Penalties: Cost records and cost audit non-compliance

CMA Navneet Kr Jain , Last updated: 06 April 2015
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Penalties For Non Compliance With Cost Records And Cost Audit Provisions For 2014-15 Onwards

Normally, the companies have casual approach towards compliance with regard to the Costing Provisions. Few of the companies have already paid a price for it and had to pay additional fees for appointment of Cost Auditors to the tune of Rs 2,40,000/- each for 2011-12, 2012-13 or 2013-14.

Many companies are yet to get the cost audit conducted for the years 2011-12 onwards. By adopting the casual approach, the concerned officers are exposing the directors and themselves to the harsher punishments under the companies act which may lead to imprisonment. Moreover, with the implementation of Companies Act 2013, there might be no tolerance zone for the defaulters. Because of the electronic platform, now it is very easy for MCA to apply few filters on the main data base of companies and identify the companies which have defaulted in filing of Cost Compliance Reports and Cost Audit Reports for the years 2011-12 onwards.

For the sake of brevity we have discussed, the penal provisions applicable from the year 2014-15 onward only.

If the company fails to prepare cost records, the company shall be punishable with fine ranging from Rs. Twenty Five Thousand to Rs. Five Lacs. Also every officer of the company who is in default Imprisonment upto one year or fine ranging from Rs Ten Thousamd to Rs One Lac or both. So, it is the duty of the compliance officer to ensure that all the legal compliances with regard to the cost records and cost audit are complied with in letter and spirit.

The default attracts fines for

1. The company and

2. Officers who are in default

Section 148 subsection (8) states that if any default is made in complying with the provisions of instant section 148, the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147.

Section 147 (1) states that the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.

Section 2(60) defines “officer who is in default”, for the purpose of any provision in Companies Act 2013 means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;

Broadly, nature of defaults under Section 148 can be as mentioned below by way of examples:

1. Non-maintenance of Cost Records

2. Cost Auditor has not been appointed by the company

3. Late appointment of Cost Auditor

4. Cost Auditor appointed but CRA-2 has not been filed with MCA

5. Cost Auditor Appointed but Cost Records were not submitted for Cost Audit

6. There was non-co-operation regarding the timely completion of cost audit

7. Cost Audit Report not approved within the specified time limit

8. Cost Audit Report approved but not submitted to the Central Government by the company

9. Submission of Cost Audit Report without l nondnonynrquned and likewise ..

It also needs mention that apart from the above, the company will be required to pay following additional fees for delay in filing intimation of Cost Auditor to Central Government

Readers are advised to go through the specific provisions themselves

ADDITIONAL FEES RULE:

Period of Delays	All Forms
Up to 30 days	2 Times of Nominal fees
More than 30 Days and up to 60 days	4 Times of Nominal fees
More than 60 Days and up to 90 days	6 Times of Nominal fees
More than 90 Days and up to 180 Days	10 Times of Nominal fees
More than 180 Days	12 Times of Nominal fees