AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
COST OF PRODUCTION / ACQUISITION / SUPPLY OF GOODS / PROVISION OF SERVICES (REVISED 2018)
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Determination of Price of Excisable Goods) Rules 2000. CBEC, vide circular No. 692/8/2003-CX dated 13-2-2003 had clarified that in case of captive consumption, cost calculation should be as per CAS-4 only. 1.2. With the introduction of Goods and Services Tax [GST] with effect from July 1, 2017, the concept of 'captive consumption' is no more relevant for computing the tax incidence. However, the concept of cost of production or manufacture is relevant under the GST laws where the value of supply of goods or services or both are determined based on cost. 1.2.1. As per section 15(1) of the CGST Act, where the supplier and the recipient of the supply are not related and price is the sole consideration for the supply, the value of supply of goods or services or both shall be the transaction value. Section 15(4) provides that where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. These have been prescribed under Chapter IV of the CGST Rules, 2017. 1.2.2. Rules 27, 28, & 29 of the CGST Rules provide for methodologies for determination of value of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inciples and methods of classification, measurement and assignment for the determination of cost of production or acquisition or supply of goods or provision of services as required under the provisions of GST Acts/Rules. 2. Objective The objective of this Standard is to bring uniformity and consistency in the principles and methods of determining the cost of production or acquisition or supply of goods or provision of services as required under the provisions of GST Acts/Rules. The cost statements prepared based on this Standard will be used for determination of value of supply of goods or services or both. This Standard and its disclosure requirement will provide transparency in the valuation of goods and services. This standard shall further ensure adequate accuracy in computing Transaction Value of supply for goods or services or both, where the open market value of supply of goods and services or value of supply of goods or services of like kind and quality are not available or same is not verifiable. 3. Scope This standard should be applied to cost statements which require classification, measurement, assignment, presentation, and disclosure of related costs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xes and duties), and transport, handling, storage and other costs directly attributable to the acquisition of goods and services. Cost of acquisition of goods or services is conceptually synonymous to cost of purchase of goods. 4.10. Cost of Production of goods: Cost of production of a product consists of materials consumed, Direct Wages and Salaries, direct expenses, works overheads, quality control costs, research and development costs, packing costs, administrative overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for stock of Work-in-progress, finished goods, recoveries for sales of scrap, wastages etc. shall be made. The terms Cost of Production or Cost of Manufacturing or Cost or Processing denote the same meaning and are used interchangeably. 4.11. Cost of Provision of Service: Cost of provision of services consists of cost of materials consumed, direct employee costs, direct expenses, quality control costs, research and development costs, operation overheads and administrative overheads relating to provision of services. 4.12. Defectives: Materials P....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1. Contract employees include employees directly engaged by the employer on contract basis but does not include employees of any contractor engaged in the organisation. 2. Compensation paid to employees for the past period on account of any dispute / court orders shall not form part of Employee Cost. 3. Short provisions of prior period made up in current period shall not form part of the employee cost in the current period. Employee cost includes payment made in cash or kind. 4.16.1. Direct Employee Cost: Employee cost, which can be attributed to a Cost object in an economically feasible way. 4.16.2. Indirect Employee Cost: Employee cost, which cannot be directly attributed to a particular cost object. 4.17. Excess Capacity Utilization: Excess capacity utilization is the difference between installed capacity and the actual capacity utilization when actual capacity utilization is more than installed capacity. 4.18. Idle Capacity: Idle capacity is the difference between installed capacity and the actual capacity utilization when actual capacity utilization is less than installed capacity. 4.18.1. Abnormal Idle Capacity:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4.24.1. Direct Materials: Materials, the costs of which can be attributed to a cost object in an economically feasible way. 4.24.2. Indirect Materials: Materials, the costs of which cannot be directly attributed to a particular cost object. 4.25. Normal Capacity: Normal Capacity is the production achieved or achievable on an average over a numbers of period or season under normal circumstances taking into account the loss of capacity resulting from planned maintenance. 4.26. Overheads: Overheads comprise costs of indirect materials, indirect employees and indirect expenses. 4.27. Packing Materials: Materials used to hold, identify, describe, store, protect, display, transport, promote and make the product marketable. 4.28. Packing Material Cost: The cost of material of any nature used for the purpose of packing of product. 4.29. Production or Operation Overheads: Indirect costs involved in the production of a product or in providing service. The terms Production Overheads, Operation Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denotes the same meaning and are used interchangeably. P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ills or experience. 4.39. Waste and Spoilage: 4.39.1. Waste: Material lost during production or storage and discarded material which may or may not have any value. 4.39.2. Spoilage: Production that does not meet the quality requirements or specification cannot be rectified economically 5. Principles of Measurement 5.1. Cost of production or acquisition of goods or provision of services shall be measured for each type of goods or services separately. 5.2. Cost of production or acquisition or supply of each type of goods shall be the aggregate of direct and indirect costs relating to the production or acquisition or supply activity of those goods. 5.3. Cost of provision of each type of service shall be the aggregate of direct and indirect cost relating to that service activity. 5.4. Material cost shall be measured separately for each type of material, that is, for indigenous material, imported material, bought out components, process materials, self-manufactured items, and accessories for each type of goods or services. 5.5. The material cost of normal scrap/defectives which are rejects shall be included in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s or services separately. 