1) We have audited the attached Balance Sheet of THE STATE TRADING
 CORPORATION OF INDIA LIMITED as at 31st March, 2011, the Profit & 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 corporate office audited by us and the accounts of branches audited
 by the other Auditors. 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.
 
 2) 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 from material mis-statements. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosure 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.
 
 3) As required by the Companies (Auditors'' Report) Order, 2003 as
 amended by the companies (Auditor''s Report) (Amendment) Order, 2004
 issued by the Central Government of India in terms of Section 227(4A)
 of the Companies Act, 1956, we enclose in the Annexure hereto, a
 statement on the matters specified in paragraphs 4 and 5 of the said
 Order.
 
 4) Further to our comments in the annexure to in paragraph 3 above, we
 report as follows
 
 a) Reference is invited to Note No. 3(a) of Notes to Accounts, Schedule
 23, relating to contracts of scrap, where transactions of purchases and
 sales and recoveries had not taken place in terms of contracts on
 behalf of Metro Machinery Traders, New Delhi (the Business Associate).
 The Company has alleged fraud by the Business Associate and the matter
 has been referred to CBI. We also understand that two ex-Directors and
 a General Manager have been charge-sheeted. However, in the absence of
 details of the charge-sheets and the inquiries, we are unable to opine
 if there was a fraud or suspected Management fraud and comment on any
 mis- statement made in these accounts in respect of the above
 transaction. Pending out come of legal steps initiated for recovery/
 CBI probe, full provision of Rs. 8739 lacs was made in earlier years.
 
 b) Reference is invited to Note No. 3(b) of Notes to Accounts, Schedule
 23, relating to wheat transactions undertaken on behalf of Business
 Associate, disposal of goods and recovery had not taken place as per
 contract due to quality problems and there was stock of wheat and
 unrecovered amounts outstanding from the Business Associate and
 Supplier. Also, cases of theft and misappropriation of uplifted stocks
 exported to Bangladesh have come to notice for which legal actions have
 been initiated. Pending out come of legal steps initiated, entire dues
 including recoverable from FCI aggregating to Rs. 5841 lacs has been
 provided/written off in earlier years. Further as the matter is not yet
 resolved, additional amount of central sales tax liability for
 non-export of 30392.010 MT of wheat procured from FCI is not
 ascertainable. The impact on Profit & Loss Account thus is not known.
 
 c) Reference is invited to Note No. 3(c) of Notes to Accounts, Schedule
 23, relating to Rs. 12199 lacs dues from Jhagadia Copper Limited, the
 company under liquidation and in the process of reconstruction by Asset
 Reconstruction Company (India) Limited. Financial impact of the same
 cannot be ascertained at this stage.
 
 d) References invited to Note No. 3(d) of Notes to Accounts, Schedule
 23, relating to sundry debtor of Rs.113793 lacs due from Global Steel
 Philippines who have stopped operation of their plant due to extreme
 volatility of prices. Though the outstanding is secured by way of
 Pledge of stock and post dated cheques and the corporate guarantees of
 holding company, however, in view of non availability of detailed
 valuation of plant & machinery being considered for sale, financial
 impact on account cannot be ascertained at this stage.
 
 e) Reference is invited to Note No. 3 (e) of Notes to Accounts,
 Schedule 23, regarding booking of claims of Rs. 8167 lacs on account of
 differential actual trading losses, pending financial approval from
 Ministry of Consumer Affairs.
 
 f) Reference is invited to Note No. 3(g) of Notes to Accounts, Schedule
 23, relating to unsecured overdue of Rs. 39717 lacs against exports
 effected under the Exim Bank Insurance linked Post shipment Credit
 facility.
 
 g) Reference is invited to Note No. 3 (h) of Notes to Accounts,
 Schedule 23, regarding non provision of Sundry Debtors of Rs 494 lacs
 towards reimbursement of the loss in supply of PDS items during 2008-09
 to M/s Gujarat State Civil supplies Government Of Gujarat.
 
 h) Note No 3(j) and 6(a) of Notes to Accounts, Schedule 23, relating to
 pending reconciliations of personal accounts and consequential
 adjustments
 
 i) Reference is invited to Note No. 4 of Notes to Accounts, Schedule
 23, regarding non provision of diminution in value of investment in
 subsidiary company (STCL).
 
