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JSW Steel

BSE: 500228|NSE: JSWSTEEL|ISIN: INE019A01038|SECTOR: Steel - Large
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Notes to Accounts Year End : Mar '19

1. Complete Standalone Balance Sheet, Standalone Statement of Profit and Loss, Standalone Statement of Changes in Equity, Standalone Statement of Cash Flows and other statements and notes thereto prepared as per requirements of Division II to the Schedule III to the Act (“Annual Standalone Financial Statements”) are available at the Company’s website www.jsw.in. Copy of financial statement is also available for inspection at the registered office of the company during working hours for a period of 21 days before the date of AGM.

2. Basis of preparation

These abridged standalone financial statements have been prepared on the basis of complete set of the standalone financial statements for the year ended 31 March 2019, in accordance with the proviso to subsection (1) of section 136 of the Companies Act, 2013 (“the Act”) and Rule 10 of the Companies (Accounts) Rules, 2014.

a) Incentives under the State Industrial Policy

The Company units at Dolvi in Maharashtra and Vijayanagar in Karnataka are eligible for incentives under the respective State Industrial Policy and have been availing incentives in the form of VAT deferral / CST refunds historically. The Company currently recognises income for such government grants, on the basis using State Goods Service Tax rates instead of VAT rates, in accordance with the relevant notifications issued by the State of Maharashtra and the State of Karnataka post implementation of Goods S Services Tax (GST).

The State Government of Karnataka vide its circular dated 26 February 2019, has issued guidelines for determining the eligible incentive amount under the GST regime.

The State Government of Maharashtra (‘GOM’) vide its Government Resolution (GR) dated 20 December 2018 issued the modalities for sanction and disbursement of incentives, under GST regime, and introduced certain new conditions / restrictions for accruing incentive benefits granted to the Company including denying incentives on related party transactions and certain other restrictions. Subsequently, the GOM issued a corrigendum dated 08 March 2019 to the above mentioned GR allowing eligible units to claim incentives on related party transactions.

The management has evaluated the impact of other conditions imposed and has obtained legal advice on the tenability of these changes in the said scheme. Based on such legal advice, the Company has also made the representation to GOM and believes that said Incentives would continue to be made available to the Company under the GST regime, since the new conditions are not tenable legally and will contest these changes appropriately.

Accordingly, the Company has recognized grant income without giving effect to the above restrictions amounting to Rs. 161 crores (previous year Rs. 110 crores) for the year ended 31 March 2019. The cumulative amount receivable towards the same as at 31 March 2019 amounting to Rs. 271 crores has been considered good and recoverable.

b) Implementation of Goods and Service Tax (GST)

Revenue from operations for periods up to 30 June 2017 includes excise duty, which is discontinued with effect from 1 July 2017 upon implementation of Goods and Service Tax (GST). In accordance with ‘Ind AS 115 - Revenue’, GST is not included in Revenue from operations. In view of the aforesaid change in indirect taxes, Revenue from operations for the year ended 31 March 2019 is not comparable to the year ended 31 March 2018.

c) Ind AS 115 Revenue from Contracts with Customers

Ind AS 115 Revenue from Contracts with Customers, mandatory for reporting periods beginning on or after 1 April 2018 replaces the existing revenue recognition standards. The application of Ind AS 115 did not have any significant impact on financial statement of the Company.

However, the Company has determined that, in case of certain contracts, shipping services provided to customer is a separate performance obligation and accordingly the revenue attributable to such shipping services has been recognised as Revenue from operations, which was hitherto netted off against the corresponding freight expenses included as part of other expenditure in the Statement of Profit and Loss. The Company has applied the full retrospective approach and restated the previous periods presented.

The restated revenue for the year ended 31 March 2018 is higher by Rs. 1,489 crores with the corresponding increase in Other expenses. Further, the export benefits amounting to Rs. 300 crores for the year ended 31 March 2018 which was earlier included as part of Revenue from sale of products has been reclassified to Other operating revenue

The above adjustments have no impact on the balance sheet and cash flow statement for the previous period.

*Advance from customer includes the amount relating to a five year Advance Payment and Supply Agreement (“APSA”) agreement with Duferco S.A. for supply of Steel Products. Duferco S.A has provided an interest bearing advance amount of US $ 700 million under this agreement. The advance and interest will be adjusted by export of steel products to Duferco S.A .

The credit period on sales of goods ranges from 7 to 60 days with or without security.

As at 31 March 2019, Rs. 82 crore (previous Rs. 78 crores) was recognised as provision for allowance for doubtful debts on trade receivables.

