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Notes to Accounts of Munjal Showa Ltd.

Mar 31, 2015

1. Corporate information

Munjal Showa Limited (''the Company'') is a Public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. It was established in 1985 as a result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has three manufacturing locations, two in the state of Haryana and one in the state of Uttarakhand. These units are located at Gurgaon, Manesar and Haridwar.

2. Basis of preparation

The financial statements of the company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3 Terms/ rights attached to equity shares

1. The Company has only one class of equity shares having par value of Rs. 2 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

2. During the year ended March 31,2015, the amount of per share dividend recognized as distributions to equity shareholders is Rs. 4 (March 31,2014: Rs. 3.50).

3. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

4 Provision for contingency

The Company had received a show-cause notice from Haryana State Pollution Control Board (''HSPCB'') in 2009-10 towards contamination of ground water caused due to higher concentration of chromium used by the Company as compared to the minimum expected level. Pursuant to the show cause notice, the management had submitted a time bound remediation plan as per which specified milestones were to be achieved at the end of each quarter till December 2010. A bank guarantee of Rs. 50,000,000 had also been submitted to HSPCB. The management had initiated adequate steps suggested by the experts and had completed the plan within the overall time frame. Against the appeal filed by the Company with Appellate Authority, HSPCB, the case had been decided by the appellate authority on November 4, 2011 and as per the order of the appellate authority, bank guarantee of Rs. 37,500,000 had been released and bank guarantee of Rs. 12,500,000 had been forfeited by HSPCB. The Company had filed a writ petition against the order of the appellate authority before the Hon''ble High Court of Punjab and Haryana, which gave the decision for transfer of the case to National Green Tribunal, New Delhi. Since the matter is sub-judice and pending at Tribunal level, provision of Rs. 7,500,000 (March 31,2014: Rs. 7,500,000), over and above the amount already forfeited by HSPCB, had been retained towards any contingency, as per management''s assessment of the costs to be incurred. The table below gives information about movement in provision :

5. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service or part thereof in excess of six months. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.

6. Segment Information

Based on the guiding principles given in Accounting Standard on ''Segmental Reporting'' (AS-17), notified under the Companies Account Rules, 2014, the Company''s primary business segment is manufacturing of auto components for two-wheeler and four-wheeler industry. The business comprises manufacturing and selling of various auto components, viz, front fork, shock absorbers, struts, gas springs and window balancers, having similar risks and rewards because of similar nature of these items. The Company operates only in India i.e. only one business and geographical segment and thus, no further disclosures are required to be made as per Accounting Standard (AS-17).

7. Related party disclosures

(i) Names of related parties and related party relationship

(a) Key management personnel and their relatives

* Mr. Yogesh Chander Munjal - Managing Director

* Mr. Isao Ito - Joint Managing Director

* Mrs. Nidhi Kapoor - Daughter of Mr. Yogesh Chander Munjal

(b) Enterprise with significant influence over the Company

* Showa Corporation, Japan

(c) Enterprises owned or significantly influenced by key management personnel and their relatives

* Dayanand Munjal Investments Private Limited

* Majestic Auto Limited

* Shivam Autotech Limited

(d) Additional related parties as per Companies Act 2013, with whom transactions have taken during the year Key managerial personnel

* Mr. Mahesh Chand Taneja - Chief Financial Officer (till February 28, 2014)

* Mr. Pankaj Gupta- Chief Financial Officer & Company Secretary* (w.e.f. March 1,2014)

* Mr. Saurabh Agrawal- Company Secretary (w.e.f February 6, 2015)

Enterprises in which Director is a member/partner

* Sunbeam Auto Private Limited

* Munjal Castings (Partnership firm)

* Resigned from the post of Company Secretary effective February 6, 2015

8. Capital and other commitments

At March 31,2015, the estimated amount of contracts remaining to be executed on capital account and not provided for is Rs.38,147,834 (March 31,2014: Rs.10,626,508).

9. Contingent Liabilities

March 31, 2015 March 31, 2014 Rs. Rs.

