Oudh Sugar Mills

We have audited the attached Balance Sheet of THE OUDH SUGAR MILLS
 LIMITED as at 30th June, 2008 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
 Company’s management. Our responsibility is to express an opinion on
 these financial statements based on our audit.
 
 We conducted our audit in accordance with the 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 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 Companies (Auditor’s 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.  Further to our comments in the Annexure
 referred 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 purpose 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 as submitted to us;
 
 (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, subject to our comments in para (vii) (b)
 below.
 
 (v) On the basis of written representations received from the directors
 as on 30th June, 2008 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on 30th June, 2008
 from being appointed as a director in terms of Clause (g) of sub
 section (1) of Section 274 of the Companies Act, 1956;
 
 (vi) Without qualifying our opinion, we draw attention to Note No. 7 on
 Schedule 23, regarding accounting of Sugarcane purchases at Hargaon &
 Rosa Sugar units in U.P @ Rs. 110 per quintal for sugar season 2007-08
 in terms of Hon’ble Allahabad High Court’s (Lucknow Bench) interim
 order dated, 15th November, 2007 as against the State Advised Price
 (SAP) of Rs. 125 per quintal, upheld by the said High Court vide its
 final order dated 7th July, 2008 against which the Company along with
 others through UP Sugar Mills Association, has filed a Special Leave
 Petition (SLP) before the Hon’ble Supreme Court.
 
 In the meantime, the Hon’ble Allahabad High Court in its subsequent
 judgment dated 18th August, 2008 in case of another sugar Company has
 quashed the SAP for sugar season 2007-08. Based on the legal advice,
 the Company has accounted for sugarcane liability for the current
 season @ Rs.  110 per quintal, as paid in accordance with the earlier
 interim order of the Hon’ble High Court, although in terms of the order
 dated 18th August, 2008, as stated above, the Company is only liable to
 pay the Statutory Minimum Price fixed by the Central Government (till
 the finalisation of SAP by the State Government as per the Court’s
 directions) which is lower than the amount of Rs. 110 per quintal
 accounted for by the Company. Pending final decision by the Hon’ble
 Supreme Court in this matter, the differential price of Rs. 2,422.74
 Lacs between SAP and the amount already provided, as stated above, has
 not been accounted for.
 
 (vii) Attention is drawn to the following notes on Schedule - 23 :
 
 (a) Note Nos. 5 and 6 regarding non-adjustment of certain realisations
 in earlier years aggregating to Rs. 131.46 Lacs (Previous Year Rs.
 165.51 Lacs) and non-provision of interest payable thereon, if any, in
 case of refund of such realisations.  As the matters are under
 adjudication / not yet settled, the impact of above non-adjustment on
 the Company’s loss is not presently ascertainable;
 
 (b) Note Nos. 8 (a) & (b) regarding recognition of Deferred Tax Asset
 (net) of Rs. 432.24 Lacs and MAT Credit Entitlement of Rs. 717.57 Lacs
 upto the Balance Sheet date based on the future profitability
 projections made by the management. However, we are unable to express
 any opinion on the above projections and their consequent impact, if
 any, on such recognition of Deferred Tax Asset and MAT Credit
 Entitlement. Had the impact of above been considered, there would be a
 loss of Rs. 1,601.08 Lacs (including Rs. 899.13 Lacs for earlier years)
 as against the reported loss of Rs. 451.27 Lacs for the year and the
 figures of Reserves & Surplus would be Rs. 7,116.12 Lacs as against the
 reported figures of Rs. 8,265.93 Lacs.
 
 In respect of the above items, the previous year’s audit report was
 similarly modified.
 
 In our opinion and to the best of our information and according to the
 explanations given to us, the said Statements of Account, Subject to
 the matters stated in para (vii) above, 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 30th June, 2008;
 
 (b) in the case of the Profit and Loss Account, of the loss of the
 Company 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 TO THE AUDITORS’ REPORT
 
 (Referred to in our Report of even date to the Members of The Oudh
 Sugar Mills Limited as at and for the year ended 30th June, 2008)
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situations of fixed
 assets.
 
 (b) Fixed Assets have been physically verified by the management during
 the year based on a phased programme of verifying all the assets over a
 period of two years, which in our opinion, is reasonable having regard
 to the size of the Company and the nature and value of its assets. As
 informed, no material discrepancies were noticed on such verification.
 
 (c) There was no substantial disposal 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 such physical verification.
 
 (iii) (a) As informed, the Company has 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 and
 hence the requirements of sub clauses (b) to (d) of clause (iii) of the
 order are not applicable.
 
 (b) As informed, 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 and
 hence the requirements of sub clauses (f) and (g) of clause (iii) of
 the order are not applicable.
 
 (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.
 During the course of our audit, no major weakness has been noticed in
 the internal controls in respect of these areas.
 
