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Auditor Report of BEML Ltd.

Mar 31, 2016

1. We have audited the accompanying standalone financial statements of BEML LIMITED ("the Company") which comprise the Balance Sheet as at March 31, 2016, the Statement of Profit and Loss, and the Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone Financial Statements

2. 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 financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. 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 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 the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

3. Our responsibility is to express an opinion on these standalone 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 there under.

We conducted our audit 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 financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the 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 financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Management and Board of Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone 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 March 31, 2016, and its Profit and its Cash Flow for the year ended on that date.

Emphasis of Matter:

We draw our attention to:

a) Note No.18 (i) in respect of Trade receivables from Ministry of Defence (MOD) Rs.925.87 lakhs towards interest rate difference on advance amount received from MOD. This amount pertains to interest rate difference between deposit rate and interest recovered @ 9.50% by MOD during FY 2006-07, 2007-08, and 2009-10 from various bills. The matter has been taken up with MOD and it is under their consideration. And Note No. 18(ii) in respect of Trade receivable from MOD Rs.4899.99 lakhs towards exchange rate difference and escalation for import of components in respect of a long term contract for Design, Development and Supply, entered into with MOD in 2001. The realisation of these receivables depends on the final determination of the amount payable by the MOD.

b) Note No.14 (a) in respect of the amount advanced to MAMC consortium for Rs.5675.68 lakhs, valuation of which depends on approval from Ministry of Defence, viable business plan and consequential assessment of diminution in the value of the investment, if any.

c) Note No.31 (G) regarding pending review/adjustment of old balances and non receipt of confirmation of balance in respect of advances, balances with government departments, trade payable, trade receivable, other loans and advances and deposits.

Our opinion is not qualified in respect of the above matters.

Report on Other Legal and Regulatory Requirements

1. 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 A" a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by section 143 (3) ofthe 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 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 it appears from our examination of those books ;

c. the Balance Sheet, the Statement of Profit and Loss 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 financial statements comply with the Accounting Standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

e. being a Government. Company provisions of Sec 164(2) of the Act, relating to disqualification of directors are not applicable.

f. with respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B".

g. 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 financial statements - Refer Note 31(D)(1)(a)(ii) to the financial statements;

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

iii) there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

3. As required by section 143 (5) of the Act, we give our separate Report in "Annexure C".

"ANNEXURE A" TO THE INDEPENDENT AUDITOR''S REPORT

Referred to in paragraph 1 under the heading ''Report on Other Legal & Regulatory Requirements of our report of even date to the members on the standalone financial statements of the Company for the year ended March 31, 2016:

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that,

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

(b) The Fixed Assets have been physically verified by the management in a phased manner, designed to cover all the items over a period of three years, which in our opinion, is reasonable having regard to the size of the company and nature of its business. Pursuant to the program, a portion of the fixed asset has been physically verified by the management during the year and as informed to us, no material discrepancies between the books records and the physical fixed assets have been noticed.

(c) The title deeds of immovable properties are held in the name of the company except in the following cases.

1) As explained to us, Building costing Rs.33.00 lakhs situated at Mumbai and Ranchi are pending for registration / khatha transfer .

2) As explained to us, Lease Hold land costing Rs.129.41 Lakhs at Hyderabad for which registration will be completed after development of showroom.

3) As explained to us, free hold land measuring 555.37 acres at Mysore costing Rs.321.23 lakhs (including additional compensation of Rs.183.57 lakhs demanded by KIADB) for which title deeds have to be obtained from KIADB.

4) Kerala Industrial Infrastructure Development Corporation (KIIDC) has allotted Leased land measuring 374.59 acres for a lease premium of Rs.2547.21 lakhs for 99 years lease period w.e.f 01.07.2009. The actual land handed over by KIIDC was measuring 374.16 acres and revised lease premium payable is Rs.2544.29 lakhs only and execution of formal amendment of lease agreement is pending.

5) As explained to us, the Company has taken land measuring 1109 acres and two workshops on lease for a period of 10 years vide Lease Agreement dated 5th May 2004, w.e.f. 28.04.2004 from M/s Bharat Gold Mines Limited (BGML) and a sum of Rs.100 Lakhs was paid as non-refundable deposit, The Company had incurred on the above land a sum of Rs.1452.95 lakhs (WDV Rs.1093.18 Lakhs) on Buildings included in Fixed Assets (Note 10) as at the year end. Vide order dated 09.07.2013, the Hon''ble Supreme Court of India upheld the decision of the Union Government to float a global tender of BGML assets with an observation about the existence of sub-lease of a portion of the land to BEML Ltd expired on 28.04.2014 to be included in the tender documents. The Company filed an Interlocutory application before the Hon''ble Supreme Court of India, praying for exclusion of land leased to BEML from the purview of global tender, which was dismissed. Since the lease agreement provides for the continuation of the lease even after the expiring of lease period on 28.04.2014 till the final decision of the Company / Government in this regard, the operations of the company on the above land is continued.

6) As explained to us, the Company has taken action to obtain title documents in respect of the following immovable properties;

a) Flat at Roshan Complex Madras - Rs.4.04 lakhs

b) Flat at Ashadeep, New Delhi - Rs.2.80 lakhs

c) Office Building at Nagpur - Rs.27.18 lakhs

d) Lease Hold land at Singrauli - Rs.1.75 lakhs.

ii) The company has conducted the physical verification of the inventory excluding materials lying with third parties and work in progress during the year in accordance with programme designed to cover all items over a phased manner. According to the information and explanation given to us, and in our opinion the frequency of physical verification is reasonable. The discrepancies noticed on physical verification of the inventory as compared to books records which has been properly dealt with in the books of account were not material.

iii) The Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the Register maintained under section 189 of the Act. Accordingly, the provisions of paragraph 3 (iii) (a) (b) and (c) of the Order are not applicable to the Company.

iv) There are no transactions of loans to directors, and being a Government Company engaged in defence production, provisions of Sec 185 and 186 of the Companies Act, 2013 in respect of loans, investments, guarantees and security are not applicable.

v) The Company has not accepted any deposits to which the provisions of Sections 73 to 76 or any other relevant provisions of the Act and the rules framed there under and also the directions issued by the Reserve Bank of India.

vi) Maintenance of Cost Records has been specified by the Central Government under sub-section (1) of Section 148 of the Act, in respect of the activities carried on by the company. We are of the opinion that prima facie, the prescribed records have been made and maintained.

vii) (a) The Company has been generally regular in depositing undisputed statutory dues including Provident Fund, Employees State Insurance, Income-Tax, Sales tax, Service Tax, Duty of Customs, Duty of Excise, Value added Tax, Cess and any other statutory dues with the appropriate authorities. According to the information and explanations given to us, no undisputed amounts payable in respect of the above were in arrears as at March 31, 2016 for a period of more than six months from the date they become payable.

(b) The details of dues of income-tax, sales tax, service tax, duty of customs, duty of excise, value added tax outstanding on account of any dispute, is furnished below :-

Nature of Disputed Amount Name of the Statute Tax (Rs. Lakhs)

Excise Duty incl. 31043.48 Interest and Penalty Central Excise Act Excise Duty incl. 1944 788.44 Interest and Penalty

National Calamity 6441.98 Contingency Duty

Total Excise Duty 38273.90

Service Tax Service Tax incl. 817.16 Act,1994 penalty

Service Tax 494.07

Total Service Tax 1311.23

The Customs Act, Customs Duty 7036.07 1962

Total Customs Duty 7036.07

The Karnataka Municipality Taxes Municipal KGF 754.11 Corporation Act, Property Tax 109.11 1976

Total ED, 47484.42 Service Tax & CD

Sales Tax /VAT 9.79

Sales Tax /VAT 5500.70 Sales Tax Act of Various States

Sales Tax /VAT 892.69

Sales Tax /VAT 3158.62

Total Sales Tax / 9561.80 VAT

Total 57046.22

Name of the Statute Period to which the Forum where the Amount relates dispute is pending

Central Excise Act,1944 2003-04 to 2007-08 CESTAT, Bangalore

2005-06 to 2010-11 Appellate Authority

2006-07 to 2011-12 CESTAT

Service Tax Act,1994 2004-05, 2006-07 & CESTAT, Bangalore 2010-11

2006-07 to 2010-11 Appellate Authority

The Customs Act,1962 2006-07 CESTAT, Chennai

The Karnataka Municipal Corporation Act, 1976 City Municipality 2012 council-KGF

1995-96 to 2005-06 City C*vil Judge, Bangalore

Sales Tax Act of Various States Maharashtra Sales 2003-04 Tax tribunal

December 2005 to Karnataka Sales Tax March 2008 & 2008-09, tribunal 2009-10,2010-11

