AuditorsTO THE MEMBERS OF SPENTEX INDUSTRIES LIMITED 1. We have audited the attached Balance Sheet of Spentex Industries Limited, asat March 31, 2011 and the related profit and Loss Account and Cash Flow Statement for theyear ended on that date annexed thereto, which we have signed under reference to thisreport. These financial statements are the responsibility of the Company's Management. Ourresponsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the auditing standards generally acceptedin India. Those standards required 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 as amended by theCompanies(Auditor's Report) (Amendment) Order, 2004, issued by the Central government ofIndia in terms of sub-section(4A) of Section 227 of The Companies Act, 1956 of India(theAct) and on the basis of such checks of the books and records of the Company as weconsidered appropriate and according to the information and explanations given to us, wefurther report that: 3.1 (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets. (b) The fixed assets are physically verified by the management according to a phasedprogrammed designed to cover all the items over a period of three years, which in ouropinion, is reasonable having regard to the size of the Company and the nature of itsassets. Pursuant to the programme, a portion of the fixed assets has been physicallyverified by the management during the year and no material discrepancies between the booksrecords and physical inventory have been noticed. (c) In our opinion and according to the information and explanations given to us, asubstantial part of fixed assets has not been disposed of by the Company during the year. 3.2 (a) The inventory has been physically verified by the management during the year.In our opinion, the frequency of verification is reasonable. (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. (c) On the basis of our examination of the inventory records, in our opinion, theCompany is maintaining proper records of inventory. The discrepancies noticed on physicalverification of inventory as compared to book records were not material. 3.3 (a) The Company has not granted any loans, secured or unsecured, to companies,firms or other parties covered in the register maintained under Section 301 of the Act.Accordingly, paragraph 4(iii)(b), 4(iii)(c), 4(iii)(d) of the order are not applicable. (b) The company has not taken any loans, secured or unsecured, from companies, firms orother parties covered in the register maintained under Section 301 of the Act.Accordingly, paragraph 4(iii) (f) and 4(iii) (g) of the order are not applicable. 3.4 In our opinion and according to the information and explanations given to us, thereis an adequate internal control system commensurate with the size of the Company and thenature of its business for the purchase of inventory, fixed assets and for the sale ofgoods. Further, on the basis of our examination of the books and records of the company,and according to the information and explanations given to us, we have neither come acrossnor have been informed of any continuing failure to correct major weakness in theaforesaid internal control system. 3.5 (a) In our opinion and according to the information and explanations given to us,the particulars of contracts or arrangements referred to in Section 301 of the CompaniesAct 1956 have been entered in the register required to be maintained under that section. (b) In our opinion and according to the information and explanations given to us, therewere no transactions made in pursuance of contracts or arrangements entered in theregister maintained under Section 301 of the Companies Act, 1956 exceeding the value ofRupees Five Lakhs or more in respect of any party during the year other than thosereported in para 3.18 below pursuant to paragraph 4 (xviii) of the Companies (Auditor'sReport) Order, 2003. 3.6 The Company has not accepted any deposits from the public within the meaning ofSection 58A and Section 58AA of the Act and the rules framed there under. 3.7 In our opinion, the Company has an internal audit system commensurate with its sizeand nature of its business. 3.8 We have broadly reviewed the books of account, maintained by the Company in respectof products where, pursuant to the Rules made by the Central Government of India, themaintenance of cost records has been prescribed under clause (d) of sub section (1) ofSection 209 of the Act and are of the opinion that prima facie, the prescribed accountsand records have been made and maintained. We have not, however, made a detailedexamination of the records with a view to determine whether they are accurate or complete. 