5.14. Cost incurred for the production or acquisition or supply of goods or provision of services after split-off point shall be measured for each type of Joint/By-Product or service for the resources consumed. In case the production process generates scrap or waste, realized or realizable value net of cost of disposal, of such scrap and waste shall be deducted from the cost of Joint Product. 5.15. Royalty and Technical Know-how Fee for production or acquisition or supply of goods or provision of services paid or incurred in lump-sum or which are in the nature of 'one-time' payment, shall be amortised on the basis of the estimated output or benefit to be derived from the related Technical Know-how. 5.16. Royalty paid as a consideration for use of asset or on technology transfer, in any form, will form part of cost, however royalty paid on brand usage shall not form part of cost of production. 5.17. Quality Control cost incurred in-house for the production or acquisition or supply of goods or provision of services shall be the aggregate of the cost of resources used in the Quality Control activities in relation t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conditioning, retro-fitment, production or operation overheads and other costs allocable to such activity, adjustment for stock of work-in- process and recoveries from sales of scrap and wastages and the like necessary for the production or acquisition or supply of goods or provision of services. 5.25. Subsidy or Grant or Incentive or any such payment received or receivable, from any entity other than the recipient of goods or service, with respect to any element of cost shall be deducted for ascertainment of the cost of production or acquisition or supply of goods or provision of services to which such amounts are related. 5.26. Any Grants recognized as deferred income in the financial statements shall also be reduced from the relevant element of cost of production or acquisition or supply of goods or provision of services. 5.27. The cost of production or acquisition or supply of goods or provision of services shall be determined based on the normal capacity or actual capacity utilization whichever is higher and unabsorbed cost, if any, shall be treated as abnormal cost. 5.28. Fines, penalties, damages, demurrage and similar levies paid to statu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her similar item of fixed costs such as quality control cost, research and development costs and administrative overheads relating to manufacturing shall be absorbed in the cost of production or acquisition or supply of goods or provision of services on the basis of the normal capacity or actual capacity utilization of the plant or service centre, whichever is higher. 6.6. In case a production process results in more than one product being produced simultaneously, treatment of joint products and by-products shall be as under: 6.6.1. In case joint products are produced, joint costs incurred upto the split off point are allocated between the products on a rational, equitable, and consistent basis. Joint cost incurred shall be assigned to the joint products based on benefits received measured by using the physical unit method or equivalent cost or net realisable value at split off point. Net realisable value for this purpose means the net selling price per unit multiplied by quantity sold, adjusted for the post-split off costs. 6.6.2. In case by-products are produced, the net realisable value of by-products is credited to the manufacturing cost of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... costs are finalized. In case of any variations in the costs and hence the value of goods or services, the supplier shall issue a Debit or Credit Note as per provisions of section 34 of the CGST Act. Examples of such cases are - Input costs or prices based on the LME prices; existence of cost escalation clauses in the supply contract; or where future costs of inputs and input services are unpredictable, uncertain and volatile, etc. 7.6. Certified Cost Statements shall be presented with the following periodicity: 7.6.1. In case of registered person, whose aggregate turnover in the preceding financial year did not exceed the limits prescribed in Section 10 (1) of the CGST Act 2017, the Certified Cost Statement shall be issued for a six month period. For example costs for April to September shall be certified in March of the same year. 7.6.2. In case of registered person, whose aggregate turnover in the preceding financial year exceeds the limits prescribed in Section 10 (1) of the CGST Act 2017, Certified Cost Statement shall be issued on quarterly basis e.g. costs for July to September shall be certified in June of the same year. 7.6.3. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; C. Others 2 Process Materials/Chemicals 3 Cost of Utilities (specify) A. B. C..... 4 Direct Employee Cost 5 Direct Expenses 6 Consumable Stores and Spares 7 Repairs and Maintenance Cost 8 Quality Control Cost 9 Research & Development Cost 10 Technical Know-how Fee/Royalty, if any 11 Depreciation/Amortization 12 Othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Cost Statement(s) shall be prepared for each type of goods. 2. Any other material and significant fact in relation to compilation of the cost statement (s) should be disclosed by way of Notes. Appendix 2 Statement showing Cost of Provision of the taxable Service (refer Rule 30 of the CGST Rules, 2017) A General Information 1 Name of the Supplier of service 2 Address of the Supplier of service 3 GSTIN of the Supplier of service 4 Description of the Service 5 Service Code 6 Period of validity of the Cost Statement B Quantitative Information (if applicable) Unit Quantity Quantum of Service Provided C Cost Information Unit Quantity Rate (Rs.) Amount (Rs.) Cost per Unit (Rs.) 1 Materials consumed (specify major items) A. B. C. Others ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Industry, I/we certify that the above cost data reflects true and fair view of the cost of providing the above taxable service. Date: Place: Seal & Signature of the Cost Accountant Membership No.: Firm Reg. No.: Note: 1. Separate Cost Statement(s) shall be prepared for each service. 2. Any other material and significant fact in relation to compilation of the cost statement (s) should be disclosed by way of Notes Appendix 3 Statement showing Cost of Acquisition of the taxable Goods (refer Rule 30 of the CGST Rules, 2017) A General Information 1 Name of the Acquirer 2 Address of the Acquirer 3 GSTIN of the Acquirer 4 Description of the Product acquired 5 HSN Code of the Product 6 Period during which the goods were acquired 7 Source by which acquired Indigenous / Imported B Quantitative Information Unit Quantity 1 Opening Stock of acquired Goods ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 4 Clearing & Forwarding Charges 5 Inland Inward Freight 6 Inward Insurance within India 7 Packing cost charged by the Supplier 8 Incidental Expenses charged by the Supplier 9 Commission charged by the Supplier 10 Taxes, duties, cesses, fees and charges levied under any law other than the GST Laws, where Input Tax Credit is not available 11 Interest or late fee or penalty for delayed payment charged by the Supplier 12 Subsidy/Grant etc. paid by person other than Government 13 Storage Charges 14 Administrative Overheads relating to acquisition of goods &n....