This Gazette may contains Multiple Subjects

REGD. NO. D. L.-33004/99 The Gazette of India

EXTRAORDINARY

PART II—Section 5—Sub-section (i)

PUBLISHED BY AUTHORITY

No. 4941 NEW DELHI, FRIDAY, SEPTEMBER 28, 2001/ASVINA6,1923

3032 GI/2001

(1)2 THE GAZETTE OF INDIA: EXTRAORDINARY [PAKTII—SBC.3ffll 3 4 THE GAZETTE OF INDIA: EXTRAORDINARY PART II—SEC. 3(01 5 6 THE GAZETTE OF [NDIA: EXTRAORDINARY [PAKTI^SBCJO)! 7 8 THE GAZETTE OF INDIA: EXTRAORDINARY [PARTII—SBC 3ffll 9 3032 QI/2001—210 THE GAZETTE OF INDIA: EXTRAORDINARY [PARTI^-SBC. 3(01 11 12 THE GAZETTE OF INDIA: EXTRAORDINARY [PAKTI^-SBC 3f01 13 14 THE GAZETTE OF INDIA: EXTRAORDINARY FPARTI^-SEC 3fffl 15 16 THE GAZETTE OF INDIA': EXTRAORDINARY fPART I^-SBC. 3ffil 17

3032 GI/2001—3

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MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS

(Department of Company Affair?)

NOTIFICATION

New Delhi, the 28th September, 2001

G.S.R.706(E).— in exercise of the powers conferred by sub-section (1) of section 642, read with dause (d) of sub-section (1) of section 209 of the Companies Act, 1956 (1 of 1956), the Central Gov- iment hereby makes the following rules further to amend the Cost Accounting Recorc. (l-ormulations) Rules, 1988,namely:-

1. (1) These rules may be called the Cost Accounting Records (Formulations) Amendment Rules, 2001

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Cost Accounting Records (Formulations) Rules, 1988 (hereinafter referred to as the said rules), -

(A) for rule 2, the following shall be substituted, namely -

"Application- These rules shall apply to every company engaged in the production, processing or manufacture of formulations under any system of medicine including Ayurvedic, Homeopathic, Siddha and Unani formulations excepting those companies falling under the category of Small Scale Industrial Units";

(B) in rule 2.3, for clause (b), the following shall be substituted, namely :-

"(b) the expression "formulation" means a medicine processed out of, or containing one or more bulk drugs with or without the use of any pharmaceutical aids for internal or external use for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals and shall include-

(i) any medicine included in any bonafide Ayurvedic (including Sidha) or Unani (Tibb) systems of medicines, (ii) any medicine included in the Homeopathic system of medicine.

(c) "bulk drug" means any pharmaceutical, chemical, biological or plant product including its salts, esters, stereo-isomers and derivatives, which are used as such or as an ingredient in any formulation";

(C) in rule 3,-

(i) in sub-rule (1), after the words "after the commencement of these rules", the words, figures and letters "till the 31st day of March, 2002 or the close of the relevant financial year in 2002" shall be inserted;

(ii) after sub-rule (2), the following sub-rules shall be inserted, namely: - "(2A) Every company to which these rules apply shall, in respect of each of its financial year commencing on or after the 1st day of April, 2002 keep proper books of account relating to the utilization of materials, labour and other items of cost in so far as they are related to the production or manufacture or processing of Formulations. The books of account, so maintained shall contain, inter-alia, the particulars specified in Schedule III annexed to these rules and Proformae A, B, C, D and E mentioned in the said Schedule:

Provided that if the said company is manufacturing any other product(s)or is engaged in other activities in addition to manufacture of Formulations, the particulars relating to utilization of materials, labour and other items of cost in so far as they are related to the manufacture of such other products or activities shall not be included in the cost of Formulations referred to in rule 2.

(2B) The books of account referred to in sub-rule (2A) shall be kept on a regular basis in such a manner as to make it possible to calculate the cost of production and cost of sales of each type of Formulations produced, processed or manufactured for every financial year from the particulars entered therein. Every such books of account and the Proforma specified in the said Schedule III shall be completed not later than ninety days from the close of the financial year of the company to which it relate.

(2C) The statistical and other records shall be maintained in accordance with the provisions of the Schedule III which shall be such as to enable the company to exercise, as far as possible, control over the various operations and costs with a view to achieve optimum economies in cost. These records shall also provide the necessary data required by the Cost Auditor to suitably report on all the points referred to in the Cost Audit (Report) Rules, 1996 as amended from time to time";

(iii) in sub-rule 3, for the words, brackets and figures " provisions of sub-rules (1) and (2)" the words, brackets, figures and letters " provisions of sub-rules (1), (2), (2A), (2B) and (2C)", shaft be substituted.

