VIP Clothing Ltd Auditors Report.

To the Members of VIP Clothing Limited

(Formerly known as Maxwell Industries Limited)

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the standalone financial statements of VIP Clothing Limited, (formerly known as Maxwell Industries Limited, the Company), which comprise the Balance Sheet as at March 31, 2019, and the Statement of Profit and Loss, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes to the Standalone financial statements, including a summary of the significant accounting policies and other explanatory information.

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 Companies Act, 2013 (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 March 31, 2019, and loss, changes in equity and its cash flows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under Section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those that, in our professional judgment, were of most significance in our audit of the standalone financial statements of the current year. We have determined the matters described below to be the key audit matters and were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.

1. Recognition of revenues and other related balances in view of adoption of Ind AS 115 "Revenue from Contracts with Customers".

2. Indirect tax liabilities Recoveries from past periods and ongoing tax matters.

3. Impact of minimum item / product differentiation resulting in complexities in physical verification of inventories and reconciliation thereof with book balances.

4. Accounting for Expected Credit Loss on trade receivables.

Recognition of revenues and other related balances in view of adoption of Ind AS 115 "Revenue from Contracts with Customers"

Description of Key Matter:

The Company is required to adopt the new accounting standard Ind AS 115 "Revenue from contracts with customers", for all the periods beginning from April 1, 2018 and accordingly the Company has adopted the same.

The application of this standard involves certain key judgments relating to identification of distinct performance obligations, determination of transaction price of the identified performance obligations, the appropriateness of the basis used to measure revenue recognized over the period of financial statements. Additionally, this standard contains disclosures, which involves collation of information in respect of disaggregated revenue, if any and periods over which the remaining performance obligations will be satisfied subsequent to the balance sheet date.

Description of Auditor response

We assessed the Companys process to identify the impact of adoption of the new standard. We discussed with the management their understanding of the requirements of the new standard in relation to the Companys business. We reviewed changes identified by the management in the design of the contractual terms proposed by the Company wherever necessary. We selected a sample of continuing and new contracts and tested the distinct performance obligations determined by the Company including the transaction price. We carried out discussions with the management on inspection of evidence on the samples selected of continuing and new contracts based on the terms of the contracts to determine the transaction price, estimation, if any, in arriving at the any variable consideration. On the samples selected, we carried out procedures to ascertain the mathematical accuracy for transaction accounting and extrapolated the outcome for carrying out any analytical review for the reasonableness of revenue relating to various identified performance obligations. We reviewed the Companys process of sales reversals, if required in case where performance obligation was incomplete.

Indirect tax liabilities Recoveries from past periods and ongoing tax matters

Description of Key Matter:

As at March 31, 2019, the Company has unsettled and disputed indirect tax positions amounting to Rs. 1,003.66 lacs on account of erstwhile Sales tax within the State of Tamilnadu and Rs. 1,249.53 lacs under Central Sales Tax as disclosed in the Note 36 to the financial statements. Also, other current assets in the financial statements include recoveries amounting to Rs. 454.45 lacs from State of Tamilnadu and Rs. 748.63 lacs under Goods and Service Tax Act. The disposal of these items involves significant judgment to determine the possible outcome and timing thereof.

Description of Auditor response

We obtained information from the Company of demands and notices received by it during the financial year 2018-19 with respect to the pending matters. We reviewed the processes and controls in place over tax assessments including follow ups, demands / refunds through discussions with the managements internal experts and reviewed the communications with those charged with governance pertaining to this issue. We sought guidance from our tax team to evaluate the status as explained by the Companys internal expert and the possible outcome of these demands and status of refund claims, especially in the given situation of frequent change in the countrywide regulatory environment some of them being substantial in nature like change from VAT/Sales Tax regime to Goods and Service Tax. Assessed whether the Companys disclosures in Note 36 to the standalone financial statements, the Contingent liabilities and commitments, adequately disclose the relevant facts and circumstances.

Impact of minimum item / product differentiation resulting in complexities in physical verification of inventories and reconciliation thereof with book balances

Description of Key Matter:

As at March 31, 2019 the Company reported a total inventory of Rs. 11,169.53 Lacs consisting of Rs. 3,749.07 Lacs of raw materials, Rs. 2,100.41 Lacs of stock in process and Rs. 5,320.05 Lacs representing its finished goods. The Company has two manufacturing units and we carried out a physical verification on a test basis at both the units and we observed difficulties in identifying correct stock items that gave rise to some differences when compared with book balances. The Company is in the business of manufacture and sale of undergarments for both gents and ladies. Due to its nature of business, the Company is required to manufacture and maintain a desired inventory levels to cater to market, products in various sizes, shapes and colors and each of these have to be at least in four of its popular brands, among others. Inherently, there is minimum product differentiation between items held as inventories. The Company also gets some of its products manufactured from subcontractors. Considering the multiple product range and multiple production arrangements coupled with minimum product differentiation, the process of arranging, stocking, counting and subsequent reconciliation of these individual items of raw material and finished product with book records is a complex and time-consuming process. Additionally, the Company also carries out manufacturing activities on behalf of other manufacturers. In view of above, this was a key audit matter in the context of our audit.

