The Ministry of Corporate Affairs has recently issued a number of notices to various companies for not complying with the various provision under section 148 of the Companies Act 2013 primarily for non filing of cost audit reports. It is usual for the companies to lay less emphasis on filing of Cost Audit Reports with MCA considering that no body takes any action on non-compliance but that is not the situation any more now.
With the government's increased focus on transparency and expected use of HSN code level data by various regulatory authorities, MCA has started reviewing the various forms being filed for cost audit mechanism. Primarily there are two forms with regard to cost audit which are filed with MCA. The present article focuses on non-compliance with regard to the non-filing or delayed filing of Form CRA-4 i.e. filing of Cost Audit Report in XBRL
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1) Form CRA-2 |
Form of intimation of appointment of cost auditor by the company to Central Government. |
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2) Form CRA-4 |
Form for filing Cost Audit Report with the Central Government. |
Cost Audit Branch of MCA observed various defaults in complying with the provisions of the Companies Act with regard to section 148 for the year 2023-24 and earlier years too and issued a number of notices. The notice for non-appointment of cost auditors too wherein the companies appointed the cost auditors for multiple years in one go to avoid any adverse proceedings from MCA.
Presently notices have been issued to companies on two grounds
1) For non-filing of cost audit report
2) For delay in filing of cost audit reports
It was stated in the notices that from the records available with the Cost Audit Branch, it has noticed that though cost audit was applicable for 2023-24 but the cost audit report was not filed at all or not filed with in the prescribed time limit.
Reference has been drawn to section 148(6) , 148(8) and section 403 of the companies Act 2013 and Rule 6 of Companies (Cost Records and Audit) Rules, 2014. Extract of the same are given below:
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Section 148(6) |
(6) A company shall within thirty days from the date of receipt of a copy of the cost audit report prepared in pursuance of a direction under sub-section (2) furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein. |
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Section 148(8) |
"If any default is made in complying with the provisions of this section, a. 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. b. the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147." |
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Section 403 |
Fee for Filing, etc. Extract Only 403. (1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:… …… Provided further that where the document, fact or information, as the case may be, in cases other than referred to in the first proviso, is not submitted, filed, registered or recorded, as the case may be, within the period provided in the relevant section, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded as the case may be, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies: ……………….. (2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default. |
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Rule 6 of CCRAR |
(6) Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report alongwith full information and explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 alongwith fees specified in the Companies (Registration Offices and Fees) Rules, 2014. Provided that the Companies which have got extension of time of holding Annual General Meeting under section 96 (1) of the Companies Act, 2013, may file form CRA-4 within resultant extended period of filing financial statements under section 137 of the Companies Act, 2013. |
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From the reading of the above sections it is evidently clear that in case of default in filing the Cost Audit Report through XBRL vide CRA-4 within the specific period (which is thirty days from the date of submission of Cost Audit Report by the Cost Auditor, the company and its officers as mandated will be required to face penalty and or punishment for such failure or default.
Not only the above sections, the notice refers to the section 148(8) of the companies Act by way of the company and its all officers in default shall be punishable as per section 147(1) of the Companies Act. Notice also contains the provision with regard to the punishment to Cost Auditors, it states that the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147.
Section 147 (1) mentions 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 fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
It needs to be noted that the company must respond to the notice from Cost Audit Branch of Ministry of Corporate Affairs within thirty days from the date of issue of notice clarifying why no adverse action should be initiated.
In case of notice for non-filing, the company should try to file the CRA-4 before submission of the reply, in case it is not possible, please seek some time for filing of the pending CRA-4 (Cost Audit Report & Annexures)
One needs to remember that sitting idle on the notice may invite further adverse action not only against company but also against the officers in default. In earlier days the summons were also issued to all the directors of the companies in few cases, so one has to be very cautious regarding submitting timely response to the show cause notice. The notice contains a statement that" It may be noted that in case you failed to reply (along with supporting documents) within the period as stipulated above, it will be presumed that you have nothing to say in the matter and appropriate action will be taken against the company and all its officers who are in default, without any further reference in the matter."
The notice also mentioned about the compounding provisions under section 441 of Companies Act under which the contraventions can be compounded. Also, the companies may need to file the compounding application as some of the notices contain the statement " WHEREAS your attention is also drawn towards Section 441 of the Act under which the aforesaid contravention may be compounded" so it will pragmatic for the company to file the compounding application, if required before submitting the reply and attach the proof of the same alongwith the reply.
The notices also mention about relevant section *147(2) to (4) which is applicable for punishing cost auditors. SO it is not only the companies but the cost auditors too who should be concerned about the notices and keep the documents ready in case any information is required from cost auditors.
Now is the ideal time for Directors, Company Secretaries, and CFOs to ensure full compliance with Section 148 concerning the maintenance of Cost Records and/or Cost Audits. It is essential to adhere to these requirements both in letter and spirit.
For assistance in determining the applicability of the cost records mechanism to your company, feel free to reach out at navneetic@yahoo.com.
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