3.9 (a) The company is regular in depositing with appropriate authorities undisputedstatutory dues including provident fund, investor education and protection fund, employeesstate insurance, sales tax, income tax, service tax, wealth tax, custom duty, excise duty,cess and other statutory dues applicable to it. According to the information andexplanation given to us, no undisputed amounts payable in respect of aforesaid dues werein arrears as at March 31, 2011 for a period of more than six months from the date theybecame payable. (b) According to the information and explanations given to us and the records of theCompany examined by us, the particulars of dues of income tax, sales tax, entry tax,service tax and excise duty at March 31, 2011, which have not been deposited on account ofdispute, are as follows : | Name of the statute | Nature of dues | Amount (Rs. ) | Period to which the amount relates | Forum where the dispute is pending | | Sales Tax | | | | | | The M.P. Commercial Tax Act, 1994 | Penalty - Purchase tax demand | 164,195 (including amount paid Rs.128,195) | 2004-05 | First Appellate Authority | | The M.P. Commercial Tax Act, 1994 | Sales tax demand on sale of DEPB licenses | 3,154,447 (including amount paid Rs.2,855,900) | 2001-03 | Deputy Commissioner (Appeals), Indore - Rs.369,057 | | | | 2009-10 | Assessing Authority Rs.2,785,390 | | Entry Tax Act, 1976 | Entry tax demand | 1,420,991 (including amount paid Rs.414,844) | 1992-2008 | The M.P. High Court – Rs.567,816 Deputy Commissioner (Appeals), Indore - Rs.371,076 | | | | | Assessing Authority – Rs.799,246 | | Maharashtra Sales Tax Act, 1975 | BST Sales Tax dues | 192,160 (including amount paid Rs.17,040) | 2004-05 | Joint Commissioner of Sales Tax (Appeal), Pune | | Income tax | | | | | | Income Tax Act, 1961 | Disallowance u/s 80 HHC on export incentives | 31,061,929 (including amount paid Rs.5,541,674) | A.Y. 2000-01 to A.Y. 2004-05 | Income Tax Tribunal Delhi Bench- Rs.11,207,472 | | | | | Commissioner of Income Tax (Appeal), New Delhi – Rs.19,854,457 | | Income Tax Act, 1961 | Disallowance of goodwill amortisation & other expenses | 10,875,657 (including amount paid Rs.3,981,354) | A.Y. 2001-02 A.Y. 2003-04 | Income Tax Tribunal Delhi Bench - Rs. 3,981,354 | | | | | High Court - Rs. 6,894,303 | | The Income Tax Act,1961 | Disallowances of various expenses viz. sales tax subsidy, etc. | 27,095,747 (including amount paid Rs.2,000,000) | A.Y. 2003-04 A.Y. 2005-06 A.Y. 2006-07 | Commissioner of Income Tax (Appeal), New Delhi | | Central Excise and Service Tax Act | | | | | | Central Excise Act, 1944 | Excise duty demands (Baramati unit) | 10,806,176 | June 1999 to Dec 2001 | Customs, Excise & Service Tax Appellate Tribunal, Mumbai | | Central Excise Act, 1944 | Excise duty demands (Ahmedabad unit) | 27,861,240 | Apr-00 to Sept-01 and Feb-01 to Dec-01 | Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad | | Central Excise Act, 1944 | Excise duty demands (Ahemdabad unit) | 1,565,015 (including amount paid Rs.1,565,015) | Feb-04 | Customs, Excise & Service Tax Appellate Tribunal, Ahmadabad | | The Central Excise Act, 1944 | Excise duty–demand of duty on clearance of goods under notification 30/2004 without payment of duty (Butibori unit) | 75,085,214 (including amount paid Rs.2,314,143) | Aug, 2004 to Apr, 2007 | Deputy Commissioner of Central Excise, Nagpur – Rs. 77,371 | | | | | Commissioner, Central Excise Nagpur – Rs.72,187,903 | | | | | Additional Commissioner of Central Excise, Nagpur – Rs.505,797 | | | | | Customs, Excise & Service Tax Appellate Tribunal, New Delhi – Rs. 2,314,143 | | The Central Excise Act, 1944 | Cenvat demand for packing material including penalty (Pithampur unit) | 168,012 | April, 2000 – March, 2004 | Commissioner (Appeals), Central Excise, Indore | | The Central Excise Act, 1944 | Cenvat demand on packing material / scrap (Butibori unit) | 1,545,165 (including amount paid Rs.35,536) | April, 2003 – November, 2009 | Customs, Excise & Service Tax Appellate Tribunal, New Delhi Rs.94,860 | | | | | Commissioner(Appeals), Nagpur– Assistant Commissioner – Rs. 8,012 | | | | | Deputy Commissioner, Central Excise, Nagpur – Rs. 2,02,845 | | | | | Deputy Commissioner, Central Excise, Nagpur – Rs. 12,39,448 | | The Central Excise Act, 1944 | Cenvat on samples used in quality control (Butibori unit) | 203,489 (including amount paid Rs.67,597) | Apr, 2003 to Aug, 2009 | Customs, Excise & Service Tax Appellate Tribunal, Nagpur – Rs. 67,597 | | | | | Deputy Commissioner, Central Excise, Nagpur – Rs. 74,130 | | | | | Assistant Commissioner, Central Excise, Nagpur – Rs. 61,762 | | The Central Excise Act, 1944 | Demand for Cenvat reversal of furnace oil used in generation of electricity on job- work (Butibori unit) | 31,855,017 | Apr, 2003 to Aug, 2006 | Deputy Commissioner of Central Excise, Nagpur – Rs. 694,852 | | | | | Customs, Excise & Service Tax Appellate Tribunal – Rs.20,822,518 | | | | | Additional Commissioner of Central Excise, Nagpur – Rs.10,337,647 | | The Central Excise Act, 1944 | Refund of cenvat on inputs under Rule 18 (Pithampur unit) | 60,216,366 | Oct, 2004 to Jan, 2006 | Commissioner (Appeals), Central Excise, Indore | | The Central Excise Act, 1944 | Rejection export claims | 1,793,732 | Jun, 2006 to Jan,2007 | Assistant Commissioner of Central Excise, Nagpur | | Finance Act, 1994 | Refund against export services | 1,515,368 | 2006-09 | Assistant Commissioner of Central Excise, Nagpur | | The Central Excise Act, 1944 | Excise duty–demand of duty on clearance of goods under notification 30/2004 without payment of duty (Pithampur unit) | 53,291,002 (including amount paid Rs.13,322,751) | March, 2004 to Feb, 2007 | High Court , Indore | | The