1999-00, 2001-02, 2002-03, 2003-04, Revision & 2005-06, 2006-07, Appellate Board of 2007-08, 2009-10 Various States

From 1983-84 to Other appellate 2012-13 authorities

viii) The Company has not defaulted in repayment of loans or borrowings due to financial institutions, banks, Government, and to debenture holders.

ix) The company has not raised moneys by way of initial public offer or further public offer including debt instruments and term Loans during the year.

x) Based upon the audit procedures performed and the information and explanations given by the management, we report that no fraud by the Company or on the company by its officers or employees has been noticed or reported during the year.

xi) Being a Government Company, the provisions of sec 197 read with schedule V to the Act, relating to the managerial remuneration are not applicable.

xii) The Company is not a Nidhi Company and accordingly paragraph 3 (xii) of the Order is not applicable to the Company.

xiii) All transactions with the related parties are in compliance with section 177 and 188 of Companies Act, 2013 and the details have been disclosed under Note 31C in the Financial Statements as required by the applicable Accounting Standards.

xiv) The company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

xv) The company has not entered into any non-cash transactions with directors or persons connected with him. Hence, the provisions of Sec 192 of the Act are not applicable.

xvi) The Company is not required to be registered under section 45 IA of the Reserve Bank of India Act, 1934. and accordingly paragraph 3 (xvi) of the Order is not applicable to the Company.

1) Whether the Company has clear title/lease deeds for freehold and leasehold respectivelyRs. If not please state the area of freehold and leasehold land for which title/lease deeds are not available ?

Comment: In the following cases clear title/lease deeds for freehold and leasehold properties are not available with the Company;

i) Free hold land measuring 555.37 acres at Mysore costing Rs.321.23 lakhs (including additional compensation of Rs.183.57 lakhs demanded by KIADB) for which title deeds have to be obtained from KIADB.

ii) Kerala Industrial Infrastructure Development Corporation (KIIDC) has allotted leased land measuring 374.59 acres for a lease premium of Rs.2547.21 lakhs for 99 years lease period w.e.f 01.07.2009. The actual land handed over by KIIDC was measuring 374.16 acres and revised lease premium payable is Rs.2544.29 lakhs only and execution of formal amendment of lease agreement is pending.

iii) The Company has taken land measuring 1109 acres and two workshops on lease for a period of 10 years vide Lease Agreement dated 5th May 2004, w.e.f. 28.04.2004 from M/s Bharat Gold Mines Limited (BGML) and a sum of Rs.100 Lakhs was paid as non-refundable deposit, The Company had incurred on the above land a sum of Rs.1452.95 lakhs (WDV Rs.1093.18 Lakhs) on Buildings included in Fixed Assets (Note 10) as at the year end. Vide order dated 09.07.2013, the Hon''ble Supreme Court of India upheld the decision of the Union Government, to float a global tender of BGML assets with an observation about the existence of sub-lease of a portion of the land to BEML Ltd expired on 28.04.2014 to be included in the tender documents. The Company filed an Interlocutory application before the Hon''ble Supreme Court of India, praying for exclusion of land leased to BEML from the purview of global tender, which was dismissed. Since the lease agreement provides for the continuation of the lease even after the expiring of lease period on 28.04.2014 till the final decision of the Company / Government in this regard, the operations of the company on the above land is continued.

iv) Building costing Rs.33.00 lakhs situated at Mumbai and Ranchi are pending for registration / Katha transfer.

v) Lease Hold land costing Rs.129.41 Lakhs at Hyderabad for which registration will be completed after development of showroom.

vi) The Company has taken action to obtain title documents in respect of the following immovable properties.

a) Flat at Roshan Complex Madras - Rs.4.04 lakhs

b) Flat at Ashadeep, New Delhi - Rs.2.80 lakhs

c) Office building at Nagpur - Rs.27.18 lakhs

d) Lease Hold land at Singrauli - Rs.1.75 lakhs.

2) Whether there are any cases of waiver/writeoff of debts/loans/interest etcRs. if yes, the reasons there for and amount involved ?

Comment: There are no instances of waiver of debts/loans/interest etc., However, Bad debt of Rs.384.95 lakhs were written off during the year with the approval of the Board as it was not realizable with all possible efforts being made.

3) Whether proper records are maintained for inventories, lying with third parties and assets received as gift/grant(s) from the Government or other authorities ?

Comment: The Company is maintaining proper records for inventories lying with the third parties in the ERP system.

The Company received land measuring 1849 Acres and 5 Guntas at KGF from Government of Karnataka at free of cost. The expenditure incurred on development of above land is capitalized and included under Fixed Assets - Land (Free hold).

For S.R.R.K Sharma Associates

Chartered Accountants

Firm Registration Number: 003790S

CA H R RAMASWAMY

Partner

Membership No. : 207116

Place: Bengaluru

Date: 27.05.2016


Mar 31, 2015

1. We have audited the accompanying standalone financial statements of BEML Limited ("the Company"), which comprise the Balance Sheet as at 31st'' March, 2015, the Statement of Profit and Loss, and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management''s Responsibility for the Standalone Financial Statements

2. The Board of Directors of the Company 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 financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of 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, design, implementation and maintenance of adequate internal financial controls, that are operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

3. Our responsibility is to express an opinion on these standalone 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 there under. We conducted our audit 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 financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the 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 financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company''s Management and Board of Directors, as well as evaluating the overall presentation of the financial statements.

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

6. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give 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, 2015, and its profit and its cash flows for the year ended on that date.

Emphasis of Matter

We draw attention to

a) Note No.18 (i) in respect of Trade receivables form Ministry of Defence (MOD) Rs.925.87 lakhs towards interest rate difference on advance amount received from MOD. This amount pertains to interest rate difference between deposit rate and interest recovered @ 9.50% by MOD during FY 2006-07, 2007-08, and 2009-10 from various bills. The matter has been taken up with MOD and it is under their consideration. And Note No. 18(ii) in respect of Trade receivable from MOD Rs.4899.99 lakhs towards exchange rate difference and escalation for import of components in respect of a long term contract for Design, Development and Supply, entered into with MOD in 2001. The realisation of these receivables depends on the final determination of the amount payable by the MOD.

b) Note No.22 (ii) In respect of accounting of revenue including excise duty includes revenue recognized for Rs.8754.77 lakhs in respect of FOR destination contracts, in accordance with Accounting Standard-9 Revenue Recognition on the basis of custodian certificates accepting billing and title to the goods having a Profit of Rs.143.95 lakhs (Previous year Rs.1454.47 lakhs) for the transactions.

c) Note No.14 (a) in respect of the amount advanced to MAMC consortium for Rs. 5,618.55 lakhs, valuation of which depends on approval from Ministry Of Defence, viable business plan and consequential assessment of diminution in the value of the investment, if any.

d) Note No.31 (G) regarding pending review/adjustment of old balances and non receipt of confirmation of balance in respect of trade payable, trade receivable, other loans and advances and deposits.

e) Note No. 10 (B) in respect of change in method of Depreciation followed by the Company as prescribed under Schedule II of the Companies Act, 2013 instead of method specified by Schedule XIV of the Companies Act, 1956 followed up to 31.03.2014.

f) Note No.17 (e) in respect of provisioning for obsolescence, during the year the company has revised the provisioning norms for obsolescence of non - moving inventory for marketing spares and provided an amount of Rs.576.70 lakhs for the year towards obsolescence as against Rs.3,469.35 lakhs under pre- revised provisioning norms.

Our opinion is not qualified in respect of the above matters.

Other Matters :

a. We have issued an Audit Report dated 1st June, 2015 ("the original report"), at Bangalore on the financial statements as adopted by Board of Directors on even date. Pursuant to the observation of Comptroller and Audit General of India under Section 143(6)(a) of the Companies Act, 2013, the company has amended Note No.17e. The amendment has no impact on the reported figures in the financial statements of the Company as disclosed in Note No.31J. This Audit report supersedes the original report, which has been suitably revised to consider observations of Comptroller and Audit General of India and the amendment made to the said Note No.17(e).

b. Our audit procedure on events subsequent to the date of the original report is restricted solely to the amendment to Note No.17(e) ofthe financial statements.

Report on Other Legal and Regulatory Requirements

7. As required by the Companies (Auditor''s Report) Order, 2015 (the Order) issued by the Central Government of India in terms of Section143 (11) of the Act, we give in Annexure a statement on the matters specified in paragraphs 3 and 4 of the order.

