CAS-4 Certification Process: Everything You Need to Know

Cost Accounting Standard 4 (CAS-4) deals with the determination of cost of production for goods that are transferred to another division within the same entity or supplied to related parties, rather than sold in the open market. This is commonly referred to as "captive consumption."

When Do You Need CAS-4?

You need a CAS-4 certificate when: (1) Your company transfers finished or semi-finished goods from one unit to another within the same company, (2) You supply goods to related parties and need to establish an arm's-length price, (3) GST authorities demand cost of production for valuing captive supplies under Rule 30, (4) Transfer pricing assessment requires supporting documentation for related party transactions.

The CAS-4 Valuation Methodology

CAS-4 prescribes a specific methodology for computing cost of production that includes: Material Cost (as per CAS-6), Employee Cost (as per CAS-7), Direct Expenses, Production Overheads (as per CAS-3), Quality Control Cost (as per CAS-14), Research and Development Cost (as per CAS-20), and Administrative Overheads related to production.

Importantly, CAS-4 excludes selling and distribution overheads, abnormal costs, penalties, and fines from the cost of production.

GST Implications

Under GST Rule 30, when goods are supplied to related persons or for captive consumption and there is no comparable open market value, the value is determined based on the cost of production plus 10% margin. A CAS-4 certificate from a practising CMA serves as documentary evidence of this cost of production.

Transfer Pricing Relevance

For companies with related party transactions, CAS-4 provides a robust, standardized methodology for arriving at the cost of production. This can be used as supporting evidence in transfer pricing documentation under Section 92 of the Income Tax Act.

How We Can Help

Malay Biswas & Co. provides CAS-4 certification services with quick turnaround times. Our CMA practitioner (COP: 007684) has extensive experience in manufacturing cost determination across multiple industries.