T? (D) in the said rules, after Schedule II, the following Schedule and Proformae A, B, C, D and E shall be inserted, namely: -

"SCHEDULE HI

[See rule 3(2A)]

1. MATERIALS

(1) The proper records shall be maintained showing separately all receipts, issues and balances both in quantities and cost of each item of direct materials such as bulk drugs, pharmaceutical aids, excipients etc. required and actually used in the manufacture of different types of formulations batch- wise. The basis on which said quantities and costs of issue and consumption have been calculated shall be indicated in the cost records and followed consistently. In the case of imported raw materials proper records shall be maintained showing FOB value, overseas freight, insurance, customs duty and inland freight charges. If both indigenous and imported materials are consumed, the records showing details of percentage mix of the same have to be maintained for each item. In the case of imported raw material proper records shall be maintained showing license-wise allowed quantities, actual quantities imported, actual quantities consumed, quantities in stock and quantities yet to be imported out of total licensed quantities.

1 (a). In case, any bulk drug/intermediate/process chemical already covered under the Cost Accounting Records (bulk drugs) Rules prescribed, is manufactured by the company, proper cost records shall be maintained as per those rules so as to arrive at the cost of such items.

(2) The proper records shall be maintained separately showing the receipts, issues and balances both in quantities and cost of each item of process material, chemicals and solvents used in the manufacture of formulations. The cost shall include all direct charges upto works.

(3) Where basic raw materials or ingredients are produced or farm products raised by the company, separate records showing the cost of production of each such material indicating the break up of material consumed shall be maintained to determine the cost of process material produced. The basis on which the quantities and costs of issues and consumption of such materials or products produced/raised by the company are calculated shall be indicated in the cost records and followed consistently.

(4) The issues, consumption of production materials shall be identified with the batch of production, departments, and cost centre. Consumption reflected in cost records should correspond to the data recorded in manufacturing register under the drug Rules.

3032 GI/2001—5[ P A R TI I — •S B C .3 ( 01 34 T HE G A Z E T TE OF I N D I A: E X T R A O R D I N A RY (5) The proper records shall be maintained indicating the quantity as well as value of by-products recovered in different processes having significant value in relation to cost of materials. In the case of certain by-products recovered, which cannot be reused in the process and are sold or disposed of without further processing, the realisation from such sales shall be recorded and adjusted against the process concerned. In case further processing is necessary to make the by-products usable or saleable, as the case may be, adequate records of the cost involved for such further processing shall be maintained. If such processing is done by any outside agency, proper records to show the quantity sent for processing, quantity received back after processing and the cost incurred thereon shall be maintained in detail. The net realisation, if any shall be adjusted against the major process relating to such by-product. The cost of by-products shall be determined on equitable and reasonable basis and applied consistently. The records indicating the actual sales realisation of by-products shall also be maintained, Similar procedure shall be followed in the case of joint products/by products obtained in respect of other systems of medicines also

(6) The proper records shall be maintained to show the receipts, issues and balances, both in quantities and cost of each item of consumable stores, other chemicals not covered by sub-rule (2), tools and machinery spares. The cost shall include all direct charges upto works. Adequate quantitative records for determining the net consumption of pharmaceutical aids, excipients etc. which are used for manufacturing shall be maintained. The cost records shall clearly indicate absorption or loss in the process of these items used for the production of each formulation in a scientific manner.

(7) In the case of consumable stores and small tools the cost of which are insignificant, the company may, if it so desires, maintain such records for the group of such consumable stores and tools.

(8) The cost of consumption of consumable stores, small tools and machinery spares shall be charged to the relevant cost centre/department on the basis of actual issues.

(9) The proper records shall be maintained showing the quantity and value of wastage, spoilage, rejections and losses of raw materials, process materials, consumable stores whether in transit, storage, manufacture or at any other stage. The method followed for adjusting the above losses as well as the income derived from the disposal of rejected and waste materials including spoilage, if any, in determihing the cost of product shall be indicated in the cost records. Any abnormal wastage or spoilage or rejection shall be indicated distinctly and separately along with reasons thereof.

(10)The proper records shall be maintained to indicate the value of raw materials and components, finished and semi-finished which have not moved for more than twelve months35 (11) wnere any credit under central value Added i ax (UtNVA i) or any otner benefits of the nature of CENVAT Credit under the Central Excise Act, 1944 (1 of 1944) are available on any item of material, the cost of such material should be shown after adjusting such credit or benefits.

