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) 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.

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.

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[PARTII—SB:.3(D1

product including its salts, esters, stereo-isomers and derivatives, which

are used as such or as an ingredient in any formulation";

(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.

(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)]

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.

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(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 months

(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.

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;

(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 and

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[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

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

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 be

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.

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 are

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[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.

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

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 of

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

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 and

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[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 maintained

(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.

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[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 manufactured

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;

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TPARTl^-SEC.3(ni

(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,

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;

(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;

THE GAZETTE OF INDIA: EXTRAORDINARY

[PARTII—SBC.3(01

(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.

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

Quantitative Information

SeriaIN

umber

Particulars

Installed capacity

Quantity produced

Capacity utilisation

Quantity re-circulated

Quantity purchased

Consumption in power house

including other losses

Net auantitv consumed

Current Year (unit)

•

Previous Year

(unit)

- - —

•—

Cost Information:

Serial

Number

A 1 .

Particulars

Materials(specify

the inputs)

(a)

(b)

(c)

Utihties(specify)

(a)

(b)

(c)

Consumable stores

Salaries and wages

Quan-

tity

Rate

(Rupe

es)

per

unit

Amount

(Rupees)

(rn lacs)

Cost per unit

(in Rupees)

Current

Year

THE GAZETTE OF INDIA : EXTRAORDINARY

[PAHTI^-SBC.3(I

10.

Repairs and maintenance

Other overheads

Depreciation

Total

Less: Credit, if any

Net Total

Apportioned to

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

Conversion cost/packing

cost/charges

Wages &salaries

Consumable store

Utilities

a)Water

b)Power

c)Steam

d)Others

(To be specified)

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

Production/Service cost

centres (To be specified)

Primary packing cost

centres (To be specified)

Total

Gran

Total

3032 GI/2001—7

THE GAZETTE OF INDIA : EXTRAORDINARY

[PAHTII—SEC.3(Q1

14 Cost per machine hours/

labour hour

a) Current year

b) Previous year

Note :-

Name of cost centre may be filled as applicable to the product.

Actual direct labour/machine hour utilised for each type and size of pack of

formulations shall be recorded batch wise.

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.

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

S.No

etc.

Total

etc.

Total

Product /

formulation (to

be specified )

Apportionment

of conversion

cost

Apportionment

of packing cost

Size

and

quantity

Type&

Size of

pack

COST CENTRE

(To be specified)

x _y_

•— -

I 7

x y

, x

Total Rs.

Primary packing cost centre(to be specified)

- -

—

j y

V \

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

THE GAZETTE OF INDIA: EXTRAORDINARY

[PARTII—SEC.3(Q]

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

1 SI.

Particulars

Name of the formulations(with

trade mark) manufactured/

marketed & its composition

Type of formulation

Type of packing

Size of pack

Batch size

Production

No. of batches charged

No. of batches produced

Total Quantity Produced

Quantity Packed

(a)

Quantity sold in each

packsize

(b)

Total Number of packs

sold

Assessable value of the product

reconciled with excise records

Plain/coated tablet, soft/hard /printed Capsules

with/ without band, sterile/ Non-sterile liquid/

powder/ ointment/Cream etc. (Please specify)

Aluminum/paper/cellophane/blister

Strips/vials/ampoule bottle/tin/jar

etc. (Please

specify)

(Please specify)

Standard

Current

Year

Actual

Current

Year

S.No.

Serial

Number

Particular

1. Raw material

(a)lmported

(specify the inputs)

(b)lndigenous-purchased

(specify the inputs)

(c)Own produced/

manufactured

(specify major item)

(d)Less waste/reject

2.Total raw material cost

Primary packing material

1. Aluminium/PVC/cellophane,

blister foil etc.,for front use

2.Aluminium/PVC/cellophane,

blister foil etc.,for back side

3.Bottle/container/tube etc

4.Ampules /vials etc

5. Caps/sales etc.

6 Leaflets

7.Cartons

8.Other to be specified

9. Less reject/waste

10.Total(B.1toB.9)

(l)conversion cost

(1)Weighing and mixing

(2)Filteration

(3)preparation of solution/

ointment

(4)lnspection

(5)Quality control

(6)Testing

(7)Research and development

(8)etc. etc. (To be specified)

TOTAL

Unit

Quantity

Theoritical

Quantity

Actual

Overaaes

fotal Qtv.

