Nestle India

1.  We have audited the attached balance sheet of Nestle India Limited
 as at December 31, 2008, the profit and loss account and also 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 misstatements. 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 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 in paragraph 3
 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 the
 books;
 
 c) the balance sheet, the profit and loss account and 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 mandatory
 accounting standards referred to in sub-section (3C) of section 211 of
 the Companies Act, 1956;
 
 e) on the basis of written representations received from the directors
 and taken on record by the Board of Directors, we report that none of
 the directors of the Company is disqualified as on December 31, 2008
 from being appointed as director of the Company under clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956;
 
 f) in our opinion and to the best of our information and according to
 the explanations given to us, the 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 :
 
 i. in the case of the balance sheet, of the state of affairs of the
 Company as at December 31, 2008;
 
 ii. in the case of the profit and loss account, of the profit of the
 Company for the year ended on that date; and
 
 iii. 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 THE AUDITORS REPORT TO THE
 MEMBERS OF NESTLe INDIA LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED
 DECEMBER 31, 2008.
 
 (i) (a) The Company is maintaining proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) In our opinion, the management has physically verified most of the
 fixed assets of the Company during the year at reasonable intervals,
 having regard to the size of the Company and nature of its assets. The
 discrepancies noticed on such verification were not material and have
 been properly dealt with in the books of account.
 
 (c) In our opinion and according to the information and explanations
 given to us, the Company has not disposed off a substantial part of its
 fixed assets during the year.
 
 (ii) (a) During the year, the inventories have been physically verified
 by the management. In our opinion, the frequency of verification is
 reasonable.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of stocks followed
 by the management are reasonable and adequate in relation to the size
 of the Company and the nature of its business.
 
 (c) On the basis of our examination of the records of inventories, we
 are of the opinion that the Company is maintaining proper records of
 inventories. The discrepancies noticed on physical verification of
 inventories as compared to book records were not material and have been
 properly dealt with in the books of account.
 
 (iii) (a) According to the information and explanations given to us,
 the Company has, during the year, not granted any loans, secured or
 unsecured to companies, firms or other parties covered in the register
 maintained under section 301 of the Companies Act, 1956.  Accordingly,
 paragraphs 4 (iii) (a), (b), (c) and (d) of the Companies (Auditors
 Report) Order, 2003 (hereinafter referred to as the Order) are not
 applicable.
 
 (b) According to the information and explanations given to us, the
 Company has, during the year, 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,
 paragraphs 4 (iii) (e), (f) and (g) of the Order, are not applicable.
 
 (iv) In our opinion and according to information and explanations given
 to us, there are adequate internal control systems commensurate with
 the size of the Company and the nature of its business with regard to
 the purchase of inventories, fixed assets and with regard to sale of
 goods. There is no sale of services. Further, on the basis of our
 examination and according to the information and explanations given to
 us, no major weaknesses in the aforesaid internal control system, has
 been noticed.
 
 (v) (a) According to the information and explanations given to us, we
 are of the opinion that, the particulars of the contracts/arrangements
 referred to in Section 301 of the Companies Act, 1956, were entered in
 the register required to be maintained under that Section.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the register maintained under section 301 of
 the Companies Act, 1956 and exceeding the value of Rupees five lacs in
 respect of any party were made at prices which were reasonable having
 regard to prevailing market prices at the relevant times.
 
 (vi) As, the Company has not accepted any deposits from the public,
 paragraph 4 (vi) of the Order is not applicable.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and the nature of its business.
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company in respect of products where, pursuant to the rules made by the
 Central Government, the maintenance of cost records have been
 prescribed under 209 (1) (d) of the Companies Act, 1956 and are of the
 opinion that, prima facie, the prescribed accounts and records have
 been made and maintained. We have not, however, made a detailed
 examination of records with a view to determining whether they are
 accurate or complete.
 
 (ix) (a) According to the information and explanations given to us and
 the records of the Company examined by us, the Company has been regular
 in depositing undisputed statutory dues including provident fund,
 employees state insurance dues, income-tax, Investor Education and
 Protection Fund, wealth tax, customs duty, excise duty, cess and other
 material statutory dues applicable to it and has generally been regular
 in depositing undisputed statutory dues including sales tax and service
 tax with the appropriate authorities.  We are informed that there are
 no undisputed statutory dues as at the year end, outstanding for a
 period of more than six months from the date they became payable.
 