(12) If any of the materials purchased is processed by an outside party proper records shall be maintained for the quantity sent for processing, quantity received after processing, by products received, if any, and the cost involved in processing.

2. SALARIES AND WAGES:

(1) The proper records shall be maintained to show the attendance and earnings of all employees of the cost centres or departments and the work/batch on which they are employed. The records shall also indicate the following separately for each cost centre/batch or department: (a) Piece rate wages (Wherever applicable); (b) Incentive wages, either individually or collectively as production

bonus or under any other scheme based qn output;

(c) overtime wages; (d) earnings of casual labour/contractual labour; (e) bonus or gratuity, statutory as well as others, (f) contribution to superannuation scheme (g) any other earning of the similar nature.

(2) The records shall be maintained in such a manner as to enable the company to furnish necessary particulars under this head in Proformae A, B, C, D and E of Schedule III annexed to these rules. The records may be maintained to book these expenses cost centrewise or departmentwise with reference to activities related to the production of Formulations. Where the employees work in such a manner that it is not possible to identify them with any cost centre or department, the labour charges shall be apportioned to the cost centres or departments on equitable and reasonable basis and applied consistently

(3) The idle labour cost shall be separately recorded under classified headings indicating the reasons therefor. The method of accounting followed for accounting of idle time payments in determining the cost of the product shall be disclosed in the cost records.

(4) Any wages and salaries allocable, to capital works such as additions to plant and machinery, buildings or other fixed assets shall be accounted for under the relevant capital heads Similarly payments in the nature of deferred revenue expenditure shall be separately recorded under separate classified headings indicating the reasons therefore. The method followed for accounting of such payments in determining the cost of the product shall on equitable and36 THE GAZETTE OF INDIA EXTRAORDINARY [PARTII—Sec.3(01 reasonable basis and applied consistently The said method shall be disclosed in the cost records also

(5) Only such retirement cost, which are likely to provide benefits in terms of savings in cost in future shall be treated as deferred revenue expenditure This amount shall be treated as extraordinary item Therefore these expenses shall not form part of salary and wages and shall be shown separately as an abnormal item of expense Similarly excess of termination benefits for the past period payable over and above the provision made in this regard shall also be treated as abnormal item of expense The expenses on account of any Voluntary Retirement Scheme shall be excluded from valuation of inventories and also for that period As these expenses do not result in putting the inventories to their present location and condition

3. SERVICE DEPARTMENT EXPENSES:

The detailed records shall be maintained to indicate expenses incurred in respect of each service department or cost centre like laboratory, welfare, transport etc These expenses shall be apportioned to other services and production departments on equitable and reasonable basis and applied consistently Where these services are utilised for other products of the company also, the basis of apportionment of such expenses to any type of Formulations and to the other products shall be on equitable and reasonable basis and applied consistently

4. UTILITIES

(1) Water -The proper records showing the quantity and cost of treated, or chilled or raw or soft or deminerahsed water or brine produced and consumed, if any, for the manufacture of any type of Formulations in different cost centres or departments shall be maintained The cost of treated water apportioned to the cost centres or departments concerned shall be on equitable and reasonable basis and applied consistently

(2) Steam - Where steam is raised by the company, proper records showing the quantity and cost of steam raised and consumed for the manufacture of the Formulations shall be maintained The cost of steam consumed by the Formulations units and by other units of the company shall be apportioned on equitable and reasonable basis and applied consistently Where steam is raised and supplied by any other unit of the company to the Formulations plant, the cost of steam so supplied shall be charged to the Formulations Plant on actual cost basis

(3) Power -Where power is purchased, proper records shall be maintained for the units and cost of power consumed for the production of Formulations in different cost centres or departments Where power is generated by the company itself, adequate records, showing all elements of cost shall be37 maintained to show the cost of power generated and consumed for the production of the Formulations in different cost centres or departments. Records shall also indicate installed capacity; number of units generated losses and consumption in each cost centres or departments separately. Where power is generated and supplied by any other unit of the company to the Formulations plant adequate records shall be maintained to indicate the quantity and cost of power so supplied. The cost of power consumed by the Formulations units and by other units of the company shall be apportioned on equitable and reasonable basis and applied consistently. The records shall state clearly the measures taken on conservation of energy and its corresponding impact on per unit cost of production.

(4) Air-Conditioning; - The proper records shall be prepared to enable determination of the cost of air-conditioning and its distribution cost centre- wise or department-wise. The cost of air conditioning shall be apportioned to Formulations on equitable and reasonable basis and applied consistently.

