By Himanshu V. Kishnadwala
Chartered Accountant
Essar Oil Limited (31-3-2012)
From Directors’ Report Re-opening of books of accounts for financial years 2008-09, 2009-10 and 2010-11
As a consequence of the above-referred Supreme Court order, to reflect a true and fair view in the books of account for the three financial years ended on 31st March, 2009, 31st March, 2010 and 31st March, 2011 based on the permission received from the Ministry of Corporate Affairs, the Company proposes to re-open the books of accounts and financial statements for the said three financial years. Necessary resolution seeking approval of shareholders for re-opening of the said financial statements has been incorporated in the Notice convening the ensuing Annual General Meeting. Except for reflecting true and fair view of the sales tax incentives/liabilities etc. concerning the Government of Gujarat, there is no material change in the reopened and revised accounts of the Company.
Consequent to reopening of the books of account for the above three financial years, the financial statements for these years have been revised. The statement containing the salient features of the reopened and revised audited Balance Sheets, Statements of Profit and Loss, Cash Flow statements and auditors, reports on the abridged revised financial statements for the financial years 2008-09 to 2010-11 along with Auditors’ report on full revised financial statements and amendments to Directors’ Reports for respective financial years form part of the Annual Report. With amendment in the aforementioned financial statements, there are corresponding changes in the consolidated financial statements of the Company and its subsidiaries prepared in accordance with Accounting Standard AS 21 for the financial years ended on 31st March, 2009 and 31st March, 2010. Accordingly, statements containing the salient features of the reopened and revised audited Consolidated Balance Sheets, Statements of Profit and Loss, Cash flow statements and auditors’ reports on the abridged revised consolidated financial statements for the financial years 2008-09 and 2009-10 form part of the Annual Report.
From Auditors’ Report
2. We had previously audited the Balance Sheet of the Company as at 31st March, 2012, the Statement of Profit and Loss and the Cash Flow Statement for the year ended on that date, both annexed thereto (“the original financial statements”) which were approved by the Board of Directors of the Company in its meeting held on 12th May, 2012. Our report dated 12th May, 2012 on the original financial statements, expressed a modified opinion with respect to the matter described in paragraph 3(a)(ii) of the said report.
As explained in Note 38 to the attached revised financial statements, the original financial statements have been revised pursuant to revision of the financial statements for the years ended 31st March, 2009, 31st March, 2010 and 31st March, 2011 (“the prior years”) in accordance with the approval of the Ministry of Corporate Affairs (“the MCA”) obtained during the financial year 2012-13, subsequent to the approval of the original financial statements by the Board of Directors of the Company. The said note explains the effect of the revision of the financial year 2011-12. As explained in the Note, the effect of the revision of the financial statements of the prior years on the opening balances include decrease of opening balance of Reserves and Surplus as at 1st April, 2011 by Rs. 3,006.17 crore. In view of the above, our report dated 12th May, 2012 on the original financial statements stands replaced by this report. 4.
Attention is invited to:
(a) Note 38 of the revised financial statements wherein it is stated that, the Honorable Supreme Court of India has vide its order dated 17th January, 2012, set aside the order of the Honourable High Court of Gujarat dated 22nd April, 2008 which had earlier confirmed the Company’s eligibility to the ‘Capital Investment Incentive Premier/Prestigious Units Scheme 1995 – 2000’ of the State of Gujarat (“the Scheme”), making the Company liable to immediately pay Rs. 6,168.97 crore being the sales tax collected under the Scheme (“the sales tax dues”). The Company has deposited Rs. 1, 000 crore on account of the sales tax as per the directive of the Honourable Supreme Court on 26th July, 2012. In response to a Special Leave Petition filed by the Company with the Honourable Supreme Court seeking payment of the sales tax dues in installments and without interest, the Honorable Supreme Court has, on 13th September, 2012, passed an order allowing the payment of the balance sales tax dues in eight equal quarterly installments beginning 2nd January, 2013 with interest of 10% p.a. with effect from 17th January, 2012.
Consequent to the above and having regard to the revision of the financial statements for the prior years referred in paragraph 2 above, the Company has reversed income of Rs. 978.59 crore recognised during 1st April 1, 2011 to 31st December, 2011 by defeasance of the deferred sales tax liability under the Scheme, reversed liability of Rs. 45.21 crore recognised during the said period towards contribution to a Government Welfare Scheme for being eligible under the Scheme, recognised interest income of Rs. 155.13 crore (net of break up charges of Rs. 10.57 crore) on account of interest receivable from the assignee of the defeased sales tax liability and recognised interest of Rs. 83.39 crore (net of Rs. 43.33 crore capitalised as cost of qualifying fixed assets) on sales tax dues; and presented the same under ‘Exceptional Items’ in the Revised Statement of Profit and Loss.
(b) Note 7(ii)(c) of the revised financial statements detailing the recognition and measurement of the borrowings covered by the Corporate Debt Restructuring Scheme (“the CDR”) as per the accounting policy consistently followed by the Company in the absence of specific guidance available under the Accounting Standards referred to in s/s. (3C) of section 211 of the Companies Act, 1956 and consideration of the CDR exit proposal submitted by the Company which has been recommended for approval to the CDR Core Group by the CDR Empowered Group. (c) Note 7(ii)(a) of the revised financial statements describing the fact about accounting of interest on certain categories of debentures on a cash basis as per the Court order.