 5) We further 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 except for information pertaining to charges levied on two
 ex-Directors and a General Manager and details of inquiries in respect
 of transaction referred to in Para 4 (a) above, and further except as
 otherwise stated in the report, and the record of the cases being
 handled by the vigilance department of the company and the accounting
 of the consequential financial effect thereof on the matters under its
 scrutiny in such cases.
 
 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 such
 books and proper returns adequate for the purpose of our audit have
 been received from the Branches not audited by us. Reports of the
 Branch auditors have been considered while preparing our report.
 
 c) The Balance Sheet, Profit & Loss Account and Cash Flow Statement
 referred to in this report are in agreement with the books of account;
 
 d) In our opinion, the Balance Sheet, Profit & Loss Account and Cash
 Flow Statement comply with the mandatory accounting standards referred
 to in Section 211 (3C) of the Companies Act, 1956.
 
 e) In terms of Notification No. GSR 829(E) dated 21.10.2003 issued by
 the Department of Company Affairs, Government of India, the provisions
 of Section 274(1)(g) of the Companies Act, 1956 are not applicable to
 the Company.
 
 f) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts, subject to our
 observations in paragraphs 4 (a) to (i) above, provisions and write
 offs in respect of which have been made in the accounts based on the
 existing and known circumstances as reported in the said paragraphs and
 read together with the Significant Accounting Policies and other Notes
 appearing in the Notes to the Accounts, give the information required
 by the Companies Act, 1956 in the manner so required and also 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 31st March, 2011;
 
 (ii) in the case of the Profit & Loss Account, of the profit of the
 Company for the year ended on that date; and
 
 (iii) in the case of the Cash Flow Statement, of the Cash Flows of the
 Company for the year ended on that date.
 
 (Annexure referred to in Paragraph 3 of our report of even date on the
 financial statements for the financial year ended 31st March, 2011 of
 the State Trading Corporation of India Ltd.)
 
 1.  In respect of its fixed assets :
 
 a.  The Company has maintained proper records showing full particulars
 including quantitative details and situations of its fixed assets
 except at Ahmadabad branch where Fixed Asset Register was not updated.
 
 b.  Physical verification of fixed assets has been conducted during the
 year. We are informed that no material discrepancies were noticed on
 such physical verification.
 
 c.  In our opinion, the Company has not disposed off substantial part
 of fixed assets during the year and the going concern status of the
 Company is not affected.
 
 2.  In respect of its inventories:
 
 a.  As explained to us, verification of inventories is undertaken by
 the Company through Surveyors from time to time. In respect of goods in
 the custody of third parties, certificate is obtained from the Clearing
 & Handling Agents or the Warehousing Corporation or from the related
 parties. In our opinion, the verification in case of goods like coal,
 wheat, etc is not by actual weighment, but by actual receipt and
 dispatch without accounting for handling losses. In respect of stock of
 wheat at Bangladesh, no confirmations of stock were available and the
 stocks of 26500 MT having aggregate cost of 1320 lacs had been written
 off (through reduction in valuation Rs. 951 lacs and through write off
 Rs. 369 lacs) in earlier years (during the financial year 2004-05 to
 2006-07). In respect of stock of wheat 1925.78 MT at Kandla, as at
 31.03.2011 there is no confirmation of the quantity and quality of
 stock available; hence the same has been valued at Rs. NIL.
 
 b.  In our opinion, though the procedures for physical verification is
 in place and instructions and guidelines are issued from time to time
 for verification of stock/inventories but the same is not being
 followed strictly for all materials which are handled by and are in
 custody of third parties.
 
 c.  The Company is not maintaining any separate Stock Register.
 However, transaction-wise stock details are compiled for control over
 the stock and necessary details are obtained from the custodians of
 stock viz., Port Authorities, Warehouse or Business Associates.
 Discrepancies, wherever noticed on verification have been properly
 dealt with, except in case of stock of wheat at Bangladesh and Kandla
 as mentioned in Para 2(a) above in our report.
 
 3.  In respect of loans availed/granted:
 
 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. Accordingly,
 clauses (iii) (b) (c) and (d) of Paragraph 4 of the Order are not
 applicable to the Company.
 
 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.
 Accordingly, clauses (iii) (f) and (g) of the Paragraph 4 of the Order
 are not applicable to the Company.
 
 4.  In our opinion and according to the information and explanation
 given to us, there are adequate internal control procedures
 commensurate with the size of the company and the nature of the
 business with regard to purchase of inventory, fixed assets and also
 for sale of goods. Further, on the basis of our examination and
 according to the information and explanations given to us, we have not
 observed any instance of continuous failure to correct major weaknesses
 in the internal control procedures. However, internal control
 procedures regarding review, realization of advances and other claims
 and reconciliation of balance of sundry debtors and creditors require
 strengthening.
 
 5.  In respect of contracts/arrangements under Section 301 of the
 Companies Act, 1956:
 
 a.  According to the information and explanations provided by the
 management, we are of the opinion that there are no particulars of
 contracts or arrangements that need to be entered into the register
 maintained under Section 301 of the Companies Act, 1956.
 
 b.  There was no transaction hence clause (v) (b) of Paragraph 4 of the
 Order is not applicable.
 
 6.  In our opinion and as per the information and explanation provided
 to us, the provisions of Section 58A and 58AA of the Companies Act,
 1956 and the rules framed there under are not applicable, as the
 company has not accepted any deposits from the public.
 
 7.  The internal audit is conducted by the outside firms of Chartered
 Accountants and in our opinion is commensurate with the size and nature
 of its business.
 
 8.  As informed by the management, the Central Government has not
 prescribed maintenance of cost records under Section 209(1)(d) of the
 Companies Act,1956 for any of the products of the company.
 
 9.  In respect of statutory dues:
 
 a.  According to the records of the Company, undisputed statutory dues
 including Provident Fund, Investors Education and Protection Fund,
 Employees State Insurance, Income Tax, Sales Tax, Wealth Tax, Service
 Tax, Custom Duty, Excise Duty, Cess and other Statutory Dues have been
 generally regularly deposited with the appropriate authorities. There
 were no undisputed amounts outstanding over six months from the date
 they became payable.
 
 b.  Disputed Statutory dues are aggregating to Rs. 70492.87 lacs on
 account of sales tax and Rs. 2,000.13 lacs on account of income tax.
 The details are as under:
 
 SALES TAX :
 
 FORUM               PERIOD           NATURE OF            AMOUNT
                                        DISPUTE          (Rs. In Lacs)
 
