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Cost Audit

1. Requirement of Maintenance of Cost Audit Records: All the companies (including foreign companies) engaged in the production of goods or rendering of services as specified in Table A given below and having an overall turnover from all its products and services of Rs. 35,00,00,000/- (Rupees Thirty Five Crores) or more during the immediately preceding financial year shall maintain cost records for such products or services in Form CRA-1 ;

Table A

(A) Regulated Sectors

Sl. No. Industry/ Sector/ Product/ Service Central Excise Tariff Act Heading (wherever applicable)
1. 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 and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); including activities that requires authorisation or license issued by the Department of Telecommunication s, Government of India under Indian Telegraph Act, 1885 (13 of 1885); Not applicable.
2. Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003); Generation- 2716; Other Activity- Not Applicable
3. Petroleum products; including activities regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006); 2709 to 2715;
Other Activity
Not Applicable
4. Drugs and pharmaceuticals; 2901 to 2942;
3001 to 3006.
5. Fertilisers; 3102 to 3105.
6. Sugar and industrial alcohol; 1701; 1703;
2207.

(B) Non-regulated Sectors

Sl. No. Industry/ Sector/ Product/ Service


Central Excise Tariff Act Heading (wherever applicable)


1. Machinery and mechanical appliances used in defense, space and atomic energy sectors excluding any ancillary item or items;
Explanation.- For the purposes of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules
8401; 8801 to 8805; 8901 to 8908
2. Turbo jets and turbo propellers; 8411
3. Arms, ammunitions and Explosives; 3601 to 3603; 9301 to 9306.
4. Propellant powders; prepared explosives (other than propellant powders); safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators; 3601 to 3603
5 . Radar apparatus, radio navigational aid apparatus and radio remote control apparatus; 8526
6. 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; 8710
7. 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; Not applicable.
8. 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 Airport s Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008); Not applicable
9. Iron and Steel; 7201 to 7229; 7301 to 7326
10. Roads and other infrastructure projects corresponding to para No. (1) (a) as specified in Schedule VI of the Companies Act, 2013 (18 of 2013); Not applicable.
11. Rubber and allied products; including products regulated by the Rubber Board constituted under the Rubber Act, 1947 (XXIV of 1947); 4001 to 4017
12. Coffee and tea; 0901 to 0902
13. Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment’s of all kind; 8601 to 8608.
14. Cement; 2523; 6811 to 6812
15. Ores and Mineral products; 2502 to 2522; 2524 to 2526; 2528 to 253 2601 to 2617
16. Mineral fuels (other than Petroleum), mineral oils etc.; 2701 to 2708
17. Base metals; 7401 to 7403; 7405 to 7413; 7419; 7501 to 7508; 7601 to 7614; 7801 to 7802; 7804; 7806; 7901 to 7905; 7907; 8001; 8003; 8007; 8101 to 8113.
18. Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and organic chemicals; 2801 to 2853; 2901 to 2942; 3801 to 3807; 3402 to 3403; 3809 to 3824.
19. Jute and Jute Products; 5303, 5310
20. Edible Oil; 1507 to 1518
21. Construction Industry as per para No. (5) (a) as specified in Schedule VI of the Companies Act, 2013 (18 of 2013); Not applicable.
22. Health services, namely functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories; Not applicable.
23. Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business; Not applicable.
24. Milk powder; 0402
25. Insecticides; 3808
26. Plastics and polymers; 3901 to 3914; 3916 to 3921; 3925
27. lyres and tubes; 4011 to 4013
28. Paper; 4801 to 4802.
29. Textiles; 5004 to 5007; 5106 to 5113; 5205 to 5212; 5303; 5310; 5401 to 5408; 5501 to 5516
30. Glass; 7003 to 7008; 7011; 7016
31. Other machinery and Mechanical Appliances; 8402 to 8487
32. Electricals or electronic machinery; 8501 to 8507; 8511 to 8512; 8514 to 8515; 8517; 8525 to 8536; 8538 to 8547.
33. Production,import and supply or trading of following medical devices,namely:- (i) Cardiac stents; (ii) Drug eluting stents; (iii) Catheters; (iv) Intra ocular lenses; (v) Bone cements; (vi) Heart valves; (vii) Orthopaedic implants; (viii) Internal prosthetic replacements; (ix) Scalp vein set; (x) Deep brain stimulator; (xi) Ventricular peripheral shud; (xii) Spinal implants; (xiii) Automatic impalpable cardiac deflobillator; (xiv) Pacemaker (temporary and permanent); (xv) Patent ductus arteriosus,atrial septal defect and ventricular septal defect closure device; (xvi) Cardiac re-synchronise therapy; (xvii) Urethra spinicture devices; (xviii) Sling male or female; (xix) Prostate occlusion device; and (xx) Urethral stents: 9018 to 9022

