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Gujarat Gas Company Ltd.[Amalgmated] Notes to Accounts, Gujarat Gas Company Ltd.[Amalgmated] Company
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Notes to Accounts of Gujarat Gas Company Ltd.[Amalgmated]

Mar 31, 2014

(1) General Information:

Gujarat Gas Company Limited ("Company")is engaged in Natural Gas Business in Gujarat. Natural gas business involves distribution of gas from sources of supply to centers of demand and to the end customers. The Company is listed on the Ahmedabad Stock Exchange, Bombay Stock Exchange, National Stock Exchange and Vadodara Stock Exchange.

(2) Share Capital

c) Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares. Each equity shareholder is eligible for one vote per share held. The dividend proposed by the Board of Directors, is subject to shareholders'' approval in the ensuing Annual General Meeting. In the event of liquidation of the Company, the equity shareholders are entitled to receive the residual assets of the Company in proportion to their shareholding.

GSPC Distribution Networks Limited (GDNL) is the holding company of Gujarat Gas Company Limited w.e.f. 12 June 2013. The ultimate holding company being Gujarat State Petroleum Corporation Limited w.e.f. 12 June 2013.

f) Shareholder holding more than 5% preference shares

The preference shares were fully held by BG Asia Pacific Holdings Pte. Limited (holding company till 11 June 2013). These preference shares were redeemed on 30 March 2012.

h) The Company had issued bonus equity shares in the ratio of 1:1 in 2009, resulting in an increase in the issued equity share capital from 6,41,25,000 shares of face value Rs 2 each to 12,82,50,000 shares of face value Rs 2 each. The Company has not bought back any equity shares during the past 5 years. The Company has not allotted any shares as fully paid pursuant to contracts without payment being received in cash, during the past 5 years.

(3) Contingent Liabilities:

(a) Claims against the Company not acknowledged as debts Rs. 5.08 Crores (Previous year Rs. 2.60 Crores).

(b) Claims of Rs. 2.17 Crores (Previous year Rs. 2.17 Crores) against the Company have been disputed by the Company. The Company is, however, indemnified by an insurance policy.

(c) Income tax related exposures Rs. 10.68 Crores (Previous year Rs. 7.95 Crores)

(d) Service tax related exposures Rs 36.36 Crores (Previous year Rs. 30.67 Crores)

(e) Excise related exposures Rs 0.12 Crores (Previous year Rs 0.18 Crores)

(4) Estimated amount of contracts net of advances remaining to be executed on capital account and not provided for Rs. 28.59 Crores (Previous year Rs. 33.26 Crores).

(5) Employee Stock Option Plan 2008:

The Company implemented an Employee Stock Option Plan 2008 (''ESOP 2008'') which provides for the allotment of equity shares of Rs. 2 /- each to eligible employees of the Company and its subsidiaries. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out of the funds advanced by the Company, the shares equivalent to the number of options granted, for allotment to the grantees. IDBI Trusteeship Services Limited are the trustees of the said trust. The trustees can purchase or sell the shares from the market as per the approved scheme. For the 15 months period ended on 31st March 2014, there are no purchases from the market.

Pursuant to the above scheme, the Company has granted options, as mentioned here below, convertible into equity shares of Rs. 2/- each to employees of the Company and its subsidiaries. The exercise price is calculated at 10% discount to the closing price of the shares on record date, being the date on which the grant of options were approved. The Scheme provides for graded vesting of options granted, over a period of 4 years from the date of grant.

The options are to be exercised within a maximum period of 2 years from the date of vesting. Within the exercise period, the employee would have the option to either purchase the shares from the trust at the exercise price or to give a mandate of sale to the trust at the best available market price, in which event the difference between the net price realized on sale after taxes and charges and the Exercise Price will accrue as gains to the employee.

In accordance with the approval granted by the members of the Company, to the issue of Bonus Shares in the ratio of one equity share of the Company of Rs. 2/- each for every one equity share of the Company held by the Shareholders of the Company as on September 19 , 2009, being the Record Date, the Compensation Committee of the Board of Directors of the Company, on September 22, 2009, had approved adjustments to the Options granted and unvested as on September 19 , 2009, under the Gujarat Gas Company Ltd - Employee Stock Option Plan 2008, whereby each option had been doubled and the Exercise Price thereof been halved with effect from September 22, 2009.

The employee share based payment plans have been accounted based on the Fair value method of accounting using the Black-Scholes Option Pricing Formula. The weighted average remaining contractual life of options outstanding as on 31 March 2014 is 1.67 years. (Previous year 2.67 years)

In accordance with Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India and SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 issued by Securities Exchange Board of India, an amount of Rs. 0.48 Crores (Previous year Rs. 1.20 Crores) has been recognised as an expense in Employee Benefits Expenses (Note 23) and corresponding liability has been disclosed as Stock Options Outstanding Account (Note 4). The balance of Rs. 2.69 Crores (Previous year Rs. 2.99 Crores) in Stock Options Outstanding Account (Note 4) represents the amortised cost of stock options outstanding. As on 31 March 2014, the amount recoverable from ESOP trust is Rs. 8.63 Crores (Previous year Rs. 12.75 Crores).

The Company has adjusted loss of Rs.1.00 Crores (Previous year loss of Rs. 3.36 Crores) to General Reserve as the difference between the cost incurred by the ESOP Trust for the purchase of shares and the exercise price of those options which have been exercised by the employees during the current year, in accordance with Guidance Note on accounting for Employee share based payment, issued by the ICAI.

The Company has taken premises for business and residential use for its employees under cancelable operating lease agreements. The total lease rentals recognized as an expense during the year under the above lease agreements aggregates to Rs. 1.03 Crores (Previous year Rs. 1.10 Crores). The lease agreement typically ranges from 1 to 9 years.

(6) Value of Imported and Indigenous Raw Material and Stores and spares and percentage thereof to the total consumption

(7) The provision for income tax has been calculated based on income earned during the 15 months period ended 31 March 2014. However the tax year end of the Company being 31 March 2014 the ultimate liability for the Assessment Year 2014-15 will be determined based on the total income of the Company for the 12 months period ending 31 March 2014.

(8) The Board of Directors in its meeting held on 21 April 2014 has considered and approved the scheme of amalgamation and arrangement between the Company, GSPC Gas Company Limited, Gujaratgas Trading Company Limited , Gujarat Gas Financial Services Limited and GSPC Distribution Networks Limited. The scheme is subject to relevant statutory approvals.

(9) The current Financial Year that began on 1 January 2013 has been extended by a period of three months, to close on 31 March 2014, such that the Financial Statements giving effect to such extension are compiled for a period of fifteen months from 1 January 2013 to 31 March 2014. Hence, the current year''s Statement of Profit and Loss, Cash Flow Statement and related Notes are not comparable with those of previous period.