Description of Auditor response:

We carried out comparatives of inventory levels for certain past periods with a view to ascertain any unreasonable accumulations in inventory levels. Reviewed and compared the inventory levels submitted to other agencies like Company bankers with a view to confirm inventory levels reported and discussed with the management on the observation, if any, made by such agencies on their in specific relation. We reviewed the Companys plan for inventory verification which was included in the Companys internal audit scope.

Accounting for Expected Credit Loss on trade receivables

Description of Key Matter:

Management has considered estimates in computing the expected credit losses after considering credit history of customers and current market realities.

Description of Auditor response:

We have performed audit procedures that included management discussions on Companys understanding in relation to the adoption of the standard and installing a process of its implementation. We reviewed the past data, customer history and assumptions arising therefrom in deciding and computing loss rate for different ageing buckets identified by the management. We also reviewed the application of any specific provision for customers which was necessary in the given circumstances. With respect to forward looking assumption considered by the Company, held discussions with the management and corroborated the assumption using both internal and externally available information on attest basis.

Information Other than the Standalone Financial Statements and Auditors Report Thereon

The Companys Board of Directors is responsible for the other information. The other information comprises the information included in the Directors Report including any annexures thereto, Corporate Governance Report and Management Discussion and Analysis, but does not include the standalone financial statements and our auditors report thereon.

Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on our work we have performed, we conclude that there is material mis-statement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

The Companys Board of Directors is responsible for the matters stated in Section 134(5) of 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, changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards prescribed under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are also responsible for overseeing the Companys financial reporting process.

Auditors Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

(a) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

(b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls;

(c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

(d) Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern; and

(e) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in: (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report, where applicable and unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 (the Order) issued by the Central Government in terms of Section 143(11) of the Act, we give in the Annexure A, a Statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. 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, the Statement of Changes in Equity and the Statement of Cash Flows 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 Indian Accounting Standards prescribed under Section 133 of the Act;

(e) on the basis of the written representations received from the directors as on March 31, 2019 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2019 from being appointed as a director in terms of Section 164 (2) of the Act;

(f) with respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in Annexure B;

(g) with respect to the other matters to be included in the Auditors Report in accordance with the requirements of Section 197(16) of the Act, as amended, in our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act; and

(h) with respect to the other matters to be included in the Auditors 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:

(1) the Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - (Refer Note 36 to the standalone financial statements);

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

(3) there were no amounts which were required to be transferred to Investor Education and Protection Fund by the Company.

For Sharp and Tannan
Chartered Accountants
Firms Registration No.:109982W
By the hand of
Tirtharaj Khot
Partner
Membership No.:(F) 037457
Place: Mumbai
Date: May 20, 2019

ANNEXURE - A TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph 1 of our report of even date)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of three years. In accordance with this programme, a portion of the fixed assets has been physically verified by the management during the year and no material discrepancies have been noticed on such verification. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deed of immovable property is held in the name of the Company.

(ii) We have been informed that the Company has a plan of physically verifying its inventories at certain intervals of time in a phased manner and the same has been carried out excluding inventories in transit, as per plan. The discrepancies noted on physical verification of inventory as compared to book records were not material.

(iii) The Company has not granted any loans to parties covered in the register maintained under section 189 of the Companies Act 2013 ("the Act"). Therefore, paragraph 3(iii) of the Order is not applicable to the Company.

(iv) In our opinion and according to the information and explanations given to us, there are no loans, investment, guarantees and securities granted in respect of which provisions of section 185 and 186 of the Companies Act, 2013 are applicable. Therefore, Paragraph 3(iv) of the Order is not applicable to the Company.

(v) The Company has not accepted any deposits from the public during the year to which the directives issued by the Reserve Bank of India and the provisions of Sections 73 to 76 and other relevant provisions of the Act and the rules framed thereunder apply.

(vi) As per the information and explanations given to us, in respect of the class of industry the Company falls under, the maintenance of cost records has not been prescribed by the Central Government under section 148(1) of the Companies Act, 2013. Therefore, paragraph 3(vi) of the Order is not applicable to the Company.

