1.  We have audited the attached Balance Sheet of GAIL (India) Limited
 as at 31st March, 2011, the Profit and Loss Account and Cash Flow
 Statement of the company for the year ended on that date annexed
 thereto. These financial statements are the responsibility of the
 Company''s management. Our responsibility is to express an opinion on
 these financial statements based on our audit.
 
 2.  We have conducted our audit in accordance with auditing standards
 generally accepted in India. These 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 statement on the Companies (Auditor''s Report)
 order,2003 issued by the Central Government of India in terms of sub-
 section (4A) of Section 227 of the Companies Act, 1 956, 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 and Profit & 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, 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) Disclosure in terms of clause (g) of sub-section (1) of Section
 274of the Companies Act, 1 956 is not required as per notification no.
 GSR 829(E) dated October 21,2003 issued by the Department of Company
 Affairs.
 
 f) In our opinion and to the best of our information and according to
 the explanations given to us, the said financial statements read
 together with the significant accounting policies and notes thereon
 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:
 
 i.  in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2011;
 
 ii.  in the case of the Profit & Loss Account, of the profit for the
 year ended on that date; and
 
 iii.  in the case of the Cash Flow Statement, of the cash flow of the
 company for the year ended on that date.
 
 The Annexure referred to in the auditor''s report to the shareholders of
 GAIL (India) Limited for the year ended March 31,2011. We report that:
 
 (i) (a) The company has generally maintained proper records showing
 full particulars including quantitative details and situation of fixed
 assets.
 
 (b) According to the information and explanation given to us, there is
 a regular programme of verification of fixed assets which, in our
 opinion, is reasonable having regard to the size of the company and the
 nature of its assets. Fixed assets have been physically verified by the
 management during the year and no material discrepancies were noticed
 on such verification.
 
 In our opinion, there was no substantial disposal of fixed assets
 during the year.
 
 (ii) The inventories have been physically verified at reasonable
 intervals by the Management, except the stores & spares lying with
 Engineers ndia Ltd. and other contractors. We have been explained that
 the stock of gas at the end of the year has been taken with reference
 to reading of Turbine Flow Meter/Gas Chromatograph installed at
 Terminals, Stock of LPG/Pentane/SBP Solvent are determined with
 reference to Tank Level Gauge measurement which are converted into
 tonnage by measurement of density and applying correction factor for
 temperature. LPG vapour volume is converted to tonnage by standard
 formulae.
 
 In our opinion and according to the information and explanations given
 to us, the procedures of physical verification of inventory followed by
 the Management are reasonable and adequate in relation to the size of
 the Company and nature of its business.
 
 According to the information and explanations given to us, no material
 discrepancies have been noticed on physical verification of inventories
 as compared to the books and records.
 
 (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 information and explanations
 given to us, there are adequate internal control procedures to
 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.
 
 (v) On the basis of our examination of the books of accounts, and as
 per information and explanation given to us, the company has not made
 any transactions in respect of any party during the financial year that
 needs to be entered in the register pursuant to the section 301 of the
 Companies Act, 1956.
 
 (vi) The company has not accepted any deposits from the public during
 the year covered under section 58A and 58AA or any other relevant
 provision of the Companies Act, 1 956.
 
 (vii) In our opinion, the company''s internal audit system is
 commensurate with its size and nature of its activities.
 
 (viii) We have broadly reviewed the books of Accounts maintained by the
 Company pursuant to the order made by the Central Government for the
 maintenance of Cost records under Section 209(1 )(d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been maintained. We have not, however, made a
 detailed examination of these records.
 
 (ix) (a) According to the records of the company, the company is
 generally regular in depositing undisputed statutory dues including
 Provident fund, Investor Education and Protection Fund, Employees'' State
 Insurance, Sales tax, Wealth tax, Service Tax, Custom duty, Excise
 duty, cess and any other statutory dues with the appropriate
 authorities. According to the information and explanation given to us,
 no undisputed amounts payable in respect of Sales tax, Service Tax,
 Custom duty, Excise duty and other statutory dues were outstanding at
 the year end for a period of more than six months from the date they
 become payable.
 