8. As required by Section 143(3) ofthe Act, we further 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, 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 financial statements comply with the Accounting Standards specified under Section 133 ofthe Act, read with Rule 7 ofthe Companies (Accounts) Rules, 2014;

e) On the basis of the written representations received from the directors as on 31st, March, 2015, taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of Section 164 (2) ofthe Act;

f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in " Para (iv) of Annexure";

g) 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 financial statements - Refer Note 31 (D) (I) (a) (ii) to the financial statements;

ii. the Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses;

iii. there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.



ANNEXURE TO AUDITOR''S REPORT

Annexure referred to in Paragraph 7 of our report of even date to the members of BEML Limited on the accounts of the Company for the year ended 31st March 2015.

On the basis of such checks as we considered appropriate and according to the information and explanations given to us during the course of our audit, we report that:

i) a) The company is maintaining proper records to show full particulars, including quantitative details and situation of fixed assets.

b) As explained to us, the fixed assets have been physically verified in accordance with the program designed to cover all assets over a phased manner by the management; as informed to us no material discrepancies were noticed on such verification.

ii) a) As explained to us the Company has conducted physical verification of inventories excluding materials lying with third parties and work in progress during the year in accordance with program designed to cover all items over a phased manner. According to the information and explanations give to us and in our opinion the frequency of verification is reasonable

b) The procedure of physical verification of inventory followed by the management is reasonable and adequate in relation to the size of the company and the nature of its business.

c) The company is maintaining proper records of inventory. As explained to us, the discrepancies noticed on physical verification between physical stocks and its books of account were not material. Process of material receipt accounting needs to be strengthened.

iii) The company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act. As such clause (iii) of Para 3 the order is not applicable.

iv) In our opinion and according to the information and explanations given to us, the Company has an internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. Further on the basis of our examination of the books and records of the company no major weaknesses in internal control system has been noticed or reported.

v) In accordance with the information and explanations given to us the company has not accepted any deposits during the year and hence the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 and other relevant provisions ofthe Companies Act and the Rules framed there under, are not applicable. No order in this regard in respect of the Company has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vi) Maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act. We are of the opinion that, prima facie, the prescribed records have been made and maintained.

vii) a) The Company is generally regular in depositing undisputed statutory dues including provident fund, employees'' state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues with the appropriate authorities. According to the information and explanation given to us and in our opinion no undisputed amounts payable in respect of Income tax, Sales tax, Wealth tax, Service tax, Custom duty and Excise duty which are arrears as at 31st March 2015 for a period of more than six months from the date they became payable.

b) The details of dues of income tax or sales tax or wealth tax or service tax or duty of customs or duty of excise or value added tax or cess have not been deposited on account of dispute, is furnished below.

Name of the Nature of Amount Statute disputed tax in lakhs

Excise Duty 28200.47 inclusive of Interest and Penalty

Central Excise Duty 854.00 Excise Act inclusive of 1944 and Interest and Service Tax Penalty Act National 5863.65 Calamity Contingency Duty

Service Tax 747.70 inclusive of penalty Service Tax 494.07

The Customs Customs Duty 932.35 Act, 1962

The Municipality 241.19 Karnataka Taxes KGF Municipal Corporation Property Tax 357.50 Act, 1976 Sales Tax 9.79 /VAT

Sales Tax 6675.29 /VAT Sales Tax Act of various States Sales Tax 892.69 /VAT

Sales Tax 2528.87 /VAT



Name of the Period to Forum where Statute which the the amount is amount relates pending

2003 -04 to CESTAT, 2007 -08 Bangalore



Central 2005 -06 to Appellate Excise Act 2010 -11 Authority 1944 and Service Tax Act 2006 -07 to CESTAT 2011 -12

2004 -05, 2006 - CESTAT, 07 & 2010 -11 Bangalore

2006 -07 to Appellate 2010-11 Authority

The Customs 2006 -07 CESTAT, Act, 1962 Chennai

The 2012 City Karnataka Municipality Municipal council - KGF Corporation 1995 -96 to City Civil Act, 1976 2005 -06 Judge, Bangalore 2003 -04 Maharashtra Sales Tax tribunal

December 2005 Karnataka to March 2008 Sales Tax &2008 -09, tribunal 2009 -10, Sales Tax Act 2010 - 11 of various States 1999 -2000, Revision & 2001 -02, Appellate 2002 -03, 2003 - Board of 04, 2005-06, Various States 2006 -07, 2007- 08, 2009 -10

From 1983 -84 Other to 2012 -13 appellate authorities



(c) There has not been an occasion in the case of the Company during the year under the report to transfer any sums to the Investors Education and Protection Fund. The question of reporting delay in transferring such sums does not arise.

viii) The company does not have accumulated losses at the end of the financial year. It has not incurred cash loss in the current financial year and in the immediately preceding financial year.

ix) In accordance with the information and explanation given to us the company has not defaulted in repayment of dues to a financial institution or bank or debenture holders.

x) The company has given corporate guarantee for the loan taken by M/s BEML Midwest Limited, a Joint Venture company. We are unable to comment whether the terms and conditions of this guarantee are prejudicial to the interest of the company in view of its invocation by the bank and the company''s refusal to honor the guarantee on various grounds and pending litigation, including claims and counter claims. In this behalf, we drawn attention to the Note No. 12(b) of financial statements.

xi) According to the information and explanation given to us and on an overall examination of the Balance Sheet of the company as at 31st March 2015, the term loans are applied for the purpose for which the loans were obtained.

(xii) According to the information and explanations given to us, no fraud by or on the Company has not been noticed or reported during the year nor have we been informed of any such case by the management.

For S.R.R.K Sharma Associates Chartered Accountants Firm Registration Number: 003790S

CA. S.R.R.K Sharma Partner Membership No: 018088 Place: Bangalore Date: 16.07.2015


Mar 31, 2014

We have audited the accompanying financial statements of BEML Limited (''the company''), which comprise the Balance Sheet as at March 31, 2014 and the Statement of Profit and Loss and Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the company in accordance with the Accounting Standards notified under the Companies Act, 1956 (''the Act'') read with the General circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the 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:

a) in the case of the Balance Sheet, of the state of affairs of the company as at 31st March, 2014;

b) in the case of the Statement of Profit and Loss, of the PROFIT for the year ended on that date; and

c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date Emphasis of Matter:

We draw attention to:

1. Note no.18(i) in respect of trade receivables from Railway Board for Rs.499.60 lakhs, Note no.18 (iii) and Note No.18(iv) in respect of trade receivables from Ministry of Defence for Rs. 925.87 lakhs and Rs.4139.92 lakhs, respectively and Note No.21(i)(a) in respect of claims receivable for Rs. 3181.51 lakhs relating to additional material consumed for rail coaches. The realization of these receivables and the claim depend on the final determination of the amount payable by the customers.

2. Note No.22(ii) in respect of accounting of revenue including excise duty for an amount of Rs. 7244.49 lakhs in respect of FOR destination contracts in accordance with Accounting Standard 9 - Revenue Recognition on the basis of custodian certificates accepting billing and title to the goods.

3. Note No. 14(a) in respect of the amount advanced to MAMC consortium for Rs.5568.29 lakhs, valuation of which depends on approval from Ministry Of Defence, viable business plan and consequential assessment of diminution in the value of the investment, if any.

4. Note No. 31(G) regarding pending review/adjustment of old balances and non receipt of confirmation of balances in respect of trade payables, trade receivables, other loans and advances and deposits.

Our opinion is not qualified in respect of the above matters.

Other Matters

1. We have issued an Audit Report dated 28th May, 2014 ("the original report"), at Bangalore on the financial statements as adopted by Board of Directors on even date. Pursuant to the observation of Comptroller and Audit General of India under Section 619(4) of the Act, the Company has amended Note No.22(ii). This amendment has no impact on the reported figures in the financial statements of the Company, as disclosed in Note No.31J. This Audit Report supersedes the original report, which has been suitably revised to consider the amendment made to the said Note no 22(ii).

2. Our audit procedure on events subsequent to the date of the original report is restricted solely to the amendment to Note No. 22(ii) of the financial statements.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 those books and proper returns adequate for the purpose of our audit have been received from offices not visited by us;

c. The Balance sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards notified under the Companies Act, 1956 read with the General circular 15/2013 dated 13th September,2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013.

e. Being a government company, the provisions of section 274(1)(g) of the Act, relating to disqualification of directors are not applicable to the company in terms of Notification no: GSR 829(E) dated 21st October 2003.

