1.  We have audited the attached Balance Sheet of Blue Star Limited
 (the Company) as at March 31, 2011 and also the Profit and Loss
 account 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 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 (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, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account;
 
 iv. In our opinion, the balance sheet, profit and loss account and 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.
 
 v. On the basis of the written representations received from the
 directors, as on March 31, 2011, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2011 from being appointed as a director in terms of clause
 (g) of sub-section (1) of section 274 of the Companies Act, 1956.
 
 vi. 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 March 31, 2011;
 
 b) in the case of the profit and loss account, of the profit for the
 year ended on that date; and
 
 c) in the case of cash flow statement, of the cash flows for the year
 ended on that date.
 
 Annexure referred to in paragraph 3 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) All fixed assets have not been physically verified by the
 management during the year but there is a regular programme of
 verification 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 disposal of a substantial part of fixed assets during
 the year.
 
 (ii) (a) The management has conducted physical verification of
 inventory at reasonable intervals during the year.
 
 (b) The procedures 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.
 
 (iii) (a) The Company has granted loans to two Companies covered in the
 register maintained under section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs. 2,146.57 lacs and the
 year-end balance of loans granted to such parties was Rs. 679.00 lacs.
 
 (b) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions for
 loan given to one Company is not prima facie prejudicial to the
 interest of the Company. Further, the Company has made interest-free
 loans to wholly-owned subsidiary. According to the information and
 explanations given to us, and having regard to managements
 representation that the interest free loans are given to wholly- owned
 subsidiary of the Company in the interest of the Companys business,
 the rate of interest and other terms and conditions for such loans were
 not prima facie prejudicial to the interest of the Company.
 
 (c) The loans granted are re-payable on demand. We are informed that
 the company has not demanded repayment of any such loans during the
 year, and thus, there has been no default on the part of the parties to
 whom the money has been lent.The payment of interest from one Company
 has been regular.The loans given to wholly-owned subsidiary were
 interest free.
 
 (d) There is no overdue amount of loans granted to companies, firms or
 other parties listed in the register maintained under section 301 of
 the Companies Act, 1956.
 
 (e) According to 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 clause 4(iii)
 (e) to (g) of the Companies (Auditors Report) Order, 2003 (as amended)
 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, 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 Act 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 exceeding 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 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 made by the Central Government for the
 maintenance of cost records under section 209(1) (d) of the Companies
 Act, 1956, related to the manufacture of certain products, and are of
 the opinion that prima facie, the prescribed accounts and records have
 been made and maintained.
 
 (ix) (a) The Company is generally regular in depositing with
 appropriate authorities undisputed statutory dues including provident
 fund, investor education and protection fund, employees state
 insurance, income-tax, sales-tax, wealth-tax, service tax, customs
 duty, excise duty, cess and other material statutory dues applicable to
 it. Further, since the Central Government has till date not prescribed
 the amount of cess payable under section 441 A of the Companies Act,
 1956, we are not in a position to comment upon the regularity or
 otherwise of the company in depositing the same.
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, investor
 education and protection fund, employees state insurance, income-tax,
 wealth-tax, service tax, sales-tax, customs duty, excise duty cess and
 other material statutory dues were outstanding, at the year end, 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, service tax, customs duty, excise duty and cess
 on account of any dispute, are as follows:
 
 Name                      Nature of the dues              Amount
 of Statute                                            (Rs in Lacs*)
 
 Income Tax             Disallowance of Section             203.63
 Act, 1961              80IB deduction for non
                        allocation of Corporate
                        Expenses & Others
 
 Service Tax            Service Tax demand on                55.00
 under Finance          Composite Contacts
 Act, 1994              Disallowance of Cenvat              328.43
                        Credit to the extent of 80%
 
 Local Sales            Additional demand/disallowances     121.48
 Tax Act, VAT           on works contracts
 Act and                Demand notice received from       2,326.82
 Central Sales          Assessing authority treating works
 Tax Act                contract sales as product sales
 