37. Exceptional items
38. Sales tax
The Company was granted a provisional registration for its Refinery at Vidinar, Gujarat under the Capital Investment Incentive to Premier/Prestigious Unit Scheme 1995-2000 of Gujarat State (“the Scheme”). As the commercial operations of the Refinery could not be commenced before the timeline under the Scheme due to reasons beyond the control of the Company viz, a severe cyclone which hit the Refinery Project site in June 1998 and a stay imposed by the Honourable Gujarat High Court on 20th August, 1999 based on a Public Interest Litigation which was lifted in January 2004 when the Honourable Supreme Court of India gave a ruling in favour of the Company, representations were made by the Company to the State Government for extension of the period beyond 15th August 15, 2003 for commencement of commercial operations of the Refinery to be eligible under the Scheme. As the State Government did not grant extension of the period as requested, the Company filed a writ petition in Honourable Gujarat High Court which vide its order dated 22nd April, 2008, directed the State Government to consider the Company’s application for granting benefits under the Scheme by excluding the period from 13th July, 2000 to 27th February, 2004 for determining the timeline of commencement of commercial production. Based on the order of the Honourable High Court, the Company started availing the benefits under the deferral option in the Scheme from May 2008 onwards and simulta-neously defeased the sales tax liability covered by the Scheme to a related party. An amount of Rs. 6,308.94 crore was collected on account of sales tax covered by the Scheme and defeased at an agreed present value of Rs. 1,892.82 crore resulting in a net defeasement income of Rs. 4,416.12 crore which was recognised during the period 1st May, 2008 to 31st December, 2011. The Company also recognised a cumulative liability of Rs. 189.27 crore towards contribution to a Government Wel-fare Scheme which was payable, being one of the conditions to be eligible under the Scheme.
The State Government had filed a petition on 14th July, 2008 in the Honourable Supreme Court of India against the order dated 22nd April, 2008 of the Honourable Gujarat High Court. The Honourable Supreme Court of India has vide its order dated 17th January, 2012, set aside the order of the Honourable High Court of Gujarat dated 22nd April, 2008 which had earlier confirmed the Company’s eligibility to the Scheme, making the Company liable to pay Rs. 6, 168.97 crore (net of payment of Rs. 236.82 crore) being the sales tax collected till 16th January, 2012 under the Scheme (“the sales tax dues”). Consequently, the Company had reversed the income of Rs. 4,416.12 crore recognised during 1st May, 2008 to 31st December, 2011, reversed the cumulative liability of Rs. 189.27 crore towards contribution to a Government Welfare Scheme and recognised income of Rs. 264.57 crore (net of breakup charges of Rs. 32.09 crore) on account of interest receivable from the assignee of the defeased sales tax liability, and had presented the same under ‘Exceptional Items’ in the Statement of Profit and Loss forming part of the financial statements for the year ended 31st March, 2012 which were approved by the Board of Directors in its meeting held on 12th May, 2012. These financial statements are hereinafter referred to as ‘the original financial statements’.
The Company has deposited Rs. 1,000 crore on account of the sales tax as per the directive of the Honourable Supreme Court of India on 26th July, 2012. In response to a Special Leave Petition filed by the Company with the Honourable Supreme Court of India seeking payment of the sales tax dues in installments and without interest, the Honorable Supreme Court has, on 13th September, 2012, passed an order allowing the payment of the balance sales tax dues in eight equal quarterly installments beginning 2nd Janu-ary, 2013 with interest of 10% p.a. with effect from 17th January, 2012.
The Company has since reopened its books of account for the financial years 2008-09 to 2010-11 (“the prior years”) in accordance with approval of the Ministry of Corporate Affairs (“the MCA”) obtained during the financial year 2012-13 subsequent to the approval of the original financial statement by the Board of Directors of the Company, for the limited purpose of reflecting true and fair view of the sales tax incentives/liabilities, etc. consequent to the order dated 17th January, 2012 of the Honourable Supreme Court of India. Accordingly, the income aggregating to Rs. 3,437.53 crore recognised during 1st May, 2008 to 31st March, 2011 by defeasance of the sales tax liability and the cumulative liability of Rs. 144.06 crore pertaining to the prior years towards contribution to a Government Welfare Scheme were reversed, and interest of Rs. 109.44 crore (net of breakup charges of Rs. 21.52 crore) recoverable from the assignee of the defeased sales tax liability was recognised and the net effect was presented as ‘Exceptional Items’ in the Revised Statement of Profit and Loss for the respective prior years.
The effects of the revisions have been explained in detail in the revised financial statements for the prior years.
In view of the above, the original financial statements for the year ended 31st March, 2012 have now been revised. Consequent to the said revision and having regard to the revision of the financial statements for the prior years described above, the Company has reversed income of Rs. 978.59 crore recognised during 1st April, 2011 to 31st December, 2011 by defeasance of the deferred sales tax liability under the Scheme, reversed liability of Rs. 45.21 crore recognised during the said period towards contribution to a Government Welfare Scheme for being eligible under the Scheme, recognised interest income of Rs. 155.13 crore (net of break-up charges of Rs. 10.57 crore) receivable from the assignee of the sales tax liability and recognised interest of Rs. 83.39 crore (net of Rs. 43.33 crore capitalised as cost of qualifying fixed assets) on the sales tax dues; and presented the same under ‘Exceptional Items’ in the Revised Statement of Profit and Loss.
The revised financial statements also consider the effect of subsequent events after the approval of the original financial statements in accordance with Accounting Standard 4, (AS 4), ‘Contingencies and Events Occurring after the Balance Sheet Date’.
The effects of the revisions of the financial statements for the prior years on the opening balances for 2011-12 have been summarised below:
The summary of changes in the original financial statements has been given below:
a) Statement of Profit and Loss:
