A.  Basis of Preparation of Financial Statements
 
 The financial statements are prepared under the historical cost
 convention, except for certain fixed assets which are revalued, in
 accordance with the generally accepted accounting principles in India
 and the provisions of the Companies Act, 1956.
 
 B.  use of Estimates
 
 The preparation of financial statements requires estimates and
 assumptions to be made that affect the reported amount of assets and
 liabilities on the date of the financial statements and the reported
 amount of revenues and expenses during the reporting period. Difference
 between the actual results and estimates are recognised in the period
 in which the results are known/ materialised.
 
 C.  Own Fixed Assets
 
 Fixed Assets are stated at cost net of recoverable taxes and includes
 amounts added on revaluation, less accumulated depreciation and
 impairment loss, if any. All costs, including financing costs till
 commencement of commercial production, net charges on foreign exchange
 contracts and adjustments arising from exchange rate variations
 attributable to the fixed assets are capitalised.
 
 D.  Leased Assets
 
 a) Operating Leases: Rentals are expensed with reference to lease terms
 and other considerations.
 
 b) (i) Finance leases prior to 1st April, 2001: Rentals are expensed
 with reference to lease terms and other considerations.
 
 (ii) Finance leases on or after 1st April, 2001: The lower of the fair
 value of the assets and present value of the minimum lease rentals is
 capitalised as fixed assets with corresponding amount shown as lease
 liability. The principal component in the lease rental is adjusted
 against the lease liability and the interest component is charged to
 Profit and Loss account.
 
 c) However, rentals referred to in (a) or (b) (i) above and the
 interest component referred to in (b) (ii) above pertaining to the
 period upto the date of commissioning of the assets are capitalised.
 
 d) All assets given on finance lease are shown as receivables at an
 amount equal to net investment in the lease.  Initial direct costs in
 respect of lease are expensed in the year in which such costs are
 incurred. Income from lease assets is accounted by applying the
 interest rate implicit in the lease to the net investment.
 
 E.  Intangible Assets
 
 Intangible Assets are stated at cost of acquisition net of recoverable
 taxes less accumulated amortisation / depletion.  All costs, including
 financing costs till commencement of commercial production, net charges
 on foreign exchange contracts and adjustments arising from exchange
 rate variations attributable to the intangible assets are capitalised.
 
 F.  Depreciation and Amortisation
 
 Depreciation on fixed assets is provided to the extent of depreciable
 amount on written down value method (WDV) at the rates and in the
 manner prescribed in Schedule XIV to the Companies Act, 1956 over their
 useful life except, on fixed assets pertaining to refining segment and
 SEZ units, depreciation is provided on Straight Line method (SLM) over
 their useful life; on fixed bed catalyst with a life of 2 years or
 more, depreciation is provided over its useful life; on fixed bed
 catalysts having life of less than 2 years, 100% depreciation is
 provided in the year of addition; on additions or extensions forming an
 integral part of existing plants, including incremental cost arising on
 account of translation of foreign currency liabilities for acquisition
 of fixed assets and insurance spares, depreciation is provided as
 aforesaid over the residual life of the respective plants; premium on
 leasehold land is amortised over the period of lease; technical know
 how is amortised over the useful life of the underlying assets and
 computer software is amortised over a period of 5 years; on intangible
 assets - development rights, depletion is provided in proportion of oil
 and gas production achieved vis-a-vis the proved reserves (net of
 reserves to be retained to cover abandonment costs as per the
 production sharing contract and the Government of India''s share in the
 reserves) considering the estimated future expenditure on developing
 the reserves as per technical evaluation; intangible assets - others
 are amortised over the period of agreement of right to use, provided in
 case of jetty the aggregate amount amortised to date is not less than
 the aggregate rebate availed by the Company; on amounts added on
 revaluation, depreciation is provided as aforesaid over the residual
 life of the assets as certified by the values on assets acquired
 under finance lease from 1st April 2001, depreciation is provided over
 the lease term.
 
 G.  Impairment of Assets
 
 An asset is treated as impaired when the carrying cost of asset exceeds
 its recoverable value. An impairment loss is charged to the Profit and
 Loss Account in the year in which an asset is identified as impaired.
 The impairment loss recognised in prior accounting period is reversed
 if there has been a change in the estimate of recoverable amount.
 
 H.  Foreign Currency Transactions
 
 (a) Transactions denominated in foreign currencies are recorded at the
 exchange rate prevailing on the date of the transaction or that
 approximates the actual rate at the date of the transaction.
 
 (b) Monetary items denominated in foreign currencies at the year end
 are restated at year end rates. In case of items which are covered by
 forward exchange contracts, the difference between the yearend rate
 and rate on the date of the contract is recognised as exchange
 difference and the premium paid on forward contracts is recognised over
 the life of the contract.
 
 (c) Non monetary foreign currency items are carried at cost.
 
