To the Members of GAIL (India) Limited Report on the Standalone Financial Statements

We have audited the accompanying standalone financial statements of GAIL (India) Limited (‘the Company’), which comprise the balance sheet as at 31 March 2016, the statement of profit and loss and the cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and ma ers which are required to be included in the audit report under the provisions of the Act and the Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence, we have obtained, is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31 March 2016 and its profit and its cash flows for the year ended on that date.

Emphasis of Ma3er

We draw a ention to the following ma ers in Notes to Financial Statement:-1. Note No: 42(c) -regarding various provisional transportation tariff orders issued by Petroleum and Natural Gas Regulatory Board (PNGRB), these orders have been contested by the company at Appellate Tribunal for Electricity (APTEL) and adjustment if any will be recognized as and when ma er is finally decided. 2. Note No: 47 - in respect of stating the investment in a joint venture entity at book value whereas net worth of the entity has been eroded and management has considered the diminution in value of investment as non- permanent.

3. Note No: - 51-in respect of revenue recognition during the year for ship or pay charges where the customer has disputed the claim of the company and final outcome is uncertain,Our opinion is not modified in respect of these ma ers.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order, 2016 (“the Or der”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure “A” statement on the ma ers specified in the paragraph 3 and 4 of the Order, to the extent applicable.

2. As required by C&AG of India through directions/sub-directions dated 11.12.2015 and 29.04.2016 and issued under Section 143(5) of the Companies Act 2013, on the basis of wri en representation received from the management, we give our report on the ma er specified in the Annexure “B” a ached.

3. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge 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 the Company so far as it appears from our examination of those books;

(c) The balance sheet, the statement of profit and loss and the cash flow statement dealt with by this Report are in agreement with the books of account;

(d) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014;

(e) On the basis of the wri en representations received from the directors as on 31 March 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31 March 2016 from being appointed as a director in terms of Section 164 (2) of the Act.

(f) We are enclosing herewith a report in “Annexure C” for our opinion on adequacy of internal financial controls system in place in the company and the operating effectiveness of such controls; and

(g) With respect to the other ma ers to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i the Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note 33(1)(a) and 34 to the financial statements;

ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and

iii. there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

For O.P. Bagla & Co. For G.S. Mathur & Co.
Chartered Accountants Chartered Accountants
Firm No.: 000018N Firm No.: 08744N
(Rakesh Kumar) (Rajiv Kumar Wadhawan)
(Partner) (Partner)
Membership No.:087537 Membership No.:091007
Place: New Delhi
Dated: 25th May, 2016

ANNEXURE TO THE AUDITORS’ REPORT OF GAIL (INDIA) LIMITED

Referred to in paragraph 1 to “Report on Other legal and regulatory requirements” of the Independent Auditors’ Report of even date to the members of GAIL (INDIA) LIMITED on the financial statements for the year ended March 31, 2016.

i(a) As informed to us the company has generally maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) According to information and explanation given to us there is a regular programme of physical verification of these fixed assets by the management which in our opinion is reasonable having regard to the size of the company and nature of its assets. As informed to us no material discrepancies were noticed on such verification.

(c) As informed to us and as verified by us during the course of our audit the title deeds of immovable properties are held in name of the company except for the cases as disclosed in Note no 45(b) & (c).

ii. As informed to us physical verification of inventory has been conducted at reasonable intervals by the management except the store and spares lying with Engineers India Limited and other contractors. We have been explained that the stock of gas at the end of the year has been taken with reference to reading of Turbine Flow Meter/Gas Chromatograph installed at Terminals, Stock of LPG/Pentane/SBP Solvent are determined with reference to Tank Level Gauge measurement which are converted into tonnage by measurement of density and applying correction factor for temperature. LPG vapors volume is converted to tonnage by standard formulae. As informed to us no material discrepancies were noticed on physical verification of inventory.

iii. As informed to us the company has granted unsecured loans to companies covered in the register maintained under section189 of the Companies Act 2013. In respect of such loans:

a) As informed to us and as verified by us the terms and conditions of grant of such loans are not prejudicial to the interest of the company.

(b) Repayment of the principal amount and payment of interest on such loans have been stipulated. However repayment of principal and payment of interest has not been regular in one of the loan given to Bhagyanagar Gas Limited. Please refer Note No.50 to the financial statements in this regard.

