THE MEMBERS OF VBC Ferro Alloys Limited Hyderabad
Report on the Audit of the Standalone Ind AS Financial Statements
We have audited the accompanying standalone Ind AS financial statements of VBC FerroAlloys Limited ("the Company") which comprise the Balance Sheet as at March 312019 the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Changes in Equity and the Statement of Cash Flows for the year ended on thatdate and a summary of the significant accounting policies and other explanatoryinformation (hereinafter referred to as "the standalone Ind AS financial statements").
In our opinion and to the best of our information and according to the explanationsgiven to us except for the possible effects of the matters described in the Basis forQualified Opinion section of our report the accompanying standalone Ind AS financialstatements 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 IndianAccounting Standards prescribed under section 133 of the Act read with the Companies(Indian Accounting Standards) Rules 2015 as amended ("Ind AS") and otheraccounting principles generally accepted in India of the state of affairs of the Companyas at March 31 2019 the profit and total comprehensive income changes in equity and itscash flows for the year ended on that date.
Basis for Qualified Opinion
Non-provision of shortfall of deemed energy charges for earlier years amounting to Rs565481522/- pending disposal of company's petition before TSERC as stated in Note No.2.27 to the standalone Ind AS financial statements has resulted in understatement of theloss for the year.
As stated in Note No. 2.03c the company has not measured its Investments in EquityInstruments designed to be measured at Fair Value through Other Comprehensive Income atfair values as required by Indian Accounting Standard "Financial Instruments"(Ind AS 109) which is not in compliance with the provisions of section 133 of theCompanies Act 2013.
As stated in Note No. 2.35 that balances lying in the lenders' sundry creditors likesuppliers' service providers' employees' and customers' accounts are subject toconfirmation.
Provision towards present liability in respect of future payments of gratuity and leaveencashment has not been made using Projected Unit Credit method as required by Ind AS 19"Employee Benefits" which is non compliance with the provisions of section 133of the Companies Act 2013.
We conducted our audit of the Standalone Ind AS Financial Statements in accordance withthe Standards on Auditing (SAs) specified under section 143(10) of the Act. Ourresponsibilities under those Standards are further described in the Auditor'sResponsibilities for the Audit of the Standalone Ind AS Financial Statements sectionof our report. We are independent of the Company in accordance with the Code of Ethicsissued by the Institute of Chartered Accountants of India (ICAI) together with the ethicalrequirements that are relevant to our audit of the Standalone Ind AS Financial Statementsunder the provisions of the Act and the Rules made thereunder and we have fulfilled ourother ethical responsibilities in accordance with these requirements and the ICAI's Codeof Ethics. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion on the standalone Ind AS financialstatements.
Emphasis of Matter Paragraphs:
We draw attention to the following matters in the Notes to the standalone Ind ASfinancial statements:
a. Note No. 2.03 with marks (#) that 124.589 Lakhs of shares acquired by the company inKonaseema Gas Power Limited the title in respect of which is not transferred in the nameof the company.
b. Note No. 2.14a that trade payables are classified as non current financialliabilities pending confirmation from various creditors seeking moratorium for about twoyears for settlement of their dues.
c. Note No. 2.22a that cost of materials consumed includes the loss of the rawmaterials due to the loss of the technical properties and usability of the materials inthe production due to passage of time besides consumption.
Our opinion is not modified in respect of these matters.
Material Uncertainty related to Going Concern
We draw attention to Note 2.29 in the financial statements the events or conditionsmentioned in the said note indicate that material uncertainties exist that may castsignificant doubt on the Company's ability to continue as a going concern. Our opinion isnot modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone Ind AS financial statements of the currentperiod. These matters were addressed in the context of our audit of the standalone Ind ASfinancial statements as a whole and in forming our opinion thereon and we do not providea separate opinion on these matters. In addition to the matter described in the MaterialUncertainty Related to Going Concern section we have determined the matters describedbelow to be the key audit matters to be communicated in our report.