(10) Previous year figures have also been regrouped/reclassified wherever considered necessary to conform to current year''s classification.


Dec 31, 2012

(1) General Information:

Gujarat Gas Company Limited ("Company") is primarily engaged in Natural Gas Business in Gujarat. Natural gas business involves distribution of gas from sources of supply to centers of demand and to the end customers. The Company is listed on the Ahmedabad Stock Exchange, Bombay Stock Exchange, National Stock Exchange and Vadodara Stock Exchange.

(2) Contingent Liabilities

(a) Claims against the Company not acknowledged as debts Rs. 26.02 million (Previous year Rs. 14.51 million).

(b) Claims of Rs. 21.74 million (Previous year Rs. 29.98 million) against the Company have been disputed by the Company. The Company is, however, indemnified by an insurance policy.

(c) Income tax related exposures Rs. 79.49 million (Previous year Rs. 79.49 million)

(d) Service tax related exposures Rs. 306.67 million (Previous year Rs. 17.41 million)

(e) Excise related exposures Rs. 1.82 million (Previous year Nil)

(3) Estimated amount of contracts net of advances remaining to be executed on capital account and not provided for Rs. 332.58 million (Previous year Rs. 442.17 million).

(4) Employee Stock Option Plan 2008

The Company implemented an Employee Stock Option Plan 2008 (''ESOP 2008'') which provides for the allotment of equity shares of Rs. 2 /- each to eligible employees ofthe Company and its subsidiaries. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out ofthe funds advanced by the Company, the shares equivalent to the number of options granted, for allotment to the grantees. IDBI Trusteeship Services Limited are the trustees ofthe said trust. The trustees can purchase or sell the shares from the market as per the approved scheme.

Pursuant to the above scheme, the Company has granted options, as mentioned here below, convertible into equity shares of Rs. 2/- each to employees of the Company and its subsidiaries. The exercise price is calculated at 10% discount to the closing price ofthe shares on record date, being the date on which the grant of options were approved. The Scheme provides for graded vesting of options granted, over a period of 4 years from the date of grant.

The options are to be exercised within a maximum period of 2 years from thedateof vesting. Within the exercise period, the employee would have the option to either purchase the shares from the trust at the exercise price or to give a mandate of sale to the trust at the best available market price, in which event the difference between the net price realized on sale after taxes and charges and the Exercise Price will accrue as gains to the employee.

Details of movement under the Stock Option Plan for theyear ended December 31,2012 is as follows:

In accordance with the approval granted by the members ofthe Company, to the issue of Bonus Shares in the ratio of one equity share of the Company of Rs. 2/- each for every one equity share of the Company held by the Shareholders of the Company as on September 19,2009, being the Record Date, the Compensation Committee ofthe Board of Directors ofthe Company, on September 22, 2009, had approved adjustments to the Options granted and unvested as on September 19, 2009, under the Gujarat Gas Company Limited Employee Stock Option Plan 2008, whereby each option had been doubled and the Exercise Price thereof been halved with effect from September 22,2009.

The employee share based payment plans have been accounted based on the Fair value method of accounting using the Black-Scholes Option Pricing Formula. The weighted average remaining contractual life of options outstanding as on 31 December 2012 is 2.67 years. (Previous year 2.80years)

In accordance with Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India and SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 issued by Securities Exchange Board of India, an amount of Rs. 11.99 million (Previous year Rs. 25.55 million) has been recognised as an expense in Employee Benefits Expenses (Note 24) and corresponding liability has been disclosed as Stock Options Outstanding Account (Note 4). The balance of Rs. 29.92 million (Previous year Rs. 48.51 million) in Stock Options Outstanding Account (Note 4) represents the amortised cost of stock options outstanding. As on 31 December 2012, the amount recoverable from ESOP trust is Rs. 127.42 million (Previous year Rs. 302.43 million).

The Company has adjusted loss of Rs. 33.60 million (Previous year loss of Rs. 12.45 million) to General Reserve as the difference between the cost incurred by the ESOP Trust for the purchase of shares and the exercise price of those options which have been exercised by the employees during the currentyear, in accordance with Guidance Note on accounting for Employee share based payment, issued by the ICAI.

(5) The provision for income tax has been calculated based on income earned during the year ended December 31, 2012. However the tax year end ofthe Company being March 31,2013 the ultimate liability for the Assessment Year 2013-14 will be determined based on the total income of the Company for the year ending March 31,2013. The provision for wealth tax has been made based on the net wealth as on December 31, 2012. However the ultimate liability for the Assessment Year 2013-14 will be determined based on the net wealth as on March 31,2013.

(6) The financial statements for theyear ended 31 December, 2011 had been prepared as per the then applicable Schedule VI to the Companies Act, 1956. Consequent to the notification of Revised Schedule VI under the Companies Act, 1956, the financial statements for the year ended 31 December, 2012 are prepared as per Revised Schedule VI. Accordingly, the previous year figures have also been reclassified to conform to this year''s classification. The adoption of Revised Schedule VI for presentation of previous year figures does not impact recognition and measurement principles followed for preparation of financial statements


Dec 31, 2011

1. Contingent Liabilities :

(a) Claims against the Company not acknowledged as debts Rs. 14.51 million (Previous year Rs. 13.57 million).

(b) Claims of Rs. 29.98 million (Previous year Rs. 27.92 million) against the Company have been disputed by the Company. The Company is, however, indemnified by an insurance policy.

(c) Income tax related exposures Rs. 79.49 million (Previous year Rs. 62.19 million)

(i) Includes income tax demand (and interest thereon) of Rs. 38.09 million (Previous year Rs. 38.09 million) relating to Assessment Years 1999-2000 due to disallowance of interest on debentures issued for the Hazira Ankleshwar pipeline and incurred during its construction, claimed as revenue expenditure. The amount of Rs. 38.09 million (Previous year Rs. 38.09 million) has been paid under protest.

Similar disallowances for A.Y. 1998-99 and A.Y. 2000-01 have been decided by the ITAT in favour of the Company. The appeal for A.Y. 1999-2000 is pending with the ITAT.