 (b) According to the information and explanations given to us and the
 records of the Company examined by us, there are no disputed dues of
 customs duty and wealth tax, which have not been deposited.  The
 details of disputed dues as at December 31, 2008 in respect of excise
 duty, sales tax, service tax, cess and income-tax that have not been
 deposited by the Company, are as follows :-
 
 Name of the Statute        Nature of the Dues     Amount (Rs.)
                                                         (000s)
 
 Central Excise Laws        Excise Duty                 44,170
                                                         3,132
                                                           376
 
                            Service Tax                    342
 
 Sales Tax Laws             Sales Tax                    3,698
 
                                                           330
 
                                                       133,106
 
 Local State Act            Cess                         4,242
 
 Income Tax Act, 1961       Income tax                 118,558
 
                                                       159,787
 
 Period to which the amount     Forum where dispute is pending
 relates (various years
 covering the period)
 
 1996 - 2003                    Supreme Court
 
 2000 - 2006                    Customs, Excise and Service Tax
                                Appellate Tribunal
 
 2006                           Appellate authority upto
                                Commissioners level
 
 2005                           Customs, Excise and Service Tax 
                                Appellate Tribunal
 
 1996 - 2004                    High Court
 
 1999 - 2004                    Appellate Tribunal
 
 1992 - 2007                    Appellate authority upto 
                                Commissioners level
 
 2001 - 2008                    Appellate authority upto 
                                Commissioners level
 
 1992 - 1994                    High Court
 
 2004 - 2005                    Commissioner of Income-tax (Appeals)
 
 - Amount as per demand orders including interest and penalty wherever
 indicated in the Order.
 
 The following matters, which have been excluded from the table above,
 have been decided in favour of the Company but the department has
 preferred appeals at higher levels. The details are given below :-
 
 Name of the Statute        Nature of the Dues    Amount (Rs.)
                                                       (000s)
 
 Central Excise Laws        Excise Duty                 8,526
 
                                                       36,982
 
                                                       14,591
 
                            Service Tax                   148
 
 Sales Tax Laws             Sales Tax                  35,401
 
 Income Tax Act, 1961       Income tax                316,890
 
                                                      419,751
 
 Period to which the amount     Forum where department has
 relates (various years         preferred appeals
 covering the period)
 
 2000 - 2005                    Supreme Court
 
 1996 - 2004                    High Court
 
 2004 - 2006                    Customs, Excise and Service Tax 
                                Appellate Tribunal
 
 2005                           High Court
 
 1997 - 2003                    High Court
 
 1996 - 2000                    High Court
 
 1993 - 2004                    Income-tax Appellate Tribunal
 
 (x) The Company does not have accumulated losses at the end of the
 financial year December 31, 2008.  Further, the Company has not
 incurred cash losses during the financial year ended December 31, 2008
 and in the immediately preceding financial year ended December 31,
 2007.
 
 (xi) According to the records of the Company examined by us and on the
 basis of information and explanations given to us, the Company has not
 defaulted in repayment of dues to banks during the year. The Company
 has not taken any loans from financial institutions and has not issued
 debentures during the year.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities, accordingly paragraph 4 (xii) of the Order is not
 applicable.
 
 (xiii) The Company is not a chit fund / nidhi / mutual benefit fund /
 society to which the provisions of special statute relating to chit
 fund are applicable, accordingly paragraph 4 (xiii) of the Order, is
 not applicable.
 
 (xiv) As the Company is not dealing or trading in shares, securities,
 debentures and other investments, paragraph 4 (xiv) of the Order is not
 applicable.
 
 (xv) According to the information and explanations given to us, the
 Company has not given any guarantee during the year for loans taken by
 others from banks or financial institutions.
 
 (xvi) In our opinion and according to the information and explanations
 given to us, the Company has not taken any term loans during the year.
 
 (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, during the year, short term funds have not been used to finance
 long term investments.
 
 (xviii) The Company has not made any preferential allotment of shares
 during the year.
 
 (xix) The Company has not issued any debentures during the year.
 
 (xx) The Company has not raised any money by way of public issue during
 the year.
 
 (xxi) Based upon the audit procedures performed and information and
 explanations given by the management, we report that no material fraud
 on or by the Company has been noticed or reported during the year ended
 December 31, 2008.
 
                                            For A.F. FERGUSON & CO.,
                                             Chartered Accountants
 
                                                  (MANJULA BANERJI)
 March 6, 2009                                             Partner
 New Delhi                                   (Membership No. 86423)