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http://www.tatasteel.com/media/pdf/annual-report-2009-10.pdf

TO THE MEMBERS OF

TATA STEEL LIMITED

1. We have audited the attached Balance Sheet of TATA STEEL LIMITED (the Company) as at 31st

March, 2010, the

Pro t and Loss Account and the Cash Flow Statement of the Company for the year ended on that date,

both annexed

thereto, in which are incorporated the Returns from the Singapore Branch audited by another auditor.

These nancial

statements are the responsibility of the Companys Management. Our responsibility is to express an

opinion on these

nancial 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 nancial

statements are

free of material misstatements. An audit includes examining, on a test basis, evidence supporting the

amounts and

the disclosures in the nancial statements. An audit also includes assessing the accounting principles

used and the

signi cant estimates made by the Management, as well as evaluating the overall nancial statement

presentation. We

believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditors Report) Order, 2003 (CARO) issued by the Central

Government in terms

of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters

speci ed in

paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

http://www.tatasteel.com/media/pdf/annual-report-2009-10.pdfhttp://www.tatasteel.com/media/pdf/annual-report-2009-10.pdfhttp://www.tatasteel.com/media/pdf/annual-report-2009-10.pdf

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(i) 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;

(ii) 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 and proper Returns adequate for the purposes of our audit have

been

received from the Singapore Branch audited by another auditor;

(iii) the reports on the accounts of the Singapore Branch audited by another auditor has been

forwarded to us and has

been dealt with by us in preparing this report;

(iv) the Balance Sheet, the Pro t and Loss Account and the Cash Flow Statement dealt with by this

report are in

agreement with the books of account and the audited Branch Returns;

(v) in our opinion, the Balance Sheet, the Pro t and Loss Account and the Cash Flow Statement dealt

with by this report

are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act,

1956;

(vi) in our opinion and to the best of our information and according to the explanations given to us, the

said accounts

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:

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2010;

(b) in the case of the Pro t and Loss Account, of the pro t of the Company for the year ended on that

date and

(c) in the case of the Cash Flow Statement, of the cash ows of the Company for the year ended on

that date.

5. On the basis of the written representations received from the Directors as on 31st March, 2010 taken

on record by the

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Board of Directors, we report that none of the Directors is disquali ed as on 31st March, 2010 from

being appointed as

a director in terms of Section 274(1)(g) of the Companies Act, 1956.

[Referred to in paragraph (3) of our report of even date]

(i) Having regard to the nature of the Companys business/activities/results clauses (x), (xii), (xiii), and

(xiv) of CARO are

not applicable.

(ii) In respect of its xed assets:

(a) The Company has maintained proper records showing full particulars, including quantitative details

and situation

of the xed assets.

(b) Some of the xed assets were physically veri ed during the year by the Management in accordance

with a

programme of veri cation which, in our opinion, provides for physical veri cation of xed assets at

reasonable

intervals. According to the information and explanation given to us, no material discrepancies were

noticed on

such veri cation.

(c) The xed assets disposed off during the year, in our opinion, do not constitute a substantial part of

the xed assets

of the Company and such disposal has, in our opinion, not affected the going concern status of the

Company.

(iii) In respect of its inventory:

(a) As explained to us, the inventories of nished and semi- nished goods and raw materials at Works,Mines and

Collieries were physically veri ed during the year by the Management. In respect to stores and spare

parts and

stocks at stockyards and with Consignment/Conversion Agents, the Company has a programme of veri

cation of

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stocks over a three-year period. In our opinion, having regard to the nature and location of stocks, the

frequency

of veri cation is reasonable. In case of materials lying with third parties, certi cates con rming stocks

have been

received for stocks held.

(b) In our opinion and according to the information and explanation given to us, the procedures of

physical veri cation

of inventories followed by the Management were reasonable and adequate in relation to the size of the

Company

and the nature of its business.

(c) In our opinion and according to the information and explanations given to us, the Company has

maintained proper

records of its inventories and no material discrepancies were noticed on physical veri cation.

