Spice Communications Ltd merged Auditor Reports

SPICE COMMUNICATIONS LIMITED ANNUAL REPORT 2008-2009 AUDITORS REPORT To The Members of Spice Communications Limited 1. We have audited the attached Balance Sheet of Spice Communications Limited (the Company) as at 31 March 2009, the Profit and Loss Account and also the Cash Flow Statement of the Company for the period 1 January 2008 to 31 March 2009 (financial statements), 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 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 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 (the order) 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: (A) 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; (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 the Cash Flow Statement dealt with by this report are in agreement with the books of account; (D) in our opinion, the Balance Sheet, the Profit and Loss Account 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; (E) on the basis of written representations received from the directors as on 31 March 2009 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 March 2009 from being appointed as a director in terms of clause (g) of sub section (1) of section 274 of the Companies Act, 1956; (F) without qualifying our opinion, we draw attention to note B 15(a) of schedule 23 to the financial statements. The company has not accrued revenue share license fess and spectrum charges on certain items, as explained in the aforesaid note, for the period ended 31 March 2009. The whole issue of computation of Adjusted Gross Revenue (AGR) is being reviewed before the honorable Supreme Court, by Department of Telecommunications (DOT) as well as the operators. The ultimate outcome of this matter cannot be presently reasonably determined, and no provision for liability, if any, that may result has been made in the financial statements. 5. 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 case of the Balance Sheet, of the state of affairs of the Company as at 31 March 2009; (B) in case of the Profit and Loss Account, of the loss of the Company for the period 1 January 2008 to 31 March 2009; and (C) in the case of the Cash Flow Statement, of the cash flows of the Company for the period 1 January 2008 to 31 March 2009. For BSR & Co. Chartered Accountants Akhil Bansal Place : Gurgaon Partner Date : 17th June, 2009 Membership No.: 090906 Annexure to the Auditors report: (Referred to in our report of even date): (i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets except for the networking equipment purchased during the year which were earlier taken on trial basis, where the company is in the process of updating the fixed assets records for its Karnataka Circle. (b) The Company has a regular programme of physical verification of its fixed assets by which all network related fixed assets are verified in a phased manner over a period of two years and all other assets are physically verified every year. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to this policy, physical verification of network equipment and other assets was carried out during the current period for Punjab and Karnataka circle. However, as at the date of signing of this report the Company is still in the process of reconciling differences if any observed on physical verification. In the opinion of the management the differences, if any are not expected to be material. (c) Fixed assets disposed of during the year were not substantial as indicated in note B 12 of schedule 23 and therefore, do not affect the going concern assumption. (ii) (a) The inventory has been physically verified by the management during the period. In our opinion, the frequency of such verification is reasonable. (b) The procedures for the 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. (c) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records which were not material have been properly dealt with in the books of accounts. (iii) The Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. (iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories and fixed assets and with regard to the sale of goods and services. In our opinion and according to the information and explanations given to us, there is no continuing failure to correct major weaknesses in internal control system. (v) (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 Companies Act, 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, the transactions made in pursuance of contracts and arrangements referred to in (a) above and exceeding the value of Rs. 5 lakh with any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time except for purchases of inventories and certain items of fixed assets including intangibles which are for the Companys specialized requirements for which suitable alternative sources are not available to obtain comparable quotations. However, on the basis of information and explanations provided, the same appear reasonable. (vi) The Company has not accepted any deposits from the public. (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 prescribed by the Central Government for maintenance of cost records under section 209(1) (d) of the Companies Act, 1956 in respect of the Company and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records. (ix) (a) According to the information and explanations given to us and on the basis of our examination of the records of the company, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including Provident Fund, Employees State Insurance, Wealth tax, Service tax, Customs duty, Revenue Share License fee, Spectrum charges, and other material statutory dues have been generally regularly deposited during the period by the Company with the appropriate authorities, though there have been delays in a few cases. As explained to us, the Company did not have any dues on account of Investor Education and Protection Fund. There were no dues on account of cess under section 441A of the Companies Act, 1956 since the aforesaid section has not yet been made effective by the Central Government. According to the information and explanations given to us, no undisputed amounts payable in respect of Provident Fund, Employees State Insurance, Income tax, Sales