Referred to in paragraph 1 under the section ''Report on other legal and regulatory requirements'' of our report of even date.

1. (a) The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) Fixed assets have been physically verified by the management during the year. No material discrepancies have been noticed on such physical verification.

(c) The disposals of fixed assets during the year were not substantial so as to affect the going concern status of the company.

2. (a) The company has conducted physical verification of inventories excluding materials lying with third parties and work in progress during the year in accordance with the program designed to cover all items over a phased manner. According to the information and explanations given to us and in our opinion the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The company is maintaining proper records of inventories. The discrepancies noticed on verification, between the physical stocks and its book records were not material.

3. The company has not granted or taken any secured or unsecured loans to or from companies, firms or such parties covered in the register maintained under Section 301 of the Companies Act 1956. Consequently clauses iii(a) to iii(g) of paragraph 4 of the Order are not applicable to the company.

4. In our opinion and according to the information and explanations furnished to us, there are adequate internal control systems commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and sale of goods and services. During the course of the audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

5. According to the information and explanations given to us and in our opinion, there are no contracts or arrangement by the company with any party referred to in Sec 301 of the Companies Act 1956, which are to be entered in the register required to be maintained under that section and hence the requirement of reporting on the reasonability of such transactions having regard to the prevailing market prices made in pursuance of such contracts does not arise.

6. According to the information and explanations given to us and in our opinion the company has not accepted any deposit from the public within the meaning of provisions of Sec 58A, 58AA and any other relevant provisions of the Act and the rules framed there under. Therefore, the provisions of clause (vi) of the paragraph 4 of the Order are not applicable to the company.

7. In our opinion, the company has an internal audit system, the scope and coverage of which requires to be enlarged, to be commensurate with the size of the company and the nature of its business.

8. We have broadly reviewed the cost records maintained by the company pursuant to the rules made by the Central Government under section 209(1)(d) of the Act for the maintenance of cost records and we are of the opinion that, prima facie, the prescribed records have been made and maintained. We are not required to and, accordingly have not made a detailed examination of cost records.

9. (a) The company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, auto cess and other material statutory dues with appropriate authorities. According to the information and explanations given to us and in our opinion no undisputed amounts payable in respect of income tax, sales tax, wealth tax, service tax, customs duty and excise duty were at arrears as at 31st March 2014 for a period of more than six months from the date they became payable.

Nature of Disputed Amount SI.NO Name of the Statute Tax (in lakhs)

Excise duty including 1 Interest and Penalty 28621.68

Excise duty including 883.84 2 Interest and Penalty Central Excise Act, 1944 Service Tax 3 including Penalty 702.39

4 Service Tax 494.07

5 National calamity 5285.32 Contingency duty

6 The Customs Act, 1962 Custom Duty 816.16

7 Sales Tax/ VAT 9.79 Sales Tax Act of various States 8 Sales Tax/ VAT 92.59

9 Sales Tax/ VAT 892.69

10 Sales Tax/ VAT 1840.79

11 Property Tax 357.50 The Karnataka Municipal Corporation Act, 1976

12 Property Tax - KGF 220.27

Total 40217.09

SI.NO Name of the Statute Period to which Forum where the the amount relates dispute is pending

1 From 2003-04 CESTAT, to 2007-08 Bangalore

2 From 2005-06 Appellate to 2010-11 Authority

3 2004-05, 2006-07 CESTAT & 2010-11 Bangalore

4 From 2006-07 Appellate to 2010-11 Authority

5 From 2006-07 CESTAT to 2011-12 Bangalore

6 The Customs Act, 1962 2006-07 CESTAT, Chennai 7 Sales Tax Act of 2003-04 Maharashtra Sales various States tax tribunal

8 December 2005 Karnataka Sales to March 2008 tax tribunal

9 1999-2000 & 2001-02 Revision & Appellate

to 2003-04, 2005-06 Board of to 2007-08, 2009-10 Various states

10 From l983-84 Other to 2009-10 Appellate authorities

11 From 1995-96 City Civil The Karnataka Municipal to 2005-06 Judge corporation ACt, 2011 Bangalore

12 2011-12 City Municipality Council, KGF



10. The company does not have accumulated losses at the end of the financial year. It has not incurred cash loss in the current financial year and has incurred cash loss in the immediately preceding financial year.

11. Based on our audit procedures and according to the information and explanations given to us and in our opinion, the company has not defaulted in repayment of dues to banks and debenture holders.

12. According to the explanations given to us and in our opinion, the company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The company is not a chit fund company or a nidhi company / mutual benefit company / society. Therefore, the provisions of clause (xiii) of paragraph 4 of the Order are not applicable to the company.

14. In our opinion, the company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause (xiv) of paragraph 4 of the Order are not applicable to the company.

15. The company has given corporate guarantee for the loan taken by M/s BEML Midwest Limited, a Joint Venture company. We are unable to comment whether the terms and conditions of this guarantee are prejudicial to the interest of the company in view of its invocation by the bank and the company''s refusal to honour the guarantee on various grounds and pending litigation, including claims and counter claims.

16. According to information and explanation given to us and in our opinion, the term loan obtained during the year has been applied for the purpose for which it was obtained.

17. According to the information and explanation given to us and on an overall examination of the Balance Sheet of the company as at 31st March 2014, we are of the opinion that no funds raised on short-term basis have been used for long-term investment.

18. 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 Act.

19. The company has created security for the debentures issued.

20. The company has not raised any monies by way of public issue during the year.

21. In our opinion and according to the information and explanations given to us, no material fraud on or by the company has been noticed or reported during the course of our audit.

For PADMANABHAN RAMANI & RAMANUJAM Chartered Accountants Firm Registration Number: 002510S

(G VIVEKANANTHAN) PARTNER Membership No.28339

Bangalore 30 June 2014


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying financial statements of BEML Limited (''the Company''), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 (''the Act'').This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor''s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the 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:

a) in the case of the Balance Sheet, of the state of affairs of the company as at March 31, 2013;

b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis of Matter:

We draw attention to:

1. Note no.18(i) in respect of trade receivables from Railway Board for Rs.499.60 lakhs (Previous year - Rs.1480.60 lakhs ) and Note no.18 (iii) in respect of Trade receivables from Ministry of Defence for Rs.925.87 lakhs (Previous year - Rs.925.87 lakhs). The realization of these receivables depends on the final outcome of the settlement of the claims.

2. Note no. 22(ii) in respect of accounting of revenue including excise duty, for Rs.12823.28 lakhs (Previous Year - Rs.7252.55 lakhs) in respect of FOR destination contracts in accordance with Accounting Standard 9 - Revenue Recognition, on the basis of custodian certificates, accepting billing and title to the goods, having an effect of decreasing the loss by Rs.791.47 lakhs (Previous year - Rs.Nil).

3. Note no.31(G) regarding pending review/adjustment of old balances and non receipt of confirmation of balances in respect of trade payables and receivables, other loans and advances and deposits.

Our opinion is not qualified in respect of the above matters.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 those books and proper returns adequate for the purpose of our audit have been received from offices not visited by us;

c. The Balance sheet, Statement of Profit and Loss and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement comply with the Accounting Standards referred to in sub- section (3C) of section 211 of the Act;

e. Being a Government Company, the provisions of section 274(1)(g) of the Act, relating to disqualification of directors are not applicable to the Company in terms of Notification no: GSR 829(E) dated 21st October 2003.

Referred to in paragraph 1 under the section ''Report on other legal and Regulatory requirements'' of our report of even date.

1. (a) The Company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) Fixed assets have been physically verified by the management during the year. No material discrepancies have been noticed on such physical verification.

(c) The disposals of fixed assets during the year were not substantial so as to affect the going concern status of the company.

2. (a) The Company has conducted physical verification of inventories excluding materials lying with third parties and work in progress during the year in accordance with the program designed to cover all items over a phased manner, except at Rail Coach Division, where the physical verification program was not completed in respect of certain raw materials & components and stores & spares. The management does not expect any material impact both in the value of inventory and its consequential impact on the Statement of Profit and Loss on completion of the physical verification program. According to the information and explanations given to us and in our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business.

(c) The Company is maintaining proper records of inventories. The discrepancies noticed on verification, between the physical stocks and its book records were not material.

3. The Company has not granted or taken any secured or unsecured loans to or from companies, firms or such parties covered in the register maintained under Section 301 of the Companies Act 1956. Consequently clauses iii(a) to iii(g) of paragraph 4 of the Order are not applicable to the Company.

