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MSTC

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Auditor's Report (MSTC) Year End : Mar '18

Report on the Standalone Ind AS Financial Statements

We have audited the accompanying Standalone Ind AS Financial Statements of MSTC LIMITED (“the Company”), which comprise the Balance Sheet as at 31st March 2018, the Statement of Profit and Loss (Including Other Comprehensive Income), the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and a summary of significant accounting policies and other explanatory information (hereinafter referred to as ‘Standalone Ind AS financial statements’).

Management’s Responsibility for the Standalone Ind AS Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134 (5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these Standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance (including other comprehensive income), changes in equity and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under section 133 of the Act, read with the Companies (Indian Accounting Standards) Rules, 2015, as amended. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of Standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these Standalone Ind AS financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit of the Standalone Ind AS financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the Standalone Ind AS financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the Standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the Standalone Ind AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the Standalone Ind AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the Standalone Ind AS financial statements. Basis for Qualified Opinion

i) Trade Receivables includes Rs. 19544.01 lakh due from M/s SPS Steel Rolling Mills Ltd for procurement and supply of materials to the party which is now more than five years old. Thus with the passage of time, quality of materials has deteriorated and as per the volumetric analysis the net realizable value of pledged raw materials comes to Rs. 6230 lakh. The party has defaulted in making the payment as per the terms of the Arbitration award. As per the volumetric analysis done on 01.12.2017, pledged stock worth Rs. 6543 lakh was unauthorisedly lifted by the party inspite of the same being under the jurisdiction of a Custodian. The creditors have filed an application in NCLT for initiation of Corporate Insolvency Resolution Process against the Company. The Company has security deposit of Rs. 10 lakh and has also recovered Rs. 641 lakh from the party during the financial year 2018-19. An amount of Rs. 1500 lakh have been provided for in the books of accounts. The Company should have provided a further amount of Rs. 17393.01 lakh against this debt during the year. Non-provision of the same has resulted in overstatement of profit and understatement of provision for the year 2017-18 by Rs. 17393.01 lakh - Refer Note no. 9.4 (a) of notes to the Standalone Ind AS financial statements.

ii) Trade Receivables includes Rs. 22124.13 lakh due from M/S Concast Steel & Power Ltd. for procurement and supply of materials. With the passage of time, quality of materials has deteriorated resulting in lower realisable value. As per the report of volumetric analysis conducted on 03.05.2018, part of pledged stock at Bankura unit was unauthorisedly lifted by the party inspite of the same being under the jurisdiction of a Custodian. Volumetric analysis at Jharsuguda unit of the party could not be performed by MSTC. Thus the book value of Rs. 108 lakh of the pledged stock in this unit is doubtful. Pursuant to admission of a case of insolvency filed by creditors in NCLT, MSTC has filed its claim before Insolvency Resolution Professional under NCLT. The Company has a security deposit of Rs. 40 lakh and during the year procured materials on behalf of the party for Rs. 9206 lakh against which they realized only Rs. 9088 lakh. As per the volumetric analysis of the materials, the net realizable value of the pledged stock is Rs. 2313.81 lakh. The Company has made a provision of Rs. 3000 lakh during the year. The Company therefore should have provided a further amount of Rs. 19084.13 lakh against this debt during the current year. This non-provision of the shortfall has resulted in overstatement of profit and understatement of provision for the year 2017-18 by Rs. 19084.13 lakh - Refer Note no. 9.4 (b) of notes to the Standalone Ind AS financial statements.

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in paragraph (i) and (ii) of Basis for Qualified Opinion, the overall effect of which is overstatement of profit and understatement of provision by Rs. 36477.14 lakh, the aforesaid standalone Ind AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March 2018, and its profit, other comprehensive income, its cash flows and changes in equity for the year ended on that date.