Demands raised by Income Tax Authorities, being disputed by the Company 678,305,272 511,889,281

Show cause notices / demands issued by Excise Authorities, being disputed by the Company 307,168,848 301,976,335

Demand raised by Employees State Insurance Recovery Officer, being disputed by the Company 4,365,036 4,365,036

(a) Demands raised by Income Tax Authorities:

i) In respect of Assessment Year 1998-99, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal before ITAT. The issue has been set aside by ITAT and sent back to the Assessing Officerto follow the order of earlier years. The total amount involved is Rs. 298,942 (March 31,2014: Rs. 298,942).

ii) In respect of Assessment Years 1999-00, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal before ITAT. The issue has been set aside by ITAT and the Assessing Officer has given effect of the order of ITAT and reassessed the demand as Rs. Nil. The total amount involved is Rs. Nil (March 31,2014: Rs. 74,345).

iii) In respect ofAssessment Years 2003-04 , allowability of prior period expenses of Assessment year2004-05 allowed by ITAT as deduction in Assessment year 2003-04 has not been allowed by the Assessing Officer on the ground that assessed income cannot be less than returned income. The amount involved is Rs. 3,653,248 (March 31,2014: Rs.Nil ).

iv) In respect of Assessment Year 2006-07, certain adjustments were made to the transaction values by tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty and technical fee. The matter has been set aside by the ITAT and sent back to the assessing officer with the direction to decide the issue afresh by way of speaking order in accordance with law. The amount involved is Rs.92,272,211 (March 31,2014: Rs.92,272,211).

v) In respect of Assessment Year 2007-08, certain adjustments were made to the transaction values by tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty and technical fee. The matter has been set aside by the ITAT and sent back to the assessing officer with the direction to decide the issue afresh by way of speaking order in accordance with law. The amount involved is Rs.103,112,323 (March 31,2014: Rs.103,112,323) including interest.

vi) In respect of Assessment Year 2008-09, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty and technical fee. The matter has been set aside by the ITAT and sent back to the assessing officer with the direction to decide the issue afresh by way of speaking order in accordance with law. The amount involved is Rs. 99,266,894 (March 31,2014: Rs.99,266,894 ) including interest.

vii) In respect of Assessment Year 2009-10, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty and technical fee. The matter is pending before ITAT. The amount involved is Rs. 125,175,660 (March 31,2014: Rs 125,175,660) including interest.

viii) In respect of Assessment Year 2010-11, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty and technical fee. The matter is pending before ITAT. The amount involved is Rs. 138,590,560, including interest (March 31,2014: Rs 91,688,906, excluding interest).

ix) In respect of Assessment Year 2011-12, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on account of disallowance of royalty, technical fee. The Company has filed an objection against the draft assessment order before Dispute Resolution Panel (''DRP'') and the same is currently pending disposal. The amount of disallowances is Rs.341,086,891, on which income tax amounts to Rs. 115,935,434 (March 31, 2014: Rs. Nil) (excluding interest, penalty etc).

(b) Show cause/demand notices issued by Excise Authorities:

(i) The Excise authorities had issued Show Cause Notices (SCN''s) on the Company proposing to levy Service tax on royalty payments amounting to Rs. 157,284,357 (March 31, 2014: Rs. 157,284,357) as recipient of services under reverse charge mechanism on the royalty paid for such import of services during the period from September 10, 2004 to March 31,2010. In an order passed by the Commissioner (Adjudication), Service Tax during an earlier year against the above show cause notices, service tax demand of Rs. 87,561,221 has been confirmed and balance demand has been dropped. In addition, penalty of Rs. 122,561,221 (March 31,2014: Rs. 122,561,221) has also been levied. The Company has paid Rs. 63,406,462 against the above demand as per its computation alongwith interest under protest and has filed appeal before CESTAT which is pending for disposal.

(ii) The Excise authorities have issued show cause/ demand notices (SCN''s) on the Company for wrong availment of service tax credit and cenvat aggregating to Rs. 24,346,580 (March 31,2014: Rs 21,368,034 ). The Company has filed reply against the above show cause/ demand notices and has protested the same.

(iii) The Excise authorities have issued show cause/demand notices (SCN''s) on the Company for wrong calculation of education cess and higher education cess aggregating to Rs. 2,976,690 (March 31,2014: Rs. 762,723). The Company has filed reply against the above show cause/ demand notices and has protested the same.