(c) As informed to us, no amount of loan is overdue as at end of the year for a period more than ninety days.

iv. According to the information and explanations given to us, the company has complied with the provisions of Section 185 and 186 of Companies Act 2013 in res pect of loans/investment/guarantee/security granted during the year.

v. The company has not accepted any deposits, in terms of the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act 2013 and the rules framed there under.

vi. In respect of business activities of the company maintenance of cost records has been specified by the Central Government under sub-section (l) of section 148 of the Companies Act 2013 read with rules framed thereunder and in our opinion, prima facie, prescribed accounts and records have been made and maintained by the company.

vii.a) According to records of the company and information and explanation given to us the company has generally been regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities. According to information and explanation given to us there are no outstanding statutory dues as referred above as at the last day of the financial year under audit for a period of more than six months from the date they became payable.

b) As certified by the management on which we have relied upon the dues of income tax or sale tax or service tax or duty of custom or duty of excise or value added tax or cess which have not been deposited on account of dispute and the forum where the dispute is pending are given below:

List of Cases of Unpaid Disputed Demand under various Statutes as on 31.03.2016

( in Crores)

Sl. No. Statute Subject Matter of Dispute Amount (2015-16) Period of Dispute Status - Forum
1 Entry Tax (a) Demand of Entry Tax on Natural Gas in U.P 203.00 1999-00 to 200910 Allahabad High Court, Trade Tax Tribunal & Joint Commissioner
(b) Demand of Entry Tax on Natural Gas in Rajasthan 5.69 2002-03 to 200506 Dy. Commissioner (Appeals), Ajmer
(c) Demand of Entry Tax on Natural Gas in Madhya Pradesh 5.38 2008-09, 2011-12 & 2012-13 Tribunal, Bhopal
2 Sales Tax & VAT (a) Non-acceptance of declaration form for concessional sales tax 0.38 1995-96 & 1996-97 Tribunal, Bhopal
(b) Demand of VAT on account of disallowance of Credit Note 31.88 2005-06, 2006-07 & 2009-10 Joint Commissioner (Appeals), Mumbai
(c) VAT demand on inter unit transfer of material 5.52 2011-12 Tribunal, Bhopal
(d) Demand of CST on account of disallowance of LPG absorption credit notes 1.39 2011-12 & 2012-13 Tribunal, Bhopal
2 Sales Tax & VAT (e) Demand of VAT on account of disallowance of input tax credit 2.77 2010-11 Joint Commissioner (Appeals), Mumbai
(f) Demand of VAT on account of disallowance of LPG subsidy 14.92 2005-06 Joint Commissioner (Appeals), Mumbai
(g) Demand of VAT on sale of Natural Gas to Power Companies 129.54 2007-08 Joint Commissioner (Appeals), Mumbai
(h) Demand of VAT on bandwidth charges 2.71 2008-09 Joint Commissioner (Appeals), Mumbai
(i) Demand of VAT on High Sea Sale 28.59 2011-12 Joint Commissioner (Appeals), Mumbai
(j) Demand of VAT on sale of LPG by treating it as non domestic 56.59 2006-07 to 2011-12 Joint Commissioner (Appeals), Mumbai
(k) Penalty for delay in payment of sales tax 0.60 2003-2004 High Court, Mumbai
(l) Demand of VAT on account of rate change 0.54 Oct 2011 to Dec 2011 Joint Commissioner, Trichy
(m) Demand of CST on account of disallowance of LPG subsidy discount 51.84 2005-06 High Court, Gwalior
(n) Demand for treating CST sale as local sale 0.15 2003-2004 High Court, Guwahati
(o) Revised Sales Tax demand as per assessment order 2.76 2003-04 Joint Commissioner (Appeals), Vadodara
3 Customs, Excise and (a) LPG valuation Dispute 19.64 Jan 2001 to Feb 2005 CESTAT Mumbai
Service Tax (b) Dispute on Pentane Classificatio 99.4 Aug.2005 to Dec 2006 & Oct 2007 to July 2009 CESTAT Ahmedaba
(c) Dispute on MFO Classification 79.77 July 2004 to March 2011 CESTAT Ahmedabad
(d) Demand of duty under Rule 6(3) of CCR, 2004 for credit taken on input services 14.71 April 2008 to March 2010 CESTAT Kolkata
(e) Demand of Service Tax on Marketing Margin 965.85 Oct. 2006 to Mar 2014 CESTAT Delhi
(f) Demand of Service Tax on deputation of employees to JVs & Govt. Deptt. 41.20 Oct. 2006 to June 2012 CESTAT Delhi
(g) Demand of differential service tax based on service tax returns 0.13 Oct.2006 to March 2007 CESTAT Ahmedabad
(h) Demand raised by denying Cenvat & service tax credit taken at Hazira 9.30 Aug. 2005 to Sept 2009 CESTAT Ahmedabad
(i) Demand raised by denying Cenvat credit taken on input services 0.22 2008-09 & Dec. 2010 to March 2011 CESTAT Delhi & CESTAT Allahabad
(j) Demand raised in respect of service tax on import of service 0.14 2008-09 to 2011-12 Commissioner (Appeals), Delhi
(k) Demand of CVD on purchase of SAP software 0.07 March 2006 CESTAT Delhi
SUB-TOTAL 1774.73
(a) Unpaid demand 6.23 AY- 1999-00 CIT (Appeals)
4 Income Tax (b) Demand of TDS 3.10 AY- 2008-09 to AY - 2016-17 ITO (TDS)
5 Other taxes Notified Area Tax & GIDC Tax on revised value (incl. interest) 4.16 1998-99 to 200506 & 1985-86 to 2009-10 Ahmedabad High Court
TOTAL 1788.22