(ii) Includes income tax demand (and interest thereon) for Rs. 16.32 million (Previous year Rs. 11.68 million) for disallow- ances under Section 14A on account of expenditure incurred for earning exempt income for A.Y. 2004-05, A.Y. 2005- 06, A.Y. 2006-07, A.Y. 2007-08 and A.Y. 2008 -09. The total amount paid by Company / adjusted by tax authorities on account of above demand aggregates to Rs. 13.08 million (Previous Year Rs. 7.99 million). The appeal for A.Y. 2005-06, A.Y. 2006-07 and A.Y. 2007-08 has been partially decided in Company's favour by CIT(A) by deleting disallowance as per Rule 8D. Now appeal is pending with ITAT for A.Y 2004-05, A.Y. 2005-06, A.Y. 2006-07 and A.Y. 2007-08.

For A.Y. 2000-01 the ITAT has disallowed the similar expenses under Section 14A and has instructed the Assessing Officer to re-examine the tax levy as per Rule 8D of the Income Tax Rules, 1962 and hence the amount cannot be quantified at this stage. The Company has preferred an appeal with the High Court against the above order of the ITAT. The ITAT has restored back the similar disallowance for A.Y. 2001 -02 to CIT(A) for deciding the matter afresh after considering various judicial pronouncements on this matter. Currently there is no outstanding demand payable for this matter.

(iii) Includes income tax demand (and interest thereon) for Rs. 12.88 million (Previous year Rs. 12.42 million) for certain disallowances for A.Y. 2000-01, A.Y. 2003-04 to A.Y. 2006-07 and A.Y. 2008-09. The demand is towards disallowances on account of bad debts written off, inventory written off, deposits written off and treatment of cenvat credit balance as income. The total amount paid by Company / adjusted by tax authorities on account of above demand aggregates to Rs. 12.53 million (Previous year Rs. 8.67 million). The appeal for A.Y. 2008-09, is pending with CIT(A) and for A.Y. 2003-04, A.Y. 2004-05, A.Y. 2005-06 and A.Y. 2006-07 with ITAT.

(iv) Includes income tax demand for Rs. 6.07 million (Previous Year Nil) for additional tax and interest thereon levied for non deduction of tax on expenditure towards Annual Maintenance Contracts for the A.Y. 2008-09, A.Y. 2009-10 and A.Y. 2010-11. The total amount paid by Company / adjusted by tax authorities on account of above demand aggregates to Rs. 6.07 million (Previous year Nil). The appeals for above 3 years have been decided by the CIT(A) in Company's favour. Department may prefer an appeal with the ITAT.

(v) Includes demand of Rs. 6.13 million (Previous Year Nil) towards penalty levied for the A.Y. 1992-93. This matter was decided by the ITAT in favour of the Company. The demand, which was deposited by the Company, has been refunded pursuant to ITAT order. Income tax authorities have preferred an appeal in the High Court against the order by the ITAT. The matter is pending with the High Court. Currently there is no outstanding demand payable for this matter

(d) Service tax related demand of Rs 6.80 million (Previous year Nil) on account of disallowance of cenvat credit availed on transportation of natural gas through pipeline for the period from July 2005 to June 2009 issued by Ankleshwar service tax department. The Company has filed an appeal with CESTAT against the said order. The Company has received two more show cause notices issued by Surat service tax department on similar grounds for a total amount of Rs. 108.64 million for the period from June 2005 to September 2010, which may also result in levy of demand on the Company in future.

2. Estimated amount of contracts net of advances remaining to be executed on capital account and not provided for Rs. 442.17 million (Previous year Rs. 285.86 million).

3. The Company has received income tax demand amounting to Rs 79.21 million (Previous Year Rs 123.41 million), including interest thereon, due to disallowance of depreciation claimed on assets given on lease for several years. The Company's claim of depreciation on leased asset has been allowed by the High Court for A.Y. 1995-96. During the year, the Department's special leave petition with the Supreme Court against the High Court's order has also been dismissed. Considering that this will have a positive consequential effect on all the subsequent years, demands for tax and interest thereon for the same matter has not been considered as contingent liability in current year.

4. Material consumed includes :

(a) Rs. 25.09 million (Previous year Rs. 30.25 million) inclusive of VAT towards internal consumption of Gas.

(b) Loss of Rs. 47.61 million (Previous year Gain Rs. 19.47 million) as foreign exchange fluctuations.

5. The Company had constructed a civil structure aggregating to Rs. 19.04 million (Previous year Rs.19.04 million) on land which is not yet owned by the Company. The management is confident of obtaining the requisite approvals of the Government Authorities for transfer of ownership of land.

6. Obligations on Operating Leases :

The Company has taken premises for business and residential use for its employees under cancelable operating lease agree- ments. The total lease rentals recognized as an expense during the year under the above lease agreements aggregates to Rs. 12.17 million (Previous year Rs. 12.39 million). The lease agreement typically ranges from 1 to 9 years.

The Company does not have any outstanding dilutive potential equity shares. Consequently the basic and diluted earnings per share of the Company remain the same.

7. Segment Reporting :

The Company is primarily in the business of distribution of Natural gas through pipelines from sources of supply to centers of demand and to the end customers. The Company also builds pipelines required to make the gas available to the end customer. The other activity of the Company comprises leasing of natural gas fired Cogeneration units, the income from which is not material in financial terms.

Further, the Company is operating in a single geographical segment. Accordingly, disclosures relating to primary and secondary business segments under the Accounting Standard 17 on Segment Reporting are not relevant to the Company.

8. Accounting for Joint Ventures :

The Company's joint venture "Petroleum Infrastructure Limited" (incorporated in India with 50% stake being held by the Company) is under liquidation. Therefore, the Company's interest in the joint venture has been accounted for in accordance with Accounting Standard 13 "Accounting for Investments" and has not been disclosed as per Accounting Standard 27 "Financial Reporting of Interest in Joint Ventures". Thus, the investment has been written down to the realizable value.

In case of another joint venture, Sensus Metering Systems India Limited (incorporated in India with 49% stake being held by the Company), the assets of the joint venture have been liquidated and all liabilities have been paid off. The resultant proceeds of joint venture have been distributed to the Company, during the financial year ended on December 31, 2010, which was higher than the carrying value of investment (net of provision made in earlier years for diminution in the value of the investment). Further, it has been dissolved with effect from 20th January 2012 as per the order of the Honourable High Court of Judicature at Bombay, Mumbai.

9. The Company is procuring natural gas from one of the suppliers on the basis of a Term Sheet agreed with the supplier effective April 1, 2008. Under the terms of the agreement with the supplier, the Term Sheet shall be superseded by a Gas Sales and Transmission Contract (GSTC) as and when the same is finalised. The GSTC would be effective from April 1, 2008. Pending the finalisation of the GST C, the gas procurement cost is being recorded in the books of account on the basis of the terms provided in the Term Sheet.