(5) Oxygen/Nitrogen: - The proper records shall be maintained as per the Cost Accounting Record (Industrial Gases) Rules, 1996 as amended from time to time showing the cost of Nitrogen produced or manufactured by the company for use in the production of formulations products. The nitrogen produced by the company shall be charged to formulations products on actual cost only. If the company purchases the nitrogen, proper records showing the quantity purchased and consumed cost centre-wise or department-wise shall be maintained. These records shall show the cost of nitrogen delivered upto works including all direct charges.

(6) LPG: - the proper record showing quantity and cost shall be maintained in respect of LPG purchased by the company for the production of formulation.

(7) Other Utilities: - The proper records showing quantity and cost shall be maintained in respect of any other utilities produced or purchased by the company for the production or manufacture of Formulations.

(8) The Cost Statements for each utility shall be maintained separately in Proforma A.

5. WORKSHOP OR REPAIRS AND MAINTENANCE OR TOOL ROOMS:

(1) The proper records showing the expenditure incurred by the workshop or tool room under different heads and on repairs and maintenance in the various cost centres or departments shall be maintained. The records shall also indicate the basis of charging the workshop or repair and maintenance or tool room expenses to different cost centres or departments. Where maintenance work is done by direct workers of any production cost centre or department, the wages and salaries of such workers shall be treated as direct expenses of the respective cost centre or department If the services are38 THE GAZETTE OF INDIA: EXTRAORDINARY [PARTII—SK, 3(i)l utilised for other products also, the manner of charging a share of the cost of workshop or repairs and maintenance or tool room expense, to such products shall be on equitable and reasonable basis and applied consistently

(2) In addition to the above, records shall indicate the amount and also the proportion of closing inventory of stores & spare parts representing items which have not moved for over twenty four months.

(3) The expenditure on major repair works from which benefit is likely to accrue for more than one financial year shall be allocated over the period expected to benefit on equitable and reasonable basis and applied consistently. Such costs shall be shown separately and method of accounting and the basis of the allocation of such costs shall also be clearly indicated in cost records.

6. DEPRECIATION:

Depreciation shall be allocated/apportioned to various cost centres or departments and absorbed on all products on equitable and reasonable basis and applied consistently which shall be clearly indicated in the cost records. If depreciation charged or chargeable to the cost centres or departments is in excess or lower than the depreciation calculated by applying the rates of depreciation prescribed under the provisions of sub-section (2) of Section 205 of the Companies Act, 1956 (1 of 1956), such amount of excess or lower depreciation shall be indicated clearly in the cost records The cost records shall also show the effect of such excess or lower depreciation as the case may be, on the per unit cost of Formulations The cumulative depreciation charged in the cost records, against any individual item of asset shall not, however, exceed the original cost of the respective asset

7. OTHER OVERHEADS:

(1) The proper records shall be maintained for the product under reference showing the various items of expenses comprising the other overheads. These expenses shall be analysed, classified and grouped according to functions, namely, works, administration, selling and distribution

(2) Where the company is manufacturing products other than the Formulations there of, the records shall clearly indicate the basis followed for apportionment of the common overheads including head office expenses of the company to such products and Formulations, including capital works. Where certain expenses forming part of overheads can be identified with a particular activity or a product, such expenses shall be first segregated and charged to the relevant activity or product and thereafter the residual expenses under the above categories of overheads shall be apportioned on a reasonable and equitable basis and applied consistently. Overheads chargeable to capital works shall be indicated separately in the cost records. The basis of39 apportionment or absorption of overheads to the cost centres or departments and products shall be indicated in the cost records. The records shall be maintained in such a manner as to indicate the details of works, administration, selling and distribution overheads

8. ROYALTY/TECHNICAL KNOW-HOW FEE:

The adequate records shall be maintained showing the royalty and/or technical know-he;¹'/ fee including other recurring or non-recurring payments of similar nature, if a> made for the product under reference to collaborators or technology suppliers in terms of agreements entered into with them. Such records shall be kept separately in respect of each such collaborator or supplier. The basis of charging royalty amount, including lump sum payment, to the products shall be at the point of incidence in accordance with the royalty agreement and shall be indicated in the cost records.

9. RESEARCH AND DEVELOPMENT EXPENSES:

(1) The proper records showing the details of expenses, if any, inorred by the company for the research and development work on the product covered under these rules according to the nature of development of products, existing and new products and processes, development of process of manufacture, existing and new, design and development of new plant facilities and market research for the existing and new products, shall be maintained separately.

