Gujarat Gas Company

1.  Contingent Liabilities:
 
 (a) Claims against the company not acknowledged as debts Rs.10,787
 thousand (Previous year Rs.11,340 thousand).
 
 (b) Claims of Rs. 23,799 thousand (Previous year Rs. 21,739 thousand)
 against the Company have been disputed by the Company. The Company is,
 however, indemnified by an insurance policy.
 
 (c) A customer has made a claim on the Company which is not
 acknowledged by the company as the matter is subjudice before the Delhi
 High Court and arbitration proceedings are also underway. The Company,
 under advice from its legal counsel, believes that no significant
 unprovided liabilities would arise from these proceedings.
 
 (d) Income tax related exposures Rs.183,423 thousand (Previous year
 Rs.182,994 thousand)
 
 (i) Includes income tax demand of Rs.53,456 thousand (Previous Year Rs.
 53,456 thousand) relating to Assessment Years 1998-99, 1999-2000 and
 2000-01 due to disallowance of interest, pertaining to construction
 phase, on debentures issued for the Hazira Ankleshwar pipeline and
 incurred during its construction, claimed as revenue expenditure. The
 Company has paid Rs. 53,456 thousand (Previous Year Rs. 53,456
 thousand) out of the above demand.
 
 CIT (Appeals) has ruled in favour of the company and deleted the demand
 of Rs.6,866 thousand pertaining to Assessment Year 2000-01 from the
 above demand. The Income-tax department has preferred an appeal against
 the said order of CIT (Appeals). The appeal for the other two years is
 also pending with the ITAT.
 
 (ii) Includes income tax demand of Rs. 121,301 thousand (Previous year
 Rs. 120,872 thousand) including interest on tax, relating to Assessment
 Years 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01, 2001-02,
 2002-03, 2003-04, 2004-05 and 2005-06 due to disallowance of
 depreciation claimed on leased assets. The total amount paid by company
 / adjusted by tax authorities on account of above demand aggregates to
 Rs.121,301 thousand (Previous year Rs.115,692 thousand). The total tax
 exposure (though actually paid), net of interest on tax, on account of
 the above for all the years aggregates to Rs.115,042 thousand (Previous
 year Rs 114,961 thousand). The Appeal against the above demands are
 pending with ITAT for Assessment years 1996-97, 1997-98, 1998-99,
 1999-2000, 2001-02 and 2002-03. The matter has been decided in the
 company’s favour by the ITAT for Assessment Years 2003-04 and 2004-05
 and by the High Court of Gujarat for Assessment Year 1995-96. This will
 have a positive consequential effect on all the subsequent years.
 
 (iii) Includes income tax demand for Rs.8,666 thousand (Previous Year
 Rs.8,666 thousand) for other disallowances for Assessment Years
 2003-04, 2004-05 and 2005-06. The said demand has been adjusted by the
 tax authorities against the refund of Assessment Year 2006-07. The
 appeal for Assessment Year 2005-06 is pending with CIT (A) and for
 Assessment Years 2003-04 and 2004-05 with ITAT.
 
 2.  Estimated amount of contracts net of advances remaining to be
 executed on capital account and not provided for Rs.  29,356 thousand
 (Previous year Rs. 277,437 thousand).
 
 3.  The Company had constructed a building and facilities for
 processing and distribution of natural gas on plots allotted on lease
 by Surat Municipal Corporation and paid rent accordingly. The plots are
 within the Town Planning Scheme approved by Government of Gujarat.
 However, in the year 1994, Surat Mamalatdar had issued a notice on the
 ground that the plots belong to Government of Gujarat. The honorable
 court issued an ad-interim injunction against such notice, in the year
 1994. Mamalatdar had preferred an appeal against the injunction, which
 has been rejected by the honorable court. The management is confident
 of resolving the dispute without any disruption to its facilities.
 
 4.  The company had constructed a civil structure aggregating to Rs.
 19,037 thousand (Previous year Rs.19,037 thousand) on land which is not
 yet owned by the Company. The management is confident of obtaining the
 requisite approvals of the Government Authorities for transfer of
 ownership of land.
 
 5.  Material consumed includes:
 
 (a) Rs.35,763 thousand (Previous Year Rs. 27,813 thousand) towards
 Internal consumption of Gas.
 
 (b) Rs. 60,883 thousand (Previous Year Rs. 29,850 thousand) as foreign
 exchange fluctuations.
 