10. Employee Stock Option Plan 2008 :

The Company implemented an Employee Stock Option Plan 2008 ('ESOP 2008') which provides for the allotment of equity shares of Rs. 2 /- each to eligible employees of the Company and its subsidiaries. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out of the funds advanced by the Company, the shares equivalent to the number of options granted, for allotment to the grantees. IDBI Trusteeship Services Limited has been entrusted with the trusteeship of the said trust. The trustees can purchase or sell the shares from the market as per the approved scheme.

Pursuant to the above scheme, the Company has granted options, as mentioned here below, convertible into equity shares of Rs. 2/- each to employees of the Company and its subsidiaries. The exercise price is calculated at 10% discount to the closing price of the shares on record date, being the date on which the grant of options was approved. The Scheme provides for graded vesting of options granted, over a period of 4 years from the date of grant.

Note:

The employee share based payment plans have been accounted based on the Fair value method of accounting using the Black-Scholes Option Pricing Formula. The weighted average fair value of options granted on 28 April 2011 is Rs 120.38 per option. The weighted average remaining contractual life of options outstanding as on December 31, 2011 is 2.80 years (Previous year 3.46 years).

In accordance with Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India and SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 issued by the Securities Exchange Board of India, an amount of Rs. 25.55 million (Previous year Rs. 25.91 million) has been recognised as an expense in Staff Welfare Expenses (Schedule 15) and corresponding liability has been disclosed as Stock Options Outstanding Account (Schedule 2). The balance of Rs. 48.51 million (Previous year Rs. 37.96 million) in Stock Options Outstanding Account (Schedule 2) represents the amortised cost of stock options outstanding. As at December 31, 2011, the Company has made a partial advance of Rs. 302.43 million (Previous year Rs. 343.02 million) on an estimated basis to the Trust for the purchase of shares equivalent to the number of options granted which is utilized for the purpose.

During the year, the Company has adjusted loss of Rs. 12.45 million (Previous year Gain of Rs 1.91 million) to General Reserve as the difference between the cost incurred by the ESOP Trust for the purchase of shares and the exercise price of those shares which have been exercised by the employees during the current year, in accordance with Guidance Note on accounting for Employee share based payment, issued by the ICAI.

Note: The estimates of future salary increase, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

(v) Expected contributions to be paid to the Gratuity plan during the year ending December 31, 2012 can not be ascertained at this stage.

11. Related Party Transactions:

The Company is controlled by BG Asia Pacific Holdings Pte. Limited which owns 65.12% of the Company's shares. The ultimate parent of the group is BG Group plc.

Note:

1 Gujarat Gas Financial Services Limited and Gujarat gas Trading Company Limited have been using the ERP software packages implemented by Gujarat Gas Company Limited being "SAP" and "Gas Distribution and Billing System" since August 2003 and August 2004 respectively without payment of any consideration.

2 The above do not include BG North Sea Holdings Ltd and BG Energy Holdings Ltd, who are holding company of BG Asia Pacific Holdings Pte. Ltd but with whom no transaction have occurred during the year.

12. Assets given on lease:

Leasing operations of the company mainly involves leasing of gas based generator sets under Operating and Finance lease arrangements.

i) Assets given on finance lease:

Under finance lease arrangements, the lease agreements have been entered for a fixed period of 6 years, at the end of which the ownership of assets will be transferred to the lessee on payment of consideration specified in the Lease Agreements.

The provision relates to estimated outflow of cash expected to be paid in relation to sale of gas pipelines. Due to its very nature it is not possible to estimate the timing of resulting cash flows.

13. Licensed and Installed Capacity :

The Company is operating on the basis of commitment made for gas purchase by its suppliers under the agreements, hence it has no relevance for capacity in respect thereof.

14. The subsidiary company Gujarat Gas Financial Sevices Limited has proposed final dividend at 30% and this will be accounted for in the books on declaration by the Company.

15. The provision for income tax has been calculated based on income earned during the year ended December 31, 2011 in accordance with Guidance Note on measurement of Income Tax expense for Interim Financial Reporting. However the tax year end of the Company being March 31, 2012 the ultimate liability for the Assessment Year 2012-13 will be determined based on the total income of the Company for the year ending March 31, 2012. The provision for wealth tax has been made based on the net wealth as on December 31, 2011. However the ultimate liability for the Assessment Year 2012-13 will be determined based on the net wealth as on March 31, 2012.

16. The Company has made an investment of Rs. 254.90 million (Previous Year Rs. 254.90 million) for setting up a City Gas Distribution (CGD) network in Valsad and Navsari district, Union Territories of Silvassa and Daman which has not yet commenced operations. The Company has been exploring options of utilising this investment. The Board of Directors, in this regard, has now approved the sale of these assets. The management is of the opinion that there is more than reasonable certainty of monetising these assets in the near future through an outright sale. Hence, the impairment provision of Rs. 105.04 million (Previous year Rs. 105.04 million) lying in the books of accounts against these assets, has been reversed and the investment is now being held for disposal.

17. Deposits from customers have been considered as a source of long term funds since the same are refundable only on termination/modification of the gas sale agreement.

18. Previous year figures have been reclassified/regrouped wherever considered necessary to conform to the current year figures.


Dec 31, 2010

1. Contingent Liabilities:

(a) Claims against the group not acknowledged as debts Rs. 13.57 million (Previous year Rs. 11.15 million).

(b) Claims of Rs. 27.92 million (Previous year Rs. 25.86 million) against the Group have been disputed by the Group. The Group is, however, indemnified by an insurance policy.

(c) Income tax exposures of Rs. 376.92 million (Previous year Rs. 320.04 million) In respect of holding company, Gujarat Gas Company Limited:

(i) Includes income tax demand of Rs. 53.46 million (Previous year Rs. 53.46 million) relating to Assessment Years 1998-99,1999-00 and 2000-01 due to disallowance of interest on debentures issued for the Hazira Ankleshwar pipeline and incurred during its construction, claimed as revenue expenditure. The amount of Rs. 53.46 million (Previous year Rs. 53.46 million) has been paid under protest.

CIT (Appeals) has ruled in favour of the company and deleted the demand of Rs. 6.87 million pertaining to A.Y. 2000- 01. The Income-tax department has preferred an appeal in ITAT against the said order of CIT (Appeals) but ITAT allowed the claim for A.Y.2000-2001. The appeal for the other two years is pending with the ITAT.

