1.33     Query

Disclosure of packing materials as raw materials as per

the requirements of the Companies Act, 1956.

          1.            Schedule VI, Part-II, Clause (ii)(a)(1) of the Companies Act, 1956, provides that item-wise break up of raw materials consumption should be disclosed. A public sector corporation registered under the Companies Act purchases small containers (I to 5 ltrs. capacity) and barrels (of 205 Ltrs. capacity) for the packaging of lubricants and greases. These packaging materials are purchased in the finished form and no further processing is done in the corporation. Accordingly, the corporation does not treat the purchase of these packaging materials as raw materials and hence no disclosure is made under clause 3 (ii)(a)(1) of Part-II, Schedule VI to the Companies Act.

            2.            The Government Auditors have raised the point that packaging materials as mentioned in the above para, even though purchased from the market in the finished form, require disclosure under clause 3 (ii)(a)(1) of Part-II, Schedule VI to the Companies Act 1956, as these materials have physically entered into composition of finished goods and, therefore, can be reasonably considered as raw materials. (emphasis supplied by the querist.)

            3.            The opinion of the Expert Advisory Committee has been sought on the issue whether the small containers and barrels purchased in the finished form from the market and used for packaging of lubricants and greases are of the nature of raw materials and require the disclosure under clause 3 (ii)(a)(1) of Part-II, Schedule VI to the Companies Act 1956.

 Opinion                                                                                                                     May 2, 1989

            1.            The Committee notes that para 6.5 of the Statement on Amendments to Schedule VI to the Companies Act 1956, issued by the Institute of Chartered Accountants of India, as provides as under:

“The requirement is silent with regard to containers and packaging materials. It is, therefore, open to question whether such materials constitute a category of “raw materials” for the purpose of the classification which is required under the Notification. The matter does not admit to any dogmatic solutions and should be decided in the light of the facts and circumstances of each case, the nature of the containers and packaging materials, their relative value in comparison to the raw materials consumed, and other similar considerations, subject to the overriding requirement that the classification of raw materials consumed in terms of the Notification should ordinarily relate to the items which are shown in the financial accounts as “raw materials”. Where, however, packaging materials, because of their nature, are included in raw materials, it is preferable to show the description in the accounts as “raw materials including packaging materials consumed”.

            2.            The Committee is of the view that the packing materials of the nature mentioned in the query may not strictly be considered as raw materials for the production of lubricants and greases. However, the Committee notes that such products are also sold, in finished form, in the containers and barrels as mentioned in the query. In case the cost of such packing materials is material in amount in comparison to total value of raw materials consumed and on the other considerations as mentioned in para 6.5 of the aforesaid Statement (reproduced above) and keeping in view the spirit of requirement of such disclosures by the clause 3 (ii)(a)(1) of Part-II of Schedule VI, the Committee is of the opinion that information required under the said clause may be disclosed in respect of the packing materials in question, under the heading “raw materials including packaging materials consumed”.

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