tax, Wealth tax, Service tax, Customs duty, Revenue Share License fee and Spectrum charges, and other material statutory dues were in arrears as at 31 March 2009 for a period of more than six months from the date they became payable. (b) According to the information and explanations given to us, the dues of Sales tax, Service tax, Customs duty that have not been deposited by the Company on account of disputes are listed in the Annexure I attached herewith. Further there, are no dues on account of wealth tax, income tax and excise duty that have not been deposited on account of dispute. As explained in (ix) (a) above there are no dues on account of cess. (x) The Companys accumulated losses at the end of the financial period exceed 50% of its net worth. The Company has not incurred cash losses during the financial period covered by our audit and immediately preceding financial year. (xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to its bankers or to any financial institutions. The Company did not have any outstanding debentures during the period. (xii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xiii) In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a Nidhi/ mutual benefit fund / society. (xiv) According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments. (xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. (xvi) As explained to us and on the basis of review of utilisation of funds pertaining to term loans on overall basis, the term loans taken by the Company have been applied for the purposes for which they are raised. (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 the Company has used funds raised on short term basis amounting to Rs 6,692.77 million for long term investment. (xviii) The Company has not made any preferential allotment of shares to companies/firms/parties 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) We have verified the end-use of money raised by public issues as disclosed in the note 13 of Schedule 23 B to the financial statements. As explained to us, out of the total issue proceeds of Initial public offering, Rs. 310.39 million has remained unutilized at the year end. We are informed that the same will be applied for the purposes for which they were obtained. (xxi) According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year. For BSR & Co. Chartered Accountants Akhil Bansal Place : Gurgaon Partner Date : 17th June, 2009 Membership No.: 090906 Annexure I to Report on Companies (Auditors Report) Order, 2003: List of disputed statutory dues: Name of the Nature of the Amount of Amount Period to Forum where statute dues demand deposi which the dispute is (Rs. in -ted amount pending million) (Rs. in relates million) Sales Tax Sales tax levied 148.98 - 1997-98 Appellate, Karnataka on rental charges to December Tribunal 2001 & Karnataka. April 2002 to December 2002. Levy of sales 47.21 - 2001-2002 Karnataka tax on lease High Court rentals and has activation remanded charges back the case to assessing authority. Levy of sales 26.40 - 2002-2003 Karnataka tax on lease High Court rentals and has activation remanded charges back the case to assessing authority. Demand on 39.64 - 1996 to Karnataka assessment 2002 High Court -Sales tax (Order has levied on sale passed remanded of SIM cards for the back the assessment case to years: assessing 1999-2000; authority. 2000-2001 Punjab Penalty for 3.20 0.80 Stock Assistant having wrong transfer Excise & documents while note 1183 taxation transferring dated commissioner goods within 12 Nov Punjab 2007 VAT Transfer of 8.56 1.28 April 2006 Assistant Punjab right to use to March Excise & 2007 taxation commissioner Transfer of 63.85 9.58 April 2007 right to use to March 2008 Customs Show cause notice 11.41 - Bill of Reply to Duty alleging short entries the Show Karnataka levy of customs dated 18 cause duty on import November notice of communication 1997 and filed software by Spice 8 January - Denial of 1998 benefit under Notification No. 11/1997 Refund claim- 1.36 1.36 Bill of Customs, Denial of entry dated Excise and benefit under 18 Service tax notification September Appellate No. 16/2000 2000 Tribunal Entry tax Refund of 1.36 1.36 1996-1997 Customs, Karnataka excess entry tax Excise and under the Service tax Karnataka Tax on Appellate entry of Goods Tribunal Act, 1979 Entry tax on 8.92 - 2004-05 Karnataka interstate and High Court imported purchases of electronic goods Service Wrong availment 2.93 Plus - September CESTAT tax Punjab of Cenvat credit Interest 2004 to (New Delhi) on Pre-fabric and August -ated Shelter Penalty 2005 Wrong availment 1.18 Plus - September CESTAT of Cenvat credit Interest 2005 to (New Delhi) on Pre-fabricated and March Shelter Penalty 2006 Reversal of 9.14 - July 2004 The Cenvat credit to Assistant wrongly availed September Commissioner on Call Centre 2005 Central Services Excise division, Chandigarh Recovery of 6.61 - April 2002 Appeal has wrong adjustment to been filed of service tax September with High 2002 court. Wrong Availment 5.49 - October Commissioner /utilisation 2006 to (Appeals) of Cenvat on September capital goods 2007 (Shelters) Recovery of 2.31 - October Punjab & Wrong adjustment 1998 Haryana of service tax to March High court 1999 Demand of 100.73 - 1 April Commissioner Service Tax on 2003 to 28 of Central Interconnect February Excise -ivity Usage 2006 Charges Wrong availment 8.59 - October Commissioner of CENVAT credit 2007 to of Central March 2008 Excise, Wrong availment 424.08 - April 2006 Central of Cenvat credit to March Excise on Capital goods 2008 Commissione -rate, Chandigarh Karnataka Towers and Parts 0.12 0.06 September Commissioner of Towers 2004 to of Central September Excise 2007 (Appeals) Demand for Non- 2.75 - Sept-04 to Jt. Registration Apr-06 Commissioner under of Central Consulting Excise Engineer service Wireless Demand from 250.08 250.08 February Wireless Processing WPC with respect 1999 to Planning Charges to interest on December Finance Punjab outstanding 2001 branch of dues and DoT penalty including interest thereon Karnataka Demand from 189.68 189.68 February Wireless WPC with respect 1999 to Planning to interest on December Finance outstanding dues 2001 branch of and penalty DoT including interest thereon