(c) Demands raised by Employee State Insurance Recovery Officer:

Contingent liabilities in respect of demands raised by the Employee State Insurance Recovery Officer represents amount demanded from the Company due to lack of records for the period 1994 to 1998 on the basis of inspections carried out at the Company premises. The demand has been stayed by Hon''ble Judge, Employee Insurance Court, Gurgaon.

Based on favourable decisions in similar cases, legal opinion taken by the Company, discussions with the solicitors, etc., the Company believes that there is fair chance of decisions in its favour in respect of all the items listed in (a) (i) and (iii) to (ix), (b) (i) to (iii) and (c) above and hence, no provision is considered necessary against the same at this stage.

10. During the quarter ended September 30, 2012, the Company had received demand notice of Rs. 2,160.53 lakhs (including interest upto 30.09.2012) from Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDC) towards payment of enhanced compensation for Company''s Manesar land. During the year, the Hon''ble High Court, Punjab & Haryana (HC), in its decision against the writ petition filed against HSIIDC has reduced the demand. Considering HSIIDC has accepted the basis of enhanced compensation as decided by the Hon''ble Court, the Company in accordance with the HC order has recomputed the liability and has reduced Rs. 77.62 lacs from Manesar land cost capitalized in earlier years and further, has written back interest liability of Rs. 67.74 lacs (disclosed as an exceptional item) in these financial statements.

11. Previous year figures have been regrouped and/or rearranged wherever necessary to conform to this year''s classification..


Mar 31, 2013

1. Corporate information

Munjal Showa Limited (''the Company'') is a Public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. It was established in 1985 as result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has two manufacturing locations in the state of Haryana and one plant at Haridwar.

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

3. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service or part thereof in excess of six months. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.

4. Leases

Operating lease : Company as lessee

The Company has taken various residential properties under operating lease agreements. These are cancellable leases and are renewable by mutual consent on mutually agreed terms. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.

5. Segment Information

Based on the guiding principles given in Accounting Standard on ''Segmental Reporting'' (AS-17), notified under the Companies (Accounting Standards) Rules, 2006, (as amended) ,the Company''s primary business segment is manufacturing of auto components for two-wheeler and four-wheeler industry. The business comprises manufacturing and selling of various auto components, viz, front fork, shock absorbers, struts, gas springs and window balancers, having similar risks and rewards because of similar nature of these items. The Company is having negligible export and operates mainly in India i.e. only one business and geographical segment and thus no further disclosures are required to be made as per Accounting Standard (AS-17).

6. Related party disclosures

Names of related parties and related party relationship

(a) Key management personnel and their relatives

- Mr. Yogesh Chander Munjal – Managing Director

- Mr. Tetsuo Terada – Joint Managing Director

- Mrs. Nidhi Kapoor – Daughter of Mr. Yogesh Chander Munjal

(b) Enterprise with significant influence over the Company

- Showa Corporation, Japan

(c) Enterprises owned or significantly influenced by key management personnel and their relatives

- Dayanand Munjal Investments Private Limited

- Majestic Auto Limited

- Shivam Autotech Limited

7. Capital and other commitments

At 31st March 2013, the estimated amount of contracts remaining to be executed on capital account and not provided for is Rs.9,839,822, (Previous year Rs.24,949,953).

8. Contingent Liabilities

March 31, 2013 March 31, 2012 Rs. Rs.

Demands raised by Income Tax Authorities, being disputed by the Company 201,073,766 310,327,530

Show cause notices / demands issued by Excise Authorities, being disputed by the Company 229,361,897 227,506,616

Demand raised by Employees State Insurance Recovery Officer, being disputed by the Company 4,365,036 4,365,036

Pending cases with Income Tax Appellate Authorities / High Court Liability not Liability not

where Income Tax Department has preferred appeals ascertainable ascertainable

(a) Demands raised by the Income Tax Authorities comprise of:

i) In respect of Assessment Years 1993-94 and 1996-97, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal with ITAT. ITAT has decided in favour of Company. The Income tax department has appealed against the Company before the High Court wherein the High Court has ordered in favour of the Company which is pending for appeal effect. The total amount involved is Rs. Nil (Previous year Rs. 1,494,076).

ii) In respect of Assessment Years 1998-99 and 1999-00, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal with ITAT. The issue has been set aside by the Tribunal to the file of the assessing officer to follow the order of earlier years. The total amount involved is Rs. 373,287 (Previous year Rs. 373,287).