Emphasis of matters

We draw attention to the following matters:

i) Reference is invited to Note no. 9.4 (c) of notes to the Standalone Ind AS financial statements wherein it is stated that Trade Receivables include ‘11484.29 lakh due from M/s Jai Balaji Industries Ltd for procurement and supply of materials which are more than three years old. The party is making payment as per the Arbitration award and in the current year only Rs. 482 lakh have been adjusted against outstanding opening receivable of Rs. 11937 lakh. Since as per the Volumetric Analysis Report by an independent valuer, the net realizable value of the pledged stock is higher at Rs. 14185.21 lakh (Previous year: Rs. 6870 lakh), no provision has been considered necessary by the Management in the current year.

ii) Reference is invited to Note no. 9.4 (d) of notes to the Standalone Ind AS financial Statements wherein it is stated that Trade Receivables include Rs. 2831.52 lakh due from M/s Global Coke Ltd for procurement and supply of materials which are more than three years old. In view of the expected liquidation of dues by way of consumption of pledged materials and also net realizable value of the pledged stock is higher at Rs. 5311 lakh (Previous year : Rs. 1250 lakh) as per the Volumetric Analysis Report by an independent valuer, no provision has been considered necessary by the Management in the current year.

iii) Reference is invited to Note no. 42 of notes to the Standalone Ind AS financial Statements relating to pending confirmation/reconciliation of balances of Trade Receivables and Trade Payables and its consequential impact that may arise on reconciliation.

iv) The Company had appointed four Independent Directors, two on 06.09.2017 and the remaining two on 09.03.2018. Two Audit Committee meetings were held during the year. In absence of the Independent Directors, no Audit Committee meetings could be held before September 2017.

Our opinion is not modified in respect of these matters.

Other Matters

The comparative financial information of the Company for the year ended 31st March, 2017 included in the Standalone Ind AS financial statements are based on the previously issued statutory financial statements prepared in accordance with the Companies (Accounting Standards) Rules, 2006 audited by the predecessor auditor, M/s Ray & Co., whose report dated 07th August, 2017 for the year ended 31st March, 2017 expressed a modified opinion on those standalone financial statements.

Report on Other Legal and Regulatory Requirements

1. With respect to the other matters to be included in the Auditor’s Report in terms of the directions of the Comptroller and Auditor General of India (CAG) under Section 143(5) of the Act, and on the basis of our examination of the books and records of the Company carried out in accordance with the generally accepted principles in India and according to the information and explanations given to us, we give in the Annexure A, statement on the matters specified in the directions of CAG.

2. As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of Section 143 of the Act, we give in the Annexure B, a statement on the matters specified in paragraphs 3 and 4 of the said order.

3. As required by Section 143 (3) of the Act, we report that :

a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

c. The Balance Sheet, the Statement of Profit and Loss (including Other Comprehensive Income), Statement of Changes in Equity and the Cash Flow Statement dealt with by this report are in agreement with the books of account.

d. In our opinion, the aforesaid standalone Ind AS financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended.

e. The matters described in the Basis for Qualified Opinion paragraph above, in our opinion, may not have an adverse effect on the functioning of the Company.

f. As per notification No. GSR 463(E) dated 5th June, 2015 issued by the Ministry of Corporate Affairs, Government of India, Section 164(2) of the Act is not applicable to the Company.

g. With respect to the adequacy of the internal financial control over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in Annexure C.

h. With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind AS financial statements - Refer Note no. 34 of notes to the Standalone Ind AS financial statements.

ii. The Company did not have any such long-term contracts including derivative contracts for which there were any material foreseeable losses.

iii. There has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Company.

(Referred to in paragraph 2 under “Report on Other Legal and Regulatory Requirements” section of our report of even date)

i. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) The Company has physically verified its fixed assets during the year. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) The title deeds of the following immovable properties are not held in the name of the Company:

Total No. of Cases 14

Whether leasehold/freehold Freehold

Gross Block (as at Balance Sheet date) Rs. 105 lakh

Net Block (as at Balance Sheet date) Rs. 97.07 lakh

ii. The Company does not hold any inventory as at the year end. Therefore, the provisions of Clause 3(ii) of the Order are not applicable to the Company.