4. In our opinion and according to the information and explanations furnished to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchases of inventory, fixed assets and sale of goods and services. During the course of the audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

5. According to the information and explanations given to us and in our opinion, there are no contracts or arrangement by the Company with any party referred to in Section 301 of the Companies Act 1956, which are to be entered in the register required to be maintained under that section and hence the requirement of reporting on the reasonability of such transactions having regard to the prevailing market prices made in pursuance of such contracts does not arise.

6. According to the information and explanations given to us and in our opinion the Company has not accepted any deposit from the public within the meaning of provisions of Sections 58A, 58AA and any other relevant provisions of the Act and the rules framed there under. Therefore, the provisions of clause (vi) of the paragraph 4 of the Order are not applicable to the Company.

7. In our opinion, the Company has an internal audit system, the scope and coverage of which requires to be enlarged to be commensurate with the size of the company and the nature of its business.

8. We have broadly reviewed the cost records maintained by the Company pursuant to the rules made by the Central Government under section 209(1)(d) of the Act for the maintenance of cost records and we are of the opinion that, prima facie, the prescribed records have been made and maintained. We are not required to and, accordingly have not made a detailed examination of cost records.

9. (a) The Company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund; employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, auto cess and other material statutory dues with appropriate authorities. According to the information and explanations given to us and in our opinion no undisputed amounts payable in respect of income tax, sales tax, wealth tax, service tax, customs duty and excise duty were at arrears as at 31st March 2013 for a period of more than six months from the date they became payable,

(b) The disputed statutory dues that have not been deposited on account of disputed matters pending before appropriate authorities are as under:

Nature of Disputed Amount Sl. No Name of the Statute Tax (in lakhs)

1 Excise duty including 1094.42 Interest and Penalty

2 Excise duty including 316.00 Interest and Penalty

Central Excise Act, 1944

Service Tax including 3 Penalty 504.39

4 Service Tax 522.55

5 The Customs Act, 1962 Custom Duty 13.39

7 Sales Tax/ VAT 102.82

Sales Tax Act of various 8 Sales Tax/ VAT 892.69 States

9 Sales Tax/ VAT 1760.80

The Karnataka Property Tax 109.11 10 Municipal Corporation Act, 1976

Property Tax 136.58

Total 5452.75

Name of the Statute Period to which Forum where the the amount relates dispute is pending

Central Excise Act 1944 From 2003-04 to CESTAT, 2007-08 Bangalore

From 2005-06 to Appellate 2010-11 Authority

2004-05, 2006-07 CESTAT, & 2010-11 Bangalore

2006-07 to 2010-11 Appellate Authority

The Customs Act, 1962 2006-07 CESTAT, Bangalore

2003-04 & Dec Karnataka Sales 2005-March 2008 Tax Tribunal

Sales Tax Act of Various States 1999-2000 & 2001- 02 to 2003-04 & Revision & 2005-06 to 2007-08 Appellate Board & 2009-10 of various States

From 1983-84 to Appellate 2009-10 Authorities

The Karnataka Municipal Corporation Act, 1976 From 1995-96 to City Civil Judge, 2005-06 Bangalore

City Municipality 2011-12 Council, KGF

10. The Company does not have accumulated losses at the end of the financial year. It has incurred cash loss in the current financial year and did not incur cash loss in the immediately preceding financial year.

11. Based on our audit procedures and according to the information and explanations given to us and in our opinion the Company has not defaulted in repayment of dues to banks and debenture holders.

12. According to the explanations given to us and in our opinion, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company is not a chit fund company or a nidhi Company / mutual benefit company / society. Therefore, the provisions of clause (xiii) of paragraph 4 of the Order are not applicable to the company.

14. In our opinion, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause (xiv) of paragraph 4 of the Order are not applicable to the Company.

15. The Company has given guarantee for the loan taken by M/s BEML Midwest Limited, a Joint Venture Company. We are unable to comment whether the terms and conditions of this guarantee are prejudicial to the interest of the company in view of certain pending litigation, including claims and counter claims.

16. In our opinion, the Company did not raise any term loans during the year and hence the provisions for clause (xvi) of paragraph 4 of the Order are not applicable to the Company.

17. According to the information and explanation given to us and on an overall examination of the Balance Sheet of the company as at 31st March 2013, we are of the opinion that no funds raised on short-term basis have been used for long-term investment.

18. 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 Act.

19. The company has created security in respect of debentures issued during the year.

20. The Company has not raised any monies by way of public issue during the year.

21. In our opinion and according to the information and explanations given to us, no material fraud on or by the Company has been noticed or reported during the course of our audit.

For PADMANABHAN RAMANI & RAMANUJAM

Chartered Accountants

Firm Registration Number: 002510S

(G VIVEKANANTHAN)

PARTNER

Membership No.28339

Bangalore

May 29, 2013


Mar 31, 2012

1. We have audited the attached Balance Sheet of BEML Limited as at 31st March 2012, the Statement of Profit and Loss and 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 have issued an audit report dated 31st May 2012 at Bangalore on the financial statements as adopted by the Board of Directors on that date. Pursuant to observation of Comptroller and Auditor General of India under section 619(4) of the Companies Act 1956, the company has incorporated Note 19(a) by way of additional disclosure and its consequential impact in Note No. 30(I). This additional disclosure does not have any impact on the reported figures in the financial statements of the company and hence the audit report on the financial statements of the company incorporating above two notes after its adoption by the Board of Directors is reissued without any changes.

3. We conducted our audit in accordance with 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 of material misstatement. An audit 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.

4. As required by the Companies (Auditor's Report) Order, 2003 as amended by Companies (Auditor's Report) (Amendment) Order, 2004 (together 'the Order'), issued by the Central Government of India in terms of subsection (4A) of section 227 of 'The Companies Act, 1956' (the 'Act') and on the basis of such checks of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order.

5. Further to our comments in the Annexure referred to in Paragraph 4 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 purposes of our audit;

b. In our opinion proper books of accounts as required by law have been kept by the company so far as it appears from our examination of these books and proper returns adequate for the purpose of audit have been received from offices not visited by us;

c. The Balance Sheet, Statement of Profit and Loss and the cash flow statement dealt with by this report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Statement of Profit and Loss and the cash flow statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act 1956,

e. Being a government company, the provisions of section 274(1) (g) of the Companies Act 1956, relating to disqualification of directors is not applicable to the company in terms of notification no: GSR 829(E) dated 21st October 2003;

f. Without qualifying our opinion reference is invited to:

1. Note No.17(ii) in respect of claim from Railway Board in respect of wheel sets for Rs. 1480.60 lakhs and Note no 17(vii) in respect of claim from Ministry of Defence respect of deduction made by them on account of interest deducted Rs. 925.87 Lakhs. The realisation of these claims depends on the outcome of the representations which cannot presently be determined;

2. Note No 30(H) regarding pending review / adjustment of old balances and non obtention of confirmation of balances in respect of trade payables and receivables, other loans and advances, deposits;

3. In our opinion and to the best of our information and according to the explanations given to us the said accounts read together with the significant accounting policies and the 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 accounting principles generally accepted in India:

1) In the case of the Balance Sheet, of the state of affairs of the company as at 31 March 2012;

2) In the case of the Statement of Profit and Loss, of the profit for the year ended on that date; and

3) In the case of the cash flow statement, of the cash flows for the year ended on that date.

1. (a)The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) Fixed assets have been physically verified by the management during the year except in case of few marketing offices and corporate office. The extent of such non-verification is not material in relation to total fixed assets of the company. No material discrepancies have been noticed on such physical verification.

(c) The disposals of fixed assets during the year were not substantial so as to affect its going concern status of the company.

2. (a) The company has conducted physical verification of inventories excluding materials lying with third parties and work in progress during the year in accordance with the program designed to cover all items over a phased manner. In respect of materials with third parties these are confirmed by them in a few cases (Refer Note: 16(b)). According to the information and explanations given to us and in our opinion the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business, except in respect of materials lying with third parties and work in progress.

(c) The company is maintaining proper records of inventories. The discrepancies noticed on verification, between the physical stocks and its book records were not material.

3. The company has not granted or taken any secured or unsecured loans to or from companies, firms or such parties covered in the register maintained under Section 301 of the Companies Act 1956. Consequently clauses iii(a) to iii(d) of paragraph 4 of the Order are not applicable to the company.

4. In our opinion and according to the information and explanations furnished to us, there are adequate internal control systems commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and sale of goods and services. During the course of the audit, we have not observed any continuing failure to correct major weakness in internal control system of the company.

5. According to the information and explanations given to us and in our opinion, there are no contracts or arrangement by the company with any party referred to in Sec 301 of the Companies Act 1956, which are to be entered in the register required to be maintained under that section and hence the requirement of reporting on the reasonability of such transactions having regard to the prevailing the market prices made in pursuance of such contracts does not arise.

6. According to the informations and explanation given to us and in our opinion the company has not accepted any deposit from the public within the meaning of provisions of Sec 58A, 58AA of the Companies Act, 1956 and any other relevant provisions of the Act and the rules framed there under. Therefore, the provisions of clause (vi) of the paragraph 4 of the Order are not applicable to the company.

7. In our opinion, the company has an internal audit system, the scope and coverage of which requires to be enlarged to be commensurate with the size of the company and the nature of its business.

8. We have broadly reviewed the cost records maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records and we are of the opinion that, prima facie, the prescribed records have been made and maintained. We are not required to and, accordingly have not made a detailed examination of cost records.

9. (a) The company is generally regular in depositing the undisputed statutory dues including provident fund, investor education and protection fund; employees state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, auto cess and other material statutory dues with appropriate authorities. According to the informations and explanation given to us and in our opinion no undisputed amounts payable in respect of income tax, sales tax, wealth tax, service tax, customs duty and excise duty were at arrears as at 31st March 2012 for a period more than six months from the date they became payable.

(b) The statutory dues disputed that have not been deposited on account of disputed matters pending before appropriate authorities are as under:

SI No Name of the Statute Nature of the dues Amount (Rs. Lakhs)

1. Central Excise Excise duty including 224.85 Act 1944 interest and penalty

2. Excise duty including 48.76 interest and penalty

3. Service tax including 387.64 penalty

4. Service tax 80.29

5. Customs duty 13.39

6. Sales Tax Act of Sales Tax/VAT 306.70 Various States

7. Sales Tax/VAT 492.86

8. Sales Tax/VAT 904.91

Total 2,459.40

Name of the Statute Period to which the Forum where the amount relates dispute is pending

Central Excise Act 1944 From 2003-04 CESTAT to 2007-08. Bangalore.

From 2005-06 Other Appellate to 2010-11 authorities.

2004-05, 2006-07 CESTAT & 2010-11 Bangalore

2006-07 to Other Appellate 2010-11 authorities

2006-2007 CESTAT, Chennai

Sales Tax Act of Various 1998-99, 2005-06, Sales Tax Tribunal States 2006-07, 2007-08, 2008-09

1983-84, and from Revision & 2003-04 to 2007-08. Appellate Board.

From 1990-91 Other appellate to 2007-08. authorities

Note: A sum of Rs. 460.81 lakhs have been paid towards the above disputed statutory dues under protest.

10. The company does not have accumulated losses at the end of the financial year and it has not incurred cash losses in the financial year covered by audit and in the immediately preceding financial year.

11. Based on our audit procedures and according to the information and explanation given to us and in our opinion the company has not defaulted in repayment of dues to banks. There are no dues to any financial institution or debentureholders.

12. According to the explanations given to us and in our opinion based on the information available, the company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities.

13. The Company is not a chit fund or a nidhi / mutual benefit company / society. Therefore, clause (xiii) of paragraph 4 of the Order is not applicable to the company

14. In our opinion the company is not dealing or trading in shares, securities, debentures and other investments. Accordingly clause (xiv) of paragraph 4 of the Order is not applicable to the company.

15. The company has given guarantee to loan taken by M/s. Vignyan Industries Limited, a subsidiary company from banks and the terms and conditions of which, in our opinion, are not prima facie, prejudicial to the interest of the company. We are unable to comment whether the terms and conditions of guarantee given on behalf of M/s. BEML Midwest Limited, a joint venture company, are prejudicial to the interest of the company in view of the pending litigation, including claims and counter claims, as given in Note No. 12.

16. In our opinion, the term loans outstanding at the commencement of the year and those raised during the year by the company have been applied for the purposes for which they were raised.

17. According to the information and explanation given to us and on an overall examination of the Balance Sheet of the company as at 31st March 2012, we are of the opinion that no funds raised on short-term basis have been used for long-term investment.

18. During the year the Company has not made any preferential allotment of shares.

19. The company has not issued any debentures and hence clause (xix) of paragraph 4 of the Order relating to creation of charge is not applicable to the company.

20. The company has not raised any monies by way public issue during the year.

21. In our opinion and according to the information and explanations given to us, no material fraud on or by the company has been noticed or reported during the year in the course of our audit.

For PADMANABHAN RAMANI & RAMANUJAM

Chartered Accountants

Firm Registration Number: 002510S

(G VIVEKANANTHAN)

PARTNER

Membership No.28339

Dated on 07 th July 2012 at Chennai


Mar 31, 2011

1. We have audited the attached Balance Sheet of BEML Limited as at 31st March 2011, the Profit and Loss Account and 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. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatement. An audit 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 (Auditors' Report) Order, 2003 as amended by Companies (Auditor's Report) (Amendment) Order, 2004 (together 'the Order'), issued by the Central Government of India in terms of subsection (4A) of Section 227 of 'The Companies Act, 1956' (the 'Act') and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on the matters specified 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 as follows:

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 accounts as required by law have been kept by the Company so far as it appears from our examination of these books and proper returns adequate for the purpose of audit have been received from offices not visited by us.

c) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of accounts maintained by the Company.

d) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement comply with the Accounting Standards referred to in Sub-section (3C) of Section 211 of the Companies Act, 1956.

e) Without qualifying our opinion reference is invited to:

1. Note No. D-3(ii) Schedule 23 in respect of claim from Railway Board in respect of wheel sets for Rs. 1480.60 lacs. The readability of this claim depends on the outcome of the representation which can not be presently be determined.

2. Note No. D-7, Schedule 23 in respect of non confirmation of various nominal balances. The impact on accounts, if any, is at present not ascertainable.

3. Note No. D-13 Schedule 23 in respect of non provision for the decline, other than temporary, in the value of investments in BEML Midwest Limited which depends on the outcome of legal proceedings.

4. Note No. D-l(v)&(vi) Schedule 23 for the recognition of sales of defence products to Ministry of Defence and sale of intermediary products to a Defence Research Establishment due to complex nature of such contracts and other reasons stated therein.

f) Being a government company, the provisions of Sec 274(1 )(g) of the Act relating to disqualification of Directors are not applicable to the company in terms of notification no: GSR 829(E) dated 21st October 2003.

g) In our opinion and to the best of our information and according to the explanations given to us the said financial statements read with the significant accounting policies and the notes appearing in Schedule 23 give the information as required by the Act in the manner so required, and give a true and fair view in conformity with accounting principles generally accepted in India:

(A) In the case of the Balance Sheet, the state of affairs of the Company as at 31st March 2011;

(B) In the case of the Profit and Loss Account of the profit for the year ended on that date; and

(C) 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 on the Financial Statements of BEML Limited for the year ended 31st March, 2011)

Auditors' Report

1. (a) The Company is maintaining proper

records showing full particulars including quantitative details and situation of fixed assets.

(b) Fixed assets have been physically verified by the management during the year. No material discrepancies have been noticed on such verification.

(c) The disposals of assets during the year were not substantial so as to affect its going concern status of the Company.

2. (a) The Company has conducted physical verification of inventories (excluding non moving inventory, materials lying with third parties and work in progress) during the year in accordance with the program designed to cover all items over a phased manner. In respect of materials with third parties these are confirmed by them in a few cases (Refer Note: D 2(b) Schedule 23). In our opinion the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business, except in respect of non moving inventory, materials lying with third parties and work in progress.

(c) The Company has maintained proper records of inventories. No material discrepancies were noticed on physical verification.

3. The Company has not granted or taken any secured or unsecured loans to or from Companies, firms or such parties covered in the register maintained under Section 301 of the Companies Act, 1956. Consequently clauses iii(a) to iii(g) of paragraph 4(iii) of the order are not applicable to the Company.

4. In our opinion and according to the information and explanations furnished to us, there are adequate internal control procedures commensurate with me size of the Company and the nature of its business for the purchase of Inventory and Fixed Asset and sale of goods and services.

5. There are no contracts or arrangement by the company with any party referred to in Sec 301 of the Companies Act 1956, which are to be entered in the register required to be maintained under that section and hence the requirement of reporting on the reasonability of such transactions having regard to the prevailing market prices made in pursuance of such contracts does not arise.