 MADRAS HIGH COURT   87 - 88          SALES TAX             0.01
 
 MADRAS HIGH COURT    89-90           SALES TAX             0.28
 
 MADRAS HIGH COURT    91-92           SALES TAX             0.01
 
 MADRAS HIGH COURT    74-75           SALES TAX             7.72
 
 MADRAS HIGH COURT    75-76           SALES TAX             2.12
 
 MADRAS HIGH COURT    86-87           SALES TAX            47.60
 
 MADRAS HIGH COURT    86-87           SALES TAX            25.36
 
 MADRAS HIGH COURT    87-88           SALES TAX             0.01
 
 SALESTAX APPELLATE 
 TRIBUNAL             87-88           SALES TAX             0.70
 
 MADRAS HIGH COURT    74-75/75-76     SALES TAX             1.20
 
 MAHARASHTRA TRIBUNAL 
 PENDING              90-91           SALES TAX             4.35
 
 MAHARASHTRA TRIBUNAL 
 PENDING              92-93           SALES TAX            72.24
 
 MAHARASHTRA TRIBUNAL 
 PENDING              96-97           SALES TAX             1.93
 
 MAHARASHTRA TRIBUNAL 
 PENDING              2000-01         SALES TAX          1327.54
 
 JOINT COMMISIONER    93-94           SALES TAX             9.25
 
 JOINT COMMISIONER    2003-04         SALES TAX          3160.01
 
 JOINT COMMISIONER    2004-05         SALES TAX         38931.85
 
 JOINT COMMISIONER    2002-03         SALES TAX             6.76
 
 MP APPELLATE BOARD   93-94           SALES TAX             1.01
 
 MP APPELLATE BOARD   95-96           SALES TAX             0.38
 
 PENDING IN TRIBUNAL 
 (BST)                81-82           SALES TAX             1.54
 
 ORISSA HIGH COURT    81-82           SALES TAX             7.21
 
 PENDING WITH SOD & 
 BOARD                83-84           SALES TAX             0.77
 
 WEST BENGAL COMMERCIAL 
 TAX APPPELLATE       85-86           SALES TAX             6.77
 
 CASE DECIDED AGAINST 
 US                   88-89           SALES TAX             0.37
 
 PENDING IN APPEAL    88-89           SALES TAX             1.25
 
 PENDING IN APPEAL    88-89           SALES TAX             0.30
 
 PENDING WITH HIGH 
 COURT                93-94           SALES TAX             0.15
 
 PENDING WITH HIGH 
 COURT                94-95           SALES TAX             0.62
 
 PENDING WITH HIGH 
 COURT                95-96           SALES TAX             0.69 
 
 JOINT COMMISIONER 
 (PENDING IN
 APPEAL TILL 
 22/07/2011           2003-04         SALES TAX            22.84
 
 PENDING WITH FIRST 
 APPELATE AUTHORITY   2006-07         SALES TAX         26817.27
 
 PENDING WITH FIRST 
 APPELATE AUTHORITY   2007-08         SALES TAX            32.89
 
                                                        70493.00
 
 INCOME TAX :
 
 Forum where dispute             Nature             Rs. In Lacs
 
 Income Tax Appellate Tribunal, 
 Delhi                           Income Tax           444.47
 
 High Court    Income Tax        22.44
 
 CIT (A)       Income Tax      1499.64
 
 Income Tax Authority            Income Tax            33.58
 
 Total                                               2000.13
 
 10.  The Company has no accumulated losses at the end of the financial
 year and it has not incurred any cash losses in the current financial
 year and in the immediately preceding financial year.
 
 11.  Based on our audit procedures and the information and explanations
 given by the management, the company has not defaulted in payment of
 dues to any financial institution or bank or debenture holders.
 
 12.  According to information and explanations given to us, the company
 has not granted any loans and advances on the basis of security by way
 of pledge of shares, debentures and other securities.
 
 13.  In our opinion, the Company is not a chit fund or a nidhi / mutual
 benefit fund / society. Therefore, the provisions of clause (xiii) of
 Paragraph 4 of the Order are not applicable to the Company.
 
 14.  The Company is not dealing or trading in securities, debentures
 and other investments and therefore question of maintaining proper
 records of transactions and contracts in respect of trading and timely
 entries do no arise. All shares have been held by the Company in its
 own name.
 
 15.  According to the information and explanations given to us, the
 company has not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 16.  The Company has not raised any term loans during the year.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the company, we report
 that no funds raised on short term basis have been used for long term
 investment.
 
 18.  The company has not made any preferential allotment of shares
 during the year to parties and companies covered in the Register
 maintained under Section 301 of the Companies Act, 1956.
 
 19.  The Company has not issued any debentures during the year.
 
 20.  The Company has not raised any money by way of public issue during
 the year.
 
 21.  During the course of our examination of books and records of the
 Company, carried out in accordance with the generally accepted auditing
 practices in India and according to the information and explanations
 given to us, we have neither come across any instance of material fraud
 on/ or by the Company noticed or reported during the year, nor we have
 informed for such case by the Management.
 
 
                                      For Chandiok & Guliani
 
                                       Chartered Accountants
 
                               Firm Registration No. 001199N
 
                                                       sd/-
 Date : 24.06.2011                              (V.K. Lalla)
 Place: New Delhi                                   Partner
 
                                        Membership No.080847