2. Applicability for Cost Audit:

A. For Companies specified in item (A) of Table above: The Company shall get the cost records audited if;

  • The overall annual turnover of the Company from all its products and services during the immediately preceding F.Y. if Rs. 50,00,00,000/- (Rupees Fifty Crores) or more And
  • The aggregate turnover of the individual product or products or service or services (for which cost records are required to be maintained) is Rs. 25,00,00,000/- (Rupees Twenty Five Crores)

B. For Companies specified in item (B) of Table above: The Company shall get the cost records audited if;

  • The overall annual turnover of the Company from all its products and services during the immediately preceding F.Y. if Rs. 100,00,00,000/- (Rupees One Hundred Crores) or more And
  • The aggregate turnover of the individual product or products or service or services (for which cost records are required to be maintained) is Rs. 35,00,00,000/- (Rupees Thirty Five Crores)

Exceptions to applicability for cost audit: The requirements for cost audit shall not apply to a Company covered under the above points and satisfying the following criteria;

a. Having revenue from exports in foreign exchange, exceeds 75% of its total revenue,
Or b. Which is operating from special economic zone,
Or c. Which is engaged in generation of electricity for captive consumption through captive generating plant.

GST (Goods and Service Tax)

The Goods and Service Tax is an indirect tax and it is a taxation system where there is a single tax in the economy for goods and services. This taxation system is meant to create a single taxation system in the entire country for all goods and services.
This system will have two components which will be known as:

Central Goods and Service Tax (CGST)

  • Central Excise Duty (including additional Excise Duty)
  • Service Tax
  • Additional Customs Duty
  • Special Additional Duty of customs
  • Central surcharges and Cess

State Goods and Service Tax (SGST).

  • Value Added Tax (TAX)
  • Central Sales Tax
  • Octroi & Entry Tax
  • Purchase Tax
  • Luxury Tax
  • Taxes on lottery, betting and gambling
  • State Cesses and Surcharges
  • Entertainment Tax

Advantages Of GST

  • GST is a transparent Tax and also reduce numbers of indirect taxes. With GST implemented a business premises can show the tax applied in the sales invoice. Customer will know exactly how much tax they are paying on the product they bought or services they consumed.
  • GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. This in turn will help Export being more competitive.
  • GST can also help to diversification of income sources for Government other than income tax and petroleum tax.
  • Under Goods and Services Tax, the tax burden will be divided equally between Manufacturing and services. This can be done through lower tax rate by increase Tax base and reducing exemptions.
  • In GST System both Central GST and State GST will be charged on manufacturing cost and will be collected on point of sale. This will benefit people as prices will come down which in turn will help companies as consumption will increase.
  • Biggest benefit will be that multiple taxes like octroi, central sales tax, state sales tax, entry tax, license fees, turnover tax etc will no longer be present and all that will be brought under the GST. Doing Business now will be easier and more comfortable as various hidden taxation will not be present.

IMPORTANT POINTS TO BE CONSIDER WHILE PREPARING BOARD REPORT

General Points to be Check in Every Company Specific Points to be Checked  according to Applicability Applicability in brief
1. Financial Results 1- Vigil Mechanism 1-Every Listed Company and The Companies which (including Pvt. Ltd.)
a) Accept deposits from the
public
b) Borrwing of money from  
bank & FI in excess of 50  
Crore Rupees.
2. Dividend Declaration 2- Corporate Social responsibility 1- Every Company
- Networth (sh capital + premium) of Rs.500 crore or more , or
- Turnover of Rs. 1000 Crore or more , or
- Net profit of Rs. 5 Crore or more
3. Extract of Annual return in Form MGT-9 3-Internal Financial Contrul (In case of listed companies  & Public Company only) Every Listed Company and every other Public Company
- Paid up Share capital of Rs. 25 Crore or more in the preceding financial year.
4. No. along with dates of Board Meeting or Committee meeting 4- Disclosure Under Section 67 (Disclosure Of Voting Rights)  
5. Details of Directors/KMP  Appointed or resigned during the year. 5-Reasons For Revision In Financials or Board’s Report (Section 131)  
6. Director’s responsibility Statement 6-Composition of Audit Committee (For Public & Listed Company only)
       
