Do you know, that Cost Audit is Mandatory for Auto Component Manufacturers
if Turnover Exceeds Rs 100 Crores
Auto component manufacturers in India often focus on production efficiency, OEM schedules, supply chain stability, GST, working capital, and pricing discipline. Yet one important compliance area is still misunderstood in many manufacturing businesses: whether maintenance of cost records and cost audit are mandatory under Section 148 of the Companies Act, 2013.
For businesses engaged in the manufacture of auto parts and automotive components, the issue becomes especially relevant where products fall within the notified sectors covered by the Companies (Cost Records and Audit) Rules, 2014. Various professional references discussing automotive components and Chapter 87 indicate that this sector can be covered for cost audit applicability, subject to the prescribed turnover criteria and the exact product classification.
In practical terms, the broad compliance position for a non-regulated sector company is this: if the company is covered under Rule 3, and its overall annual turnover from all products and services is Rs 100 crore or more, and the aggregate turnover of the specific product or products for which cost records are required to be maintained is Rs 35 crore or more during the immediately preceding financial year, cost audit becomes mandatory.
This is why many auto component manufacturers cannot evaluate applicability only by looking at one HSN code in isolation. The correct approach is to examine the nature of the goods, the notified product coverage, the sector classification under the Rules, the immediately preceding year turnover, and whether any exemption is available.
Why auto component manufacturers need to pay attention
The automotive supply chain is deep and diverse. It includes manufacturers of parts, assemblies, precision components, fabrication items, electrical components, chassis-linked parts, body-related items, and many other products supplied to OEMs, tier-1 vendors, exporters, and replacement markets. When such products fall within the classes of goods covered under the cost records framework, the company may be required first to maintain cost records and then, if turnover thresholds are crossed, to get those records audited.
This distinction is very important. Cost records and cost audit are connected, but they are not identical. A company may be required to maintain cost records once the Rule 3 threshold conditions are met, while cost audit under Rule 4 applies only when the higher turnover thresholds are also satisfied.
For manufacturers in the auto component segment, this means compliance should begin well before the year-end audit stage. Once the company enters the threshold zone, management should ensure that product-wise cost data, material consumption, utilities, labour, overhead absorption, captive consumption, inter-unit transfers, inventory valuation logic, and reconciliation with financial books are all properly documented.
Legal basis of mandatory cost audit
Section 148 of the Companies Act, 2013 empowers the Central Government to require specified classes of companies to maintain cost records and, where applicable, to conduct cost audit. The operational framework is laid down in the Companies (Cost Records and Audit) Rules, 2014.
Professional summaries of Rule 4 explain that cost audit applies where the company falls under the notified Table A or Table B categories and satisfies the relevant turnover thresholds. For companies in non-regulated sectors, the key threshold is overall annual turnover of Rs 100 crore or more, together with aggregate turnover of Rs 35 crore or more for the individual product or service for which cost records are required.
This is the basis for the statement that cost audit is mandatory for an auto component manufacturer when turnover exceeds Rs 100 crore, but with one important qualification: the business must also be engaged in a covered product category and satisfy the product-level turnover threshold. Saying only “above Rs 100 crore” is directionally useful for business communication, but the precise legal test includes both overall turnover and covered product turnover.
Relevance of Chapter 87 and automotive components
A number of industry and professional references discussing cost audit applicability specifically mention motor vehicles and automotive components in connection with Chapter 84, 85 and 87. These references indicate that automotive components have historically been discussed within the cost audit coverage framework, although present-day applicability should always be cross-checked with the current Rules, amendments, and exact product classification.
This matters because many manufacturers assume that only vehicle assemblers or very large OEMs are exposed to cost audit. That assumption is risky. In reality, component manufacturers can also come within the compliance net where their products fall under the notified coverage and their turnover crosses the prescribed thresholds.
Therefore, any company manufacturing auto parts, sub-assemblies, precision items, fabricated components, or allied automotive products should perform a structured applicability review rather than relying on assumptions based on industry practice.
Thresholds every manufacturer should know
For cost records, the general trigger under Rule 3 is overall turnover of Rs 35 crore or more in the immediately preceding financial year for companies engaged in covered goods or services. This means the obligation to maintain cost records can arise much earlier than the stage at which cost audit becomes mandatory.
