Sterlite Industries (India)

1.  We have audited the attached Balance Sheet of ‘STERLITE INDUSTRIES
 (INDIA) LIMITED’ (‘the Company’), as at March 31, 2008 and 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 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 Auditing Standards
 generally accepted in India. These Standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free from material misstatement. An audit also
 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 (Auditor’s Report) Order, 2003 issued
 by Central Government of India in terms of Section 227 (4A) of the
 Companies Act 1956, we enclose in the Annexure a statement on the
 matters specified in the paragraphs 4 and 5 of the said order.
 
 4.  As mentioned in Note No. 9 of Schedule 20 in respect of early
 adoption of Accounting Standard (AS) – 30 on ‘Financial Instruments:
 Recognition and Measurement’ and limited revision arising out of it in
 other Accounting Standards, issued by ‘The Institute of Chartered
 Accountants of India’ (ICAI), the Company has measured all it’s
 Financial Assets and Financial Liabilities at their respective fair
 values. Accordingly, Accounting Standard (AS) – 13 on ‘Accounting for
 Investments’ and Accounting Standard (AS) – 11, ‘The Effects of Changes
 in Foreign Exchange Rates’ have been followed only for those
 transactions which are not within the scope of Accounting Standard (AS)
 – 30. Had the Company followed (AS) – 13 and (AS) – 11 in their
 entirety, the carrying value of Investments, Reserve & Surplus and
 Profit for the year (net of tax), would have been Lower by Rs. 71.47
 crore, Rs. 90.89 crore and
 
 Rs. 54.25 crore, respectively and carrying value of unsecured loans
 would have been higher by Rs. 46.75 crore.
 
 5. Further to our comments in the above paragraphs and Annexure
 referred to 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 purpose 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
 such books;
 
 c) The Balance Sheet and Profit & 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 and the Profit & Loss Account and
 Cash Flow Statement complies with the Accounting Standards referred to
 in Section 211 (3C) of the Companies Act, 1956 including Accounting
 Standard (AS) – 30 on ‘Financial Instruments: Recognition and
 Measurement’ and limited revision arising out of it in other Accounting
 Standards, issued by ICAI as mentioned in paragraph 4 above;
 
 e) On the basis of the written representations received from the
 Directors as on March 31, 2008, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 March 31, 2008 from being appointed as a director in terms of 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 said accounts read together with
 Significant Accounting Policies and notes thereon 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 March 31, 2008;
 
 II) in the case of the Profit & Loss Account, of the Profit for the
 year ended on that date; and
 
 III) in the case of the Cash Flow Statement, of the Cash Flows for the
 year ended on that date.
 
 ANNEXURE TO AUDITORS’ REPORT
 
 (REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE)
 
 As required by the Companies (Auditor’s Report) Order, 2003 issued by
 Central Government of India in terms of Section 227 (4A) of the
 Companies Act 1956, and on the basis of such checks as we considered
 appropriate, we further report that:- (i) In respect of its fixed
 assets:
 
 (a) The Company has generally maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, the fixed assets have been physically verified
 by the management in accordance with a phased programme of
 verification, which in our opinion is reasonable, considering the size
 and nature of its business.  No material discrepancies were noticed on
 such verification as compared with the available records.
 
 (c) In our opinion and according to the information and explanations
 given to us, the Company has not made any substantial disposal of fixed
 assets during the year and going concern status of the Company is not
 affected.
 
 (ii) In respect of its inventories:
 
 (a) As explained to us, inventories have been physically verified by
 the management at reasonable intervals.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedure of physical verification of inventories
 followed by the management is reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) According to the information and explanations given to us and on
 the basis of our examination of inventory records, we are of the
 opinion that the Company is maintaining proper records of inventory. As
 explained to us, discrepancies noticed on physical verification of the
 inventories between the physical inventories and book records were not
 material, having regard to the size of the operations of the Company,
 and the same have been properly dealt with.
 
 (iii)
 
 (a) According to the information and explanations given to us, there
 are two Companies covered in the register maintained under section 301
 of the Companies Act, 1956, to which the Company has granted loans. The
 maximum amount involved during the year was Rs. 689 crore and the year-
 end balance of loans granted to such party was Rs. 689 crore.
 
 (b) In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions of the
 loans given by the Company, are prima facie not prejudicial to the
 interest of the Company.
 
 (c) The loan given to one party was repayable on demand and there was
 no repayment schedule and in respect of another party the loan was not
 due for refund at year end. The Interest on above loans was due for
 recovery as at year end.
 
 (d) In respect of the loan given to one party the same was repayable on
 demand and in respect of another party it is not due for repayment
 therefore the question of overdue amount does not arise.
 
 (e) According to the information and explanations given to us, the
 Company has not taken any loan from companies, firms and other parties
 covered in the register maintained under section 301 of the Companies
 Act, 1956, hence requirement of clauses 4 (iii) (f) and (g) of the
 Companies (Auditor’s Report) Order, 2003 are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us there are adequate internal control procedures commensurate
 with the size of the Company and the nature of its business for the
 purchase of inventories and fixed assets and for sale of goods and
 services. We have not observed any continuing failure to correct major
 weakness in the internal control.
 
 (v) In respect of the contracts or arrangements referred to in Section
 301 of the Companies Act, 1956:
 
 (a) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements, that needed to be entered in the register maintained
 under section 301 of the Companies Act, 1956 have been so entered.
 