Every Listed Company and other Public Company

-Paid up capital Rs. 10 crore or more
- Turnover Rs. 100 Crore or more
- Outstanding Loan or borrowing or debentures or deposits exceeding Rs. 50 Crore or more in aggregate  
  7- A Statement on declaration given by Independent Director under section 149(6)
 
In case of Public Company only having
- Paid up 10 crore or more
-Turnover 100 crore or more
- Outstanding, Loan, Debenture  and deposits exceeding 50 Crores or more.
  8- Nomination  &  Remuneration Committee
(Section 178 (3)
 
Every Listed Company and other Public Company

-Paid up capital Rs. 10 crore or more
- Turnover Rs. 100 Crore or more
- Outstanding Loan or borrowing or debentures or deposits exceeding Rs. 50 Crore or more in aggregate  
7. Auditors report & Auditors 9-Remuneration to KMP (Section 197)   Every Listed Company
8. Detail of Fraud as per Auditor report 10- Corporate Governance (SCHD V & PART II)  
9. Loans, Guarantees and Investment during the year and particulars of Intercorporate Loans & Investments as per 186. 11- Particulars Of Board’s Own Performance And Its Committees And Individual Director (In case of Listed & Public Company) Every Listed Company and every other Public Company
- Paid up Share capital of  Rs.25 Crore or more in the preceding financial year
10. Contract & Arrangement with Related Party. AOC-2 12-Sexual Harassment  
11. State of Company affairs    
12. Amount carried to Reserve    
13. Material changes & commitments affecting the financials of the company    
14. Foreign Exchange earnings and Outgo    
15. Risk management Pulicy    
16. Joint Venture/ Associate and Subsidiary Company    
17. Report on Performance of Subsidiary, Associates & Joint venture    
18. Deposits   Every Listed Company and every other Public Company
- Paid up Share capital of  Rs.25 Crore or more in the preceding financial year
19. Any Order passed by Regulators/ Courts/Tribunals   Every Listed Company and every other Public Company
- Paid up Share capital of  Rs.25 Crore or more in the preceding financial year
20.  Changes in nature of  business   Every Listed Company and every other Public Company
- Paid up Share capital of  Rs.25 Crore or more in the preceding financial year

Fast Track Merger - A Novel Concepts

Fast Track Merger is a new insertion in the corporate laws lexicon by Section 233 of the Companies Act, 2013. The Companies Act introduced the novel concepts fast track merger for Small Companies and Holding and its wholly owned subsidiary Companies. This is the first significant change to merger and amalgamations regime in the last six decades, with the previous Companies Act having been in place since 1956. There are pragmatic reforms for Merger and Acquisitions under Companies Act, 2013, which could make merger, acquisitions and restructuring easier for companies.

There was a long felt need to simplify and fast track the procedure for mergers of holding-subsidiary or companies where interest of third parties is not involved. The act clarifies that this fast track process shall apply not just to mergers but also to all types of compromise & arrangements involving these companies.

Even the Companies have the option to follow the normal route of merger process if the desire.

Provisions of section 230 to 232 of the Act for Merger & Amalgamation is very time cumbersome activity, as it includes clearance from many regulatory bodies and all type of companies has to go through such route. Under the fast track process Central government has the power to approve such scheme and there is no need to approach to NCLT.

Forms involved:

CAA.9- Notice of the scheme inviting objections or suggestions
CAA.10 - Declaration of solvency
CAA.11 Notice of approval of the scheme of merger
CAA.12 Confirmation order of scheme of merger or amalgamation between INC.28 Notice of Order of the Court or any other competent authority
GNL-1 Filing of Application with ROC

The new provisions should make it easier for corporations proposing mergers as it spears to have a good system of checks & balances to prevent abuse of these provisions.