(2) The method of charging these expenses to the cost of Formulations and other products shall be indicated in the cost records. Where the utility of such research and development work extends over more than one financial year, such expenses shall be treated as deferred expenses and charged to the cost of production of the Formulations and other products if any, on equitable and reasonable basis and applied consistently. The following criteria which are only indicative and not exhaustive may be adopted in such cases:

(i) The product or process is clearly defined and the costs attributable to the product or process can be separately identified. (ii)The technical feasibility of the product or process has been demonstrated. (iii)The management of the enterprise has indicated its intention to produce and market, or use, the product or process. (iv)There is a reasonable indication that current and future research and development costs to be incurred on the project together with expected production, selling and distribution costs are likely to be more than covered by related future revenues/benefits; and (v)Adequate resources exist, or are reasonably expected to be available, to complete the project and market the product or process.

(3) The expenses incurred by the Research and Development Department for providing technical know-how to outsiders shall be recorded separately and40 THE GAZETTE OF INDIA: EXTRAORDINARY [PARTII—SBC.3(0] excluded from the cost ot hormuiations. I he amount recovered tor providing technical know-how to outsiders shall also be indicated separately and excluded from the income arising from the sale of Formulations.

10. QUALITY CONTROL:

The adequate records shall be maintained to indicate the expenses incurred in respect of quality control department or cost centre for product under reference. Where these services are also utilised for other products of the company, the basis of apportionment to Formulations and to other products shall be on equitable and reasonable basis and applied consistently.

11. INTEREST:

The proper records shall be maintained for interest charges paid. The amount of interest shall be allocated or apportioned to the products covered by these rules and other activities on equitable and reasonable basis and applied consistently. The basis of further charging of the share of the interest to the various types of such products shall also be reasonable and equitable and applied consistently. The basis of such allocation or apportionment shall be spelt out clearly in the cost records or statements.

12. EXPENSES OR INCENTIVES ON EXPORTS:

The proper records showing the expenses incurred on the export sales, if any, of the Formulations shall be separately maintained so that the cost of export sales can be determined correctly. Separate cost statement shall be prepared for Formulations exported giving details of export expenses incurred or incentive earned. In case, duty free imports are made, the cost statements should reflect this fact. If the duty free imports have been made after actual production, the statement should reflect this fact also.

13. PACKING EXPENSES:

(1) The proper records shall be maintained showing separately all receipts, issues and balances both in quantities and cost of various packing materials such as strips, ampoules, vials, bottles, cartons, boxes, labels literature etc. and for wages and other expenses incurred in respect of different sizes of packs adopted for marketing of formulations separately. The details of various packing materials actually used and spoiled shall be maintained in respect of each formulation. Where any formulation is repacked due to defective packing details of such repacking for each formulation, size/packwise shall be maintained if repacking cost is significant. If the company manufactufes such packing materials, proper records showing the cost of production of such items shall be maintained41 (2) Where packing expenses are incurred in common, the basis of apportionment of such expenses amongst different types and sizes of formulations and other products shall be equitable and clearly indicated in the cost records and applied consistently.

(3) The detailed records of the expenses incurred on export packing, if any, shall also be kept separately and exhibited in the relevant cost statements for exports.

14. WORK IN PROGRESS AND FINISHED STOCK:

The method followed for determining the cost of work in progress and finished stock of the Formulations shall be indicated in the cost records so as to reveal the cost element that have been taken into account in such computation. All conversion costs incurred in bringing the inventories to their present location and condition shall be taken into account while computing the cost of work in progress. The method adopted for determining the cost of work in progress and finished goods shall be followed consistently.

15. COST STATEMENTS:

(1) The cost statement showing details of installed capacity, production, wastage, issues and sales and all elements of cost of the current financial year and previous year shall be prepared for each process adopted in manufacture or production of Formulations in Proformae A, B, C, D and E.

(2) The product emerging from a process which forms raw material or an input material for a subsequent process shall be valued at the cost of production up to the previous stage.

(3) If the company is operating more than one plant or factory, separate cost statements as specified above shall be prepared in respect of each plant or factory.

16. PRODUCTION RECORDS:

Quantitative records of all finished goods, whether packed or unpacked showing production, issues for sales and balances of different type of the products under reference produced by the company shall be maintained.

17. RECONCILIATION OF COST AND FINANCIAL ACCOUNTS:

(1) The cost statements shall be reconciled with the financial statements for the financial year specifically indicating the expenses or incomes not considered in the cost records or statements so as to ensure accuracy and to adjudge the profit of the product under reference with the overall profit of the company. The variations, if any, shall be clearly indicated and explained.