 (d) In respect of branches, which are integral foreign operations, all
 transactions are translated at rates prevailing on the date of
 transaction or that approximates the actual rate at the date of
 transaction. Branch monetary assets and liabilities are restated at the
 year end rates.
 
 (e) Any income or expense on account of exchange difference either on
 settlement or on translation is recognised in the Profit and Loss
 account except in case of long term liabilities, where they relate to
 acquisition of fixed assets, in which case they are adjusted to the
 carrying cost of such assets.
 
 I.  Investments
 
 Current investments are carried at lower of cost and quoted/fair value,
 computed category wise. Long Term Investments are stated at cost.
 Provision for diminution in the value of long-term investments is made
 only if such a decline is other than temporary.
 
 J. Inventories
 
 Items of inventories are measured at lower of cost and net realisable
 value after providing for obsolescence, if any. Cost of inventories
 comprises of cost of purchase, cost of conversion and other costs
 including manufacturing overheads incurred in bringing them to their
 respective present location and condition. Cost of raw materials,
 process chemicals, stores and spares, packing materials, trading and
 other products are determined on weighted average basis. By-products
 are valued at net realisable value.
 
 K. Revenue Recognition
 
 Revenue is recognized only when it can be reliably measured and it is
 reasonable to expect ultimate collection.  Revenue from operations
 includes sale of goods, services, sales tax, service tax, excise duty
 and sales during trial run period, adjusted for discounts (net), Value
 Added Tax (VAT) and gain / loss on corresponding hedge contracts.
 Dividend income is recognized when right to receive is established.
 Interest income is recognized on time proportion basis taking into
 account the amount outstanding and rate applicable.
 
 L. Excise Duty / Service Tax and Sales Tax / Value Added Tax
 
 Excise duty / Service tax is accounted on the basis of both, payments
 made in respect of goods cleared / services provided as also provision
 made for goods lying in bonded warehouses. Sales tax / Value added tax
 paid is charged to Profit and Loss account.
 
 M. Employee Benefits
 
 (i) Short-term employee benefits are recognised as an expense at the
 undiscounted amount in the Profit and Loss account of the year in which
 the related service is rendered.
 
 (ii) Post employment and other long term employee benefits are
 recognised as an expense in the Profit and Loss account for the year in
 which the employee has rendered services. The expense is recognised at
 the present value of the amounts payable determined using actuarial
 valuation techniques. Actuarial gains and losses in respect of post
 employment and other long term benefits are charged to the Profit and
 Loss account.
 
 N. Employee Separation Costs
 
 Compensation to employees who have opted for retirement under the
 voluntary retirement scheme of the Company is charged to the Profit and
 Loss account in the year of exercise of option.
 
 O.  Borrowing Costs
 
 Borrowing costs that are attributable to the acquisition or
 construction of qualifying assets are capitalised as part of the cost
 of such assets. A qualifying asset is one that necessarily takes
 substantial period of time to get ready for its intended use. All other
 borrowing costs are charged to Profit and Loss account.
 
 P. Financial Derivatives and Commodity Hedging Transactions
 
 In respect of derivative contracts, premium paid, gains / losses on
 settlement and losses on restatement are recognised in the Profit and
 Loss account except in case where they relate to the acquisition or
 construction of fixed assets, in which case, they are adjusted to the
 carrying cost of such assets.
 
 Q. Accounting for Oil and Gas Activity
 
 The Company has adopted Full Cost Method of accounting for its Oil and
 Gas activity and all costs incurred in acquisition, exploration and
 development are accumulated considering the country as a cost centre.
 Oil and Gas Joint Ventures are in the nature of Jointly Controlled
 Assets. Accordingly, assets and liabilities as well as income and
 expenditure are accounted on the basis of available information on line
 by line basis with similar items in the Company''s financial statements,
 according to the participating interest of the Company.
 
 R. Provision for Current and Deferred Tax
 
 Provision for current tax is made after taking into consideration
 benefits admissible under the provisions of the Income-tax Act, 1961.
 Deferred tax resulting from timing difference between taxable and
 accounting income is accounted for using the tax rates and laws that
 are enacted or substantively enacted as on the balance sheet date.
 Deferred tax asset is recognised and carried forward only to the extent
 that there is a virtual certainty that the asset will be realised in
 future.
 
 S.  Premium on Redemption of bonds / Debentures
 
 Premium on redemption of bonds / debentures, net of tax impact, are
 adjusted against the Securities Premium Account.
 
 T. Provisions, Contingent Liabilities and Contingent Assets
 
 Provisions involving substantial degree of estimation in measurement
 are recognized when there is a present obligation as a result of past
 events and it is probable that there will be an outflow of resources.
 Contingent Liabilities are not recognised but are disclosed in the
 notes. Contingent Assets are neither recognized nor disclosed in the
 financial statements.