Contract liabilities include long term and short term advances received for sale of goods. The outstanding balances of these accounts increased in due to the continuous increase in the customer base. Long term advances is detailed in note 23 of the annual standalone financial statements.

Amount of revenue recognized from amounts included in the contract liabilities at the beginning of the year Rs. 232 crores (previous year Rs.260 crores) and performance obligations satisfied in previous years Rs. NIL (previous year Rs.NIL).

Out of the total contract liabilities outstanding as on 31 March 2019, Rs.986 crores will be recognized by 31 March 2020, and remaining thereafter.

The Company does not have any significant adjustments between the contracted price and revenue recognized in the Statement of profit and loss account.

3. Segment reporting

The Company is in the business of manufacturing steel products having similar economic characteristics, primarily with operations in India and regularly reviewed by the Chief Operating Decision Maker for assessment of Company’s performance and resource allocation.

The information relating to revenue from external customers and location of non-current assets of its single reportable segment has been disclosed as below

Revenue from operations have been allocated on the basis of location of Customers.

b) Non-current assets

All non-current assets other than financial instruments of the company are located in India.

4. Income tax

Indian companies are subject to Indian income tax on a standalone basis. For each fiscal year, the entity profit or loss is subject to the higher of the regular income tax payable or the Minimum Alternative Tax (“MAT”).

Statutory income taxes are assessed based on book profits prepared under generally accepted accounting principles in India adjusted in accordance with the provisions of the (Indian) Income Tax Act, 1961 Statutory income tax is charged at 30% plus a surcharge and education cess.

MAT is assessed on book profits adjusted for certain items as compared to the adjustments followed for assessing regular income tax under normal provisions. MAT for the fiscal year 2018-19 is 21.55%. MAT paid in excess of regular income tax during a year can be set off against regular income taxes within a period of fifteen years succeeding the fiscal year in which MAT credit arises subject to the limits prescribed.

Business loss can be carried forward for a maximum period of eight assessment years immediately succeeding the assessment year to which the loss pertains. Unabsorbed depreciation can be carried forward for an indefinite period

There are certain income-tax related legal proceedings which are pending against the company. Potential liabilities, if any have been adequately provided for, and the company does not currently estimate any probable material incremental tax liabilities in respect of these matters.

A. Deferred tax liabilities (net)

Significant components of deferred tax assets/(liabilities) recognised in the financial statements are as follows:

The Company expects to utilize the MAT credit within a period of 15 years.

Deferred tax asset on long term capital losses of Rs. 203 crores and Rs. 2,025 crores expiring in fiscal year 2021-22 and 2024-25 respectively has not been recognised in the absence of probable future taxable capital gains.

Deferred tax asset on short term capital losses of Rs. 689 crores expiring in fiscal year 2024-25 has not been recognised in the absence of probable future taxable capital gains

5. The Company makes monthly contributions to provident fund managed by JSW Steel EPF Trust for qualifying Vijayanagar employees. Under the scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. During the year, the Company contributed Rs. 20 crores (FY 2017-18: Rs. 17 crores).

6. The Company maintains gratuity trust for the purpose of administering the gratuity payment to its employees (JSW Steel Group Gratuity Trust and JSW Steel Limited Employee Gratuity Fund). During the year, the Company contributed Rs. 3 crores (FY 2017-18: Rs. 13 crores).

7. In view of the uncertainty involved in collectability, revenue as interest income of Rs. 454 crores have not been recognised on loan provided to certain overseas subsidiaries.

8. As the future liability for gratuity is provided on an actuarial basis for the company as a whole, the amount pertaining to individual is not ascertainable and therefore not included above.

9. The remuneration includes perquisite value of ESOPs in the year it is exercised ‘ Nil (previous year Rs. 32 crores). The Company has recognised an expenses of Rs. 4 crores (previous year Rs. 2 crores) towards employee stock options granted to Key Managerial Personnel. The same has not been considered as managerial remuneration of the current year as defined under Section 2(78) of the Companies Act, 2013 as the options have not been exercised.

10. Dividend paid to key management personnel is Rs.0.14 crores (previous year Rs. 0.09 crores), not included above.

11. The Independent Non-Executive Directors are paid remuneration by way of commission and sitting fees. The commission payable to the Non-Executive Directors is based on the number of meetings of the Board attended by them and their Chairmanship/Membership of Audit Committee during the year, subject to an overall ceiling of 1% of the net profits approved by the Members. The Company pays sitting fees at the rate of Rs. 20,000/- for each meeting of the Board and sub-committees attended by them. The amount paid to them by way of commission and sitting fees during FY 2018-19 is Rs. 3 crores (FY 2017-18 is Rs. 4 crores), which is not included above.