(ii) Includes income tax demand of Rs.123.41 million (Previous year Rs. 122.38 million) including interest on tax, relating to Assessment Years 1995-96 to 2007-08 due to disallowance of depreciation claimed on leased assets. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs.122.41 million (Previous year Rs.121.67 million). The total tax exposure (though actually paid), net of interest on tax, on account of the above for all the years aggregates to Rs. 115.32 million (Previous year Rs. 115.04 million). The companys appeals against the above demands are pending with ITAT for Assessment years 1996-97,1997-98,1998-99 and 1999- 00,2001 -02 and 2002-03. The companys appeal for A.Y. 2005-06,2006-07 and 2007-08 is pending with CIT (A). For AY. 2000-01, 2003-04 and 2004-05 the matter has been decided in the companys favour by the ITAT. The High Court of Gujarat has allowed the companys claim on the same issue for AY. 1995-96 and this is likely to have a positive consequential effect on all the subsequent years.

(iii) Includes income tax demand for Rs.11.68 million (Previous year Rs.7.99 million) for disallowances under Section 14A on account of expenditure incurred for earning exempt income for AY. 2004-05,2005-06,2006-07 and 2007- 08. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs. 7.99 million (Previous Year Rs.1.39 million). The Appeal for AY. 2005-06,2006-07 and 2007-08 is pending with CIT (A) and for A.Y 2004-05 with ITAT.

For A.Y. 2000-01 the Tribunal has disallowed the similar expenses under Section 14A and has asked the Assessing Officer to re-examine the tax levy as per Rule 8D of the Income Tax Rules, 1962 and hence the amount can not be quantified at this stage. The Company has preferred an appeal with the High Court against the above order of the Tribunal.

(iv) Includes income tax demand for Rs.12.42 million (Previous year Rs.12.42 million) for certain disallowances for A.Y. 2003-04 to 2006-07. The demand is towards disallowances on account of bad debts written off, inventory written off, deposits written off and treatment of Cenvat credit balance as income. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs. 8.67 million (Previous year Rs. 8.67 million). The appeal for A.Y. 2005-06 and 2006-07 is pending with CIT (A) and for AY. 2003-04 and 2004-05 with ITAT.

In respect of subsidiary company, Gujarat Gas Financial Services Limited:

i. Includes income tax demand of Rs. 12.56 million (Previous year Rs. 12.56 million) including interest on tax, relating to AY. 1996-97 due to disallowance of depreciation claimed on leased assets. The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs. 12.56 million (Previous year Rs. 12.56 million). Income tax demand for the years A.Y. 1997-98 to A.Y. 2000-01, on the same issue, amounts to Rs. 4.93 million.

The total tax exposure, net of interest on tax, on account of the above for all the years aggregates to Rs. 17.49 million (Previous year Rs. 17.49 million). The appeals for all the above years are pending with the ITAT.

The Assessing Officer has also levied a penalty under section 271 (1) (c) for A.Y. 1996-97, amounting Rs. 6.77 million (Previous year Rs. 6.77 million). The penalty demand has been reduced by Rs. 4.14 million after adjusting the refund of various years. The appeal against this is pending with the ITAT.

ii. Includes income tax demand of Rs. 5.46 million (Previous year Rs. 5.46 million) for the AY. 1996-97 on account of disallowance of loss on sale of securities as business loss. The Company preferred an appeal against the above demand and CIT (A) has quashed the demand. However, the Income Tax Department has filed an appeal against the above order.

iii. Includes income tax demand of Rs. 14.42 million (Previous year Rs. 14.42 million) for the A.Y. 2001 -02 on account of disallowance of claim for bad debts. The Company has paid an amount of Rs. 7.60 million (Previous year Rs. 7.60 million) out of the above demand. The ITAT had ruled partly in favour of the company by allowing bad debts towards bill discounting transactions. An appeal has been preferred with the High Court against the ITAT order. The High Court has restored back the matter to the ITAT and matter is pending with ITAT. Further the Assessing Officer has also levied a penalty under section 271 (1 )(c) of the Income Tax Act 1961, amounting Rs.10.01 million. The Companys appeal was decided by the ITAT in its favour.

iv. Includes income tax demand of Rs. 14.81 million (Previous year Rs. 14.81 million) for the A.Y. 2002-03 on account of disallowance of claim for bad debts (Rs. 14.00 million) and professional expenses (Rs. 0.81 million). The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs. 8.83 million (Previous year Rs. 8.83 million). Recently the ITAT has ruled partly in favour of the company by allowing bad debts towards bill discounting transactions. An appeal has been preferred with the High Court against the ITAT order. Recently the High Court has restored back the matter to the ITAT and matter is pending with ITAT.

Includes income tax demand of Rs. 2.86 million (Previous year Rs. 2.86 million) for the A.Y. 2003-04 on account of disallowance of claim for bad debts. Recently the ITAT has ruled in favour of the Company and has allowed claim of bad debts. Department may prefer an appeal against the ITATs order.

Includes income tax demand of Rs. 0.23 million (Previous year Rs. 0.23 million) for A.Y. 2004-05 on account of disallowance of claim for bad debts. The appeal for A.Y. 2004-05 is pending with the ITAT.

v. Includes income tax demand of Rs. 20.14 million (Previous year Rs. 20.14 million) for A.Y. 2006-07 on account of disallowance of service charges paid to GGCL and inventory written off during the year. The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs.18.28 million (Previous year Rs.18.28 million). The CIT (A) has decided the appeal partly in our favour by allowing the service charges as deductible business expenditure. The appeal is pending with the ITAT.

vi. Includes income tax demand of Rs. 25.35 million (Previous year Rs. 25.35 million) for the A.Y. 2007-08 on account of disallowance of service charges paid to GGCL. The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs.18.96 million (Previous year Nil). The Company has preferred an appeal before the CIT (A) against the said order.

vii. Includes income tax demand of Rs. 34.77 million (Previous year Nil) for the A.Y. 2008-09 on account of disallowance of service charges paid to GGCL. The Company has preferred an appeal before the CIT (A) against the said order.

In respect of holding company, GujaratGas Trading Company Limited:

i. Includes demand of Rs. 11.20 million (Previous year Rs. 11.20 million) for the A.Y. 2007-08 on account of disallowance of commission on purchase paid to BG Energy Holdings Limited and disallowance of expenditure u/s 14A as per Rule 8D of the Income tax Rules 1962. The total amount paid or adjusted by tax authorities towards above demand aggregates to Rs. 5.25 million (Previous year Nil). The Company has preferred an appeal before the CIT (A) against the said order.

ii. Includes demand of Rs.12.45 million (Previous year Nil) for the A.Y. 2008-09 on account of disallowance of commission paid to BG Energy Holdings Limited, disallowance of expenditure u/s 14A as per Rule 8D of the Income tax Rules 1962 and treatment of VAT refund as taxable income. The Company has preferred an appeal before the CIT (A) against the said order.