iii) In respect of Assessment Years 2002-03, 2003-04 and 2004-05 issues relating to allowability some percentage of expenses like royalty, technician fee, design and drawing, prior period (2004-05) is pending with ITAT. The amount involved is Rs. 22,649,734 (Previous year Rs. 22,649,734).

iv) In respect of Assessment Year 2005-06, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises. The issue is decided by Commissioner of Income Tax (Appeals) in favour of the Company during the year. The amount involved is Rs. Nil (Previous year Rs. 115,302,063). Pending receipt of appeal effect order for the Assessment Year 2005-06, where appeal has been decided in favour of the Company by the CIT (Appeals), interest on income tax refund has not been recognized thereof as the amount is presently not reasonably determinable. Interest income on this refund shall be recognized in the year the appeal effect order is received from Income Tax Department.

v) In respect of Assessment Year 2006-07, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The matter is pending with ITAT. The amount involved is Rs.77,495,260 (Previous year Rs.77,495,260).

vi) In respect of Assessment Year 2007-08, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The matter is pending with ITAT. The amount involved is Rs.93,013,110 (Previous year Rs.93,013,110) including interest.

vii) In respect of Assessment Year 2008-09, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The matter is pending with ITAT. The amount involved is Rs.90,771,580 including interest.

viii) In respect of Assessment Year 2009-10, certain adjustments were made to the transaction values by the tax authorities based on arm''s length price of international transactions entered with associated enterprises and on disallowance of royalty, technical fee etc. The Company has preferred filing the objection against the draft assessment order and is pending before Dispute Resolution Panel (''DRP'') for disposal. The amount of disallowances is Rs.227,605,687, on which income tax amounts to Rs 77,363,173 (excluding interest, penalty etc).

(b) Show cause/demand notices issued by Excise Authorities comprise of:

(i) The Excise authorities had issued Show Cause Notices (SCN''s) on the Company proposing to levy Service tax on royalty payments amounting to Rs. 157,284,357 (Previous year Rs. 157,284,357) as recipient of services under reverse charge mechanism on the royalty paid for such import of services during the period from September 10, 2004 to March 31, 2010. In an order passed by the Commissioner (Adjudication), Service Tax during the last year, against the above show cause notices, service tax demand of Rs. 87,561,221 has been confirmed and balance demand has been dropped. In addition, penalty of Rs. 122,561,221 (Previous year Rs. 122,561,221) have also been levied. The Company has paid Rs. 63,406,462 against the above demand as per its computation alongwith interest under protest and has filed appeal with CESTAT which is pending for disposal.

(ii) The Excise authorities have issued show cause/ demand notices (SCN''s) on the Company for wrong availment of service tax and cenvat aggregating to Rs. 22,130,757 (Previous year Rs 20,275,476 ). The Company has filed reply against the above show cause/ demand notices and has protested the same.

(c) Demands raised by Employee State Insurance Recovery Officer:

Contingent liabilities in respect of demands raised by the Employee State Insurance Recovery Officer represent amount demanded from the Company due to lack of records for the period 1994 to 1998 on the basis of inspections carried out at the Company. The demand has been stayed by Hon''ble Judge, Employee Insurance Court, Gurgaon.

Based on favourable decisions in similar cases, legal opinion taken by the Company, discussions with the solicitors, etc., the Company believes that there is fair chance of decisions in its favour in respect of all the items listed in (a) (ii), (iii) and (v) to (viii), (b) (i) to (ii) and (c) above and hence no provision is considered necessary against the same.

9. During the year, the Company has revised the estimated useful life of vehicles and certain plant and machinery based on technical estimates made by the management. Accordingly, additional depreciation of Rs. 11,127,479 has been accounted for in the financial statements.

Had the Company continued to use the earlier basis of providing depreciation, the charge to the statement of profit and loss for the current year would have been lower by Rs.7,517,169 (net of tax of Rs.3,610,310) and the net block of fixed assets would correspondingly have been higher by Rs.11,127,479.

10. During the year, the Company has recognized Rs 35,200,000 (Previous year Nil) as Minimum Alternative Tax (MAT) credit entitlement under ''Loans and advances'' which represents that portion of the MAT liability, the credit of which would be available based on the provision of Section 115JAA of the Income Tax Act, 1961. The management based on the future profitability projections and also profit earned during the current year is confident that there would be sufficient taxable profit in foreseeable future which will enable the Company to utilize the said MAT credit entitlement.

