decided the quantum appeal in favour of the assessee. Against which, the Revenue has not chosen to file any appeal. Tribunal also allowed the appeals filed by the assessee with regard to the penalty levied under Section 271D and 271E of the Income Tax Act.
Held that,
++ Tribunal, in both the cases, has taken note of the explanation given by the assessee before the authorities below that he has engaged in the construction business and he has started from scratch; that he did not have the financial capacity to undertake huge projects and therefore he had to go for short term cash borrowings from friends and known persons, which were repaid within the same assessment year and therefore, there was no need to reflect the same in the books of accounts; nevertheless the cause for taking this loan was on account of the need to pay the workers on weekends, namely, on Saturdays and Sundays on which date, there was no possibility of immediately accessing the bank. The exigency which forces the assessee to make such payment has been accepted and extracted in the order of the Tribunal. We find much force in such explanation, considering the nature of business and also taking note of the fact that the assessee is not a big time civil construction contractor. The Tribunal primarily was of the view that the loans taken in these cases were genuine and the exigency that arose out of the business was a cause for taking such loan. Since in the quantum appeal, the Tribunal found that the assessee was bona fide in such transaction, the Tribunal in exercise of power u/s 273B, considering the reasonable cause submitted by the assessee, thought it fit to set aside the entire penalty by accepting the explanation given by the assessee. No doubt, the decisions relied upon by the Tribunal reported in CIT Vs. Standard Brands ltd.2006-TIOL-217-HC-DEL-IT and 246 ITR 571 (Diwan Enterprises Vs. CIT) may not be applicable to the facts of the present case, as we are not concerned with the case falling u/s 68 where initiation of proceedings u/s 269SS would become meaningless. Here is a case where the loan taken from friends and repayment of the same in cash. The reason that taking of loan is found to be genuine and the same is for business exigency, it is not a case of undisclosed income. If the assessee had not given a reasonable cause, then certainly the initiation of proceedings for violation of 269SS and 269T would be justified. We find in the present case the reasonable cause for not levying penalty exists and the Tribunal was justified in allowing the assesse's appeal. On facts, the Tribunal has clearly held in the quantum appeal there was a bona fide on the part of the assessee and as a consequence finding reasonable cause, thought it fit to delete the entire penalty. We find no ground to interfere with the order of the Tribunal. The assessee has shown the receipt of cash and repayment of the same due to business exigency and that would amount to reasonable cause. The genuineness of the transaction to meet the immediate necessity was accepted by the Tribunal in the quantum appeal and that would amount to reasonable cause in terms of Section 273B. Hence, we find no question of law much less any substantial question of law arises for consideration in the above appeals. In the result, both the Tax Case (Appeals) stand dismissed. No costs. Consequently, M.P.No.1 of 2014 is also dismissed.
Reversal of Cenvat credit amount to non-availment of Cenvat credit -Assessee allowed to avail Abatement benefits
Abatement and Cenvat credit availed simultaneously but subsequently Cenvat credit reversed, tantamount to non-availment of Cenvat credit – Assessee allowed to avail the Abatement benefits
Central Warehousing Corporation Vs. Commissioner of Service Tax, Raigad [2014-TIOL-2182-CESTAT-MUM]
In the instant case, Central Warehousing Corporation (the Appellant) was rendering both taxable as well as exempted services. The Appellant was availing Cenvat credit of the common input services and not maintaining separate records in respect of such input services consumed for the dutiable output services and the exempted output services separately. However, the Appellant was following the procedure prescribed under Rule 6(3A) of the Cenvat Credit Rules, 2004 (the Credit Rules) which provides for reversal of Cenvat credit taken attributable to the exempted output services as per the formula prescribed thereunder. This reversal was done every month and subsequently at the end of the year, the reversal made wasfinalized based on the annual figures.
The Appellant have been filing the details of the reversals made to the Department, which was received and acknowledged by the Department. As the Appellant had reversed the Cenvat credit taken on the exempted output services, they claimed benefit of Notification 1/2006-ST dated March 1, 2006 ("Abatement Notification") which provides for an abatement of 70% from the value of services in respect of the taxable service of 'transport of goods in containers by rail services'.
The Revenuesought to deny the benefit of abatement on the ground that reversal of Cenvat credit after availing the Cenvat credit does not tantamount to non-availment of Cenvat credit and, therefore, the conditions of Abatement Notification stands violated. The Revenue contended that the Appellant should have maintained separate records ab initio giving details of the Cenvat credit attributable to the taxable services as well as exempted services and not taken the Cenvat credit in respect of such exempted services. Being aggrieved, the Appellant preferred an appeal before the Hon'ble CESTAT, Mumbai.
The Hon'ble CESTAT, Mumbai after noting that Rule 6(3)(i) and (ii) of the Credit Rules read with Rule 6(3A) thereof provides a mechanism of reversal of Cenvat credit to provider of output services opting not to maintain separate records and relying upon following judgments:
- Chandrapur Magnet Wires (P) Ltd. Vs. Collector of Central Excise [1996 (81) ELT 3 (SC)];
- Commissioner of Central Excise Vs. AshimaDyecot Ltd. [2008-TIOL-659-HC-AHM-CX]; and
- Life Long Appliances Ltd. Vs. Commissioner of Central Excise [2000 (123) ELT 1110 (Trib.)] affirmed by the Hon'ble Apex Court in [2006 (196) ELT A 144 (SC)]
Held that once the reversal of Cenvat credit is done as prescribed in Rule 6(3A) of the Credit Rules, it would amount to non-availment of Cenvat credit.
Accordingly, the matter was remanded back to the Adjudicating Authority to consider the details of reversal submitted by the Appellant and if any details are lacking, to specifically ask for the same which shall be furnished by the Appellant without any delay. Thereafter, on verification of Cenvat credit reversal as per the formula,benefit of Abatement shall be extended to the Appellant.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com) Read Other Articles from CA Bimal Jain
Pre-audit on artificially splitting up of Rebate claims
The Central Board of Excise and Customs ("the Board") issued an Instruction F. No. 206/05/2014-CX.6 dated November 3, 2014 in respect of pre-audit on artificially splitting up of Rebate claims.
On coming across to the fact that assesseesare avoiding the per-audit of Rebate claims by artificially splitting up Rebate claims so as to keep each individual claim below Rs. 5 lakhs, the Board has empowered the Rebate sanctioning Authorities to order for pre-audit by clubbing Rebate claims where such claims are artificially splitted by the assessee. It has been further directed that such discretionary power shall be exercised by the Authorities as an exception than rule.
Our Comments: It would be interesting to know that the pre-audit by the AC(Audit) is patently illegal as held by the Hon'ble Bombay High Court in Bombay Chemicals Ltd Vs. Union of India [2005-TIOL-236-HC-MUM-CX] wherein it was said that "It is interference by audit cell in quasi-judicial proceedings and is illegal and unauthorized especially as audit cell did not give any hearing to affected parties before finalization of its order thereby depriving them from their rights under the refund order."
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
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