JSW ISPAT Steel Ltd Merged Auditor Reports

JSW ISPAT STEEL LIMITED ANNUAL REPORT 2011-2012 AUDITORS REPORT To the Members of JSW ISPAT Steel Limited 1. We have audited the attached Balance Sheet of JSW ISPAT Steel Limited (the Company) as at 30th June 2012 and also the Statement of Profit and Loss and the Cash Flow Statement for the year 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 the 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 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall Financial Statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors Report) Order, 2003 (as amended) 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 our comments in the Annexure referred to above, we report that : i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. ii. 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. iii. 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. iv. In our opinion, the Balance Sheet, the Statement of Profit and Loss and the 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, except for our comment in para (vi) below. v. On the basis of the written representations received from the directors, as on 30th June 2012, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 30th June 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956. vi. Attention is drawn to Note No. 15 of the accompanying Financial Statements regarding recognition of net deferred tax asset of Rs. 2087.94 crores (including Rs. 779.18 crores recognized during the year) on unabsorbed depreciation and brought forward business losses upto 30th June 2012, based on the future profitability projections made by the management. We are unable to express an opinion on the virtual certainty of achieving these projections as required by Accounting Standard 22, Accounting for Taxes on Income, and the consequential impact, if any, of the recognition of such deferred tax asset. This had also caused us to qualify our audit opinion on the Financial Statements for the year ended 30th June 2011. Had the impact of item stated above been considered, the loss for the year would have been Rs. 2404.86 crores (after adjusting deferred tax assets of Rs. 1308.76 crores recognized upto 30th June 2011) as against the reported loss of Rs. 316.92 crores and net deficit in Reserve and Surplus would have been Rs. 3908.04 crores as against the reported net deficit off 1820.10 crores. vii. Except for the effect of the observation in para (vi) above, in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; a) in the case of the Balance Sheet, of the state of affairs of the Company as at 30th June 2012; b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. For S.R. BATLIBOI & CO. Firm Registration Number: 301003E Chartered Accountants Per Hemal Shah Partner Membership No. 42650 14th Floor, The Ruby, 29 Senapati Bapat Marg, Dadar (W) Mumbai - 400 028 Dated: 25th July 2012 Annexure to the Auditors Report Referred to in our report of even date to the Members of JSW ISPAT Steel Limited as at and for the year ended 30th June 2012 (i)(a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. (b) All fixed assets have not been physically verified by the management during the year but there is a regular programme of verification in a phased manner to cover all the items of 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. (c) There was no substantial disposal of fixed assets during the year. (ii)(a) The management has conducted physical verification of inventory at reasonable intervals during the year. (b) As the Companys inventory of raw materials mostly includes bulk materials such as iron ore, iron ore fines, coal, coke, pellets, etc. requiring technical expertise for establishing the quantity thereof, the Company has hired independent agencies for physical verification of such stocks. Relying on the above work, according to the information and explanations furnished to us, the procedure of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification of inventories. (iii)(a) According to the information and explanations given to us, 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 Companies Act, 1956. Accordingly, the provisions of clauses 4(iii)(a) to (d) of the Order are not applicable to the Company and hence not commented upon. (b) According to the information and explanations given to us, the Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clauses 4(iii)(e) to (g) of the Order are not applicable to the Company and hence not commented upon. (iv) In our opinion and according to the information and explanations given to us, and having regard to the explanation that some of the items purchased are of a special nature and alternative sources do not exist for obtaining comparable quotations thereof, it appears that there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness or continuing failure to correct any major weakness in the internal control system of the Company in respect of these areas. (v)(a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under section 301 have been so entered. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time. (vi) The Company has not accepted any deposit from the public within the purview of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed thereunder. (vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business. (viii) We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(1 )(d) of the Companies Act, 1956 for the steel products manufactured by the Company, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. (ix)(a) The Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to it. The provisions relating to employees state insurance are not applicable to the Company. (b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, custom duty, excise duty, cess and other material statutory dues were outstanding, as on the Balance Sheet date for a period of more than six months from the date they became payable. (c) According to the records of the Company, the dues outstanding of income tax, sales tax, wealth-tax, service tax, custom duty, excise duty and cess on account of any disoute. are as follows:- Name of the Amount A B Statue & (Rs. in Nature of Crores) the Dues The Central Excise Act, 1944 Dispute of Cenvat 48.63 1994-1995 } Commissioner (Appeals), credit on Inputs & 1997-2011 } Customs, Excise and Capital Goods and } Service Tax Appellate related matters } Tribunal, High Court, (Net of Rs.5.07 crores } Supreme Court deposited under } protest) } } Duty on valuation of 14.89 2000-2004 } inputs and Hot Metal } } Duty on Freight 5.40 1996-2003 } } Various matters 6.45 1998-2011 } (Net of Rs.1.02 crore } deposited under } protest) } } Transfer of Cenvat 2.01 2005-2006 } Balance from one } location to other } The Customs Act, 1962 Demand of Custom 7.28 1994-2005 Customs, Excise duty on barge and and Service stevedoring charges Tax Appellate Tribunal The Finance Act, 1994: Tax on services 2.93 1998-2004 Commissioner relating to foreign 2005-2009 (Appeals), consultancy/ Customs, Excise infrastructure support/ and Service sales commission Tax Appellate (Net of Rs. 0.44 crore Tribunal, deposited under High Court protest) The Bombay Sales Tax Act, 1959: Tax on Classification 32.13 1998-2004 Jt. Commissioner of CR/GC as (Appeal), Sales Tax manufacturing process Appellate Tribunal, (Net of Rs.0.33 crore High Court deposited under protest) Deferred Sales Tax 3.26 2001-2002 Sales Tax amount reduced in Appellate revision order Tribunal Demand for set off 1.12 1999-2000 Sales Tax granted on capital Appellate goods Tribunal Purchase Tax on Zinc 0.66 1989-1991 Sales Tax 1995-1996 Appellate Tribunal Demand for set off 0.42 1995-1996 Sales Tax granted on Natural Appellate Gas Tribunal Central Sales Tax Act, 1956: C and H Form 42.38 2005-2006 Jt. Commissioner related matters (Appeal) (stayed for recovery by the relevant authority) C and T Form 1.62 2003-2004 W.B. Commercial related matters 2005-2006 Tax & Revision Board C Form related 0.06 2005-2006 Jt. Commissioner matters (Appeal) West Bengal Value Added Tax Act, 2003 Purchase Tax Matters 0.01 2005-2006 Sr. Joint Commissioner The Income Tax Act,1961 Minimum Alternate 2.16 1989-1991 High Court Tax The Wealth Tax Act, 1957 Demand on valuation 0.27 2001-2002 Income Tax Appellate Tribunal A = Period to which the amount relates B = Forum where dispute is pending (x) The Companys accumulated losses at the end of the financial year are more than fifty percent of its net worth and it has incurred cash losses in the current and immediately preceding financial year. (xi) Based on our audit procedures and as per the information and explanations given by the management, the Company has delayed in repayment of working capital dues to banks during the year to the extent oft 771.77 crores (the delay in such repayments for more than 15 days /s Rs. 174.64 crores). However, no such dues were in arrears as at the balance sheet date. The company did not have any outstanding dues of debentures during the year. (xii) According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable. (xiv) In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable. (xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions. (xvi) Based on the information and explanations given to us by the management, term loans were applied for the purpose for which these loans were obtained. (xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that short term funds to the extent of 7 1689.04 crores have been used in funding of a portion of accumulated losses and deferred tax assets. (xviii) The Company has not made any preferential allotment of shares during the year to parties or Companies covered in the register maintained under section 301 of the Companies Act, 1956. (xix) The Company did not have any outstanding debentures during the year. (xx) The Company has not raised any money through a public issue during the year. (xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year. For S.R. BATLIBOI & CO. Firm Registration Number: 301003E Chartered Accountants Per Hemal Shah Partner Membership No. 42650 14th Floor, The Ruby, 29 Senapati Bapat Marg, Dadar (W) Mumbai - 400 028 Dated: 25th July 2012