|SL. No. ||Key Audit Matter ||How our audit addressed the Key Audit Matter |
|1 ||Provisioning of electricity dues for restoration of power connection || |
| ||The company has commenced its manufacturing activities during the month of January 2019 after being shut down for over past 5 years due to high power tariffs. ||We assessed the managements' approach to provisioning of electricity dues by performing the following procedures: |
| ||As per Administrative approval for restoration of power supply to sick industries accorded by the Govt of Telangana vide Letter No. 582/ PR (A2)/2018 dated 04.09.2018 TSSPDCL has restored the power connection subject to the following conditions: || We have read the Administrative approval accorded by the State Government of Telangana for restoration of supply to 6 nos. sick industries. |
| || || We have gone through the terms and conditions of the TSSPDCL for restoration of power supply. |
| || || We have verified the correctness and completeness of the asset/liability recognised in the books of account. |
| || Initial Security Deposit of Rs. 30000000/- || We found the disclosures in the Standalone Ind AS Financial Statements to be appropriate. Conclusion: We found management's judgment to be reasonable based on available evidence. |
| ||The company has commenced its manufacturing activities during the month of January 2019 after being shut down for over past 5 years due to high power tariffs. || |
| ||As per Administrative approval for restoration of power supply to sick industries accorded by the Govt of Telangana vide Letter No. 582/ PR (A2)/2018 dated 04.09.2018 TSSPDCL has restored the power connection subject to the following conditions: || |
| || Initial Security Deposit of Rs. 30000000/- || |
| || FSA charges of Rs. 177138060/- shall be paid in 24 equal interest free monthly instalments with one year moratorium commencing from 1st September 2019. || |
| || Deemed Energy charges and surcharge thereon of Rs.565481522/- shall be payable subject to the outcome on the issue pending with the TSERC. || |
| ||Refer Note 2.29 to the Standalone Ind AS Financial Statements || |
|2 ||Fair valuation of Land Buildings and Plant & Machinery || |
| ||The determination and valuation of the assets involves judgment and continues to be an area of inherent risk because market prices are not readily available. ||Our audit procedures to assess the managements' approach to valuation included the following: |
| ||Refer Note 4.2 to the Standalone Ind AS Financial Statements || The management has adopted the fair values determined by the External Valuer using the market comparable method which is based on active market prices significantly adjusted for difference in the nature location or condition of the specific property. |
| || || We evaluated the reasonableness of key assumptions applied to determine the fair values. |
| || || We checked the accuracy and relevance of the input data used. |
| || || We found the disclosures in the Standalone Ind AS Financial Statements to be appropriate. Conclusion: Based on the work performed we found management's assessment to be reasonable based on available evidence. |
Information Other than the Standalone Ind AS Financial Statements and Auditor's ReportThereon
The Company's Board of Directors is responsible for the preparation of the otherinformation. The other information comprises the information included in the ManagementDiscussion and Analysis Board of Directors' Report including Annexures to Board's ReportBusiness Responsibility Report Corporate Governance and Shareholder's Information butdoes not include the financial statements and our auditor's report thereon. The abovespecified reports are expected to be made available to us after the date of this auditor'sreport.
Our opinion on the financial statements does not cover the other information and we donot express any form of assurance conclusion thereon.
In connection with our audit of the financial statements our responsibility is to readthe other information and in doing so consider whether the other information ismaterially inconsistent with the financial statements or our knowledge obtained during thecourse of our audit or otherwise appears to be materially misstated.
When we read the above specified reports if we conclude that there is a materialmisstatement therein we are required to communicate the matter to those charged withgovernance.
Management's Responsibility for the Standalone Ind AS Financial Statements
The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these Standalone Ind AS FinancialStatements that give a true and fair view of the financial position financialperformance total comprehensive income changes in equity and cash flows of the Companyin accordance with the Ind AS and other accounting principles generally accepted in India.This responsibility also includes maintenance of adequate accounting records in accordancewith the provisions of the Act for safeguarding the assets of the Company and forpreventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the Standalone IndAS Financial Statements that give a true and fair view and are free from materialmisstatement whether due to fraud or error.
In preparing the Standalone Ind AS Financial Statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
The Board of Directors is responsible for overseeing the Company's financial reportingprocess.
Auditor's Responsibilities for the Audit of the Standalone Ind AS Financial Statements
Our objectives are to obtain reasonable assurance about whether the Standalone Ind ASFinancial Statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these Standalone Ind AS Financial Statements .
As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the Standalone Ind ASFinancial Statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal financial controls relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.
Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe Standalone Ind AS Financial Statements or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of the Standalone IndAS Financial Statements including the disclosures and whether the Standalone Ind ASFinancial Statements represent the underlying transactions and events in a manner thatachieves fair presentation.
Materiality is the magnitude of misstatements in the Standalone Ind AS FinancialStatements that individually or in aggregate makes it probable that the economicdecisions of a reasonably knowledgeable user of the Standalone Ind AS Financial Statementsmay 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 Standalone Ind AS FinancialStatements.