 (b) In our opinion & according to the information and explanations
 given to us, there are no transactions in pursuance of contracts or
 arrangements entered in the register maintained under section 301 of
 the Companies Act, 1956 aggregating during the year to Rs.  5,00,000
 (Rupees five lac only) or more in respect of any party in the said
 financial year.
 
 (vi) The Company has not accepted any deposit from the public and hence
 directives issued by the Reserve Bank of India and the provisions of
 section 58A and 58 AA of the Companies Act, 1956 and rules framed there
 under are not applicable for the year under audit.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 (viii) We are informed by the management that Central Government has
 prescribed the maintenance of Cost Records under section 209 (1) (d) of
 the Companies Act, 1956, in respect of manufacture of copper and
 sulphuric acid. We have broadly reviewed the accounts and records of
 the Company in this connection and are of the opinion that, prima
 facie; prescribed accounts and records have been made and maintained.
 We have not, however, made a detailed examination of the records with a
 view to determine whether they are accurate.
 
 (ix) In respect of statutory dues:
 
 (a) According to the records of the Company, the Company has generally
 been regular in depositing with appropriate authorities undisputed
 statutory dues, including Provident Fund, Employees State Insurance,
 Income-tax, Sales-tax, Wealth tax, Service Tax, Custom Duty, Excise
 Duty, Cess and any other material statutory dues. According to the
 information and explanations given to us, no undisputed amounts payable
 in respect of such statutory dues, except Rs. 0.63 crore in respect of
 Investor Education and Protection Fund, as at 31st March 2008 for a
 period of more than six months from the date they became payable, which
 is held in abeyance due to pending legal case.
 
 (b) According to the information and explanations given to us, the
 disputed statutory dues aggregating to Rs.  155.51 crore, that have not
 been deposited on account of matters pending before appropriate
 authorities are as under:
 
                                                           Amount 
 Name of the Statute           Nature of the Dues       (Rs. in crore)
 
 Income Tax Act, 1961                 Income Tax                 5.02
 
 Finance Act, 1994                   Service Tax                15.73
 
 Central Excise Act, 1944            Excise Duty               116.28
 
 Tamilnadu General Sales
 Tax Act, 1959                         Sales Tax                 1.69
                                                                 0.60
 
 Central Sales Tax Act, 1956           Sales Tax                 2.10
 
 Tamilnadu Tax and Consumption
 or Sale of Electricity Act, 2003  Generation Tax               14.09
 
 TOTAL                                                         155.51
 
 Period to which
 amount relates      Forum where dispute is pending
 
 2003-2004           Income Tax Appellate Tribunal
 
 2002-2003 to
 
 2006-2007           High Court
 
 1996-1997 to
 
 2007-2008           CESTAT
 
 1998-1999           Deputy Commercial Tax Officer,
 
 Tuticorin
 1997-1998           Sales Tax Appellate Tribunal
 
 (Additional Bench)
 1998-1999 to
 2000 -2001          Deputy Commercial Tax
 
 Officer, Tuticorin
 
 2003-2004 to
 2007-2008           High Court
 
 (x) The Company does not have accumulated losses at the end of
 financial year. It has not incurred any losses during the financial
 year covered by the audit and in the immediately preceding financial
 year.
 
 (xi) Based on our audit procedures and information and explanations
 given by the management, we are of the opinion that the Company has not
 defaulted in repayment of dues to financial institutions, banks or
 debenture holders.
 
 (xii) According to the information and explanations given to us, the
 Company has not granted loans and advances on the basis of security by
 way of pledge of shares, debenture and other securities.
 
 (xiii) In our opinion, the Company is not a chit fund, a nidhi or a
 mutual benefit society. Therefore, the provisions of clause 4 (xiii) of
 the Companies (Auditor’s Report) Order 2003 are not applicable to the
 Company.
 
 (xiv) The Company has maintained proper records of transactions and
 contracts in respect of trading in securities and timely entries have
 been made therein.  The investments are held by the Company in its own
 name.
 
 (xv) According to the information and explanations given by the
 management, the Company has given guarantees for loan taken by others
 from banks and financial institutions as mentioned in note no. 27 (f)
 of Schedule 20. During the year the Company has further provided Rs.
 52.79 crore in respect of guarantees given on behalf of one of the
 Company (refer note no. 4 of the Schedule 20) and made payment of Rs.
 44 crore against the above said guarantees. As the terms and conditions
 for guarantees are not stipulated we are unable to comment whether the
 same are prejudicial to the interest of the Company.
 
 (xvi) According to the information and explanations given to us, no
 term loans are raised during the year.
 
 (xvii) On the basis of review of utilization of funds, which is based
 on overall examinations of the balance sheet of the Company as at 31st
 March 2008, related information as made available to us and as
 represented to us by the management, we are of the opinion that the
 funds raised on short term basis have not prima facie been, utilized
 for long term investments.
 
 (xviii) During the year the Company has not made any preferential
 allotment of shares to parties and companies covered in the register
 maintained under section 301 of the Companies Act, 1956.
 
 (xix) The Company has not issued any secured debentures during the year
 under audit.
 
 (xx) We have verified the end use of moneys raised by right issues of
 equity shares and American Depository Shares represented by equity
 shares and the same has been disclosed in the note no. 15 and 16,
 respectively, of schedule 20 to notes forming part of accounts.
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 year.
 
 For Chaturvedi & Shah                    For Das & Prasad
 
 Chartered Accountants                    Chartered Accountants
 
 R KORIA                                  BN AGARWALA
 
 PARTNER                                  PARTNER
 Membership No. 35629                     Membership No. 11709
 
 Place: Mumbai
 Date : 26 April 2008