AUDITORSTo The Members of Hindustan Organic Chemicals Ltd.
1. We have audited the attached Balance Sheet of Hindustan Organic Chemicals Limited asat 31st March, 2012, together with the Statement of Profit and Loss of the Company for theyear ended on that date annexed thereto and the Cash Flow statement of the Company for theyear ended on that date, in which is incorporated the Balance Sheet, Statement of Profitand Loss and the Cash Flow Statement of the branch audited by other independent auditors,whose report we have considered in preparing this report. These financial statements arethe responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards generally accepted inIndia. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.
3. As required by the Companies (Auditor's Report) Order, 2003 issued by the CentralGovernment in terms of Section 227(4A) of the Companies Act, 1956, as amended to date; weannex hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the annexure referred to in paragraph (3) above, wereport that:
a) We have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit;
b) In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of the books;
c) The Balance Sheet and the Statement of Profit and Loss dealt with by this report arein agreement with the books of account;
d) In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash FlowStatement dealt with by this report are in compliance with the accounting standardreferred to in Section 211 (3C) of the Companies Act, 1956.
e) The conditions specified in Section 274(1)(g) of the Companies Act, 1956 in respectof qualifications of directors is not applicable to the Company being a governmentcompany.
f) No provision has been made in the financial statements for the following amounts(refer respective notes in the notes to the financial statements):
i) Penal interest of Rs. 672.56 lacs on overdue loan from Government of India (note no4B(ii)),
ii) Loss on account of misappropriation of Company's fund amounting to Rs. 64.81 lacs,pending final report from CBI and outcome of the civil suit (note no.37),
iii) Liabilities of wages revision for the period 1.01.1997 to 31.12.2000. Rs. 2308.08lacs at Rasayani unit (note no. 33A),
iv) Liabilities of wages revision for the period 1.01.2007 to 31.3.2008 Rs. 278.96lacs. to Officers and Rs. 246.31 lacs to Staff at Rasayani unit (note no.33B and 33C),
v) Claims of JNPT short provided in respect of:
a) Minimum guaranteed throughput charges of Rs. 1612.50 lacs,
b) Lease rentals and escalation on leased land of Rs. 621.55 lacs, (note no. 34E)
c) Water charges of Rs. 0.65 lacs, and
d) Way leave charges of Rs. 297.10 lacs,
g) Capital work in progress includes an amount of Rs. 2976.65 lacs incurred on JNPTtank terminal project. The construction has been suspended for more than four years andthe lease has been called off by the lessor - JNPT after the expiry of the lease period inJune 2010. The status of the project is stagnant, incomplete and of no utility since long.No provision is made for the impairment in the value of this asset, if any, pendingascertainment of the recoverable amount (note no. 34E).
h) The balances of sundry debtors, sundry creditors, loans and advances, other currentassets and other debit / credit balances are pending confirmation and reconciliations(note no.42).
i) We further report that had the effects of the items mentioned in paragraph (f) abovebeen considered, the loss for the year would have been higher by Rs. 6102.52 lacs,resulting into a loss of Rs. 13909.37 lacs and the accumulated loss as at the year-endwould have been higher by the same amount i:e Rs. 6102.52 lacs. Further, the long-termliabilities / provisions as at the year-end would have been higher by Rs. 6102.52 lacs.
We also report that the effect of the items mentioned in paragraphs (g) and (h) aboveon the loss for the year and on the Balance Sheet is not ascertainable.
j) Wage arrears in respect of the kochi unit of the Company which had not been providedin earlier years amounting to Rs. 93.69 lacs has been paid / provided during the year andcharged as current years wage expense in the statement of profit and loss. In our opinion,the same should have reflected as a prior period expense item as the Company should havemade provision for the same in earlier years.
k) Subject to our comments in paragraphs (f) to (j) above, in our opinion and to thebest of our information and according to the explanations given to us, the financialstatements read together with the notes thereon, give the information required by theCompanies Act, 1956, in the manner so required and give a true and fair view in conformitywith the accounting principles generally accepted in India:
i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2012;
ii) in the case of the Statement of Profit and Loss, of the loss for the year ended onthat date, and
iii) in the case of the Cash Flow Statement, of the cash flows for the year ended onthat date.
| For Ford, Rhodes, Parks & Co. |
| Chartered Accountants |
| Firm's Registration No. 102860W |
| Sd/- |
| S.B. Prabhu |
| Place : Mumbai | Partner |
| Date : 29th May, 2012 | Membership No. 35296 |
Annexure to the Auditors' Report
(Referred to in paragraph 3 thereof)
As required by the Companies (Auditor's Report) Order, 2003 issued by the CentralGovernment in terms of Section 227(4A) of the Companies Act, 1956 (the Act), as amended todate, and on the basis of such checks as we considered appropriate and according to theinformation and explanations given to us during the course of the audit, we further reportthat: -
1. (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of its fixed assets.