iii. The Company has not granted any loan, secured or unsecured, to companies, Limited Liability Partnerships, firms or other parties covered in the register maintained under Section 189 of the Act. Therefore, the provisions of Clause 3(iii) [(a), (b) and (c)] of the Order are not applicable to the Company.

iv. The Company has not granted any loan, provided any guarantee/ security and hence Section 185 of the Act is not applicable. The investment made by the Company is in compliance of section 186 of the Act.

v. The Company has not accepted any deposits from the public within the meaning of Sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Therefore, the provision of clause 3(v) of the order is not applicable on the Company.

vi. The Central Government of India has not prescribed the maintenance of cost records under sub-section (1) of Section 148 of the Act. Therefore, the provision of clause 3(vi) of the order is not applicable on the Company.

vii.(a) The Company is generally regular in depositing the undisputed statutory dues including provident fund, employees’ state insurance, income tax, goods and service tax, cess and any other statutory dues as applicable, with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at 31st March 2018 for a period of more than six months from the date of becoming payable.

(b) According to the information and explanations given to us and the records of the Company examined by us, the particulars of dues of income-tax, sales-tax, value added tax, custom duty, service tax, etc as at 31st March 2018 which have not been deposited on account of a dispute, are as follows:

Sl. No.

Name of the Statute

Nature of Dues

Period to which the amount relates (F.Y)

Amount (Rs. in Lakh)

Forum where dispute is pending

1

UP VAT Act 2008

Claim by Sales Tax Authority

2001-02

1.93

High Court Allahabad

2004-05

1.67

Commercial Tax Tribunal Bench, Ghaziabad.

2

J&K Sales Tax Act 1962

Claim by Sales Tax Authority

2009-10

1.50

Commercial taxes Circle, Jammu

2010-11

0.66

Commercial taxes Circle, Jammu

3

WB VAT Act 2003

Claim by Sales Tax Authority

2009-10

332.75

Appellate Revision Board, Kolkata

2012-13

314.42

Commissioner, Kolkata

4

AP VAT Act 2005

Claim by Sales Tax Authority

1998-99

22.53

Sales Tax Appellate Tribunal (STAT),

Visakhapatnam

1999-00

44.42

Assessing Authority i.e Commercial Tax Officer /

Surya Bagh Circle, Visakhapatnam

2004-05

9.08

Sales Tax Appellate Tribunal (STAT) ,

Visakhapatnam

2005-06

3.70

Sales Tax Appellate Tribunal (STAT),

Visakhapatnam

2006-07

0.76

Sales Tax Appellate Tribunal (STAT) ,

Visakhapatnam

2008-13

79.35

High Court of Judicature at Hyderabad

2007-08

27.46

High Court. Andhra Pradesh

5

Central Sales Tax Act (CST)

Claim by Sales Tax Authority

2009-10

249.00

Sales Tax Appellate Tribunal (STAT) ,

Visakhapatnam

2011-12

82.32

Appellate Deputy Commissioner (Appeals),

Vijayawada

2015-16

14.28

Appellate Deputy Commissioner (Appeals),

Vijayawada

6

Orissa Sales Tax Act

Claim by Sales Tax Authority

1986-87

269.00

High Court, Orissa

7

Gujarat VAT Act 2003

Claim by Sales Tax Authority

2002-03

52.25

Pre-Audit Dept. Ahmedabad

2003-04

369.45

Pre-Audit Dept. Ahmedabad

2004-05

217.99

Appeal filed in Tribunal against DC (Appeal Order)

Total of Sales Tax Dues

2094.52

8

Customs Act 1962

Claim by Custom Department

1995-96

240.00

Commissioner Customs, Chennai

2001-02

203.81

High Court, Calcutta

2012-13

1542.49

CESTAT, Bangalore

2013-14

83.55

CESTAT, Bangalore

Total of Custom Dues

2069.85

9

Finance Act 1994 (Service Tax)