11. The Haryana State Industrial and Infrastructure Development Corporation Limited based on Hon''ble Supreme Court''s final order has further demanded an amount of Rs.131,834,893 from the Company as land enhancement cost including interest in relation to Manesar land to be payable in five half yearly installment. Based on final working, Company has capitalised Rs.70,400,675 as land cost and charged off Rs.61,434,218 as interest cost (disclosed as exceptional item) during the year. Company as a member of Industrial Association, Manesar has filed CWP with the Honorable High Court, Punjab & Haryana challenging the aforesaid demand amount. Since the matter is subjudice, Company has not made any payment towards installment due already on 31 October 2012 and consequently an additional interest of Rs.8,299,040 due till 31 March 2013 has been charged off. The total amount payable towards additional land cost is Rs.70,400,675 (disclosed in note 7 of Rs.28,160,270 and note 10 of Rs.42,240,405 to the financial statements) and towards interest cost is Rs.69,733,258 (disclosed in note 7 of Rs.24,573,687 and note 10 of Rs.45,159,571 to the financial statements).

12. Previous year figures have been regrouped and/or rearranged wherever necessary to conform to this year''s classification.


Mar 31, 2012

1. Corporate information

Munjal Showa Limited ('the Company') is a Company established in 1985 as result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has two manufacturing locations in the state of Haryana and one plant at Haridwar.

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention.

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year, except for the change in accounting policy explained below.

3. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service or part thereof in excess of six months. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the gratuity plan.

4. Leases

Operating lease : Company as lessee

The Company has taken various residential properties under operating lease agreements. These are cancellable leases and are renewable by mutual consent on mutually agreed terms. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.

5. Segment Information

Based on the guiding principles given in Accounting Standard on 'Segmental Reporting' (AS-17), issued by the Institute of Chartered Accountants of India, the Company's primary business segment is manufacturing of auto components for two-wheeler and four-wheeler industry. The business comprises manufacturing and selling of various auto components, viz, front fork, shock absorbers, struts, gas springs and window balancers, having similar risks and rewards because of similar nature of these items. The Company is having negligible export and operates mainly in India i.e. only one business and geographical segment and thus no further disclosures are required to be made as per Accounting Standard (AS-17).

6. Related party disclosures

Names of related parties and related party relationship

(a) Key management personnel and their relatives

- Mr. Brijmohan Lall Munjal - Chairman *

- Mr. Yogesh Chander Munjal - Managing Director

- Mr. Tetsuo Terada - Joint Managing Director (from 18th May, 2010)

- Mrs. Nidhi Kapoor - Daughter of Mr. Yogesh Chander Munjal

(b) Enterprise with significant influence over the Company

- Showa Corporation, Japan

(c) Enterprises owned or significantly influenced by key management personnel and their relatives

- Dayanand Munjal Investments Private Limited

- Majestic Auto Limited

- Rockman Industries Limited*

- Hero MotoCorp Limited (Formerly Hero Honda Motors Limited)

- Shivam Autotech Limited*

- Sunbeam Auto Private Limited*/**

- Hero Corporate Services Limited*

*Related party till last year

**Public limited company till 18th May, 2010.

7. Capital and other commitments

(a) At 31st March 2012, the estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. 24,949,953, (Previous year Rs. 28,509,546).

(b) For commitments relating to lease arrangements, please refer note 27.

8. Contingent Liabilities

March 31,2012 March 31,2011 Rs. Rs.

Demands raised by Income Tax Authorities, being disputed by the 310,327,530 217,314,420 Company

Show cause notices / demands issued by Excise Authorities, 227,506,616 177,506,951 being disputed by the Company

Demand raised by Employees State Insurance Recovery Officer, 4,365,036 4,365,036 being disputed by the Company

Pending cases with Income Tax Appellate Authorities / High Court where Income Liability not Liability not Tax Department has preferred appeals ascertainable ascertainable

a) Demands raised by the Income Tax Authorities comprise of:

(i) In respect of Assessment Years 1993-94 and 1996-97, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal with ITAT. ITAT has decided in favour of Company. The Income tax department has appealed against the Company before the High Court wherein the High Court has ordered in favour of the Company which is pending for appeal effect. The total amount involved is Rs. 1,494,076 (Previous year Rs. 1,494,076),.

