GAIL India

We have audited the attached Balance Sheet of GAIL (India) Limited as
 at March 31,2009, and also the Profit and Loss Account and the Cash
 flow statement of the Company for the year ended on that date annexed
 thereto in which are incorporated the accounts of the two units audited
 by branch auditors.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.
 
 We have 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 check basis, evidence supporting the
 amounts and disclosures in the financial statements. An audit also
 includes assessing accounting principles used and significant estimates
 made by the management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 As required by the statement on the Companies (Auditors Report) order,
 2003 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.
 
 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) The allocation of work amongst the auditors has been followed as per
 the directions contained in letter addressed to GAIL (India) Limited by
 the office of the Comptroller & Auditor General of India, New Delhi.
 
 c) In our opinion, proper books of account as required by law have been
 kept by the Company so far as appears from our examinations of those
 books. The Branch Auditors Report have been forwarded to us and have
 been appropriately dealt with;
 
 d) 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;
 
 e) In our opinion, the Balance Sheet Profit & 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;
 
 f) Disclosure in terms of clause (g) of sub- section (1) of section 274
 of the Companies Act, 1956 is not required as per notification No. GSR
 829(E) dated October 21,2003 issued by the Department of Company
 Affairs;
 
 g) 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:-
 
 a) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2009.
 
 b) in the case of Profit & Loss account, of the profit for the year
 ended that date; and
 
 c) in the case of Cash Flow Statement, of the cash flow of the Company
 for the year ended on that date.
 
 Annexure to the Auditors report
 
 The Annexure referred to in the auditors report to the shareholders of
 GAIL (India) Limited for the year ended March 31,2009.  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) According to the information and
 
 explanations given to us, the inventory of stores and spares were
 physically verified by the Management, except those lying with
 Engineers India Ltd., and other contractors at the end of the year. 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 stock of
 stores and spares 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
 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 sections 58A and 58AA or any other relevant
 provision of the Companies Act, 1956.
 
 (vii) In our opinion, the companys 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:
 
 SI.      Statute                Subject Matter of Dispute
 No.
 
 1.      Entry Tax         (a)    Entry Taxon MarketValueof Natural
                            Gas instead of its Purchase Price
                            (Including Interest)
                           (b) Rajasthan Entry Tax Demand
 
 2.       Sales Tax        (a) Non-acceptance of declaration form
                            for concessional sales tax
                           (b)  Surcharge on Turn over tax -Rajasthan
                           (c)  CST demand on Transmission
                             charges with penalty & interest thereor
 
 3.       Excise           (a)    LPG valuation Dispute
                           (b)    Dispute on Pentane Classification
                           (c)     Classification dispute of MFO
                            as Motor Spirit
 4.       Service Tax      (a)    Demand of differential service tax
                           based on service tax returns for the
                           period from October 06 to March 07
 
 5.       Income Tax       (a)    Liability of Tax on disallowance of
                           deductions claimed & Penalty
                           (b)    Demand for short deduction of TDS
 
 6.       Other taxes      (a)    Notified Area tax on revised value.
                           (incl. interest)
 
 
 
 Amount        Period of Dispute                  Status - Forum
 
 212.78         1999-2006        Allahabad High Court
 8.11           2002-03          onwards Dy. Commissioner, Appeals, Kota
 0.16     1995-96 & 1996-97      Asstt. Commissioner, Commerical Tax, Guna
 0.44  2002-03,2003-04 & 2004-05 State tax Tribunal, Ajmer
 0.48  2005-06 and 2006-07       AP High Court
 15.57 Jan 01 to Feb 05          CESTAT Mumbai & CESTAT, Ahmedabad
 46.70 March 2000 to Feb. 2002   CESTAT Ahmedabad & CESTAT, New Delhi
       & Aug. 2005 to March 2008
 19.39 July 04 to August 07       CESTAT Ahemdabad
 0.10  AY-2002-03,2003-04         Commissioner (Appeals) Vadodara
       & 2006-2007
 80.82 AY-2002-03,2003-04         ITAT Delhi & CIT (A)
       & 2006-07
 0.23  AY 2009-10                 CIT (Appeals)-Baroda
 2.48  1985-86 to 2008-09         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
 nstitution, 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) According to the information &
 
 explanation gives to us, company has not raised any term loans during
 the year.
 
 (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 not issued any debentures 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.
 
 
                                             ForMehraGoel&Co.  
                                        Chartered Accountants 
                                                   R.K. Mehra
                                                      Partner
                                                    M.No.6102
 
 Place  : New Delhi
 Dated  : June 12,2009.