6. The Company has not accepted any deposits from the public within the meaning of provisions of Sec 5 8A, 58AA of the Companies Act, 1956 and any other relevant provisions of the Act and the rules framed thereunder. Therefore, the provisions of Clause 4(vi) of the Order are not applicable to the company.

7. In our opinion, the Company has an internal audit system, the scope and coverage of which requires to be enlarged to be commensurate with the size of the Company and the nature of its business.

8. The Central Government has prescribed maintenance of cost records under Section 209(1 )(d) of the Companies Act, 1956 in respect of Internal Combustion Engines and Heavy Earthmoving Equipments manufactured by the company. We have broadly reviewed the cost records maintained by the company pursuant to the rules made by the Central Government for the maintenance of cost records and we are of me opinion mat, prima facie, the prescribed records have been made and maintained. We are not required to and, accordingly have not made a detailed examination of me records.

9. (a) The Company is generally regular in depositing the undisputed statutory dues including Sales Tax, Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other statutory dues with appropriate authorities and no undisputed amounts in respect of these cases were outstanding for a period of more than six months from the date they became payable as at the end of the year.

(b) The details of disputed Income Tax/ Sales Tax/Customs Duty/Wealth Tax/ Service Tax/Excise Duty/Cess as at the end of the year that have not been deposited are detailed hereunder:

S. Name of Nature of Amount Period to Forum where the No the Statute the dues (Rs.Lacs) amount dispute is pending relates

1. Excise duty 197.90 From CESTAT, including 2003-04 to Bangalore. interest and 2007-08 penalty

2. Excise duty 56.15 From Other Appellate including 2005-06 to authorities. Central interest and 2010-11 Excise penalty.

3. Act 1944 Auto cess 125.22 From Commissioner of 1999-00 to CE, Bangalore. 2010-11

4. Service tax 134.68 2004-05 CESTAT

5. Service tax 80.29 2003-04to Other Appellate 2009-10 authorities

6. Customs 5269.86 2001-02 Original authority The duty. and Customs 2004-05 Duty Act,

7. 1962. Customs 13.39 2006-07 Commissioner duty. (Appeals)

8. Sales Tax 55.05 1998-99 Sales Tax Tribunal Sales Tax 9. Act of Sales tax 116.99 1999-2000, Revision & respective and from Appellate Board. States 2003-04 to 2005-06

10. Sales tax 323.08 From Other appellate 1990-91 to authorities 2007-08

11. Income tax Disallowance 219.45 2005-06 ITAT, Bangalore. Act, 1961 of technical know-how fee paid

Total 6592.06

Note: A sum of Rs. 262.35 Lacs have been paid towards the above disputed statutory dues under protest.

10. The Company does not have accumulated losses at the end of the financial year and it has not incurred cash losses in the financial year under review and in the immediately preceding financial year.

11. Based on our audit procedures and according to the information and explanation given to us and in our opinion the Company has not defaulted in repayment of dues to banks. There are no dues to any financial institution or debenture holders.

12. In our opinion and according to the explanations given to us and based on the information available, the Company has not granted any loans or advances on the basis of security by way of pledge of shares/ debentures and other securities.

13. The Company is not a chit fund or a nidhi / mutual benefit company/ society. Therefore, clause 4(xiii) of the Order is not applicable to the Company.

14. In our opinion the Company is not dealing in shares, securities, debentures and other investments. Hence clause 4(xiv) of the Order is not applicable to the Company.

15. The Company has given guarantee to loan taken by another Company from banks. This includes guarantee given to BEML Midwest Limited for Rs. 1912.50 Lacs to a bank. The terms and conditions, prima facie, in our opinion, are not prejudicial to the interest of the Company. We are unable to comment on whether the guarantee given on behalf of BEML Midwest is prejudicial to the interest of the Company in view of the various developments as given in note No D-13 of Schedule 23.

16. The term loans availed by the Company have been applied for the purposes for which the loans were obtained.

17. According to the information and explanation furnished to us and on an overall examination of the Balance Sheet of the Company as at 31st March 2011, no funds raised on short-term basis have been used for long-term purposes.

18. During the year the Company has not made any preferential allotment of shares.

19. The Company has not issued any debentures and hence clause 4(xix) of the order relating to creating of charge is not applicable.

20. The Company has raised monies through Follow on Public Offering in the earlier year and the status of utilization of funds is disclosed by the management in Note No. D-6, Schedule 23 and the same has been verified by us.

21. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.

For PADMANABHAN RAMANI & RAMANUJAM

Chartered Accountants

FRN: 002510S

(G VIVEKANANTHAN)

PARTNER

Membership No.28339

Place: Bangalore

Date :31st May 2011


Mar 31, 2010

1. We have audited the attached Balance Sheet of BEML Limited as at 31st March 2010, the Profit and Loss Account and the Cash Flow statement for the year ended on that date. These financial statements are the responsibility of the companys 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and are free of material misstatement. An audit 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 (Auditors Report) Order, 2003 as amended by Companies (Auditors Report) (Amendment) Order, 2004 (together the Order), issued by the Central Government of India in terms of subsection (4A) of Section 227 of The Companies Act, 1956 of India (the Act) and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Reference is invited to Note No. C-l and C-7, Schedule 25 in respect of matters stated therein. The impact on accounts, if any, is at present not ascertainable.

Note No. CI: Consequent to ERP implementation across the Company covering all operations including Marketing the variations in Costing methodology etc., as detailed in the Note, corrections, if any, will be carried out to the extent found material during FY 2010-11.

Note No. C7: While the company has sought for confirmation and the same has been furnished only in a few cases. The realization and payment of dues subsequent to Balance sheet date are in support of financial statements in majority of cases subject to timing difference in accounting of customers and vendors.

In respect of contractual obligations there is no additional liability since further supplies have been cleared by the customer in terms of bulk production clearance. Part of the provision has been withdrawn based on the supplies already made, since no further liability is anticipated on those supplies.

5. Further to our comments in the Annexure referred to in Paragraph 3 above and subject to our comments in Paragraph 4 above, we report as follows:

(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) Proper books of accounts as required by law have been kept by the Company so far as it appears from our examination of these books and proper returns adequate for the purpose of audit have been received from offices not visited by us.

(c) The Balance Sheet, Profit and Loss Account and the Cash Flow statement dealt with by this report are in agreement with the Books of Accounts maintained by the Company.

(d) In our opinion, the Balance Sheet, Profit

and Loss Account and the Cash Flow Statement comply with the Accounting Standards referred to in Sub-section (3C) of Section 211 of the Companies Act 1956 except Accounting Standard 9 relating to Revenue Recognition in respect of Sales relating to:

a. Items covered under Note No: C (2)(i), Schedule 25 where, in our opinion, significant risks and rewards have not been passed on to the customers on or before 31st March 2010 on the lines expressed by the Expert Advisory Committee of The Institute of Chartered Accountants of India resulting in overstatement of Sales to the extent of Rs. 29821.68 Lakhs and Net profit before tax to the extent of Rs. 3943.78 Lakhs with consequential effect on Sundry Debtors & Inventories and

Reference is invited to the disclosure in Note No.C(2)(i), Schedule 25 forming part of Accounts. Further, it is stated that in respect of sales valued at Rs.29821.68 lakhs, the revenue recognition is consistent with past practice and is in line with the opinion of the Expert Advisory Committee of the Institute of Chartered Accountants of India, Legal Opinions and the relevant judgment of the Honble Supreme Court of India.

The Company has taken initiatives with the Customers to specify "Ex-works" delivery conditions in their Purchase Orders in order to remove the ambiguity in interpretation as to the timing of transfer of risks and rewards of Ownership especially considering the fact that the transport and insurance arrangements are being made by the Company for and on behalf of Customers with the attendant costs and consequences. The Company under its open policy specifies the Customer/Consignee as the beneficiary under the Insurance Policy. In all these cases, the Customer reimburses the cost of transport and Insurance under express provisions in the contract. This practice of Revenue Recognition is not only in line with the Accounting Policy of the Company and the provisions of Indian Sale of Goods Act, 1930, but also accepted by Customers supported by the Custodian Certificates. In case of GC Notes Sales, efforts are being made with Customers to change the Payment term from "Payment on receipt of equipments" to "Payment against dispatch documents".

As against Rs.29821.68 lakhs recognized as sale for FY 2009-10 covered by GC and CC a sum of Rs. 12560.39 lakhs have already been collected as on 24/06/2010.

b. Certain cases where the significant risks and rewards of ownership in terms of the contract have not passed on to the buyer on or before 31/03/2010 resulting in overstatement of Sales by Rs. 8660.16 Lakhs and overstatement of Profit by Rs. 2754.70 Lakhs with consequential effect on Sundry Debtors and Inventories.