(vii) (a) According to the information and explanations given to us, the Company is generally regular in depositing undisputed statutory dues including provident fund, employees state insurance, income tax, duty of customs, goods and services tax, cess and any other statutory dues, where applicable, to the appropriate authorities. According to the information and explanations given to us, there are no arrears of outstanding statutory dues as at the last day of the financial year for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us and the records examined by us, there are no cases of non-deposit with appropriate authorities of disputed dues of income tax, duty of customs, duty of excise, goods and service tax. However, according to information and explanation given to us the following dues of Central sales tax and value added tax as at March 31, 2019 which have not been deposited on account of a dispute pending, are as under:

Sr. No Forum where the dispute is pending Nature of the disputed dues Name of the Statute F. Y. which the amount relates to Rs. In Lacs
1 High Court of Chennai Claim of concessional rate of tax disallowed TNVAT ACT, 2006 2001-2002 195.46
2 Deputy Commercial Tax Office - Tamil Nadu Disallowance of concessional rate of tax on BT TNVAT ACT, 2006 2001-2002 5.43
3 Deputy Commercial Tax Office - Tamil Nadu CST rate of Hosiery Goods TNVAT ACT, 2006 2002-2003 802.77
4 Deputy Commercial Tax Office Delhi Non submission of form "C" Central Sales Tax Act, 1956 2005-2006 7.28
5 Deputy Commercial Tax Office - Tamil Nadu Non Submission of Form "C" & Form "H", (collected and pending for submission) Central Sales Tax Act, 1956 FY2014-15 to FY2015-2016 1,242.25

(viii) Based on our audit procedures and according to the information and explanations given to us, the Company has not defaulted in repayment of its dues to banks and financial institution during the year. The Company has not borrowed from government and debenture holders during the year.

(ix) The Company did not raise any money by way of initial public offer or further public offer (including debt instruments) during the year. The Company has not raised any term loan during the year.

(x) During the course of our examination of the books and records of the Company, carried out in accordance with generally accepted auditing practices in India, and according to the information and explanations given to us, we have neither come across any fraud by the Company or any fraud on the Company by its officers or employees noticed or reported during the year nor have we been informed of such case by management.

(xi) According to the information and explanations given to us, the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Act.

(xii) In our opinion and according to the information and explanations given to us, the Company is not a Nidhi Company. Therefore, paragraph 3(xii) of the Order is not applicable to the Company.

(xiii) According to the information and explanations given to us, all the transactions with the related parties are in compliance with Sections 177 and 188 of the Act, where applicable. The relevant details of such related party transactions have been disclosed in the standalone financial statements, etc., as required under Indian Accounting Standard (Ind AS) 24, Related Party Disclosures specified under Section 133 of the Act.

(xiv) According to the information and explanations given to us, the Company had not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year. Accordingly, the Paragraph 3(xiv) of the Order is not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has not entered into any non-cash transactions with directors or persons connected with him during the year. Accordingly, the Paragraph 3 (xv) of the Order is not applicable to the Company.

(xvi) According to the information and explanations given to us, the Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

For Sharp and Tannan
Chartered Accountants
Firms Registration No.:109982W
By the hand of
Tirtharaj Khot
Partner
Membership No.:(F) 037457
Place: Mumbai
Date: May 20, 2019

ANNEXURE - B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph 2(f) of our report of even date)

Report on the Internal Financial Controls under Section 143(3)(i) of the Companies Act, 2013

We have audited the internal financial controls over financial reporting of VIP Clothing Limited, (formerly known as Maxwell Industries Limited, the Company) as of March 31, 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Companys 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 (the Guidance Note) issued by the Institute of Chartered Accountants of India (ICAI). 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 companys 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 (the Act).

Auditors Responsibility

Our responsibility is to express an opinion on the Companys internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by ICAI and deemed to be prescribed under Section 143(10) of the Act, 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 ICAI. 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 auditors judgment, including the assessment of the risks of material misstatement of the standalone financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Companys internal financial controls system over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A Companys internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of standalone financial statements for external purposes in accordance with generally accepted accounting principles. A companys 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 standalone 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 Companys assets that could have a material effect on the standalone 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, to the best of our information and according to the explanations given to us, 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 of March 31, 2019, 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 issued by the ICAI.

For Sharp and Tannan
Chartered Accountants
Firms Registration No.:109982W
By the hand of
Tirtharaj Khot
Partner
Membership No.:(F) 037457
Place: Mumbai
Date: May 20, 2019