(b) As explained and informed to us, the management has conducted physical verificationof major items of fixed assets during the year and we are informed that no materialdiscrepancies were noticed on such verification.
(c) During the year, the Company has not disposed off a substantial part of fixedassets so as to affect the going concern status of the Company.
2. (a) The inventory has been physically verified by the management at reasonableintervals during the year.
(b) In our opinion, the procedures of physical verification of inventory followed bythe management are reasonable and adequate in relation to the size of the Company and thenature of its business, except for inventory in storage tanks at Kochi unit which does nothave the system of taking dip measurements. Instead, reliance is placed on the electronicreading reported by the Distribution Control System.
(c) The Company has maintained proper records of inventory. As explained to us, thediscrepancies between the physical inventory and the book records noticed on physicalverification were not material and have been properly dealt with in the books of accounts.
3. (a) Based on information, the company has not granted any loans, secured orunsecured, to companies, firms, or other parties listed in the register maintained undersection 301 of the Companies Act, 1956 and as such clauses (iii)(b),(c) and (d) are notapplicable. (b) Based on information, the company has not taken any loans, secured orunsecured, from companies, firms, or other parties listed in the register maintained undersection 301 of the Companies Act, 1956 and as such clauses (iii)(f) and (g) are notapplicable.
4. In our opinion and according to the information and explanations given to us, thereare adequate internal control systems commensurate with the size of the Company and thenature of its business for the purchase of inventory and fixed assets and for the sale ofgoods and services. During the course of our audit, we have neither been informed nor havewe observed any continuing failure to correct major weaknesses in internal controlsystems.
5. According to the information and explanation given to us there were no transactionsthat need to be entered into the register maintained under section 301 of the CompaniesAct, 1956. Sub Clause (b) of clause (v) is hence not applicable.
6. In our opinion and according to the information and explanations given to us,Company has not accepted deposits from the public. Hence the provisions of section 58A and58AA of the Companies Act, 1956 with regard to acceptance of deposits from public and therules framed there under, to the extent applicable, except Rule 3A of the Companies(Acceptance of deposits) Rules,1975 regarding investment in liquid assets, are notapplicable. We have been informed by the management that no order has been received by thecompany, from Company Law Board, National Company Law Tribunal, or Reserve Bank of Indiaor any court or any other tribunal under section 58A and 58AA.
7. The Company has an internal audit system, which, in our opinion, is commensuratewith its size and nature of its business.
8. We have broadly reviewed the books of account maintained by the Company in pursuanceto the rules made by the Central Government for the maintenance of the cost records undersection 209 (1) (d) of the Companies Act, 1956 for certain products of the company and areof the opinion that prima facie the prescribed accounts and records have been made andmaintained. We have not, however made a detailed examination of records with a view todetermine whether they are accurate or complete.
9. a) According to the information and explanations given to us and on the basis of theexamination of the books of account carried out by us, the Company has been generallyregular in depositing undisputed statutory dues including Provident Fund, InvestorEducation and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, WealthTax, Service Tax, Custom Duty, Excise Duty, Cess and other statutory dues with theappropriate authorities. There were no undisputed arrears of statutory dues outstanding asat 31st March, 2012 for a period of more than six months from the date they becamepayable.