3032 GI/2001—642 THE GAZETTE OF INDIA : EXTRAORDINARY [PARTE- -Sir.3(i)J (2) A statement showing the total expenses incurred and income received by the company under different heads of accounts and the share applicable to other products and the products under reference shall be prepared and reconciled with the financial statement.

18. ADJUSTMENT OF COST VARIANCES:

Where the company maintains cost records on any basis other than actual such as standard costing, the records shall indicate the procedure followed by the company in working out the cost of the product under such system. The method followed for adjusting the cost variances in determining the actual cost of the product shall be indicated clearly in the cost records. The cost variances shall be shown against the separate heads and analysed into material, labour, overheads and further segregated into quantity, price and efficiency variances. The reasons for the variances shall be duly explained in the cost records or statements

19. STATISTICAL RECORDS:

(1) The records regarding available machine hours or direct labour hours in different production departments and actually utilised shall be maintained for production of Formulations and shortfall suitably analysed. Suitable records for computation of idle time of machines shall also be maintained and analysed.

(2) The adequate records shall be maintained to enable the company to identify the capital employed, net fixed assets and working capital separately for the production or manufacture of Formulations and other products and other activities. Fresh investments of fixed assets for production of Formulations that have not contributed to the production during the year shall be disclosed separately in the cost records. The records shall, in addition, show assets added as replacement and those added for increasing existing capacity Also such records as will enable to identify and/or allocate gross fixed assets, accumulated depreciation up to the year, net fixed assets under the heads Land & Buildings Plant & Machinery, Furniture & Fixture etc. employed for the production of the formulations along with the method and rate of depreciation shall maintained. The basis of apportionment of common assets to the products(s)under reference shall also be indicated. In case of revaluation of assets, the same should be indicated separately. The basis of allocation of indirect assets to the respective formulations should be reasonable, equitable and shall be followed consistently.

(3) Whenever WTO provisions are attracted, proper records shall be maintained to identify the competitiveness of the product in the domestic as well as global market and the expenses, if any, incurred to combat the competition arising out of WTO provisions Adequate statistical records shall also be maintained to identify the market share of the product manufactured43 ana tne UKely impact thereon on account ot competitive goods imported in to the country These records shall indicate, inter alia, the total volume of imports, names of importers countries of origin and contain such empirical evidence as to show whether such imports can be construed as dumping and affecting the market share of the product Proper records shall also be maintained, containing such details as may be necessary to show that the export price of the product is not such as to be construed as dumping in the importing country, by applying the provisions of WTO regarding anti dumping measures under Article VI of GATT 94.

20. CAPTIVE CONSUMPTION:

If any Formulations/Intermediate is used for captive consumption the formulation division shall maintain proper records showing the quantity and cost of each item of Formulations transferred to other departments or units of the company for self-consumption and sold to outside parties. The rates at which the transfers are effected shall be at cost only. However, in the case of allopathic system of medicines, the selling price as well as the notional price notified by the Central Government under the Drugs (Prices Control) order, 1995 shall be shown by way of footnotes in the relevant cost statements indicating the basis on which the notional price has been arrived at.

21. POLLUTION CONTROL:

Expenditure incurred by the company on various measures to protect the environment like effluent treatment, control of pollution of air, water, etc., should be properly recorded.

22. HUMAN RESOURCES DEVELOPMENT:

Expenditure incurred by the company on the human resources development activity shall be recorded separately,

23. INTER COMPANY TRANSFER:

(1) In respect of related party transactions or supplies made or services rendered by a company to its holding company or subsidiary or a company termed "related party relationship" as defined below and vice- a-versa, records shall be maintained showing contracts entered into, agreements or understanding reached in respect of:

(a) purchase and sale of raw materials, finished products, process materials, chemicals and rejected goods including scraps, etc; (b) utilisation of plant facilities and technical know-how; (c) supply of utilities and any other services; (d) administrative, technical, managerial or any other consultancy services;

(e) purchase and sale of capital goods including plant and machinery; (f) any other payment related to production, processing or manufacturing of product under reference.

These records shall also indicate the basis followed for arriving at the rates charged or paid for such products or services so as to enable determination of the reasonableness of such rates in so far as they are in any way related to product under reference.

(2) The transactions by the following "related party relationships" shall be covered under sub-rule(1) :-

(a) enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries);

(b) associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture;

(c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual;

(d) key management personnel and relatives of such personnel; and (e) enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise.