(ii) In respect of Assessment Years 1998-99 and 1999-00, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal with ITAT. The issue has been set aside by the Tribunal to the file of the assessing officer to follow the order of earlier years. The Company has obtained legal opinion as per which the Company has possibility of success. The total amount involved is Rs. 373,287 (Previous year Rs. 373,287).

(iii) In respect of Assessment Years 2002-03, 2003-04 and 2004-05 issues relating to allowability some percentage of expenses like royalty, technician fee, design and drawing, prior period (2004-05) is pending with ITAT. The Company has obtained legal opinion as per which the Company has possibility of success. The amount involved is Rs. 22,649,734 (Previous year Rs. 22,649,734).

(iv) In respect of Assessment Year 2005-06, certain adjustments were made to the transaction values by the tax authorities based on arm's length price of international transactions entered with associated enterprises. The issue is pending with CIT (Appeals), based on which demand was raised. The Company has obtained legal opinion as per which the Company has possibility of success. The amount involved is Rs. 115,302,063 (Previous year Rs. 115,302,063).

(v) In respect of Assessment Year 2006-07, certain adjustments were made to the transaction values by the tax authorities based on arm's length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The matter is pending with ITAT. The Company has obtained legal opinion as per which there is a possibility of success. The amount involved is Rs.77,495,260 (Previous year Rs.77,495,260).

(vi) In respect of Assessment Year 2007-08, certain adjustments were made to the transaction values by the tax authorities based on arm's length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The matter is pending with ITAT. The Company has obtained legal opinion as per which there is a possibility of success. The amount involved is Rs.93,013,110 including interest.

(vii) In respect of Assessment Year 2008-09, certain adjustments were made to the transaction values by the tax authorities based on arm's length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The Company has preferred filing the objection against the draft assessment order and is pending before Dispute Resolution Panel (DRP') for disposal.

The Company has obtained legal opinion as per which there is a possibility of success. The amount of disallowances is Rs.197,888,932, on which income tax amounts to Rs 67,262,448 (excluding interest, penalty etc).

b) Show cause/demand notices issued by Excise Authorities comprise of:

(i) The Excise authorities had issued Show Cause Notices (SCN's) on the Company proposing to levy Service tax on royalty payments amounting to Rs. 157,284,357 (Previous year Rs. 157,284,357) as recipient of services under reverse charge mechanism on the royalty paid for such import of services during the period from September 10, 2004 to March 31, 2010. In an order passed by the Commissioner (Adjudication), Service Tax during the year, against the above show cause notices, service tax demand of Rs. 87,561,221 has been confirmed and balance demand has been dropped. In addition, interest and penalty have also been levied. The Company has paid Rs. 63,406,462 against the above demand as per its computation along with interest under protest and has filed appeal with CESTAT which is pending for disposal.

(ii) The Excise authorities have issued show cause/ demand notices (SCN's) on the Company for wrong availment of service tax and cenvat aggregating to Rs. 20,275,476 (Previous year Rs 20,222,594). The Company has filed reply against the above show cause/ demand notices and has protested the same. The Company has obtained legal opinion as per which there is a possibility of success.

c) Demands raised by Employee State Insurance Recovery Officer:

Contingent liabilities in respect of demands raised by the Employee State Insurance Recovery Officer represent amount demanded from the Company due to lack of records for the period 1994 to 1998 on the basis of inspections carried out at the Company. The demand has been stayed by Hon'ble Judge, Employee Insurance Court, Gurgaon.

9. Previous year figures

Till the year ended 31 March 2011, the Company was using pre-revised Schedule VI to the Companies Act 1956, for preparation and presentation of its financial statements. During the year ended 31 March 2012, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the Company. The Company has re-classified previous year's figures to conform to this year's classification. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it significantly impacts presentation and disclosure made in the financial statements, particularly presentation of balance sheet.


Mar 31, 2010

1. Nature of operations

Munjal Showa Limited (the Company) is a Company established in 1985 as result of technical and financial collaboration between Hero Group and Showa Corporation, Japan. The Company operates as an ancillary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being front forks, shock absorbers, struts, gas springs and window balancers for sale in domestic market. The Company has two manufacturing locations in the state of Haryana and one plant at Haridwar where the commercial production was started on April 06,2009.

