spartek ceramics india ltd Auditors report

SPARTEK CERAMIC INDIA LIMITED ANNUAL REPORT 2003-2004 AUDITORS REPORT To The Shareholders of Spartek Ceramics India Limited 1. We have examined the attached Balance Sheet of Spartek Ceramics India Limited as at 31st March, 2004 and the annexed Profit and Loss Account and Cash Flow Statement for the period ended on that date annexed thereto. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to the comments in the annexure referred to in paragraph 3 above, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; (c) The Balance Sheet, the Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (e) On the basis of written representations received from the Directors as on 31st March 2004 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March 2004 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; (f) As regards the loans givers to and amounts due from companies, advance towards purchase of shares and other receivables amounting to Rs.9,04,25,867 inclusive of interest receivable of Rs.78,41,302, we are unable to express any opinion as regards recoverability of the same. (g) No transfer has been made from the profit and Loss account to the Debenture Redemption Reserve as required under the terms of issue of Debentures amounting to Rs. 1,53,28,000 relating to earlier years. (h) Loans, Investments and Guarantees to other body corporate exceeded the prescribed limits specified and is in contravention since introduction of the Section 372A of the Companies Act, 1956. These loans, investments and Guarantees to other body corporate are subject to approval of the Financial Institutions. (i) Some of the Debtors and Creditors accounts are to be updated. These accounts and loans given to and amounts due from companies are subject to reconciliation and confirmation. The effect of those transactions cannot be ascertained and we are therefore unable to express an opinion on the consequential effect on the profit for the year and the reserves and surplus as at the balance sheet date. (j) In our opinion and to the best of our information and according to the explanations furnished to us the accounts read with the notes thereon give the information required by the Companies Act, 1956 in the manner so required and subject to (a) sub-paragraphs 4(f), 4(g) and 4(h) above; (b) sub-paragraph 4(i) above, the effect of which on the profit for the year could not be determined, give a true and fair view in conformity with 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 31st March, 2004; (ii) In the case of the Profit and Loss Account, of the profit for the period ended on that date; and (iii) In the case of cash flow statement, of the cash flows for the year ended on that date For BRAHMAYYA & CO., Chartered Accountants (P.S. Kumar) Place: Chennai Partner Date : 30.11.2004 Membership No: 15590 Annexure to the Auditors Report Referred to in Par 1. The provisions of Clauses of Paragraph 4 of the Companies (Auditors Report) Order, 2003 listed below are not applicable to the Company for the year: a) Clause (vi) regarding acceptance of deposits; b) Clause (viii) regarding maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956; c) Clause (xii) regarding loans granted against pledge of shares and securities etc.; d) Clause (xiii) regarding special statute applicable to Chit Funds and Nidhi/Mutual Benefit Fund and Societies; e) Clause (xiv) regarding dealing or trading in shares, securities etc.; f) Clause (xviii) regarding preferential allotment of shares to specified parties; g) Clause (xix) regarding creation of securities in respect of debentures; and h) Clause (xx) regarding money raised by public issue and its end use. 2. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets, which needs to be updated. All the assets have not been physically verified by the management during the year but there is a regular programme of verification of all fixed assets over a period of three years which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification. During the year, there was no substantial disposal of fixed assets affecting the status of the company as a going concern. 3. Physical verification of inventory except clay has been conducted by the Management at reasonable intervals. We are informed that in case of clay due to its looseness and bulk, as it is stored in a manner which does not lend itself to being physically verified, no physical verification could be carried out. The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business. The company is maintaining proper records of its inventory and the discrepancies noticed on verification between the physical stocks and the book records were not material end have been adequately dealt with in the books of account 4, In our opinion and according to the information and explanations given to us, the Company has neither granted nor taken any loans secured or unsecured to / from companies, firms and other parties entered in the Register maintained9 under Section 301 of the Companies Act, 1956. 5. In our opinion and according to the information and explanations given to us, internal , control procedures need to be strengthened in order to make them commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls. 6. In our opinion and according to the information and explanations given to us, there are no transactions that need to be entered into a register in pursuance of Section 301 of the Companies Act, 1956 and therefore reporting under clause v(a) and v(b) of Paragraph 4 of the Order does not arise. 7. In our opinion, the company has an internal audit system commensurate with the size and nature of its business. 8. According to the records of the Company, the company is not regular in depositing with appropriate authorities undisputed statutory dues including Provident fund, income tax, sales tax etc., According to the information and explanations given to us, the company is exempted from provisions of the Employees State Insurance Act,1948. There are undisputed amounts payable in respect of statutory dues like Sales tax of Rs.57,80,032, Service tax of Rs.4,16,922, Tax deducted at source of Rs.7,95,211 and Investors Education and Protection Fund of Rs.23,84,830 which are outstanding as at 31st March, 2004 for a period of more than0 six from the date they become payable. 9. According to the records of the company and the information and explanations given to us, in respect of income tax, wealth tax and cess, there are no amounts that have not been deposited with the appropriate authorities on account of any dispute. The details of disputed sales tax, Excise duty and Customs Duty that have not been deposited with the appropriate authorities ae as follows Nature of Dues Amount Forum where dispute is pending (in Rs.) Sales Tax Sales Tax demands for the financial years 10,09,959 Deputy Commissioner of Sales Tax 1992-93 to 1996-97 (Appeals -il), New Delhi. Sales tax demands for the financial years 9,33,387 Sales Tax Appellate Tribunal; 1999-2000 Kurnool, Andhra Pradesh Sales Tax demands for the financial years 2,90,040 Joint Commissioner of Commercial 1998-99 and 1999-2000 Taxes (Legal), Hyderabad. Sales Tax demands for the financial years 21,15,221 Commercial Tax Officer, Chennai. 1998-99 and 1999-2000 Excise Duty Excise Duty demand on Value Addition 82,30,163 Honble High Court of Madras Customs Duty Customs Duty and Interest on duty for 2,79,66,050 Director General of Foreign non-fulfillment of Trade, New Delhi Export Obligation 10. The accumulated losses of the company are more than fifty percent of its net worth. The company has not incurred any cash losses during the financial year covered by our audit and the immediately preceding financial year. 11. Based on our audit procedures and on the information and explanations given by the management, the company has defaulted in repayment of installments and payment of interest to a financial institution, banks and debenture holders. 12. The company has given guaranteed loans availed by subsidiary companies from banks and financial institutions amounting to Rs.2855 Lakhs of which an amount of Rs.1636 Lakhs was outstanding as on 31st March, 2004. We are informed that these guarantees have been given in the ordinary course of business since the subsidiaries businesses are closely linked to the companys business whereby the company is earning income. There are no terms and conditions prescribed for these guarantees. 13. The term loans have been applied for the purpose for which they were raised. 14. According to the cash flow statement and other records examined by us and the information and explanations given to us on an overall basis, funds raised on short term basis, prima facie, have not been used during the year for long term investment and vice versa. 15. Based upon the audit procedures performed and information and explanations given by the Management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit. For BRAHMAYYA & CO., Chartered Accountants (P.S. Kumar) Place: Chennai Partner Date : 30.11.2004 Membership No: 15590