Terms and conditions Sales:

The sales to related parties are made on terms equivalent to those that prevail in arm’s length transactions and in the ordinary course of business. Sales transactions are based on prevailing price lists and memorandum of understanding signed with related parties. For the year ended 31st March 2019, the Company has not recorded any impairment of receivables relating to amounts owed by related parties.

Purchases:

The purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions and in the ordinary course of business. Purchase transactions are based on made on normal commercial terms and conditions and market rates.

Loans to overseas subsidiaries:

The Company had given loans to subsidiaries for general corporate purposes. The loan balances as at 31st March, 2019 was Rs. 8,116 crores (As on 31st March, 2018: Rs. 5,404 crores). These loans are unsecured and carry an interest rate ranging from LIBOR 400-530 basis points and repayable within a period of three years.

Guarantees to subsidiaries:

Guarantees provided to the lenders of the subsidiaries are for availing term loans and working capital facilities from the lender banks.

The transactions other than mentioned above are also in the ordinary course of business and at arms’ length basis.

The Company maintains gratuity trust for the purpose of administering the gratuity payment to its employees (JSW Steel Group Gratuity Trust and JSW Steel Limited Employee Gratuity Fund). As on 31st Mar’19, the fair value of plan assets was as Rs. 68 crores (As at 31st Mar’18: Rs. 65 crores).

a) Excise duty cases includes disputes pertaining to availment of CENVAT credit, valuation methodologies, classification of gases under chapter heading.

b) Custom duty cases includes disputes pertaining to import of Iron ore fines and lumps under wrong heading, utilisation of SHIS licences for clearance of imported equipment, payment of customs duty Steam Coal through Krishnapatnam Port and anti-dumping duty on Met Coke used in Corex.

c) Sales Tax/ VAT/ Special Entry tax cases includes disputes pertaining to demand of special entry tax in Karnataka and demand of cess by department of transport in Goa.

d) Service Tax cases includes disputes pertaining to availment of service tax credit on ineligible services, KKC amount paid but no credit not availed, denial of credit distributed as an ISD, service tax on railway freight not taken as per prescribed documents.

e) Income Tax cases includes disputes pertaining to transfer pricing, deduction u/s 80-IA and other matters.

f) Levies by local authorities - Statutory cases includes disputes pertaining to payment of water charges and enhanced compensation.

g) Levies relating to Energy / Power Obligations cases includes disputes pertaining to uninterrupted power charges by Karnataka Power Transmission Company Ltd., belated payment surcharge, claims for the set off of renewable power obligations against the power generated in its captive power plants and dues relating to additional surcharge imposed on captive consumption by Maharashtra State Electricity Distribution Company Ltd.

h) Miscellaneous cases includes provident fund relating to contractors.

i) Claims by Suppliers and other parties includes quality claims issues raised by suppliers and others.

j) There are several other cases which has been determined as remote by the Company and hence not been disclosed above.

In response to a petition filed by the iron ore mine owners and purchasers (including the Company) contesting the levy of Forest Development Tax (FDT) on iron ore on the ground that the State does not have jurisdiction to legislate in the field of major minerals which is a central subject, the Honourable High Court of Karnataka vide its judgement dated 3 December 2015 directed refund of the entire amount of FDT collected by Karnataka State Government on sale of iron ore by private lease operators and National Mineral Development Corporation Limited (NMDC). The Karnataka State Government has filed an appeal before the Supreme Court of India (“SCI”). SCI has not granted stay on the judgement but stayed refund of FDT. The matter is yet to be heard by SCI. Based on merits of the case and supported by a legal opinion, the Company has not recognised provision for FDT of Rs. 1,043 crores (including paid under protest - Rs. 665 crores) and treated it as a contingent liability.

The State of Karnataka on 27 July 2016, has amended Section 98-A of the Forest Act retrospectively substituting the levy as Forest Development Fee (FDF) instead of FDT. In response to the writ petition filed by the Company and others, the Honourable High Court of Karnataka has vide its order dated 4 October 2017, held that the amendment is ultra-vires the Constitution of India and directed the State Government to refund the FDF collected. The State Government has filed an appeal before the SCI, and based on merits of the case duly supported by a legal opinion and a favorable order from the High Court, the Company has not recognised provision for FDF amount of Rs. 1,117 crores (including paid under protest - Rs.255 crores) pertaining to the private lease operators S NMDC and treated it as contingent liability.

(iii) Supreme Court (SC) passed a judgement dated 28 February 2019, relating to components of salary structure that need to be taken into account while computing the contribution to provident fund under the EPF Act. There are numerous interpretative issues relating to the Supreme Court (SC) judgement including the effective date of application. The Company continues to assess any further developments in this matter for the implications on financial statements, if any.