(iv) The Company has neither granted nor taken any loans, secured or unsecured, to/from companies,

rms or other parties

listed in the Register maintained under Section 301 of the Companies Act, 1956. Consequently, clauses

(iii) (a) to (iii)

(g) of paragraph 4 of CARO are not applicable.

(v) In our opinion and according to the information and explanations given to us, having regard to the

explanations that

some of the items purchased are of special nature and suitable alternative sources are not readily

available for obtaining

comparable quotations, there is an adequate internal control system commensurate with the size of the

Company and

the nature of its business with regard to purchases of inventory and xed assets and the sale of goods

and services.

During the course of our audit, we have not observed any major weakness in such internal control

system.

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(vi) In respect of contracts or arrangements entered in the Register maintained in pursuance of Section

301 of the Companies

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Act, 1956, to the best of our knowledge and belief and according to the information and explanations

given to us:

(a) The particulars of contracts or arrangements referred to Section 301 that needed to be entered in

the Register

maintained under the said Section have been so entered.

(b) Where each of such transaction is in excess of Rs.5 lakhs in respect of any party, the transactions

have been

made at prices which are prima facie reasonable having regard to the prevailing market prices at the

relevant

time.

(vii) In our opinion and according to the information and explanations given to us, the Company has

complied with the

provisions of Sections 58A and 58AA or any other relevant provisions of the Companies Act, 1956 and

the Companies

(Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public. According to

the information

and explanations given to us, no order has been passed by the Company Law Board or the National

Company Law

Tribunal or the Reserve Bank of India or any Court or any other Tribunal.

(viii) In our opinion, the Company has an adequate internal audit system commensurate with the size

and the nature of its

business.

(ix) We have broadly reviewed the books of account maintained by the Company pursuant to the rules

made by the Central

Government for the maintenance of cost records under Section 209(1) (d) of the Companies Act, 1956 in

respect of

manufacture of bearings, steel tubes and pipes, steel, chrome ore and alloys and electricity, and are of

the opinion that

prima facie the prescribed accounts and records have been made and maintained. We have, however,

not made a

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detailed examination of the records with a view to determining whether they are accurate or complete.

To the best of our

knowledge and according to the information and explanations given to us, the Central Government has

not prescribed

the maintenance of cost records for any other product of the Company.

(x) According to the information and explanations given to us in respect of statutory dues:

(a) The Company has generally been regular in depositing undisputed dues, including Provident Fund,

Investor

Education and Protection Fund, Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise

Duty,

Cess and other material statutory dues applicable to it with the appropriate authorities. We are

informed that

the Company intends to obtain exemption from operation of Employees State Insurance Act at all

locations and

necessary steps have been taken by the Company. We are also informed that actions taken by the

authorities at

some locations to bring the employees of the Company under the Employees State Insurance Scheme

has been

contested by the Company and accordingly full payment has not been made of the contributionsdemanded.

(b) There were no undisputed amounts payable in respect of Income-tax, Wealth Tax, Custom Duty,

Excise Duty,

Cess and other material statutory dues in arrears as at 31st March, 2010 for a period of more than six

months

from the date they became payable, except for collection of Sales tax which we are informed are

refundable to

customers because they have been collected in excess or which have been collected pending receipt of

necessary

certi cates from the customers.

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1. Accounting Policies

(a) Basis for Accounting

The nancial statements are prepared under the historical cost convention on an accrual basis of

accounting in accordance with the

generally accepted accounting principles, Accounting Standards noti ed under Section 211(3C) of the

Companies Act, 1956 and

the relevant provisions thereof.

(b) Revenue Recognition

(i) Sales comprises sale of goods and services, net of trade discounts.

(ii) Export incentive under the Duty Entitlement Pass Book Scheme has been recognised on the basis of

credits afforded in the

pass book.

(c) Employee Bene ts

(i) Short-term employee bene ts are recognised as an expense at the undiscounted amount in the Pro

t and Loss Account of the

year in which the related service is rendered.