In respect of sales valued at Rs.8660.16 lakhs disclosed vide Note No.C(2)(ii), Schedule 25 forming part of Accounts the revenue recognition is based on unconditional appropriation in line with the Accounting Policy as at 4(i). In terms of Section 23(1) of Indian Sale of Goods Act, 1930, the property in the Goods has been transferred to the Customers by unconditional appropriation of equipments in a deliverable state. In terms of Section 23(2) of the Act the unconditional appropriation is complete by delivering the goods to the Carrier without reserving the right of disposal. All the equipments have been dispatched to and received by Customers as on 24/6/2010. Further, a sum of Rs. 5968.23 lakhs have also been collected from Customers.

Accordingly, the Revenue Recognition amounting totally to Rs.8660.16 lakhs is in order.

(e) We further report that without considering the impact of items mentioned in Paragraph 4 above the effect of which is not presently ascertainable, had the observations made by us in Paragraphs 5(d) above been considered:

(i) Sales for the year would have been Rs. 317285.85 Lakhs instead of Rs. 355767.69 Lakhs reported by the company;

(ii) Sundry Debtors would have been Rs. 97591.91 Lakhs instead of Rs. 136073.75 Lakhs reported by the company;

(iii) Inventories would have been Rs. 193851.80 Lakhs instead of Rs. 165300.30 Lakhs reported by the company

(iv) Net Profit before tax for the year would have been Rs. 25256.31 Lakhs instead of Rs. 31954.79

In view of the above Sales, Sundry Debtors, Inventories, Net Profit before tax and Reserves and Surplus are as stated in the Financial Statements.

Lakhs reported by the company

(v) Reserves and Surplus would have been Rs. 192908.22 Lakhs instead of Rs. 199606.70 Lakhs reported by the company.

(f) Being a government company, the provisions of Sec 274(1 )(g) of the Act relating to disqualification of Directors are not applicable to the company in terms of notification no: GSR 829(E) dated 21/10/2003.

(g) In our opinion and to the best of our information and according to the explanations furnished to us the said Accounts read with the Significant Accounting Policies and the Notes appearing in Schedule 25 give the information as required by the Act in the manner so required, and give a true and fair view:

(A) In the case of Balance Sheet, the State of Affairs of the Company as at 31st March 2010;

(B) In the case of Profit and Loss Account of the profit for the year ended on that date;

(C) In the case of Cash Flow Statement, of the cash flows for the year ended on that date.

1. In respect of its fixed assets:

(a) The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) According to the information provided by the management the fixed assets have been physically verified during the year, which in our opinion is reasonable having regard to the size of the company and nature of its assets and no material discrepancies have been noticed between book records and the physical inventory.

(c) As verified from the records the disposal of assets during the year were not substantial so as to affect its going concern.

2. In respect of its inventories:

(a) The company has conducted physical verification of inventories (excluding materials lying with third parties)

during the year in accordance with the program designed to cover all items over a phased manner. In respect of materials with third parties these are confirmed by them in a few cases (Refer Note: C 3(b) Schedule 25). In our opinion the frequency of verification is reasonable.

(b) The procedure for conducting*, physical verification of inventories appear to be reasonable and adequate in relation to the size of the company and the nature of its business except in respect of non moving inventory and work in progress, which has not been verified during the year.

(c) The company has maintained proper records for inventories. As indicated in

Note No. C 1, Schedule 25, in view of introduction of ERP and the consequential delay in recording of transactions, there has been a delay in reconciliation between physical stocks (which have been verified perpetually) and book records. No material discrepancies have been noticed upon such reconciliation to the extent identified and these have been adequately dealt with in the books of accounts.

3. The company is a Government Company and is exempt from complying with the provisions of Section 297 of the Act in terms of Notification No: GSR 233 dated 31/01/1978 in relation to transaction with other Government entities and consequently the requirement for maintenance of records under section 301 of the Act relating to granting/ borrowing of loans from such parties does not apply. We are also informed that there are no other transactions attracting the provisions section 297/299 of the Act. Hence clauses 4(iii)(b) to 4(iii)(d), 4(iii)(f) and 4(iii)(g) of the order are not applicable to this company.

4. In our opinion and according to the information and explanations furnished 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 Inventory and Fixed Assets, subject to delay in recording of transactions consequent upon introduction of ERP. On the basis of our examinations of the books and records carried out in accordance with the auditing standards generally accepted in India and according to the information and explanations given to us we are of the opinion that the internal control systems in respect of recognition of sale of goods requires to be strengthened which is an instance of continuing failure to correct major weaknesses in Internal Control.

5. For reasons and facts indicated in paragraph 3 above there are no contracts or arrangements required to be entered in the register maintained under section 301 of the Act. Hence clauses 4(v)(a) and 4(v)(b) of the order are not applicable to this company.

6. The Company has not accepted any deposits during the year attracting the provisions of Sec 58A, 58AA or any other relevant provisions of the Companies Act 1956. Therefore, the provisions of Clause 4(vi) of the Order are not applicable to the company.

7. In our opinion, the Company has an Internal Audit System commensurate with the size of the company and the nature of its business. In view of implementation of ERP and also considering the internal control weakness reported in Para 4 above, we are of the opinion that Internal Audit system requires to be strengthened.

8. The Central Government has prescribed maintenance of Cost Records under Section 209(1 )(d) of the Companies Act, 1956 in respect of Internal Combustion Engines and Heavy Earthmoving Equipments manufactured by the company. 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 and are of the opinion that prima facie the required records have been made and maintained. We are not required to and, accordingly have not made a detailed examination of the records.

9. In respect of Statutory Dues:

(a) The company is generally regular in depositing the undisputed statutory dues including Sales Tax, Provident Fund, Investor Education Fund, Employees State Insurance, Income Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess or other statutory dues and no undisputed amounts in respect of these cases were outstanding for a period of more than six months from the date they became due as at the end of the year.

(b) The details of disputed Income Tax/ Sales Tax/ Customs Duty/ Wealth Tax/ Service Tax/ Excise Duty/ Cess as at the end of the year is detailed hereunder:

SI. Nature of Forum where the Amount No Disputed Tax dispute is pending (Rs. Lakhs) 1 Central Excise Original Authority 111.75 2 Central Excise High Court of 30.00 Karnataka 3 Central Excise CESTAT 197.90 4 Customs Duty Original Authority 5283.25 5 Sales Tax Appellate Tribunal 10.62 6 Sales Tax Appellate 347.13 Commissioner 7 Sales Tax Appellate Authority 75.81 8 Sales Tax DCCT 91.15 9 Service Tax Original Authority 221.34 10 National Original Authority 883.10 Calamity Contingency Duty

10. The company does not have accumulated losses at the end of the financial year and has not incurred cash losses in the financial year under review and in the immediately preceding financial year. Hence clause 4(x) of the Order is not applicable.

11. Based on our audit procedures and according to the information and explanation given to us the Company has not defaulted in repayment of dues to bank. There are no dues to any financial institution or on account of debentures.

12. In our opinion and according to the explanations given to us and based on the information available, the company has not granted any loans or advances on the basis of security by way of pledge of shares/ debentures and other securities.

13. The Company is not a chit fund or a nidhi/ mutual benefit fund/ society. Therefore, clause 4(xiii) of the Order is not applicable to the Company.

14. In our opinion the company is not dealing in shares, securities, debentures and other investments. Hence clause 4(xiv) of the Order is not applicable to the company.

15. The company has given guarantee to a loan taken by another Company from a bank. The terms and conditions, prima facie, in our opinion, are not prejudicial to the interest of the company.

16. According to the information and explanations furnished to us and as shown by the records, no term loans were raised by the company from Banks or Financial Institutions during the year.

17. According to the information and explanation furnished to us and on an overall examination of the Balance Sheet of the company as at 31st March 2010, no funds raised on short-term basis have been used for long-term purposes.

18. During the year the Company has not made any preferential allotment of shares.

19. The company has not issued any debentures and hence clause 4(xix) relating to creating of charge is not applicable.

20. The company has raised monies through Follow On Public Offering in the earlier year and the status of utilization of funds is indicated in Note No. C 6, Schedule 25 and has been verified by us.

21. In our opinion and 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 RAO ASSOCIATES For and on behalf of the Board of Directors CHARTERED ACCOUNTANTS (G. SUDHINDRA) V. RS. NATARAJAN PARTNER Chairman & Managing Director Membership No.: 26171 FRN No. 003080S Place: Bangalore Date: 28.05.2010

 
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