BEN Interest

Section 90 read with Declaration of BEN Interest Notification

Ministry of Corporate Affairs vide its Notification dated 8th February, 2019 released a notification regarding disclosure of Beneficial Interest in the Reporting Company by the individual ultimately holding 10% or more of the total shareholding in the Reporting Company whether directly or indirectly, the notification published by the authority is also attached herewith:

Illustrations for simpler interpretation of the said notification as released by the Ministry of Corporate have been explained below:

ILLUSTRATION 1

REQUIREMENT OF FILING BEN-1 BY THE INDIVIDUALS IN ABC PRIVATE LIMITED

Mr. A (90*40%) = 36% Indirect shareholding by Mr. A
As Mr. A is holding a total of 36% shares indirectly (through PQ Private Limited) in ABC Private Limited, constituting more than 10% of the total shareholding of ABC Private Limited, therefore he shall be required to file BEN-1 with ABC Private Limited.

Mr. B (90*25%) + 10% = 32.5% Indirect and Direct shareholding by Mr. B.
As. Mr. B is holding a total of 32.5% shares in ABC Private Limited, i.e 10% direct holding and 22.5 indirectly (through TR Private Limited) which is more than 10% of the total shareholding of ABC Private Limited, therefore he shall be required to file BEN-1 with ABC Private Limited.

ILLUSTRATION 2

REQUIREMENT OF FILING BEN-1 BY THE INDIVIDUALS IN XYZ PRIVATE LIMITED

Mr. A = 51% +29% =80% Direct and indirect shareholding by Mr. A
As. Mr. A is holding a total of 80% shares in XYZ Private Limited, i.e 51% direct holding and 29% indirectly (through the HUF RSVP in which he is the Karta) which is more than 10% of the total shareholding of XYZ Private Limited, therefore he shall be required to file BEN-1 with ABC Private Limited.

Mr. B does not hold majority stake i.e more than 50% in M/s PQR Private Limited
As Mr. B does not hold the majority stake in M/s PQR Private Limited, the Corporate member of XYZ Private Limited, therefore there shall be no requirement to file BEN-1 with XYZ Private Limited, as there is no direct and indirect holding of Mr. B in XYZ Private Limited.

ILLUSTRATION 3

REQUIREMENT OF FILING BEN-1 BY THE INDIVIDUALS IN PQR PRIVATE LIMITED

Mr. A (60*71%) = 42.6% Indirect shareholding by Mr. A
As. Mr. A is holding a total of 42.6% shares in PQR Private Limited, indirectly (through TRP Inc., foreign holding Company of PQR Private Limited) which is more than 10% of the total shareholding of PQR Private Limited, therefore he shall be required to file BEN-1 with PQR Private Limited.

Mr. B does not hold majority stake i.e more than 50% in M/s PQR Private Limited
As Mr. B does not hold the majority stake in TRP Inc., the Corporate member of PQR Private Limited, therefore there shall be no requirement to file BEN-1 with PQR Private Limited, as there is no direct and indirect holding of Mr. B in PQR Private Limited.

ILLUSTRATION 4

REQUIREMENT OF FILING BEN-1 BY THE INDIVIDUALS IN PQR PRIVATE LIMITED

Mr. A (60*40%) = 24% Indirect shareholding by Mr. A
Mr. A is holding a total of 24% shares in RMS Private Limited, indirectly (through XYZ Private Limited) which is more than 10% of the total shareholding of RMS Private Limited, In this case Mr. A shall be required to file BEN-1 with RMS Limited, the Reporting Company However, as per exemption under rule 8 of the (Significant Beneficial Owners) Amendment Rules, 2019 where by holding reporting Company has been exempted, therefore, PQR Limited shall be required to give the detail of its holding Company along with its shareholding in Form BEN-2.

Mr. B does not hold majority stake i.e more than 50% in M/s PQR Private Limited
As Mr. B does not hold the majority stake in XYZ Private Limited, the Corporate member of RMS Private Limited, therefore there shall be no requirement to file BEN-1 with RMS Private Limited, as there is no direct and indirect holding of Mr. B in RMS Private Limited.

 
     
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