12. Financial guarantees

The Company has issued financial guarantees to banks on behalf of and in respect of loan facilities availed by its group companies.

Other commitments:

(a) The Company from time to time provides need based support to subsidiaries and joint ventures entity towards capital and other requirements.

(b) The Company entered a five year Advance Payment and Supply Agreement (“APSA”) agreement with Duferco S.A. (“DSA”) for supply of Steel Products. Duferco S.A has provided an interest bearing advance amount of US $ 700 million under this agreement, secured by committed export of steel products to Duferco S.A .

(c) The Company has imported capital goods under the export promotion capital goods scheme to utilise the benefit of a zero or concessional customs duty rate. These benefits are subject to future exports within the stipulated year. Such export obligations at year end aggregate to

(d) The Company has given guarantees aggregating Rs. 127 crores (previous year Rs. 127 crores) on behalf of subsidiaries to Commissioner of Customs in respect of goods imported.

13. In assessing the carrying amounts of Investments in and loans / advances (net of impairment loss / loss allowance) to certain subsidiaries and a Joint Venture and financial guarantees to certain subsidiaries (listed below), the Company considered various factors as detailed there against and concluded they are recoverable.

(a) Investments aggregating to Rs. 259 crores (Rs. 259 crores as at March 31, 2018) in equity and preference shares of JSW Steel (Netherlands) B.V (“NBV”), loans of Rs. 848 crores (Rs. 209 crores as at March 31, 2018), Rs. 5,332 crores (Rs. 4,361 crores as at March 31, 2018) and Rs. 739 crores (Rs. 678 crores as at March 31, 2018) to NBV, Periama Holdings LLC (“PHL”) and JSW Panama Holdings Corporation respectively and the financial guarantees of Rs. 1,410 crores (Rs. 1,626 crores as at March 31, 2018) and Rs. NIL (Rs. 85 crores as at March 31, 2018) on behalf of PHL and JSW Steel (USA) Inc. respectively - Estimate of values of the businesses and assets by independent external valuers based on cash flow projections/implied multiple approach. In making the said projections, reliance has been placed on estimates of future prices of iron ore and coal, mineable resources, and assumptions relating to operational performance including significant improvement in capacity utilisation and margins based on forecasts of demand in local markets, and capacity expansion / availability of infrastructure facilities for mines.

(b) Equity shares of JSW Steel Bengal Limited, a subsidiary (carrying amount: Rs. 446 crores (Rs. 442 crores as at March 31, 2018)) - Evaluation of the status of its integrated Steel Complex (including power plant) to be implemented in phases at Salboni of district Paschim Medinipur in West Bengal by the said subsidiary and the plans for commencing construction of the said complex.

(c) Equity shares of JSW Jharkhand Steel Limited, a subsidiary (carrying amount: Rs. 88 crores as at March 31, 2019; Rs. 84 crores as at March 31, 2018) - Evaluation of the status of its integrated Steel Complex to be implemented in phases at Ranchi, Jharkhand by the said subsidiary and the plans for commencing construction of the said complex.

(d) Equity shares of Peddar Realty Private Limited (PRPL) (carrying amount of investments: Rs. 24 crores as at March 31, 2019; Rs. 24 crores as at March 31, 2018, and loans of Rs. 155 crores as at March 31, 2019; Rs. 155 crores as at March 31, 2018) -Valuation by an independent valuer of the residential complex in which PRPL holds interest.

(e) Investment of Rs. 4 crores (Rs. 4 crores as at March 31, 2018) and loan of Rs. 147 crores (Rs. 137 crores as at March 31, 2018) relating to JSW Natural Resources Mozambique Limitada and JSW ADMS Carvo Limitada (step down subsidiaries) - Assessment of minable reserves by independent experts based on the plans to commence operations after mining lease arrangements are in place for which application has been submitted to regulatory authorities, and infrastructure is developed.

(f) Equity shares of JSW Severfield Structures Limited, a joint venture (carrying amount: Rs. 198 crores as at March 31, 2019; Rs. 160 crores as at March 31, 2018) - Cash flow projections approved by the said JV which are based on estimates and assumptions relating to order book, capacity utilisation, operational performance, market prices of materials, inflation, terminal value, etc.