(ii) Post employment bene ts are recognised as an expense in the Pro t and Loss Account for the year

in which the employee has

rendered services. The expense is recognised at the present value of the amount payable towards

contributions. The present

value is determined using the market yields of government bonds, at the balance sheet date, as the

discounting rate.

(iii) Other long-term employee bene ts are recognised as an expense in the Pro t and Loss Account for

the period in which the

employee has rendered services. Estimated liability on account of long-term bene ts is discounted to

the current value, using

the market yield on government bonds, as on the date of balance sheet.

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(iv) Actuarial gains and losses in respect of post employment and other long-term bene ts are charged

to the Pro t and Loss Account.

(v) Miscellaneous Expenditure

In respect of the Employee Separation Scheme (ESS), net present value of the future liability for

pension payable is amortised

equally over ve years or upto nancial year ending 31st March, 2010, whichever is earlier.

The increase in the net present value of the future liability for pension payable to employees who have

opted for retirement

under the Employee Separation Scheme of the Company is charged to the Pro t and Loss Account.

(d) Fixed Assets

All xed assets are valued at cost less depreciation. Pre-operation expenses including trial runexpenses (net of revenue) are

capitalised. Borrowing costs during the period of construction is added to the cost of eligible xed

assets.

Blast Furnace relining is capitalised. The written down value of the asset consisting of lining/relining

expenditure embedded in the

cost of the furnace is written off in the year of fresh relining.

(e) Depreciation

(I) Capital assets whose ownership does not vest in the Company is depreciated over their estimated

useful life or ve years,

whichever is less.

(II) In respect of other assets, depreciation is provided on a straight line basis applying the rates speci

ed in Schedule XIV to the

Companies Act, 1956 or rates based on estimated useful life whichever is higher. However, asset value

upto Rs. 25,000 is fully

depreciated in the year of acquisition. The details of estimated life for each category of asset is as under

:

(i) Buildings 30 to 62 years.

(ii) Plant and Machinery 6 to 21 years.

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(iii) Railway Sidings 21 years.

(iv) Vehicles and Aircraft 5 to 18 years.

(v) Furniture, Fixtures and Of ce Equipment 5 years.

(vi) Intangibles (Computer Software) 5 to 10 years.

(vii) Development of property for development of mines and collieries are depreciated over the useful

life of the mine or lease

period whichever is less, subject to maximum of 10 years.

(viii) Blast Furnace relining is depreciated over a period of 10 years (average expected life).

(ix) Freehold land is not depreciated.

(x) Leasehold land is amortised over the life of the lease.

(xi) Roads 30 to 62 years.

(f) Foreign Currency Transactions

Foreign Currency Transactions (FCT) and forward exchange contracts used to hedge FCT are initially

recognised at the spot

rate on the date of the transaction/contract. Monetary assets and liabilities relating to foreign currency

transactions and forward

exchange contracts remaining unsettled at the end of the year are translated at year end rates.

The company has opted for accounting the exchange differences arising on reporting of long term

foreign currency monetary items

in line with Companies (Accounting Standards) Amendment Rules 2009 relating to Accounting Standard

11 (AS-11) noti ed by

Government of India on 31st March, 2009. Accordingly the effect of exchange differences on foreign

currency loans of the company

is accounted by addition or deduction to the cost of the assets so far it relates to depreciable capital

assets and in other cases by

transfer to Foreign Currency Monetary Items Translation Difference Account to be amortised over the

balance period of the longterm monetary items or period upto 31st March, 2011 whichever is earlier.

The differences in translation of FCT and forward exchange contracts used to hedge FCT (excluding the

long term foreign

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currency monetary items accounted in line with Companies (Accounting Standards) Amendment Rules

2009 on Accounting

Standard 11 noti ed by Government of India on 31st March, 2009) and realised gains and losses, other

than those relating to

SCHEDULE M : NOTES ON BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

02) Tata_IFS_09-10.indd 150 7/3/2010 2:53:13 PM151

SCHEDULE M : NOTES ON BALANCE SHEET AND PROFIT AND LOSS ACCOUNT : continued

xed assets are recognised in the Pro t and Loss Account. The outstanding derivative contracts at the

balance sheet date other

than forward exchange contracts used to hedge FCT are valued by marking them to market and losses, if

any, are recognised in

the Pro t and Loss Account.