(d) Interest tax exposures of Rs. 4.15 million (Previous year Rs. 4.15 million). The interest tax authorities in the assessment contented that the activities of the Company are chargeable to interest tax and raised a total demand of Rs. 56.40 million (Previous year Rs. 56.40 million) for the Assessment Years 1995-96 to 2000-01. The Company had filed an appeal against the above demands and CIT (A) ruled in favour of the Company for the Assessment Years 1995-96,1996-97, 1997-98,1998-99 and 2000-01 and quashed the demands for these years aggregating to Rs. 50.27 million (Previous year Rs. 50.27 million). However for A.Y.1999-2000, CIT (A) ruled against the company and raised a demand of Rs. 4.15 million (Previous year Rs. 4.15 million). The Company has paid an amount of Rs.1.25 million (Previous year Rs.1.25 million) out of the above demand. ITAT had ruled partly against the Company and had asked the Assessing Officer to re-examine the levy. The Company had preferred an appeal before the High Court against the ITAT order. Recently the High Court has restored back the matter to the ITAT and matter is pending with ITAT.

Further, the Assessing Officer has levied a penalty in A.Y.1999-2000 under section 13 of the Interest Tax Act 1974, amounting Rs. 1.98 million (Previous year Rs. 1.98 million). The Company preferred an appeal against the above demand and CIT (A) ruled in favour of the Company and quashed the penalty demand. The appeal is pending with the ITAT.

(e) The Company had retrenched 8 employees in the year 2002 under the provisions of The Industrial Disputes Act, 1949. The employees had filed an appeal against the above retrenchment in a labour court. The Company had reached a settlement with two of the above employees and had provided for Rs. 0.68 million (Previous year Rs. 0.68 million), being the compensation payable to the remaining employees under The Industrial Disputes Act, 1949. Any additional amount due to the employees will be determined based on decision by the labour court and hence amount payable ultimately cannot be ascertained at this stage.

2. Estimated amount of contracts net of advances remaining to be executed on capital account and not provided for Rs. 285.86 million (Previous year Rs. 125.48 million).

3. The Group had constructed a civil structure aggregating to Rs.19.04 million (Previous year Rs. 19.04 million) on land which is not yet owned by the Group. The management is confident of obtaining the requisite approvals of the Government Authorities for transfer of ownership of land.

4. Material consumed includes:

(a) Rs. 30.25 million (Previous year Rs. 30.30 million) towards Internal consumption of Gas.

(b) Gain of Rs. 19.47 million (Previous year Rs. 21.82 million) as foreign exchange fluctuations.

5. Obligations on Operating Leases:

The group has taken premises for office and residential use for its employees under cancellable operating lease agreements. The total lease rentals recognized as an expense during the year under the above lease agreements aggregates to Rs. 12.39 million (Previous year Rs. 7.69 million). The lease agreement typically ranges from 1 to 5 years.

6. Deposits from customers have been considered as a source of long term funds since the same are refundable only on termination/modification of the gas sale agreement.

7. Accounting for Joint Venture:

The Companys joint ventures "Petroleum Infrastructure Limited"(incorporated in India with 50% stake being held by the Company) and "Sensus Metering Systems India Limited" (incorporated in India with 49% stake being held by the Company) are under liquidation. Therefore, the Companys interest in the joint ventures has been accounted for in accordance with Accounting Standard 13 "Accounting for Investments" and has not been disclosed as per Accounting Standard 27 "Financial Reporting of Interest in Joint Ventures".

In case of Sensus Metering Systems India Limited, the assets of the joint venture has been liquidated and all liabilities have been paid off. The resultant proceeds of joint venture has been distributed to Company which is higher than the carrying value of Investment (net of provision made in earlier years for diminution in the value of investments). Company does not expect to receive any further amount from joint venture and hence remaining carrying value of investments in joint venture and related provision has been adjusted in the books of accounts.

In case of Petroleum Infrastructure Limited, the investments have been written down to the realizable value.

8. The Company is procuring natural gas from one of the suppliers on the basis of a Term Sheet agreed with the supplier effective April 1, 2008. Under the terms of the agreement with the supplier, the Term Sheet shall be superseded by a Gas Sales and Transmission Contract (GSTC) as and when the same is finalised. The GSTC would be effective from April 1,2008. Pending the finalisation of the GSTC, the gas procurement cost is being recorded in the books of account on the basis of the terms provided in the Term Sheet

9. Segmental Reporting:

The group is primarily in the business of distribution of Naturalgas through pipelines from sources of supply to centers of demand and to the end customers. The group also builds pipelines required to make the gas available to the end customer. The other activity of the group comprises leasing of natural gas fired Cogeneration units, the income from which is not material in financial terms.

Further, the group is operating in a single geographical segment. Accordingly, disclosures relating to primary and secondary business segments under the Accounting Standard on Segment Reporting (AS - 17) are not relevant to the Company.

10. Employee Stock Option Plan 2008:

The group implemented an Employee Stock Option Plan 2008 (ESOP 2008) which provides for the allotment of equity shares of Rs. 2/- each to eligible employees of the group. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out of the funds advanced by the group, the shares equivalent to the number of options granted, for allotment to the grantees. The Finance Director and Human Resource Director are the trustees of the said trust. The trustees can purchase or sell the shares from the market as per the approved scheme.

Pursuant to the above scheme the group has granted options as mentioned here below convertible into equity shares of Rs. 21- each to employees of the group. The exercise price is calculated at 10% discount to the closing price of the shares on record date, being the date on which the grant of options were approved by board of directors and shareholders. The Scheme provides for graded vesting of options granted over a period of 4 years from the date of grant

11. The provision for income tax has been calculated based on income earned during the year ended December 31, 2010 in accordance with Guidance Note on measurement of Income Tax expense for Interim Financial Reporting. However, the tax year end of the Company being March 31, 2011 the ultimate liability for the Assessment Year 2011 -12 will be determined based on the total income of the Company for the year ending March 31,2011. The provision for wealth tax has been made based on the net wealth as on December 31,2010. However the ultimate liability for the Assessment Year 2011 -12 will be determined based on the net wealth as on March 31, 2011.

12. Capital Work in Progress includes investment of Rs. 254.90 million (Previous year Rs. 254.90 million) for setting up a City Gas Distribution (CGD) network in Valsad and Navsari district, Union Territories of Silvassa and Daman which has not yet commenced operations. The Company is exploring options of utilising this investment. However, considering the uncertainly involved in the utilisation of this network, the Company, based on engineering estimates, has made a provision of Rs. 105.04 million (Previous year Rs. 105.04 million) to bring the carrying value of the investment to its expected recoverable amount.