b) According to the information and explanations given to us by management and therecords of the Company examined by us, there were no disputed dues in respect of IncomeTax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess which have notbeen deposited as on 31st March, 2012 except as stated below:
A. Rasayani Unit :
| Sr No | Name of Statute | Nature of Dues | Period to which the dispute relates | Amount of disputes (Rupees in lacs) | Forum where dispute is pending |
| 1. | Customs Act | Custom duty | NA Total | 10.80 10.80 | Customs, Excise and Service Tax Appellate Tribunal |
| 2. | Central Excise Act | Molten Sulphur Classification | 1994-95 | 15.53 | Customs, Excise and Service Tax Appellate Tribunal |
| 3. | Central Excise Act | Molten Sulphur Classification | 1999-2000 | 7.62 | Commissionerate |
| 4. | Central Excise Act | Shortage of inputs | | 13.64 | Commissionerate |
| 5. | Central Excise Act | Shortage of inputs | | 18.66 | High Court |
| 6. | Central Excise Act | Shortage of inputs | | 5.84 | High Court |
| 7. | Central Excise Act | ARO Case | | 19.28 | Customs, Excise and Service Tax Appellate Tribunal |
| 8. | Central Excise Act | Clearance of SSA to fertilizer manufacturing units | | 112.78 | Commissionerate |
| 9. | Central Excise Act | Reversal of CENVAT Credit availed on inputs lost in flood. | 2006-2007 | 18.66 | Commissionerate |
| | | Total | 212.01 | |
| 10. | Income Tax Act 1961 | Penalty under section 271(1)(c) | AY 1999-2000 | 91.08 | Commissioner of Income Tax Appeals, Mumbai |
| 11. | Income Tax Act 1961 | Penalty under section 271(1)(c) | AY 2003-04 | 607.27 | Commissioner of Income Tax Appeals, Mumbai |
| 12. | Income Tax Act 1961 | Penalty under section 271(1)(c) | AY 2004-05 | 63.23 | Commissioner of Income Tax Appeals, Mumbai |
| 13. | Income Tax Act 1961 | Penalty under section 271(1)(c) | AY 1999-00 | 57.55 | Income Tax Appellate Tribunal, Mumbai |
| 14 | Income Tax Act 1961 | Disallowance of Expenses | AY 2009-10 | 63.49 | Commissioner of Income Tax Appeals, Mumbai |
| 15 | Income Tax Act 1961 | Disallowance of Expenses | AY 2008-09 | 9.60 | Commissioner of Income Tax Appeals, Mumbai |
| | | Total | 892.22 | |
| B. | Kochi Unit : | | | | |
| 1. | Employees Family Pension Scheme | Damage for default payment | 11/95 to 12/97 | 18.05 | High Court of Kerala. |
| 2. | ESI Corporation | ESI contribution of employees | 1.04.92 to 31.10.92 | 2.17 | Employees Insurance Court (Industrial) |
| 3. | Central Excise Act,1944 | Disallowance of CENVAT Credit availed on the ground that duty is paid by debiting DEPB license | 2004-05 | 12.17 | Appeal with CESTAT, Bangalore. Remanded to J.C.Ex Ernakulam |
| 4. | Finance Act 1994 | Non payment of Service Tax on commercial coaching/training (1.92+6.01) | 4/06 to 3/08 | 8.34 | Commissioner of Central Excise Appeals, Ernakulam |
| 5. | Finance Act 1994 | Non payment of Service Tax on commercial coaching/training and renting of immovable property to Sterling Gas | 04/08 to 03/09 | 2.00 | Asst.Commissioner of Central Excise, Muvattupuzha |
| 6. | Finance Act 1994 | Availing of CEVAT credit on outdoor catering services (16.59+32.89) | 04/06 to 11/08 | 53.05 | Commissioner of Central Excise Appeals, Erankulam |
| 7. | Finance Act 1994 | Availing of CEVAT credit on outdoor catering services | 12/08 to 09/09 | 26.10 | Commissioner of Central Excise Appeals, Erankulam |
| 8. | Finance Act 1994 | Availing of CEVAT credit on service tax on transportation of final products to customers premise | 01/05 to 08/06 | 4.84 | Commissioner of Central Excise Appeals, Erankulam |
| 9. | Finance Act 1994 | Availing of CEVAT credit on service tax on transportation of final products to Rasayani Depot | 04/03 to 12/06 | 33.90 | Commissioner of Central Excise Appeals, Erankulam |
| 10. | Finance Act 1994 | Security services and repair works at HOC township | 02/06 to 12/06 | 0.97 | Commissioner of Central Excise Appeals, Erankulam |
| 11. | Central Excise Act 1944 | Duty on sale of waste/scrap | 5/09 to 1/02 and 5/02 to 3/03 | 1.37 | CESTAT, Bangalore appeal filed by the department |
| 12. | Customs Act 1962 | Demand to remit duty for excess quantity of imported Benzene | Nov.08 | 0.90 | Commissioner of Central Excise Appeals, Erankulam |