                        Factory Direct Sale treated         147.10
                        as Local branch sales
 
                        Non Submission of Forms             353.73
                        Disallowance of set off u/s 41D      98.82
                        & interest liability
 
                        Sales tax demand on assessment      634.77
 
                        Show cause notice received        1,024.54
                        from CTO, Hyderabad treating
                        works contract sales as
                        product sales
 
 Entry Tax              On Factory direct sales               2.59
 Central Excise         10% Demand of Excise Duty            56.00
 Act, 1944              on Finished Goods, raised for
                        not maintaining separate
                        books of accounts for
                        dispatches to SEZ Developers
 
                        Excise Duty on Insulated             11.53
                        panels which is considered
                        as walk in coolers and
                        claimed as concessional duty
 
                        Excise Duty on Electric fans          2.77
                        manufactured and captively use
                        in manufacture of water cooler
 
                        Excise Duty on whole unit            10.00
                        including Cabinet which is
                        considered as walk in coolers            
                        and claimed as exemption                 
 
 
 
 Name of Statue      Period to which            Forum where
                     the amount relates       dispute is pending
 
 Income Tax
 Act, 1961          AY 2005-2006           Commissioner of Income tax(A)
 
 Service Tax
 under Finance
 Act, 1994          2003-2004 to                   CESTAT
                    2006-2007
 
                    2004-2005 to           CESTAT/Commissioner
                    2009-2010              Appeals
 
 Local Sales
 Tax Act, VAT       2002-2003,             Sales Tax Appellate Tribunal,
                    2003-2004, 2007-2008   High Court
 
 Act and
 Central Sales
 Tax Act            2001-2002 to 2002-2003 Supreme Court
                    2005-2006 to 2008-2009
 
                    2002-2003, 2003-2004   Deputy Commissioner
                                          (Appeals)
 
                    1992-93, 2000-2001,    Deputy/Asst.
                   2003-2004, 2005-2006,   Commissioner (Appeals)
                    2006-2007
 
                    2002-2003, 2004-2005   Deputy Commissioner
                                          (Appeals)
 
                    1990-91, 2002-2003,    Deputy/Asst.
                    to 2005-2006           Commissioner (Appeals)
 
                    2003-04,2004-2005      High Court
 
 Entry Tax          2001-2002 to 2004-2005 Asst. Commissioner
 
 Central Excise
 Act, 1944          2008-2009              CESTAT Mumbai
 
                    1986-1990               Central Excise
                                            Commissioner
 
                    1980-1982               CESTAT
 
                    1981-1986               Supreme Court
 
 * net of advances
 
 According to the information and explanation given to us, there are no
 dues of wealth tax, customs duty and cess which have not been deposited
 on account of any dispute.
 
 (x) The Company has no accumulated losses at the end of the financial
 year and it has not 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, we are of the opinion that the
 Company has not defaulted in repayment of dues to a financial
 institution or bank.The Company has not issued any debentures.
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced to 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 Companies (Auditors Report) Order, 2003 (as amended)
 are not applicable to the Company.
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments.  Accordingly, the
 provisions of clause 4(xiv) of the Companies (Auditors Report) Order,
 2003 (as amended) are not applicable to the Company.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantee for loans taken by others from bank or
 financial institutions, the terms and conditions whereof in our opinion
 are not prima-facie prejudicial to the interest of the Company.
 
 (xvi) Based on information and explanations given to us by the
 management, term loans were applied for the purpose for which the 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 no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii)The Company has not made any preferential allotment of shares 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 public issue during
 the year. Accordingly, the provisions of clause 4(xx) of the Companies
 (Auditors Report) Order, 2003 (as amended) are not applicable to the
 Company.
 
 (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 & Associates
 
 Firm registration number: 101049W 
 Chartered Accountants
 
 per Sudhir Soni
 Partner
 Membership No. 41870
 
 
 Mumbai, May 24, 2011