viii. Based on our audit procedures and in accordance with the information and explanations given to us by the management the company has not defaulted in repayment of dues to a bank or government or bonds holders. ix. The company has not raised any money during the year by way of initial public offer or further public offer (including debt instrument). As informed to us the company has not raised any money by way of term loans during the year. x. According to the information and explanation given to us there has been no fraud noticed or reported during the year on the company or by the company by its officers or employees. xi. In our opinion the managerial remuneration paid/provided during the year is in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V of Companies Act 2013. xii. The company is not a nidhi company and therefore clause 3(xii) of the Order related to such companies is not applicable to the Company. xiii. According to the information and explanation given to us all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements as required by the applicable accounting standards.

xiv. The company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review. xv. As informed to us, during the year the company has not entered into any non-cash transactions with any of its directors or persons connected with the directors. xvi. The company is not required to get registered under section 45-IA of Reserve Bank of India Act 1934.

For O.P.Bagla & Co. For G.S Mathur & Co.
Chartered Accountants Chartered Accountants
Firm No.: 000018N Firm No.: 08744N
(Rakesh Kumar) (Rajiv Kumar Wadhawan)
(Partner) (Partner)
Membership No.:087537 Membership No.:091007
Place: New Delhi
Dated: 25th May, 2016

ANNEXURE TO THE AUDITORS’ REPORT OF GAIL (INDIA) LIMITED

Referred to in paragraph 2 to “Report on Other legal and regulatory requirements” of the Independent Auditors’ Report of even date to the members of GAIL (INDIA) LIMITED on the financial statements for the year ended March 31, 2016.

Sl. No. Directions / Sub Directions Action taken Impact on financial statement
1. Whether the company has clear title/lease deed for freehold and leasehold respectively? If not please state the area of freehold and leasehold land for which title/lease deed are not available? As informed to us and as verified by us during the course of our audit the title deeds of immovable properties are held in the name of the company except for the cases as disclosed in Note no. 45(b) and (c) along with area of these lands. Nil
2. Whether there are any cases of waiver/ write off of debts/loans /interest etc., if any, the reason there for and amount involved. We have been informed that there has been no case of waiver, write off of debt/interest/loans etc. Nil
3 Whether proper records are maintained for inventories lying with third parties & assets received as gi_ from Govt. or other authorities. The company has maintained proper records of inventories including inventory lying with the third parties. The inventories have been physically verified at reasonable intervals by the Management, except the stores & spares lying with Engineers India Ltd. and other contractors. We have been informed that no asset has been received as gi_ from government or other authorities. Nil
4. Independent verification may be made of information/inputs furnished to Actuary, viz number of employees, average salary, retirement age and assumptions made by the Actuary regarding discount rate, future cost increase, mortality rate etc. for arriving at the provision for liability of retirement benefits, viz gratuity, leave encashment, post retirement medical benefits etc. As directed, independent verification has been done in respect of information/inputs furnished to the actuary for various components. Also assumption on different aspects made by actuary has been verified. Entries made towards provision for liability of retirement benefits, viz gratuity, leave encashment, postretirement medical benefits etc are on the basis of actuarial valuation. Nil

 

For O.P.Bagla & Co. For G.S Mathur & Co.
Chartered Accountants Chartered Accountants
Firm No.: 000018N Firm No.: 08744N
(Rakesh Kumar) (Rajiv Kumar Wadhawan)
(Partner) (Partner)
Membership No.:087537 Membership No.:091007
Place: New Delhi
Dated: 25th May, 2016

ANNEXURE TO THE AUDITORS’ REPORT OF GAIL (INDIA) LIMITED

Referred to in paragraph 3(f) to “Report on Other legal and regulatory requirements” of the Independent Auditors’ Report of even date to the members of GAIL (INDIA) LIMITED on the financial statements for the year ended March 31, 2016.

Report on the Internal Financial Controls under Clause (i) of Sub section 3 of Section 143 of the Companies Act, 2013 (“the Act”)

We have audited the internal financial controls over financial reporting of GAIL (INDIA) LIMITED (“the Company”) as of March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date. Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. We believe that the audit evidence I/we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting. Meaning of Internal Financial Controls Over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For O.P. Bagla & Co. For G.S. Mathur & Co.
Chartered Accountants Chartered Accountants
Firm No.: 000018N Firm No.: 08744N
(Rakesh Kumar) (Rajiv Kumar Wadhawan)
(Partner) (Partner)
Membership No.:087537 Membership No.:091007
Place: New Delhi
Dated: 25th May, 2016