Exchange difference relating to monetary items that are in substance forming part of the Companys

net investment in non integral

foreign operations are accumulated in Foreign Exchange Fluctuation Reserve Account.

(g) Investments

Long term investments are carried at cost less provision for diminution other than temporary, if any, in

value of such investments.

Current investments are carried at lower of cost and fair value.

(h) Inventories

Finished and semi- nished products produced and purchased by the Company are carried at lower of

cost and net realisable value.

Work-in-progress is carried at lower of cost and net realisable value.

Coal, iron ore and other raw materials produced and purchased by the Company are carried at lower of

cost and net realisable

value.

Stores and spare parts are carried at lower of cost and net realisable value. Necessary provision is

made and charged to revenue

in case of identi ed obsolete and non-moving items.

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Cost of inventories is generally ascertained on the weighted average basis. Work-in-progress and

nished and semi- nished

products are valued on full absorption cost basis.

(i) Relining Expenses

Relining expenses other than expenses on Blast Furnace relining are charged as an expense in the year

in which they

are incurred.

(j) Research and Development

Research and Development costs (other than cost of xed assets acquired) are charged as an expense

in the year in which they

are incurred.

(k) Deferred Tax

Deferred Tax is accounted for by computing the tax effect of timing differences which arise during the

year and reverse in

subsequent periods.

2. Contingent Liabilities

(a) Guarantees

The Company has given guarantees aggregating Rs. 355.28 crores (31.03.2009 : Rs. 81.22 crores) to

banks and nancial

institutions on behalf of others. As at 31st March, 2010, the contingent liabilities under these

guarantees amounted to Rs. 355.28

crores (31.03.2009 : Rs. 81.22 crores).

(b) Claims not acknowledged by the Company

As at As at

31.03.2010 31.03.2009

Rs. crores Rs. crores

(i) Excise 296.59 216.72

(ii) Customs 13.68 13.68

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(iii) Sales Tax and VAT 587.97 456.01

(iv) State Levies 173.62 154.67

(v) Suppliers and Service Contract 71.02 70.52

(vi) Labour Related 36.92 190.42

(vii) Income Tax 143.44 176.60

(c) Claim by a party arising out of conversion arrangement - Rs. 195.82 crores (31.03.2009 : Rs. 195.82

crores). The Company has

not acknowledged this claim and has instead led a claim of Rs. 139.65 crores (31.03.2009 : Rs. 139.65

crores) on the party. The

matter is pending before the Calcutta High Court.

(d) The Excise Department has raised a demand of Rs. 235.48 crores (31.03.2009 : Rs. 235.48 crores)

denying the bene t of Noti cation

No. 13/2000 which provides for exemption to the integrated steel plant from payment of excise duty on

the freight amount incurred

for transporting material from plant to stock yard and consignment agents. The Company led an appeal

with CESTAT, Kolkata and

the order of the department was set aside. The department has led an appeal in Supreme Court where

the matter is pending.

(e) TMT bars and rods in coil form are sent to external processing agents (EPA) for decoiling and cutting

into specied lengths before

the products are despatched for sale. Excise department demanded duty from the EPA, holding the

activity as manufacture and

ignoring the payment of duty made by Tata Steel. An appeal against the order of the Commissioner of

Central Excise, Jamshedpur

was led in CESTAT, Kolkata and was allowed in favour of the EPA. Subsequently, the department

challenged the same in

Jharkhand High Court, Ranchi, which is still pending for hearing. Subsequent demands in this regard

have not been adjudicated.

The liability till 31st March 2010, if materializes, will be to the tune of Rs. 291.22 crores (31.03.2009 : Rs.

271.60 crores). However,

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the company has already paid duty amounting to Rs. 189.52 crores (2008-09: Rs. 169.05 crores) till date

based on the nal sale

Rosa Parks, King George VI, Abraham Lincoln and Woodrow Wilson.

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