 (v) (a) According to the information and explanations given to us, we
 are of the opinion that the particulars of contracts or arrangements
 referred to in Section 301 of the Companies Act, 1956 that need to be
 entered into the register maintained under the above section, 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 the value of Rupees five lacs entered into
 during the financial year, are at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 (vi) In respect of deposits accepted, in our opinion and according to
 the information and explanations given to us, the directives issued by
 the Reserve Bank of India and the provisions of Sections 58A, 58AA or
 other relevant provisions of the Companies Act, 1956 and the rules
 framed thereunder, to the extent applicable, have been complied with by
 the Company.  We are informed by the management that no order has been
 passed by the Company Law Board, National Company Law Tribunal or
 Reserve Bank of India or any other Tribunal.
 
 (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 in respect of its products and are of the opinion that prima
 facie, the prescribed accounts and records have been made and
 maintained.
 
 (ix) The Company has been regular in depositing undisputed statutory
 dues including provident fund, investor education and protection fund,
 employees’ state insurance, income-tax, sales-tax, wealth-tax, service
 tax, custom duty, excise duty, cess and other material statutory dues
 with appropriate authorities though there has been slight delays in few
 cases.
 
 (a) 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,
 sales-tax, wealth-tax, service tax, custom 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.
 
 (b) According to the records of the Company, the dues outstanding in
 respect of income tax, sales tax, wealth tax, service tax, custom duty,
 excise duty and cess on account of any dispute are as follows :
 
 Name of the statute       Nature of dues                       Amount
                                                          (Rs. in Lacs)
 
 Bihar Finance Act,1981    Tax on sale of Alcohol to             26.42
                           country vendors & non
                           submission of declaration
                           forms
 
 UP Trade                  Various Sales                          8.81
 Tax Act                   Tax/Entry tax
                           demands on
                           assessment
 
 Central                   Central Sales Tax                     36.10
 Sales Tax                 demand on
 Act, 1956                 interstate sale of
                           Bagasse
 
                           Demand for Sales                      36.53
                           Tax/non -
                           submission of
                           Declaration Forms
 
 Central Excise            Disallowance of                       83.53
 Act,1944                  Cenvat Credit on
                           certain
                           inputs/capital items
 
                           Excise Duty on                        44.07
                           burnt / waste and
                           loss on storage of
                           molasses etc.
 
                           Utilisation of                       101.00
                           Cenvat Credit on
                           Rectified Spirit
 
                           Service tax                          210.43
 
                           Excise duty on loss                   19.08
                           on reprocessing of
                           brown sugar
 
 Period to                Forum where
 which the                dispute is pending
 amount relates
 
 1984-85 to               Joint Commissioner
 1989-90, 1995-          (Appeals) /
 96, 1997-98 to           Appellate Tribunal /
 2000-01 & 2003-04        High Court Patna
 
 1977-78 to               Appellate Tribunal,
 1981-82, 2000-           Lucknow/Allahabad
 01 & 2001-02             High Court
 
 2004-05,                 Joint Commissioner
 2005-06                 (Appeals)
 
 2002-03,                 Joint Commissioner
 2003-04                 (Appeals) / Patna
                          High Court
 
 2001-02,                 Commissioner
 2004-05 to              (Appeals) / Deputy
 2007-08                  Commissioner /
                          Assistant Commissioner /
                          CESTAT/Allahabad
                          High Court
 
 2000-01, 2002-           Commissioner
 03, 2004-2006           (Appeals) / Assistant
                          Commissioner /
                          CESTAT
 
 2000-01                  CESTAT, Kolkata
 2004-05 to               CESTAT, Kolkata
 2007-08
 
 1988-89                  CESTAT, Delhi
 
 (x) The Company has no accumulated losses at the end of the financial
 year. The Company has not incurred cash loss during the year but it had
 incurred cash loss in the 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 any financial
 institutions, bank or debenture holders.  (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 and therefore, the provisions of clause
 4(xiii) of the order are not applicable.
 
 (xiv) In our opinion, the Company is not dealing or trading in shares,
 securities, debentures and other investments and therefore the
 provisions of clause 4(xiv) of the order are not applicable.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantees for loans taken by others from a bank, the
 terms and conditions whereof are stated to be not prima-facie
 prejudicial to the interest of the Company.
 
 (xvi) Based on the information and explanations given to us by the
 management, term loans were applied for the purpose for which these
 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 Rs. 12,473 lacs approx. raised on short- term basis have been used
 for long-term investment (without considering permanent working
 capital).
 
 (xviii) The Company has not made any preferential allotment of shares
 during the year to parties or companies covered in the register
 maintained under Section 301 of the Companies Act, 1956.
 
 (xix) The Company had unsecured debentures outstanding during the year
 on which no security or charge was required to be created and the same
 have been fully repaid during the year.
 
 (xx) The Company has not raised any money through a public issue during
 the year.
 
 (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 course of our audit.
 
                                             For S. R. BATLIBOI & CO.
                                               Chartered Accountants
 
                                                   Per R. K. AGRAWAL
 Place : Kolkata                                             Partner
 Dated : 26th August, 2008                      Membership No. 16667