Section 13 in The Companies (Cost records and audit) Rules, 2014
13. Pollution Control Expenses.-
(a)Adequate records shall be maintained to indicate the expenses incurred in respect of pollution control. The basis of apportionment to goods or services under reference and to other goods or services shall be on equitable and reasonable basis and applied consistently.(b)Pollution Control costs shall be the aggregate of direct and indirect cost relating to Pollution Control activity. Direct cost shall include the cost of materials, consumable stores, spares, manpower, equipment usage, utilities, resources for testing and certification and other identifiable resources consumed in activities such as waste processing, disposal, remediation and others. Indirect cost shall include the cost of resources common to various pollution control activities such as pollution control registration and such like expenses.(c)Costs of pollution control which are internal to the entity should be accounted for when incurred. They should be measured at the historical cost of resources consumed.(d)Future remediation or disposal costs which are expected to be incurred with reasonable certainty as part of onerous contract or constructive obligation, legally enforceable shall be estimated and accounted based on the quantum of pollution generated in each period and the associated cost of remediation or disposal in future.(e)Contingent future remediation or disposal costs e.g. those likely to arise on account of future legislative changes on pollution control shall not be treated as cost until the incidence of such costs become reasonably certain and can be measured.(f)External costs of pollution which are generally the costs imposed on external parties including social costs are difficult to estimate with reasonable accuracy and are excluded from general purpose cost statements.(g)Social costs of pollution are measured by economic models of cost measurement. The cost by way of compensation by the polluting entity either under future legislation or under social pressure cannot be quantified by traditional models of cost measurement. They are best kept out of general purpose cost statements.(h)Cost of in-house pollution control activity shall include cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other resources used in such activity.(i)Cost of pollution control activity carried out by outside contractors inside the entity shall include charges payable to the contractor and cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other costs incurred by the entity for such jobs.(j)Cost of pollution control jobs carried out by contractor at its premises shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly attributable thereto net of discounts (other than cash discount), taxes and duties refundable or to be credited. This cost shall also include the cost of other resources provided to the contractors.(k)Cost of pollution control jobs carried out by outside contractors shall include charges made by the contractor and cost of own materials, consumable stores, spares, manpower, equipment usage, utilities and other costs used in such jobs.(l)Each type of pollution control namely, water, air, soil pollution shall be treated as a distinct activity, if material and identifiable.(m)Finance costs incurred in connection with the pollution control activities shall not form part of pollution control costs.(n)Pollution control costs shall not include imputed costs.(o)Price variances related to pollution control, where standard costs are in use, shall be treated as part of pollution control cost. The portion of usage variances attributable to normal reasons shall be treated as part of pollution control cost. Usage variances attributable to abnormal reasons shall be excluded from pollution control cost.(p)Subsidy or grant or incentive and any such payment received or receivable with respect to pollution control activity shall be reduced from cost of the cost object in the financial year when such subsidy or grant or incentive and any such payment is recognised as income.(q)Any pollution control cost resulting from abnormal circumstances, if material and quantifiable, shall not form part of the pollution control cost.(r)Fines, penalties, damages and similar levies paid to statutory authorities or other third parties shall not form part of the pollution control cost.(s)Credits or recoveries relating to the pollution control activity, material and quantifiable, shall be deducted to arrive at the net pollution control cost.(t)Research and development cost to develop new process, new products or use of new materials to avoid or mitigate pollution shall be treated as research and development costs and not included under pollution control costs. Development costs incurred for commercial development of such product, process or material shall be included in pollution control costs.(u)Any change in the cost accounting principles applied for the measurement of the pollution control cost should be made only if, it is required by law or a change would result in a more appropriate preparation or presentation of cost statements of an organisation.(v)Pollution control costs shall be traced to a cost object to the extent economically feasible.(w)Direct costs of pollution control such as treatment and disposal of waste shall be assigned directly to the product, where traceable economically.(x)Where these costs are not directly traceable to the product but are traceable to a process which causes pollution, the costs shall be assigned to the products passing through the process based on the quantity of the pollutant generated by the product.(y)Where the pollution control cost is not directly traceable to cost object, it shall be treated as overhead and assigned based on either of the following two principles; namely:-(i)Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost; and(ii)Benefits received - overheads are to be apportioned to the various cost objects in proportion to the benefits received by them.