2. Segmental information

Based on the guiding principles given in Accounting Standard on Segmental Reporting (AS-17), issued by the Institute of Chartered Accountants of India, the Companys primary business segment is manufacturing of auto components for two-wheeler and four-wheeler industry. The business comprises manufacturing and selling of various auto components, viz, front fork, shock absorbers, struts, gas springs and window balancers, having similar risks and rewards because of similar nature of these items. The Company is having negligible export and operates mainly in India i.e. only one business and geographical segment and thus no further disclosures are required to be made as per Accounting Standard (AS-17).

4. Related party disclosure

(i) Names of related parties

(a) Key management personnel and their relatives

MrBrijmohan Lall Munjal- Chairman

Mr Yogesh Chander Munjal - Managing Director

Mr. Kazuhiro Nishioka-Joint Managing Director (upto 23"1 March, 2010)

Mr Suresh Munjal-Relative of Yogesh Chander Munjal

(b) Enterprise with significant influence over the Company

Showa Corporation, Japan

(c) Enterprises owned or significantly influenced by key management personnel and their relatives

Hero Honda Motors Limited

Sunbeam Auto Limited

Hero Cycles Limited

Hero Corporate Services Limited.

Majestic Auto Limited

Dayanand Munjal Investments Private Limited

Thakurdevi Investments Private Limited

Arrow Infrastructure Limited

Rockman Industries Limited

(ii) The remuneration paid to directors is disclosed in Note no. 12 of the notes to accounts.

During the year, the Company has entered into transactions with related parties. Those transactions along with related balances as at March 31, 2010 and 2009 and for the years then ended are presented in the following table:

Provision forWarranty

A provision is recognized for expected warranty claims on products sold during the last two years for some models and three years for others, based on past experience of level of repairs and returns. Assumptions used to calculate the provision for warranties were based on current sales level and current information available about returns based on the warranty period for all products sold. Provision (others)

The Company has received a show-cause notice from Haryana State Pollution Control Board (HSPCB) towards contamination of ground water caused due to higher concentration of chromium used by the Company as compared to the minimum expected level. Pursuant to the show cause notice, the management has submitted a time bound remediation plan as per which specified milestones are to be achieved at the end of each quarter till December 2010. A bank guarantee of Rs. 50,000,000 has also been submitted to HSPCB. While currently there are delays in implementation of the plan, the management is confident of completing the plan within the overall time frame. Accordingly, provision of Rs. 32,500,000 has been made in the books as per managements assessment of the costs to be incurred.

3 Contingent liabilities (not provided for) in respect of: (Amount in Rs.)

Particulars March 31, 2010 March 31, 2009

a) Demands raised by Income Tax Authorities, being disputed by the 151,149,021 153,805,945 Company.

b) Show cause notices issued by Excise Authorities, being disputed by the 39,228,000 39,228,000 Company.

c) Demand raised by Employees State Insurance Recovery Officer, being 4,365,036 4,365,036 disputed by the Company.

d) Pending cases with Income Tax Appellate Authorities/ High Court where Liability not Liability not Income Tax Department has preferred appeals. ascertainable ascertainable

e) Land matter (refer Note no. 11 of the notes to accounts) Liability not Liability not ascertainable ascertainable

a Demands raised by the Income Tax Authorities comprise of:

i) In respect of Assessment Years 1993-94, 1996-97, 1998-99 and 1999-00, allowability of certain expenses like foreign technician expenses, design and drawing fees were pending under appeal with ITAT For the Assessment Years 1993-94 & 1996-97, ITAT has decided in favour of Company which pending for appeal effect. Further, for the Assessment Years 1998-99 & 1999-00, the issue has been set aside by the Tribunal to the file of the assessing officer to follow the order of earlier years. The Company has obtained legal opinion as per which the Company has possibility of success. The total amount involved is Rs 1,867,363 (Previous year Rs 1,867,363).

ii) In respect of Assessment Year 2000-01 and 2001-02, issues relating to some percentage of royalty has been decided by ITAT in favour of the Company which pending for appeal effect. The amount involved for the same is Rs.8,026,345. In respect of Assessment Years 2002-03,2003-04 and 2004-05 issues relating to some percentage of expenses like royalty, technician fee, design and drawing, prior period (2004-05) is pending with ITAT. The Company has obtained legal opinion as per which the Company has possibility of success. The amount involved is Rs. 32,433,639 (Previous year Rs 40,459,984).