We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.
From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the Standalone Ind AS FinancialStatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure- A" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
2. As required by Section 143(3) of the Act based on our audit we report that:
a) We have sought and except for the matters described in the Basis for QualifiedOpinion section above obtained all the information and explanations which to the best ofour knowledge and belief were necessary for the purposes of our audit.
b) Except for the effects of the matter described in the Basis for Qualified Opinionsection above in our opinion proper books of account as required by law have been keptby the Company so far as it appears from our examination of those books.
c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome Statement of Changes in Equity and the Statement of Cash Flow dealt with by thisReport are in agreement with the relevant books of account.
d) Except for the effects of the matter described in the Basis for Qualified Opinionsection above in our opinion the aforesaid Standalone Ind AS Financial Statements complywith the Ind AS specified under Section 133 of the Act read with Rule 7 of the Companies(Accounts) Rules 2014.
e) On the basis of the written representations received from the directors as on March31 2019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 from being appointed as a director in terms of Section 164 (2) of theAct.
f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls we are unableto express any opinion as required under section 143 (3) of the Act 2013 as we could notcarry -out any verification or review of its internal financial controls over financialreporting as the company has not carried-out any operations during substantial periodunder report.
g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended:
The remuneration paid to the Directors by the company is in accordance with theprovisions of the sec.197.
h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:
i. The Company has disclosed the impact of pending litigations on its financialposition in its Standalone Ind AS Financial Statements.
ii. The Company has made provision as required under the applicable law or accountingstandards for material foreseeable losses if any on long-term contracts includingderivative contracts.
iii. There is a delay of sixty four days in transferring amount which is required to betransferred during the year to the Investor Education and Protection Fund by the Company.
| ||For C V RAMANA RAO & CO. |
| ||Chartered Accountants |
| ||Firm Regn No. 002917S |
| ||(KATYAYANI K) |
| ||Partner |
| ||Membership No.225030 |
|Place: Visakhapatnam || |
|Date: 19-06-2019 || |
ANNEXURE-A TO THE INDEPENDENT AUDITORS' REPORT
The Annexure A referred to in our Independent Auditor's report of evendate to the members of VBC Ferro Alloys Limited Hyderabad for the year ended 31 March2019. We report that:
i) a) The Company has not maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
b) The fixed assets including capital work in progress could not be physically verifiedby the management during the year in accordance with phased programme of verification.Accordingly we are unable to report on any material discrepancies between the fixed assetregister and the assets physically available.
c) We could not verify the title deeds of the immovable properties as the same are notproduced for our verification.
ii) Physical verification of inventory including Capital stock of stores and sparescould not be conducted during the year by the management in the entire year. As nophysical verification of inventories has been carried out during the year under report weare unable to report regarding the discrepancies between the physical stocks and the bookrecords.
iii) The Company has not granted any loans secured or unsecured to Companies FirmsLimited liability partnerships or other parties covered in the register maintained undersection 189 of the Companies Act 2013. Consequently clauses 3 (iii) (a) (b) and (c) ofthe Order are not applicable.
iv) The company has neither given any loans to the directors or any other persons inwhom the director(s) is interested nor given/provided any guarantee/security in connectionwith any loan taken by directors or such other persons as per the provisions of section185 of the Companies Act 2013. The investment made by the company in an earlier year doesnot exceed the limits prescribed under section 186 of the Companies Act 2013.
v) The Company has not accepted any deposits from the public. Consequently the clause3(v) of the order is not applicable to the Company.
vi) We have broadly reviewed the books of account relating to materials labour andother items of cost maintained by the Company pursuant to the Rules made by the CentralGovernment for the maintenance of cost records under sub-section (1) of section 148 of theCompanies Act 2013 and we are of the opinion that prima facie the prescribed accounts andrecords have been made and maintained. However we have not made a detailed examination ofthe records.
vii) a) According to the information and explanations given to us and on the basis ofexamination of the records of the Company amounts deducted/ accrued in the books ofaccount in respect of undisputed statutory dues including provident fund employees' stateinsurance income-tax sales-tax service tax duty of customs duty of excise valueadded tax cess and other material statutory dues have been regularly deposited during theyear by the Company with the appropriate authorities.