 6. Deposits from customers have been considered as a source of long
 term funds since the same are refundable only on termination /
 modification of the gas sale agreement.
 
 7.  Obligations on Operating Leases:
 
 The company has taken premises for office and residential use for its
 employees under cancelable operating lease agreements. The total lease
 rentals recognized as an expense during the year under the above lease
 agreements aggregates to Rs. 4,627 thousand (Previous year Rs. 3,810
 thousand). The lease agreement typically ranges from 1 to 3 years.
 
 8.  Segment Reporting:
 
 The company is primarily in the business of distribution of Natural gas
 through pipelines from sources of supply to centers of demand and to
 the end customers. The company also builds pipelines required to make
 the gas available to the end customer.  The other activity of the
 company comprises leasing of natural gas fired Cogeneration units, the
 income from which is not material in financial terms.
 
 Further, the Company is operating in a single geographical segment.
 Accordingly, disclosures relating to primary and secondary business
 segments under the Accounting Standard on Segment Reporting (AS –17)
 are not relevant to the Company.
 
 9.  Accounting for Joint Venture:
 
 The Company’s joint ventures “Petroleum Infrastructure Limited”
 (incorporated in India with 50% stake being held by the Company) and
 “Sensus Metering Systems India Limited” (incorporated in India with 49%
 stake being held by the Company) are under liquidation. Therefore, the
 Company’s interest in the joint ventures has been accounted for in
 accordance with Accounting Standard 13 “Accounting for Investments” and
 has not been disclosed as per Accounting Standard 27 “Financial
 Reporting of Interest in Joint Ventures”.
 
 Accordingly, the investments have been written down to the realizable
 value. (Refer Note 32 on Schedule 19 )
 
 10. The Company is procuring natural gas from one of the suppliers on
 the basis of a Term Sheet agreed with the supplier effective April 1,
 2008. Under the terms of the agreement with the supplier, the Term
 Sheet shall be superseded by a Gas Sales and Transmission Contract
 (GSTC) as and when the same is finalised. The GSTC would be effective
 from April 1, 2008. Pending the finalisation of the GSTC, the gas
 procurement cost is being recorded in the books of account on the basis
 of the terms provided in the Term Sheet.
 
 11. The company had adopted Accounting Standard 15 ‘Employee Benefits’
 (Revised 2005) with effect from January 1, 2007.  Consequent upon its
 adoption, in accordance with the transitional provisions contained in
 the Accounting Standard, the net difference of Rs.4,264 thousand (after
 adjustment for deferred tax of Rs. 2,164 thousand) between the
 liability in respect of Gratuity and other employee benefits existing
 on the date of adoption and the liability that would have been
 recognized at the same date under the previous Accounting Standard, had
 been adjusted against the opening balance of General Reserve in
 previous year.
 
 12.  Licensed and Installed Capacity :
 
 The Company is operating on the basis of commitment made for gas
 purchase by its suppliers under the agreements, hence it has no
 relevance for capacity in respect thereof.
 
 13.  The subsidiary company Gujarat Gas Financial Sevices Limited has
 proposed final dividend @ 20% and this will be accounted for in the
 books on declaration by the Companies.
 
 14. The provision for income tax has been calculated based on income
 earned during the year ended December 31, 2008 in accordance with
 Guidance Note on measurement of Income Tax expense for Interim
 Financial Reporting. However, the tax year end of the Company being
 March 31 , 2009 the ultimate liability for the Assessment Year 2009-10
 will be determined based on the total income of the Company for the
 year ending March 31, 2009. The provsion for wealth tax has been made
 based on the net wealth as on December 31, 2008. However the ultimate
 liability for the Assessment Year 2009-10 will be determined based on
 the net wealth as on March 31, 2009.
 
 15.  Capital Work in Progress includes investment of Rs. 254,901
 thousand (Previous Year Rs. 254,901 thousand) for setting up a City Gas
 Distribution (CGD) network in Valsad and Navsari district, Union
 Territories of Silvassa and Daman which has not yet commenced
 operations. The Company is exploring options of utilising this
 investment. However, considering the uncertainity involved in the
 utilisation of this network, the Company, based on engineering
 estimates, has made a provision of Rs. 101,000 thousand to bring the
 carrying value of the investment to its expected recoverable amount.
 
 16.  Previous year figures have been reclassified/regrouped wherever
 considered necessary to conform to the current year figures.