| 13. | Finance Act 1994 | Availing of CENVAT credit on Hiring of Bus, Car and on Capital Goods | 01/09 to 12/09 | 3.31 | Commissioner of Central Excise Appeals, Erankulam |
| 14. | Finance Act 1994 | Service Tax on commercial coaching, renting of immovable property | 04/09 to 03/10 | 1.89 | Deputy Commissioner of Central Excise |
| 15. | Finance Act 1994 | Availing of CENVAT credit on outdoor catering, insurance, etc | 10/09 to 09/10 | 16.69 | Commissioner of Central Excise Appeals, Erankulam |
| 16. | Finance Act 1994 | Availing of CENVAT credit on Hiring of Bus, Car, etc | 01/10 to 11/10 | 2.37 | Deputy Commissioner of Central Excise |
| 17. | Central Excise Act 1944 | Excess amount collected from Rasayni Sales | 03/10 | 0.26 | Deputy Commissioner of Central Excise |
| 18. | Income Tax Act 1961 | Demand for short collection/ Non payment of TDS for Assessment Year 2008-09 and 2009-10 | AY 2008-09 and 2009-10 | 3.55 | Commissioner of Income Tax Appeals, Erankulam |
| 19. | Income Tax Act 1961 | Demand for short collection/ Non payment of TDS for Assessment Year 2008-09 | AY 2008-09 | 0.52 | Commissioner of Income Tax Appeals, Erankulam |
| 20. | Income Tax Act 1961 | Demand for short collection/ Non payment of TDS for Assessment Year 2011-12 | AY 2011-12 | 10.39 | Commissioner of Income Tax Appeals, Erankulam |
| 21. | Income Tax Act 1961 | Demand for short collection/ Non payment of TDS for Assessment Year 2010-11 | AY 2010-11 | 0.40 | Commissioner of Income Tax Appeals, Erankulam |
| 22. | KVAT Act 2003 | Disallowance of input tax credit on sales to SEZ units | AY 2009-10 | 33.56 | D.C. (Appeals), dept. of Commercial Taxes, Ernakulam |
| 23. | KVAT Act 2003 | Disallowance of AY 2010-11 input tax credit on computer purchased for ERP implementation | | 4.11 | D.C. (Appeals), dept. of Commercial Taxes, Ernakulam |
| | | Total | 240.91 | |
10. The accumulated losses of the Company at the year-end exceed fifty percentage ofits net worth. During the year, the Company has incurred cash losses. It has not incurredcash losses as per its financial statements during the immediately preceding financialyear. However, after giving effect to the qualifications in the auditors' report, thereare cash losses during that year.
11. The Company has not defaulted in repayment of dues to the bond holders during thecurrent year.
12. According to the information and explanations given to us, adequate documents andrecords are maintained for loans granted to subsidiary company and others on the basis ofsecurity given by them.
13. Clause (xiii) of the Order is not applicable as the Company is not a chit fundcompany or nidhi / mutual benefit fund / society.
14. The Company is not dealing in or trading in shares, securities, debentures andother investments.
15. According to the information and explanations given to us, the Company has givenguarantee of Rs. 1253 lacs for loan taken by subsidiary - Hindustan Flurocarbons Ltd fromState Bank of Hyderabad. Based on the explanations given to us, in our opinion, the termsand conditions of this guarantee are not prejudicial to the interest of the Company.
16. In our opinion and according to the information and explanations given to us, theterm loans raised by the Company during the year were applied for the purposes for whichthe loans were obtained.
17. According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investment.
18. The Company has not made any preferential allotment of shares to parties andcompanies covered in the register maintained under Section 301 of the Act during the year.
19. The Company has raised Rs. 10,000 lacs through issue of bonds during the previousyear, which is guaranteed by GOI by way of registered bond trust deed.
20. The Company has not raised any money by public issue during the year.
21. Based upon the audit procedures performed for the purpose of reporting the true andfair view of the financial statements and as per the information and explanationsfurnished by the management, we report that no fraud has been noticed or reported by theCompany during the year.
| For Ford, Rhodes, Parks & Co. |
| Chartered Accountants |
| Firm's Registration No. 102860W |
| Sd/- |
| S.B.Prabhu |
| Place : Mumbai | Partner |
| Date : 29th May, 2012 | Membership No. 35296 |