However, the following shall not be deemed as "related party relationships":-

(a) two companies simply because they have a Director in common, notwithstanding paragraph (d) or (e) above (unless the Director is able to affect the policies of both companies in their mutual dealings); (b) a single customer, supplier, franchiser, distributor, or general agent with whom an enterprise transacts a significant volume of business merely by virtue Of the resulting economic dependence; and

(c) the parties listed below, in the course of their normal dealings with an enterprise by virtue only of those dealings (although they may circumscribe the freedom of action of the enterprise or participate in its decision-making process);

(.il providers of finance; (jil trade unions; (iii| public utilities;

yv; yuveuiinwiu uofjuiurienis ana government agencies inciuaing government sponsored bodies.

Explanation:-For the purpose of these Rules, -

(a) "Related party relationships" means parties who are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions;

(b) "Related party transaction" means a transfer of resources or obligations between related parties, whether or not a price is charged;

(c) "Control" means

(i)ownership, directly or indirectly, of more than one-half of the voting power of an enterprise; or

(ii)control of the composition of the Board of Directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise; or

(iii)a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise.

(d) "Significant influence" means participation in the financial or operating policy decisions of an enterprise, but not control of those policies;

(e) "Associate" means an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a joint venture of that party;

(f) "Joint venture" means a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control;

(g) "Joint control" means the contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefits frdm it;

(h) "Key management personnel" means those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise;

(i) "Relative" - in relation to an individual, means the spouse, son, daughter, brother, sister, father and mother who may connected by blood relationship;

(j) "Holding company" means a holding company within the meaning of Section 4 of the Companies Act, 1956(1 of 1956);

(k) "Subsidiary" means a subsidiary company within the meaning of Section 4 of the Companies Act, 1956(1 of 1956);

(I) "Fellow subsidiary*¹ means a company is said to be a fellow subsidiary of another company if both are subsidiaries of the same holding company;

(m) "State-controlled enterprise" means an enterprise which is under the control of the Central Government or a State Government.

24. MULTI-PURPOSE VESSELS:

When more than one manufacturing process is carried out in a particular or series of vessels, adequate records about the usage of such vessels for different products shall be kept. The cost of using such vessels shall be charged to the different products on an equitable basis such as equipment occupancy hours. Where composite machine hour rates are applied for absorption of wages, overheads and equipment usage, proper records relating to the utilization of labour and multi-purpose vessels for different processes connected with the manufacture of different products shall be kept to enable determination of total machine hours and the amounts chargeable to the respective Formulations or intermediates. The variances between the actuals and the amounts charged at pre-determined rates shall be adjusted for arriving at the actual cost of production at the end of the year.

4-

PROFORMA A

Name of the company Name and address of the factory Drug Licence no.& Date Statement showing the cost of Utility like Power, Steam, Water, Effluent treatment etc., produced and consumed durina the vear/Deriod

A Quantitative Information

Particulars

Current Year (unit) Previous Year (unit)

- - — •— \ SeriaIN umber 1. 2. 3 A. 5. 6.

7.

•

Installed capacity Quantity produced Capacity utilisation Quantity re-circulated Quantity purchased Consumption in power house including other losses Net auantitv consumed

B Cost Information:

Particulars

Quan- tity

Cost per unit (in Rupees) Serial Number

Amount (Rupees) (rn lacs)

Rate (Rupe es) per unit

Previous

Current Year Year A 1.

Materials(specify the inputs) (a) (b) (c)

2.

Utihties(specify) (a) (b) (c)

3. 4.

Consumable stores Salaries and wages48 THE GAZETTE OF INDIA : EXTRAORDINARY [PAHTI^-SBC.3(I

Note 1.- Separate cost sheet is to be prepared for each utility as well as effluent treatment.

Note 2- If any of the utilities or services, which are manufactured by the company and transferred to any other unit of the company or is sold to outside parties, separate cost sheet shall be prepared in respect of such sale or transfer, which shall be effected at cost of sales of respective utility.

PROFORMA B

Name of the company Name and address of the factory Drug Licence no & Date

Statement showing the conversion cost and packing cost for various cost centres for the

PARTICULAR

SN o.