Rate

Amount

Cost per

unit

Current

Year

3032 QI/2001—8

5 4

THE GAZETTE OF INDIA: EXTRAORDINARY

[PART II—SBC. 3(0]

(II) Packing cost

(III) other expenses

(1)Royalty

(2)Storage

(3)Other (specify)

TOTAL(c.llMtolll.3)

(IV)Total of conversion cost

plus packing cost and other

expenses

Adjustment

for

different

value of opening and closing

work in progress

Adjustment for cost variance

Total cost of production

Secondary packing material

(1)

Cartons

(2)

Leaflets

(3)

Dropper

(4)

Boxes

(5)

Gum tapes

(6)

other (specify)

(7)

less reject/waste

(8)

total(G1 to G7)

Secondary packing

cost/charges

(1 )cartooning

(2)boxing

(3)others (specify)

(4)total(H1 to H3)

(1)Total

cost

packed

product (F+G+H }

(2)Less:

Quantity transferred

for clinical/sample/trails etc.

Add:

Opening packed stock

Less:

Closing packed stock

(3)cost of good sold

(a)domestic sale

(b)export

(i)Distributioncost

(give details)

(2)Sales promotion expenses

(give details)

Whole sellers

ii.

C & F agents

iii.

Retailers

iv.

Others( specify)

(3)Trade commission

Whole sellers

ii.

C & F agents

iii.

Retailers

iv.

Others(specify)

(4)Others (give details)

Total(J1 to J4)

Interest

Other expenses/incomes not

included in costs(details to be

given)

Total Cost excluding Excise

Duty

Total

net

sales

realization

(excluding excise duty)

Add:

Export

benefits

and

incentives, if any

Margin

Maximym

retail

price

excluding excise duty

Maximum price under DPCO

as applicable *

Assessable

value

the

product

Excise duty

Note-

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

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.

THE GAZETTE OF INDIA EXTRAORDINARY

[PARTII—SEC 3(01

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 required

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

Allocation of total expenses

Seria

Num

ber

10.

11.

12.

13.

Particulars

Raw-Material

consumed

Packing Materials

consumed

Process materials/

Chemicals consumed

Salaries and wages

Utilities

Consumable stores

and spares

Depreciation

Repairs-and

maintenance

Royalty

Research and

Development

Quality control

Other Factory

overheads

Administrative

Overhead

(a)Salanes

and wages

(b)Others

(Please

specify)

and income for the year ending-

Total actual

expenses

As per

Audited

Annual

Accounts

applicable to

Other

activities

applicable to

Formulations

applicable to

Bulk Drugs, if

any

Basis

Allocati

THE GAZETTE OF INDIA: EXTRAORDINARY

FPAKTI^-SBC 3(ftl

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

26.

Total(1 to 13)

Less: Credits (from

wastages

and by-

Products)

Stock adjustment

(

work in progress)

Cost of Production

Stock adjustment

(finished products)

Net cost of

Production of

unpacked finished

goods

Less: captive

consumption

Packing Cost

Less: captive

consumption in

packed condition

Net ex-works cost of

packed products

Selling and

distribution

expenses

(a)Salaries and

Wages

(b)Freight and

Transport

Charges

(c)Commission to

selling agents

(d)Advertisement

Expenses

(e)Godown/Warehou

se charges

(f)Others

(g)Total(a to f)

Cost of Sales

Interest

Other

expenses/incomes not

included in

costs(details to be

given)

Total cost (excluding

excise duty)

29.

Total sales

realization excluding

excise duty

Add: Export benefits

and incentives, if any

Margin(29-28)

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 GSR. number

452, dated

the 22-4-88 and subsequently amended vide -

GSR 571 (E) dated the 22^th July 1989 .

GSR 331 (E),dated the 24^th march 1993

GSR 455 (E) dated the 3^rd 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