Service Tax Demand

2002-05

73.02

High Court, Delhi

2005-07

1490.10

CESTAT, Kolkata

2003-05

22.02

Commissioner Appeals, Kolkata

Total of Service Tax Dues

1585.14

10

Income Tax Act 1961

Income Tax Demand

2002-03

51.56

High Court, Calcutta

2004-05

1.06

CIT Appeals, Kolkata

2006-07

11.64

CIT Appeals, Kolkata

2008-09

67.62

Income tax Appellate Tribunal, Kolkata

2011-12

21.34

Commissioner Appeals, Kolkata

2012-13

275.73

Commissioner Appeals, Kolkata

2013-14

100.05

Commissioner Appeals, Kolkata

2014-15

176.75

Commissioner Appeals, Kolkata

Total of Income Tax Dues

705.75

TOTAL TAX DUES

6455.26

viii. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to banks except for the loans as mentioned in Note No. 20(a) and 20(b) of the notes to the Standalone Ind AS financial statements and detailed here under:

Name of Bank

Principal

Interest

Indian Overseas Bank

Rs. 138 lakh

-

Standard Chartered Bank

Rs. 14362 lakh

Rs. 7889 lakh

The Company did not have any loans or borrowings from financial institutions or government and has not issued any debentures.

ix. The Company has not raised any money by way of initial public offer/further public offer (including debt instruments)/term loans. Accordingly, the provisions of Clause 3(ix) of the Order are not applicable to the Company.

x. During the course of our examination of the 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 report that no fraud on the Company or no fraud by the officers and employees of the Company has been noticed or reported during the year, nor have we been informed of any such case by the management.

xi. The managerial remuneration has been paid/provided in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V of the Act.

xii. The Company is not a Nidhi company. Accordingly, paragraph 3(xii) of the Order is not applicable to the Company.

xiii. All the transactions with related parties are in compliance with section 177 and 188 of the Act and the details have been disclosed in the notes to the Standalone Ind AS financial statements as required by the applicable accounting standards.

xiv. No money was raised through preferential allotment/ private placements of shares or fully/partly convertible debentures during the year and hence, the provision of Clause 3(xiv) of the Order is not applicable to the Company.

xv. According to the information & explanation given to us and the records of the Company examined by us, the Company has not entered into any non-cash transactions with directors or persons connected with them as referred to in Section 192 of the Act. Accordingly, paragraph 3(xv) of the Order is not applicable

xvi. The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

ANNEXURE C TO THE INDEPENDENT AUDITORS’ REPORT

(Referred to in paragraph 3(g) under “Report on Other Legal and Regulatory Requirements” section of our report of even date)

Report on the Internal Financial Controls over Financial Reporting under Clause (i) of sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”)

We have audited the internal financial controls over financial reporting of MSTC LIMITED (“the Company”) as at 31st March, 2018 in conjunction with our audit of the standalone Ind AS financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (the “Guidance Note”). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Standards on Auditing prescribed under section 143(10) of the Act and Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”), to the extent applicable to an audit of internal financial controls, both issued by the Institute of Chartered Accountants of India. Those Standards and Guidance Note require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material aspects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A Company’s internal financial controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company’s internal financial controls over financial reporting includes those policies and procedures that:

(a) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(b) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(c) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Qualified Opinion

According to the information and explanations given to us and based on our audit, the following material weakness have been identified as at 31st March 2018:-

(a) The Company did not have an appropriate internal control system for customer acceptance, credit evaluation and establishing credit limits for sales, which could potentially result in the Company recognizing revenue without establishing reasonable certainty of ultimate collection. The internal control over follow up with the customers for recovery of dues is inadequate.

(b) The Company did not have an appropriate internal control system with regard to pledged stock of raw materials procured by the Company on behalf of its customers and kept under the control of the Custodian appointed by the Company resulting in unauthorized liftment of the materials from the godowns.

A ‘material weakness’ is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In our opinion, except for the possible effects of the material weaknesses described above on the achievements of the objectives of the control criteria, the Company has maintained, in all material aspects, adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31st March 2018, based on the internal financial control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For D. K. Chhajer & Co.

Chartered Accountants

FRN 304138E

Niraj K. Jhunjhunwala

Place: Kolkata Partner

Date : 27.07.2018 Membership No. 057170

Source : Dion Global Solutions Limited
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