Production/Service cost

centres (To be specified)

Gran d Total

Total

Primary packing cost centres (To be specified) Total 10

7 8 9

11 2

3 4 5 6

1 A

1 2 3

Conversion cost/packing cost/charges Wages &salaries Consumable store Utilities a)Water b)Power c)Steam d)Others (To be specified)

4

5 6 7 8 9 10

11

12 13

Other direct expenses (To be specified) Repair &maintenance Depreciation Other works overhead Administration overheads Less credit (if any) Sub total Adjustment for opening/closing Work-in-progress Total Machine hours/Direct labour hours a)Available bjworked

3032 GI/2001—750 THE GAZETTE OF INDIA : EXTRAORDINARY [PAHTII—SEC.3(Q1 14 Cost per machine hours/

labour hour a) Current year b) Previous year

Note :- 1. Name of cost centre may be filled as applicable to the product. 2. Actual direct labour/machine hour utilised for each type and size of pack of formulations shall be recorded batch wise.

3. Where a special machine such as high speed automatic machines etc are used for a particular process of manufacturing, separate cost centre shall be opened for each such machine or group of machine.

4. The administration overheads shall be included in the cost of production only to the extent they contribute in putting the goods produced to their present location and condition. The balance of administration overheads, if any, shall be included in the cost of goods sold. The Proformae may be amended accordingly, if required.

PROFORMA C

Name of the Company Name and address of the factory Drug Licence no.& Date Statement showing apportionment of conversion cost to various Products (to be specified) for the year ended

Total Rs.

S.No

COST CENTRE (To be specified)

Product / formulation (to be specified )

1

2

Size and quantity 3

I 7

g , x Y

4 x _y_

5 x Y

6 x y x y

8 x y

10 X y A. Apportionment of conversion cost

- -

•— -

-

-

-

Primary packing cost centre(to be specified) 1 2 3 4 5 6 etc. Total B Apportionment of packing cost

Type& Size of pack

i 12

11

13 14 15

X

X

X

X

Y

16 X Y

Total X y

X j y

y

y

V \

- -

-

-

-

- -

—

"T 2 3 4 5 6 etc. Total

Note: X= Actual direct labour/machine hours utilised as per actual recording or

any other appropriate basis of apportionment

Y= Conversion cost in rupees

PROFORMA D

Statement showing the summary cost of production, cost of sales, sales realization and margin in respect of each type of Formulations for the financial year ended ..(mention the financial year)

Name of the company Name and address of the factory

Drug Licence no.S Date

Particulars

1 SI. No

1 Name of the formulations(with trade mark) manufactured/ marketed & its composition Type of formulation

TOTAL

3032 QI/2001—85 4 THE GAZETTE OF INDIA: EXTRAORDINARY [PART II—SBC. 3(0]

Note-

1. Separate proforma shall be prepared for each type or discription of formulation.

2. Seperate Proforma containing the details specified in this Proforma shall be prepared in respect of products exported

3. Actual quantity consumed including overages, if any, should be included in this Proforma.

4. The conversion cost shall be indicated cost centerwise separately in respect of tablets, capsules, syrups, Injectables, ointment etc.

5 * Liabilities,if any, of overcharging on account of selling at a price higher than the price fixed by the Government be furnished

6. The packing cost shall be indicated cost centerwise separately in respect of tablets, capsules, syrups, Injectables, ointment etc

7. The Abnormal Loss, if any, both in quantity and cost shall be shown in a separate statement indicating the reasons and per unit impact therefor 8. The value of export incentives and other benefits received on exports shall be included in the sales reahstion

9 The administration overheads shall be included in the cost of production only to the extent they contribute in putting the goods produced to their present location and condition The balance of administration overheads, if any, shall be included in the cost of goods sold The Proformae may be amended accordingly, if required57

Proforma E

Name of the company Name and address of the factory Drug Licence no.& Date Statement showing the total production and allocation of total actual expenses and income of the company between Formulations and other activities for the year ending

Note.-1. If, in addition to Formulations of one system of medicine, formulations of other systemr of medicine like allopathic, ayurvedic, Homeopathic etc., are produced'manufactured, additional colums similar to column 5 of the proforma shall be opened in respect of each such system of medicine.

2. All items of income and expenditure in this Proforma shall be reconciled with the financial accounts for the relevant period."

[F.NO.52/17/CAB-2000] A. RAMASWAMY, Jt. Secy.

FootNote^ The principal Rules were published vide G S R. number 452, dated the 22-4-88 and subsequently amended vide -

1. GSR 571 (E) dated the 22th July 1989 . 2. GSR 331 (E),dated the 24th march 1993 3. GSR 455 (E) dated the 3rd August 1998

Printed by th" Manager, Govt. of India Press, Ring Road. Mayapurl, New Dalhl-110064 and Published by lha Controller of Publications, Dalhl-110054 — 2001