According to the information and explanations given to us no undisputed amounts arepayable in respect of income tax sales tax service tax duty of customs duty of excisevalue added tax or cess and other material statutory dues which were in arrears as at 31stMarch 2019 for a period of more than six months from the date they became payable.
|Sr. No. ||Name of the Statute ||Nature of the Dues ||Amount (in Rs.) ||Period to which the amount relates |
|1. ||Employee state Insurance Corporation Act 1948 ||Employer contribution ||100000 ||From 01.04.2012 to 31.03.2015 |
|2. ||Employee state Insurance Corporation Act 1948 ||Employee contribution ||26216 ||From 01.07.2013 to 31.03.2015 |
|3. ||Professional Tax 1975 ||Employee contribution ||442530 ||From 01.07.2012 to 31.03.2017 |
|4. ||Central Sales Tax Act ||Central sales tax ||201050 ||For the year 2011- 12 |
|5. ||Central Sales Tax Act ||Central Sales Tax ||1140003 ||For the year 2013- 14 |
|6. ||AP VAT Act 2000 ||Value Added Tax ||789829 ||For the year 2013- 14 |
|7. ||Income Tax Act 1961 ||Regular assessment tax ||50792344 ||For the financial year 2011-12 |
|8. ||Income Tax Act 1961 ||Dividend Distribution Tax ||2138620 excluding interest ||For the financial year 2011-12 |
|9. ||Income Tax Act 1961 ||Income tax deducted at source ||10232592 ||From 01.04.2012 to 31.08.2019 |
|10. ||Service tax Act ||Service tax including education cess ||727412 ||From 01.04.2012 to 31.08.2014 |
|11. ||Central Excise Act ||Excise duty ||8181486 excluding interest ||From 01.05.2013 to 31.08.2014 |
|12. ||Greater Hyderabad Municipal Corporation Act ||Property Tax ||199859 ||From 01.04.2012 to 31.03.2013 |
b) As at 31st March 2019 there have been no disputed dues which have notbeen deposited with the respective authorities in respect of Income tax Service tax dutyof customs duty of excise value added tax and Cess except the following:
|Sr. No. ||Name of the Statute ||Nature of the Dues ||Amount *(in Rs.) ||Period to which the amount relates ||Forum where dispute is pending |
|1. ||Central Sales Tax Act ||Non submission of C' and F' forms ||1868890 ||1996-97 ||Dy. Commissioner (Appeals) |
|2. ||Central Sales Tax Act ||Non submission of H' forms ||1186633 ||2008-09 ||Appellate Dy. Commissioner (CT) |
(*)Net of Pre deposits made
viii) In our opinion the company has not obtained any Term Loans during thefinancial year under report. Consequently the clause 3(viii) of the order is notapplicable.
ix) The Company did not raise any money by way of initial public offer or furtherpublic offer (including debt instruments) and term loans during the year under report.Accordingly paragraph 3 (ix) of the Order is not applicable.
x) During the course of our examination of the books of account and records of theCompany carried out in accordance with the generally accepted auditing practices inIndia and according to the information and explanations given to us we have neither comeacross any instance of material fraud by the Company or on the Company by its officers oremployees has been noticed or reported during the course of our audit.
xi) The company has provided for managerial remuneration during the financial year inaccordance with the provisions of the Section 197 of the Act.
xii) In our opinion the company is not a Nidhi Company. Consequently the clause 3(xii)of the order is not applicable.
xiii) According to the information and explanations given to us and on overallexamination of the records of the Company we report that all transactions with relatedparties are in compliance with the provisions of sections 177 and 188 of the CompaniesAct 2013 and the related party disclosures as required by relevant Indian AccountingStandards are disclosed in the Standalone Ind AS Financial Statements.
xiv) According to the information and explanations given to us and on overallexamination of the records of the Company we report that the preferentialallotment/private placement of shares made are in compliance with the provisions ofsection 42 of the Companies Act 2013 and the amount raised have been used for thepurposes for which the funds were raised.
xv) The Company has not entered into any non cash transactions with the directors orpersons connected with them during the year under report. Consequently the clause 3(xv) ofthe order is not applicable.
xvi) The Company is not required to be registered under section 45-IA of the ReserveBank of India Act 1934. Consequently the clause 3(xvi) of the order is not applicable.
| ||For C V RAMANA RAO & CO. |
| ||Chartered Accountants |
| ||Firm Regn No. 002917S |
| ||(KATYAYANI K) |
| ||Partner |
| ||Membership No.225030 |
|Place: Visakhapatnam || |
|Date: 19-06-2019 || |