For cost audit under Rule 4, the thresholds differ by sector. In Table A sectors, the threshold is overall turnover of Rs 50 crore or more and product/service turnover of Rs 25 crore or more. In Table B sectors, the threshold is overall turnover of Rs 100 crore or more and product/service turnover of Rs 35 crore or more.
As a result, an auto component manufacturer with overall turnover above Rs 100 crore should not stop at the headline figure alone. Management must also check whether the turnover of the covered auto component line is at least Rs 35 crore and whether the company falls within the applicable notified category.
Important exemptions
Even where a company is covered under Rule 3, the requirement for cost audit may not apply in certain cases. Professional explanations of the Rules note exemptions where export revenue in foreign exchange exceeds 75 percent of total revenue, or where the company operates from a Special Economic Zone.
These exemptions are important for auto component manufacturers with large export exposure. However, the exemption should be evaluated carefully on facts and documented properly, because a mistaken assumption can create avoidable compliance risk for directors and management
Common compliance mistakes
One common mistake is checking only company turnover and ignoring the turnover of the specific covered product line. Another is assuming that ERP data automatically meets cost record requirements, even when cost sheets, reconciliation notes, utility allocation logic, and quantitative records are incomplete.
A third mistake is waiting until the end of the year to assess applicability. Since cost audit depends on proper maintenance of records through the year, delayed action often leads to weak data trails, reconciliation gaps, and unnecessary stress during audit and reporting.
How MLG Associates can help
At MLG Associates, we help manufacturing businesses evaluate whether cost records and cost audit provisions apply based on the nature of products, turnover profile, and sector classification. We also support businesses in reviewing product mapping, compliance readiness, documentation standards, and practical coordination between finance, costing, production, and ERP teams.
For auto component manufacturers, an early applicability review can prevent both over-compliance and under-compliance. The right review identifies whether the business falls within the notified framework, whether thresholds are crossed, what records must be maintained, and what actions are required for timely compliance.
A careful compliance review is particularly valuable for companies scaling beyond Rs 100 crore turnover, diversifying product lines, supplying to OEMs, or expanding exports. In all such cases, the cost audit question should be examined proactively rather than after receipt of a notice or during statutory reporting.
Applicability of Cost Audit – Motor Vehicles (including Automotive Components) Industry
- Cost Audit is applicable to:
- Companies engaged in manufacturing, production or processing of goods or services.
- Both Private Limited & Public Limited Companies are covered.
- These Companies are covered under Cost Audit if any of the following criteria is fulfilled:
- Company Listed on Stock Exchange, or
- Turnover of the company exceeds Rs. 100 crores
- Cost Audit is mandatory for the financial year 2012-13 and onwards.
(If a company is covered once on the basis of above criteria, the Cost Audit will remain mandatory even if turnover of the company is reduced in the subsequent years)
- Companies whose Cost Audit Orders were issued on case to case basis as per earlier Rules, shall continue to be covered under Cost Audit whether they fulfill the above criteria or not.
- Relevant Chapter Heading of the Central Excise Tariff Act, 1985 in respect of Motor Vehicles (including Automotive Components Industry
Chapter 84, 85 & 87
Cost Accounting Records:
- Cost Accounting Records are to be maintained as per The Companies (Cost Accounting Records) Rules, 2011, and
- Cost Accounting Standards issued by the Institute of Cost Accountants of India.
(Presently CAS 1-18 have been issued)
- Cost Accounting Records are required to be maintained for atleast 8 financial years.
Cost Audit Report:
- It is to be prepared on the basis of Cost Audit Report Rules, 2011
Submission of Cost Audit Report:
- It is to be submitted online to Ministry of Corporate Affairs.
- If Company is following April to March financial year, then the Cost Audit Report for the Financial year 2013-14 is required to be submitted by 27th September, 2014 (i.e., 180 days from the close of financial year)
Source : https://costaccountant.in/applicability-of-cost-audit-to-auto-auto-components/
#tags : Cost Audit, Auto Components, Auto Component Manufacturers, Section 148, Companies Act 2013, Cost Records, CRA-1, CRA-2, CRA-4, Chapter 87, Turnover 100 Crores, Manufacturing Compliance, Cost Accountant, MCA Compliance, Cost Audit Applicability, MLG Associates