 (b) As certified by the Management on which we have relied upon, the
 dues of Excise Duty, Custom Duty, Entry Tax, Sales Tax and Other taxes
 which have not been deposited on account of disputes and the forum
 where the dispute is pending, are given below:
 
                                                       (Rs in Crores)
 
 SI.  Statute   Subject Matter of    Amount         Period of Dispute
 No.  Dispute
 
 1   Entry Tax  (a) Entry Tax on 
                Market Value         300.58             1999-2008
                of Natural Gas 
                instead of its 
                Purchase Price 
                (Including Interest)
 
               (b) Rajasthan Entry 
                Tax Demand             0.65               2005-06
 
 2 Sales Tax   (a) Non-acceptance of 
                declaration form       0.16               1995-96 &
                                                          1996-97
                for concessional 
                sales tax
 
               (b) Sales Tax demand 
                as per assessment      3.00               2005-06 & 
                                                          2006-07
               order of 2005-06 and 
               2006-07
 
               (c) CST demand on 
                Transmission charges   0.48               2005-06 and 
                                                          2006-07 
               with penalty & interest 
               thereon
 
               (d) Demand on account 
               of LPG subsidy         69.57               2006-2007 
               discount and treating 
               domestic LPG as
               non-domestic
 
               (e) Interest for delay 
               for sales tax 
               assessment              0.54               2003-2004
 
               (f) Demand for non 
               submission of C Forms
               and rejection of HPL 
               swap in transit sale    0.94               Apr. 2004 to 
                                                          June 2004
 
 3 Excise      (a) LPG valuation 
               Dispute                15.04               Jan 2001 to 
                                                          Feb 2005
 
               (b) Dispute on 
               Pentane Classi
                -fication             83.57               Mar. 2000 to 
                                                          Feb 2002
                                                          & Aug.2005 to 
                                                          Jul 2009
 
              (c) Dispute on MFO 
               Classification         42.94               July 2004 to 
                                                          May 2009
 
 4 Service 
 Tax          (a) Demand of 
              differential service 
              tax based                0.12               Oct.2006 to 
                                                          Mar.2007
              on returns for the 
              period from                                 Oct 06 to 
                                                          Mar 07
 
              (b) Demand raised 
              denying refund claim     0.26               Sep.2007 
              allowed to GAIL for 
              service tax on
              compression charges
 
              (c) Demand raised by 
              denying Cenvat &         6.94               May 2005 to 
                                                          Mar.2010 
              service tax credit 
              taken at Hazira
 
 5 Other taxes Notified Area tax & 
              GIDC tax on revised      3.28               1985-86 to
                                                          2008-09
              value, (incl. interest)
 
 
 
 Statute                                      Status - Forum
 
 Entry Tax           Allahabad High Court, Trade tax Tribunal & 
                     Additional /Joint Commissioner-Appeals
 
                     Dy. Commissioner, Appeals, Kota
 
 
 Sales Tax           Additional Commissioner Appeals, Commercial Tax, 
                     Gwalior
 
                     Additional Commissioner-Appeal Noida
 
                     Andhra Pradesh High Court
 
                     Joint Commissioner-Appeals, Vadodara
 
                     Dy. Commissioner, Sales Tax, Mumbai
 
                     Appellate & Revisional Bench, West Bengal
 
 Excise              CESTAT Mumbai
 
                     CESTAT New Delhi & CESTAT Ahmedabad
 
                     CESTAT Ahemda bad CESTAT Ahemda bad
 
                     CESTAT Ahemdabad
 
                     CESTAT Ahemda bad 
 
 Other Taxes         Ahmedabad High Court
 
 
 (x) The company has no accumulated losses at the end of the financial
 year and it has not incurred any cash losses in the current and
 immediately preceding financial year.
 
 (xi) Based on our audit procedure and on 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, bank and debenture holders.
 
 (xii) In our opinion, the company has not granted loans and advances on
 the basis of security by way of pledge of shares, debentures and other
 securities other than to its employees. In our opinion, the company has
 maintained adequate documents and records in respect of such loans.
 
 (xiii) The company is not a chit fund, nidhi, mutual benefit fund or a
 society. Accordingly, clause 4(xiii) of the order not applicable.
 
 (xiv) According to the information and explanation given to us, the
 company is not dealing or trading in shares, securities, debentures and
 other investments. Accordingly, clause 4 (xiv) of the order is not
 applicable.
 
 (xv) According to the information and explanation given to us, the
 company has not given any guarantee for loans taken by others from
 banks and financial institutions during the year.
 
 (xvi) On the basis of review of utilization of funds pertaining to term
 loans on overall basis and related information as made to us, the term
 loans taken by the company have been utilized for the purposes for
 which they are obtained.
 
 (xvii) According to the information and explanation given to us,
 company has not raised any short term loan during the year.
 
 (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 has issued debentures(bonds) during the year.
 According to information and explanations given to us, the Company has
 created necessary charges as per debenture (bond) trust deed in respect
 of debentures(bonds) issued during the year.
 
 (xx) During the year no money has been raised by public issues.
 
 (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 M.L Puri & Co.                          For Rasool Singhal & Co.
 
 Chartered Accountants                       Chartered Accountants
 
 Firm No:002312N                             Firm No.: 500015 N
 
 Navin Bansal                                Anil Gupta
 
 Partner                                     Partner
 
 Membership No. 91922                        Membership No. 072767
 
 Place : New Delhi                           Place: New Delhi
 
 Dated : May 23,2011                         Dated : May 23,2011