13. In view of the general clarification issued by the Institute of Chartered Accountants of India on Accounting Standard 21 "Consolidated Financial Statements", the consolidated financial statements do not include notes such as quantitative information, forex earnings/expense etc. which are not necessary to present true and fair view of the financial statements.

14. Previous year figures have been reclassified/regrouped wherever considered necessary to conform to the current year figures.


Dec 31, 2009

1. Contingent Liabilities:

(a) Claims against the group not acknowledged as debts Rs. 11.15 million (Previous year Rs. 10.79 million).

(b) Claims of Rs. 25.86 million (Previous year Rs. 23.80 million) against the Group have been disputed by the Group. The Group is, however, indemnified by an insurance policy.

(c) Income tax exposures of Rs. 308.84 million (Previous year Rs. 270.67 million)

In respect of holding company, Gujarat Gas Company Limited:

(i) Includes income tax demand of Rs. 53.46 million relating to Assessment Years 1998-99, 1999-00 and 2000-01 due to disallowance of interest on debentures issued for the Hazira Ankleshwar pipeline and incurred during its construction, claimed as revenue expenditure. The amount of Rs. 53.46 million (Previous year Rs. 53.46 million) has been paid under protest.

CIT (Appeals) has ruled in favour of the company and deleted the demand of Rs. 6.87 million pertaining to A.Y. 2000-01. The Income-tax department has preferred an appeal against the said order of CIT (Appeals) but ITAT allowed the claim for A.Y. 2000-2001 .The appeal for the other two years is pending with the ITAT

(ii) Includes income tax demand of Rs. 122.38 million (Previous year Rs. 121.30 million) including interest on tax, relating to Assessment Years 1995-96 to 2006-07 due to disallowance of depreciation claimed on leased assets. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs.121.67 million (Previous year Rs.121.30 million). The total tax exposure (though actually paid), net of interest on tax, on account of the above for all the years aggregates to Rs.115.04 million (Previous year Rs.115.04 million). The companys appeals against the above demands are pending with ITAT for Assessment years 1996-97, 1997-98, 1998-99, 1999-00, 2001-02 and 2002-03. For A.Y. 2000-01, 2003-04 and 2004-05 the matter has been decided in the companys favour by the ITAT. The High Court of Gujarat has allowed the companys claim on the same issue for A.Y. 1995-96 and this is likely to have a positive consequential effect on all the subsequent years.

(iii) Includes income tax demand for Rs. 7.99 million for disallowances under Section 14A on account of expenditure incurred for earning exempt income for Assessment Years 2004-05, 2005-06 and 2006-07. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs.1.39 million. The Appeal for A.Y. 2005-06 and A.Y. 2006-07 is pending with CIT (A) and for A.Y 2004-05 with ITAT.

For A.Y. 2000-01 the Tribunal has disallowed the similar expenses under Section 14A and has asked the Assessing Officer to re-examine the tax levy as per Rule 8D of the Income Tax Rules, 1962 and hence the amount can not be quantified at this stage. The Company has preferred an appeal with the High Court against the above order of the Tribunal.

(iv) Includes income tax demand for Rs.12.42 million (Previous year Rs. 8.67 million) for certain disallowances for A.Y. 2003-04 to 2006-07. The demand is towards disallowances on account of bad debts written off, inventory written off, deposits written off and treatment of Cenvat credit balance as income. The total amount paid by company / adjusted by tax authorities on account of above demand aggregates to Rs. 8.67 million ( Previous

year Rs. 8.67 million). The appeal for A.Y. 2005-06 and A.Y. 2006-07 is pending with CIT (A) and for A.Y. 2003- 04 and 2004-05 with ITAT.

In respect of subsidiary company, Gujarat Gas Financial Services Limited:

i. Includes income tax demand of Rs. 12.56 million (Previous year Rs. 12.56 million) including interest on tax, relating to A.Y. 1996-97 due to disallowance of depreciation claimed on leased assets. The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs. 12.56 million (Previous year Rs. 12.56 million). Income tax demand for the years A.Y. 1997-98 to A.Y. 2000-01, on the same issue, amounts to Rs. 4.93 million.

The total tax exposure, net of interest on tax, on account of the above for all the years aggregates to Rs. 17.49 million (Previous year Rs. 17.49 million). The appeals for all the above years are pending with the ITAT.

The Assessing Officer has also levied a penalty under section 271 (1) (c) for A.Y. 1996-97, amounting Rs. 6.77 million. The penalty demand has been reduced by Rs, 4.14 million after adjusting the refund of various years (Previous year Rs. 6.77 million). The appeal against this is pending with the ITAT.

ii. Includes income tax demand of Rs. 5.46 million (Previous year Rs. 5.46 million) for the A.Y. 1996-97 on account of disallowance of loss on sale of securities as business loss. The Company preferred an appeal against the above demand and CIT (A) has quashed the demand. However, the Income Tax Department has filed an appeal against the above order.

iii. Includes income tax demand of Rs. 14.42 million (Previous year Rs. 14.42 million) for the A.Y. 2001 -02 on account of disallowance of claim for bad debts. The Company has paid an amount of Rs. 7.60 million (Previous year Rs. 7.60 million) out of the above demand. Recently the Tribunal has ruled partly in favour of the company by allowing bad debts towards bill discounting transactions. An appeal has been preferred with the High Court against the Tribunal order. Further the Assessing Officer has levied a penalty under section 271(1)(c) of the Income Tax Act 1961, amounting Rs. 10.00 million. The company preferred an appeal against the above demand and the ITAT has decided the matter in favour of the company.

iv. Includes income tax demand of Rs. 17.89 million (Previous year Rs. 17.89 million) for the A.Y. 2002-03 on account of disallowance of claim for bad debts (Rs. 14.00 million) and professional expenses ( Rs. 0.82 million). The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs. 8.83 million (Previous year Rs. 8.83 million). Recently the Tribunal has ruled partly in favour of the company by allowing bad debts towards bill discounting transactions. An appeal has been preferred with the High Court against the Tribunal order. Includes income tax demand of Rs. 2.86 million (Previous year Rs. 2.86 million) for the A.Y. 2003- 04 on account of disallowance of claim for bad debts. The company preferred an appeal against the above demand and the CIT (A) has ruled in favour of the company and has quashed the demand. Includes income tax demand of Rs. 0.23 million (Previous year Rs. 0.23 million) for A.Y. 04-05 on account of disallowance of claim for bad debts. The appeal for A.Y. 2003-04 and A.Y 2004-05 is pending with the ITAT.

v. Includes income tax demand of Rs. 20.14 million (Previous year Rs. 20.14 million) for the assessment year 2006- 07 on account of disallowance of service charges paid to GGCL and inventory written off during the year. The total amount paid by company / adjusted by tax authorities towards above demand aggregates to Rs. 18.28 million (Previous year Nil). The CIT (A) has decided the appeal partly in our favour by allowing the service charges as deductible business expenditure.

vi. Includes income tax demand of Rs. 25.35 million for the assessment year 2007-08 on account of disallowance of service charges paid to GGCL. The company has preferred an appeal before the CIT (A) against the said order.