14.

a. On 15 June 2018, the Company completed acquisition of 100% equity stake in Acero Junction Holdings, Inc (Acero) for a cash consideration of Rs. 536 crores (USD 80.85 million). Acero, along with its wholly owned subsidiary JSW Steel USA Ohio, Inc (Formerly known as Acero Junction, Inc.).

b. Pursuant to the Corporate Insolvency Resolution process for Monnet Ispat S Energy Limited (“MIEL”) under the Insolvency Bankruptcy Code, 2016 initiated on 18 July 2017, the National Company Law Tribunal (‘NCLT’) on 24 July 2018 (Order date) approved (with modifications) the resolution plan submitted by the consortium of JSW Steel Limited and AION Investments Private II Limited. The consortium completed the acquisition of MIEL through their jointly controlled entity Creixent Special Steels Limited (“CSSL”) on 31 August 2018. The Company has made an investment of Rs. 375 crores through equity and redeemable preference shares in CSSL to acquire joint control in MIEL and have an effective shareholding of 23.1% in MIEL.

c. The Resolution Plan submitted by the Company for Vardhman Industries Limited (VIL) was approved with some modifications, by the Hon’ble National Company Law Tribunal (NCLT) New Delhi, by its order dated April 16, 2019. The Company filed an appeal challenging the said NCLT Order before National Company Law Appellate Tribunal (NCLAT), in which an interim order was passed on April 30, 2019 suggesting that the Resolution Plan as approved by the Committee of Creditors may be implemented subject to the decision of the appeal. The Company further filed an Appeal before the Hon’ble Supreme Court against the interim order of NCLAT in which the Hon’ble Supreme Court vide an order dated May 10, 2019 has ordered status quo and the matter is posted for hearing before the NCLAT on May 28, 2019.

d. On 24 July 2018, the Company through its wholly owned subsidiary in Italy, JSW Steel Italy S.r.l, completed acquisition of 100% shares each of Aferpi S.p.A and Piombino Logistics S.p.A and 69.27% of the shares of GSI Lucchini S.p.A (collectively referred to as “Targets”) for a consideration of Rs. 489 crores (Euro 60.70 million) towards acquisition of equity shares and Rs. 100 crores (Euro 12.38 million) towards acquisition of loans provided by erstwhile shareholders of the targets.

e. On 23 October 2018, the Company has acquired an additional stake of 60.004% of the share capital of Dolvi Minerals and Metals Private Limited (“DMMPL”), a subsidiary, for a cash consideration of Rs.109 crores. Pursuant to the acquisition of shares of DMMPL, DMMPL along with its wholly owned subsidiary Dolvi Coke Projects Limited (“DCPL”), have become wholly owned subsidiaries of the Company.

15. The Board of Directors of the Company at their meeting held on 25 October 2018, considered and approved the Scheme of Amalgamation pursuant to sections 230 - 232 and other applicable provisions of the Companies Act, 2013, providing for the merger of its wholly owned subsidiaries, Dolvi Minerals and Metals Private Limited, Dolvi Coke Projects Limited, JSW Steel Processing Centre Limited, and JSW Steel (Salav) Limited with the Company. The said scheme has been filed with NCLT and the merger is subject to regulatory approvals.

16. Previous year figures have been re-grouped /re-classified wherever necessary

17. Subsequent Events (refer note 54 of the annual standalone financial statements)

a) The Company has raised US$ 500 million in April 2019 by the allotment of fixed rate senior unsecured notes (“Notes”) in accordance with Regulation S of the U.S. Securities Act, 1933 as amended, and applicable Indian regulations. The Notes are listed on Singapore Exchange Securities Trading Limited.

b) On 24 May 2019 the board of directors recommended a final dividend of Rs. 4.10 per equity share be paid to shareholders for financial year 2018-19, which is subject to approval by the shareholders at the Annual General Meeting to be held on 25 July 2019. If approved, the dividend would result in a cash outflow of Rs. 1,195 crores inclusive of dividend distribution tax of Rs. 204 crores.

New Standard Ind AS 116 Leases

Ind AS 116 Leases was notified by MCA on 30 March 2019 and it replaces Ind AS 17 Leases, including appendices thereto. Ind AS 116 is effective for annual periods beginning on or after 1 April 2019. Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under Ind AS 17. The standard includes two recognition exemptions for lessees - leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under Ind AS 116 is substantially unchanged from today’s accounting under Ind AS 17. Lessors will continue to classify all leases using the same classification principle as in Ind AS 17 and distinguish between two types of leases: operating and finance leases.

The Company is in the process of evaluating the effect of these amendments on the financial statements. Amendments to other Ind AS

There are few amendments to other Ind AS such as Ind AS 109, Financial Instruments , Ind AS 12, Income Taxes Ind AS 19, Employee Benefits; Ind AS 28, Investments in Associates and Joint Ventures

The Company is in the process of evaluating the effect of these amendments on the financial statements.

Source : Dion Global Solutions Limited
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