Exemption to Govt Company producing Defence Equipment

CG exempts Govt. Companies producing Defence Equipments from disclosure requirements of additional info while preparing Statement.

As per section 129 of the Companies Act, 2013 (CA 2013), the financial statements shall comply with Accounting Standards (AS) and shall be in the form provided in Schedule III of CA 2013. However, the Central Government (CG) may grant exemption to any class of company from complying the provision of section 129 by exercising power conferred by sub-section (6) of Sec. 129 itself.

We know that the additional information are required to be disclosed by a company by way of notes regarding aggregate expenditure and income on the items specified in paragraph 5 of general instructions for preparing statement of profit and loss in Schedule III of the CA 2013.

Exemption to Government Companies under Section 129

Now, the government companies which produce defence equipment shall not disclose some specified additional information of the General instructions for preparation of Statement of P/L in Schedule III.

This is because the CG vide notification dated 4th September, 2015 directs that paras 5(ii)(a)(1), 5(ii)(a)(2), 5(ii)(e), 5(iii), 5(viii)(a), 5(viii)(b), 5(viii)(c) and 5(viii)(e) relating to additional info of the General instructions for preparation of Statement of Profit and Loss in Schedule III of the Companies Act, 2013 shall not apply to Govt. Companies producing Defence Equipment including the Space Research.

Thus, such Govt. companies may not disclose the following additional information while preparing their statement of profit and loss in accordance with Schedule III:

Para 5 (ii) (a) (1): Raw Materials under broad heads.

Para 5 (ii) (a) (2): Goods Purchased under broad heads.

Para 5 (ii) (e): Gross Income derived under broad heads.

Para 5 (iii): Works-in-progress under broad heads.

Para 5 (viii) (a): Value of imports calculated on C.I.F basis by the company during the financial year in respect of—

I. Raw materials;

II. Components and spare parts;

III. Capital goods;

Para 5 (viii) (b): Expenditure in foreign currency during the financial year on account of royalty, know-how, professional and consultation fees, interest, and other matters.

Para 5 (viii) (c): Total value if all imported raw materials, spare parts and components consumed during the financial year and the total value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption.

Para 5 (viii) (e): Earnings in foreign exchange classified under the following heads, namely:—

I. Export of goods calculated on F.O.B. basis;

II. Royalty, know-how, professional and consultation fees;

III. Interest and dividend;

IV. Other income, indicating the nature thereof.

Note that broad heads shall be decided taking into account the concept of materiality and presentation of true and fair view of financial statements.

The above mentioned exemptions u/s 129 shall be applicable in respect of financial statement prepared in respect of the Financial Years ending on or after the 31st March, 2016.

However, Government Companies producing Defence Equipment shall have to fulfill the following conditions to avail exemption granted u/s 129 as discussed above:

The Board of Directors of the Company has given consent with regard to non-disclosure of information relating to paras 5(ii)(a)(1), 5(ii)(a)(2), 5(ii)(e), 5(iii), 5(viii)(a), 5(v iii)(b), 5(viii)(c) and 5(viii)(e), as may be applicable;

Disclose the Fact of Exemption:

The Company shall disclose in the Notes forming part of the balance sheet and profit and loss account, the fact of grant of exemption under this notification;

Comply with AS:

The company shall comply with the prescribed Accounting Standards; However, you should note that the government companies engaged in defence production are specifically exempted from application of AS-17 (Segment Reporting) in accordance with exemptions granted under section 462 of CA 2013.

Ensure True and Fair View:

The company shall ensure that its financial statements represent a true and fair state of affairs of its finances; and

Maintain and File Specified Info:

The company shall maintain and file such information as may be prescribed or called for or required by the government or the Reserve Bank of India or any other regulator.

Therefore, the government companies producing defence equipment including the space research like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Bharat Dynamics Limited (BDL), Garden Reach Shipbuilders & Engineers Ltd (GRSE), Goa Shipyard Limited etc. are exempted from disclosure requirements as per section 129 in addition to the exemption granted u/s 462 of the Companies Act, 2013.


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