(d) Interest tax exposures of Rs. 4.15 million (Previous year Rs. 4.15 million). The interest tax authorities in the assessment contented that the activities of the Company are chargeable to interest tax and raised a total demand of Rs. 56.40 million for the Assessment Years 1995-96 to 2000-01. The Company had filed an appeal against the above demands and CIT (A) ruled in favour of the Company for the Assessment Years 1995-96, 1996-97, 1997-98, 1998-99 and 2000-01 and quashed the demands for these years aggregating to Rs. 50.27 million. However for A.Y.1999-2000, CIT (A) ruled against the company and raised a demand of Rs. 4.15 million. The Company has paid an amount of Rs. 1.25 million (Previous year Rs.1.25 million) out of the above demand. Recently the ITAT has ruled partly against the company and has asked the Assessing Officer to re-examine the levy. The company has preferred an appeal before the High Court against the ITAT order.

Further, the Assessing Officer has levied a penalty in A.Y. 1999-2000 under section 13 of the Interest Tax Act 1974, amounting Rs. 1.98 million. The Company preferred an appeal against the above demand and CIT (A) ruled in favour of the Company and quashed the penalty demand. The appeal is pending with the ITAT.

In view of the favorable legal advice obtained by the Company, no provision has been created for the above demands.

(e) The Company had retrenched 8 employees in the year 2002 under the provisions of The Industrial Disputes Act, 1949. The employees had filed an appeal against the above retrenchment in a labour court. The Company had reached a settlement with two of the above employees and had provided for Rs. 0.68 million (Previous year Rs. 0.68 million), being the compensation payable to the remaining employees under The Industrial Disputes Act, 1949. Any additional amount due to the employees will be determined based on decision by the labour court and hence amount payable ultimately cannot be ascertained at this stage.

2. Estimated amount of contracts net of advances remaining to be executed on capital account and not provided for Rs.125.48 million (Previous year Rs. 29.36 million).

3. The Group had constructed a civil structure aggregating to Rs.19.04 million (Previous year Rs. 19.04 million) on land which is not yet owned by the Group. The management is confident of obtaining the requisite approvals of the Government Authorities for transfer of ownership of land.

4. Material consumed includes:

(a) Rs. 30.30 million (Previous year Rs. 35.76 million) towards Internal consumption of Gas.

(b) Gain of Rs. 21.82 million (Previous year loss of Rs. 60.88 million) as foreign exchange fluctuations.

5. Obligations on Operating Leases:

The group has taken premises for office and residential use for its employees under cancellable operating lease agreements. The total lease rentals recognized as an expense during the year under the above lease agreements aggregates to Rs. 7.69 million (Previous year Rs. 4.63 million). The lease agreement typically ranges from 1 to 3 years.

6. Deposits from customers have been considered as a source of long term funds since the same are refundable only on termination/modification of the gas sale agreement.

7. The Companys joint ventures "Petroleum Infrastructure Limited" (incorporated in India with 50% stake being held by the Company) and "Sensus Metering Systems India Limited" (incorporated in India with 49% stake being held by the Company) are under liquidation. Therefore, the Companys interest in the joint ventures has been accounted for in accordance with Accounting Standard 13 "Accounting for Investments" and has not been disclosed as per Accounting Standard 27 "Financial Reporting of Interest in Joint Ventures". Accordingly, the investments have been written down to the realizable value.

8. The Company is procuring natural gas from one of the suppliers on the basis of a Term Sheet agreed with the supplier effective April 1, 2008. Under the terms of the agreement with the supplier, the Term Sheet shall be superseded by a Gas Sales and Transmission Contract (GSTC) as and when the same is finalised. The GSTC would be effective from April 1,2008. Pending the finalisation of the GSTC, the gas procurement cost is being recorded in the books of account on the basis of the terms provided in the Term Sheet.

9. Segmental Reporting:

The Groups operations primarily comprise of Natural Gas Business and Financial Services Business. Natural gas business involves distribution of gas through pipelines from sources of supply to centers of demand and to the end customers. The company also builds pipelines required to make the gas available to the end customer. Financial services business involves leasing of gas connections for domestic and commercial use of natural gas and leasing of natural gas fired Cogeneration units, the income from which is not material in financial terms.

Further, the group is operating in a single geographical segment. Accordingly, disclosures relating to primary and secondary business segments under the Accounting Standard on Segment Reporting (AS - 17) are not relevant to the Company.

10. Employee Stock Option Plan 2008:

The Company implemented an Employee Stock Option Plan 2008 (ESOP 2008) which provides for the allotment of equity shares of Rs. 2/- each to eligible employees of the Company and its subsidiaries. The Scheme is administered by an ESOP Trust (Gujarat Gas Company Limited Employee Stock Option Welfare Trust) which purchases, out of the funds advanced by the Company, the shares equivalent to the number of options granted, for allotment to the grantees. The Finance Director and Human Resource Director are the trustees of the said trust. The trustees can purchase or sell the shares from the market as per the approved scheme.

Pursuant to the above scheme the Company has granted options as mentioned here below convertible into equity shares of Rs. II- each to employees of the Company and its subsidiaries. The exercise price is calculated at 10% discount to the closing price of the shares on record date, being the date on which the grant of options were approved by board of directors and shareholders. The Scheme provides for graded vesting of options granted over a period of 4 years from the date of grant.

11. Capital Work in Progress includes investment of Rs. 254.90 million (Previous year Rs. 254.90 million) for setting up a City Gas Distribution (CGD) network in Valsad and Navsari district, Union Territories of Silvassa and Daman which has not yet commenced operations. The Company is exploring options of utilising this investment. However, considering the uncertainly involved in the utilisation of this network, the Company, based on engineering estimates, has made a provision of Rs. 105.04 million (Previous year Rs. 101.00 million) to bring the carrying value of the investment to its expected recoverable amount.

12. In view of the general clarification issued by the Institute of Chartered Accountants of India on Accounting Standard 21 "Consolidated Financial Statements", the consolidated financial statements do not include notes such as quantitative information, forex earnings/expense etc. which are not necessary to present true and fair view of the financial statements.

13. Previous year figures have been reclassified/regrouped wherever considered necessary to conform to the current year figures.

 
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