The Two-Test Architecture
Section 148 read with the Companies (Cost Records and Audit) Rules, 2014 creates two distinct obligations: maintenance of cost records, and audit of those records. Rule 3 governs the records obligation for specified products and services in regulated (Table A) and non-regulated (Table B) sectors. Rule 4 governs the audit obligation, with separate thresholds for regulated and non-regulated sectors. Meeting the records test does not automatically trigger the audit test.
The ₹35 Crore Records Threshold
A company engaged in a specified product or service must maintain cost records if its overall turnover from all products and services was ₹35 crore or more in the immediately preceding financial year. The relevant turnover is overall turnover, not covered-product turnover. Once the threshold is crossed, the records obligation applies to the covered products, even if a particular covered product’s turnover is below ₹35 crore.
The Audit Thresholds
For regulated sectors, cost audit applies where overall turnover is ₹50 crore or more and covered-product or service turnover is ₹25 crore or more. For non-regulated sectors, the thresholds are ₹100 crore overall and ₹35 crore for the covered product or service. Both thresholds must be met, subject to the applicable exclusions. The audit threshold is not a function of the records threshold; a company can be above ₹35 crore for records but below the audit threshold.
The Forms and the Filing Sequence
Cost records are maintained in CRA-1. Where cost audit applies, the company appoints an eligible cost auditor and files CRA-2; the auditor reports in CRA-3; the company files CRA-4 within the prescribed period. The appointment requires board approval, and where the cost auditor’s remuneration exceeds the prescribed limit, shareholder approval by ordinary resolution is required.
The Classification Risk
The most common compliance failure is misclassification of a product or service against the Rule 3 tables. The tables use industry descriptions and, in some entries, Customs Tariff headings. A company with multiple business lines should prepare a product-and-service mapping, identify the covered entries, and retain the evidence supporting the classification. An industry label alone may be insufficient; the exact activity, product, service, or tariff heading matters.
Documentation for the Cost Audit File
The file should contain: the turnover computation for the preceding year; the product/service mapping; the board resolution appointing the cost auditor; the CRA-2 filing; the cost auditor’s CRA-3 report; the CRA-4 filing; and the cost records reconciliation. A file that contains only the CRA-3 report without the applicability working papers is incomplete for adjudication purposes.
Call to Action: For Section 148 applicability assessment, product mapping, or cost audit documentation review, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.