Central Excise Act, 1944 | Duty on Yarn | 41,871 | 2006 | Commissioner (Appeals), Central Excise, Indore | | The Central Excise Act, 1944 | Cenvat on Capital Goods | 2,570,898 | 2002-2003 | Additional Commissioner of Central Excise, Nagpur | | Professional Tax | | | | | | Professional Tax Act | Interest on Professional Tax | 36,433 (including amount Paid Rs. 36,433) | 2006-07 | Deputy Commissioner (Professional Tax) | 3.10 The Company has accumulated loss as at March 31, 2011 which, read with comments inpara 4 of our report, are more than fifty percent of its net worth. The company has notincurred cash losses in the financial year ended on that date but has incurred cash lossesin the immediately preceding financial year. 3.11 According to the records of the Company examined by us and the information andexplanation given to us, based on our audit procedures, we are of the opinion that thecompany has not defaulted in repayment of dues to financial institutions, banks ordebenture holders during the year. 3.12 The Company has not granted any loans and advances on the basis of security by wayof pledge of shares, debentures and other securities. 3.13 The provisions of any special statute applicable to chit fund/ Nidhi/ mutualbenefit fund/ Societies are not applicable to the Company. 3.14 In our opinion, the Company is not a dealer or trader in shares, securities,debentures and other investments. 3.15 In our opinion and according to the information and explanations given to us, theterms and conditions of the guarantees given by the Company, for loans taken by othersfrom banks or financial institutions during the year, are not prejudicial to the interestof the Company. 3.16 In our opinion, and according to the information and explanations given to us, nonew term loan has been obtained during the year. 3.17 On the basis of an overall examination of the balance sheet of the company, in ouropinion and according to the information and explanations given to us, there are no fundsraised on short term basis which have been used for long-term investment. 3.18 According to the information and explanations given to us, the company has madepreferential allotment of shares to a company covered in the register maintained undersection 301 of the Act. In our opinion, the price at which shares have been issued is notprejudicial to the interest of the company. 3.19 The Company has created security or charge in respect of debentures issued andoutstanding at the year end. 3.20 The Company has not raised any money by public issue during the year. 3.21 During the course of our examination of the books and records of the Company,carried out in accordance with the generally accepted auditing practices in India, andaccording to the information and explanations given to us, we have neither come across anyinstance of fraud on or by the Company, noticed or reported during the year, nor have webeen informed of such case by the management. 4. We draw attention to: Note 8(b) of Schedule XXI, wherein the Company has not charged to Profit and LossAccount a sum of Rs. 210,341,055 due from Schoeller Litvinov k.s. (SLKS), the Czech stepdown subsidiary of the Company pursuant to reorganization plan approved by the court.Accordingly profit for the year is higher by Rs. 210,341,055 with consequent impact on netassets for the year then ended. We further report that had the observations made by us above been considered, theprofit before tax for the year would have been Rs. 164,612,197 (as against the reportedfigure of Rs 374,953,252 ), Accumulated loss would have been Rs. 1,168,073,547 (as againstthe reported figure of Rs. 957,732,492 ), Sundry Debtors and Loans and Advances tosubsidiary would have been Rs. 849,870,951 & Rs. 458,844,868 respectively (as againstthe reported figure of Rs. 1,045,722,558 & Rs. 47,334,316 respectively) . 5. Further to our comments in paragraphs 4 above, we report 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 those books; (c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account; (d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in sub-section(3C) of Section 211 of the Act; (e) On the basis of written representations received from the directors, as on March31, 2011 and taken on record by the Board of directors, none of the directors isdisqualified as on March 31, 2011 from being appointed as a director in terms of clause(g) of sub-section (1) of Section 274 of the Act; (f) In our opinion and to the best of our information and according to the explanationsgiven to us, the said financial statements together with the notes thereon and attachedthereto give in the prescribed manner the information required by the Act and subject toour remarks in paragraph 4 above, give a true and fair view in conformity with theaccounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as atMarch 31, 2011; (ii) in the case of the Profit and Loss Account, of the profit 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 J.C. Bhalla & Company | | Chartered Accountants | | Firm Regn. No. 001111-N | | (Akhil Bhalla) | | Place : New Delhi | Partner | | Dated : May 12, 2011 | Membership No.505002 |
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