iii) In respect of Assessment Year 2005-06, certain adjustments were made to the transaction values by the tax authorities based on arms length price of international transactions entered with associated enterprises. The issue is pending with CIT (Appeals), based on which demand was raised. The Company has obtained legal opinion as per which the Company has possibility of success. The amount involved is Rs 116,848,019 (Previous year Rs 111,478,598).

iv) a) In respect of Assessment Year 2006-07, certain adjustments were made to the transaction values by the tax authorities based on arms length price of international transactions entered with associated enterprises and on disallowance of royalty and technical fee. The Company has preferred filing the objections against the draft assessment order and is pending before Dispute Resolution Panel (DRP) for disposal. The Company has obtained legal opinion as per which there is a possibility of success. The amount of disallowances is Rs 156,490,763, on which income tax amounts to Rs.53,191,210 (excluding interest, penalty etc).

b) The Excise authorities have issued a Show Cause Notice (SCN) on the Company proposing to levy Service tax on the Company amounting to Rs. 39,228,000 along with interest and penalty as recipient of services under reverse charge mechanism on the royalty paid for such Import of services during the period from September 10, 2004 to September 30, 2007. The aggregate exposure on account of the above matter till March 31, 2010 aggregates to Rs. 100,636,965. However, the Company can claim service tax credit in most of the above amount. The Company has filed replies for all the SCNs, However, hearing on the same is pending.

c) Demands raised by Employee State Insurance Recovery Officer:

Contingent liabilities in respect of demands raised by the Employee State Insurance Recovery Officer represent amount demanded from the Company due to lack of records for the period 1994 to 1998 on the basis of inspections carried out at the Company. The demand has been stayed by Honble Judge, Employee Insurance Court, Gurgaon.

4. In accordance with explanations below Para 10 of Notified Accounting Standard 9 - Revenue Recognition, excise duty on sales amounting to Rs. 730,594,416 (Previous Year Rs. 1,105,134,118) has been reduced from sales in Profit & Loss Account and excise duty on variation of opening and closing stock of finished goods and scrap amounting to Rs. 860,690 (Previous Year income of Rs. 2,706,352) has been considered as income in the financial statements.

5. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service or part thereof in excess of six months. The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarise the components of net benefit expense recognized in the profit and loss account and the funded status and amounts recognized in the balance sheet for the gratuity plan.

6. Operating Lease Obligations

The Company has taken various residential under operating lease agreements. These are generally not "non- cancellable" and are renewable by mutual consent on mutually agreed terms. There is no escalation clause in the lease agreement. There are no restrictions imposed by lease arrangements. There are no subleases.

Lease payments for the year are Rs. 1,754,900 (Previous Year 1,162,000)

Minimum Lease Payments:

Not laterthan one year- Rs. 2,342,250 (Previous Year Rs. 1,217,790)

Later than one year but not later than five years - Rs. 1,085,340 (Previous Year Rs. Nil)

Later than five years - Rs. Nil

7. Honble Punjab and Haryana High Court had, in an earlier year passed the order by enhancing the compensation to the tune of Rs. 15 lacs per acre in relation to Manesar Land owned by the Company. Haryana State Industrial Infrastructure Development Corporations Limited (HSIIDC) as well as the various landowners have preferred Special leave.petition (SLP) before the Honble Supreme Court against the order of Honble high court. The Honble Supreme court during the pendency of SLPs has issued interim directions for disbursement of the compensation to the land owners at the rate of Rs. 10 lacs per acre, which is subject to the final decision by the Honble Supreme Court in the SLPs. Pursuance to interim directions by the Honble Supreme Court, HSIIDC has during the year demanded an amount of Rs 60,458,233 (including interest of Rs. 19,195,277) from the Company in five equated six monthly installments. The Company has during the year, accounted for the said liability in the books. The Company has during the year paid two installments and balance unpaid amount is shown under deferred payment liability.

8. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of Sched- ule VI to the Companies Act, 1956

9. Previous year comparatives

Previous years figures have been regrouped, where considered necessary, to conform to this years classification.

 
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