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Notes to Accounts of Munjal Showa Ltd.

Mar 31, 2018

B. Terms/Rights attached to equity shares

1. The Company has only one class of equity shares having a par value of Rs. 2 per share. Each holder of equity share is entitled to one vote per share. The Company declares and pays dividend in Indian rupees.

2. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive the 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.

As per records of the Company, including its register of shareholders/ members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownerships of shares.

The general reserve is used from time to time to transfer profits from retained earnings for appropriation purposes. As the general reserve is created by transfer from one component of equity to another and is not an item of other comprehensive income, items included in the general reserve will not be reclassified subsequently to profit or loss.

Dividends

After the reporting date, the following dividends were proposed by the directors subject to the approval at the annual general meeting; the dividends have not been recognised as a liability. Dividends would attract dividend distribution tax (DDT) when declared or paid.

A provision is recognised for expected warranty claims on products sold during the last one to five years as per warranty period on respective models, based on past experience of level of repairs and returns. Assumption used to calculate the provision for warranties are based on current sales level and current information available about past returns based on the warranty period for all products sold. The table above gives information about movement in warranty provision.

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. 500 lacs 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. 375 lacs had been released and bank guarantee of Rs. 125 lacs 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. National Green Tribunal has disposed off our Appeal vide Judgment dated 03.11.2016 stating that we see no reason to interfere with the order dated 09.08.2010 passed by the HSPCB, partially encashing the bank guarantee furnished by the appellant industry to the extent of Rs.125 lacs and directed the Chairman of the HSPCB to personally conduct an inquiry into the matter, fix responsibility and take action in accordance with law. Provision of Rs. 75 lacs (March 31, 2017: Rs. 75 lacs, April 1, 2016; Rs. 75 lacs), 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.

* Includes diminution in value of investments in Taurus Ultra Short Term Bond Fund of Rs. Nil (for the year ended March 31, 2017: Rs. 172.37 lacs)

# Government grants have been received for the purchase of certain items of property, plant and equipment. There are no unfulfilled conditions or contingencies attached to these grants. The grant set up as deferred income is recognised in the Statement of Profit and Loss on a systematic basis over the useful life of the property, plant & equipment.

3. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company accounting policies, which are described in note 2, the management of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the areas of estimation uncertainty and critical judgements that the management has made in the process of applying the Company’s accounting policies:

(a) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit (‘CGU’) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (‘CGU’).

The Company’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

(b) Useful life of depreciable assets

Management reviews the useful lives of depreciable assets at each reporting. As at March 31, 2018 management assessed that the useful lives represent the expected utility of the assets to the Company. Further, there is no significant change in the useful lives as compared to previous year.

(c) Provision and contingent liabilities

(i) Provision for contingent liabilities

On an on-going basis, the Company reviews pending cases, claims by third parties and other contingencies. For contingent losses that are considered probable, an estimated loss is recorded as an accrual in financial statements. Loss contingencies that are considered possible are not provided for but disclosed as Contingent liabilities in the financial statements. Contingencies the likelihood of which is remote are not disclosed in the financial statements. Gain contingencies are not recognized until the contingency has been resolved and amounts are received or receivable. Gain contingencies are, however disclosed in the financial statements.

(ii) Estimation of defined benefits and compensated absences

The present value of the gratuity and compensated absence obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The mortality rate is based on publicly available mortality tables for the specific countries. Those mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates. Further details about gratuity and leave encashment obligations are given in Note 29.

(iii) Provision for warranty

A provision is recognised for expected warranty claims on products sold during the last one to five years as per warranty period on respective models, based on past experience of level of repairs and returns. Assumption used to calculate the provision for warranties are based on current sales level and current information available about past returns based on the warranty period for all products sold.

4. Employee benefits

Defined Contribution Plans - General Description

The Company makes contribution towards employees’ provident fund, superannuation fund & employees state insurance. Under the schemes, the Company is required to contribute a specified percentage of payroll cost, as specified in the rules of the schemes to these defined contribution schemes. The Company has recognised Rs. 591.32 lacs (201617: Rs. 539.54 lacs) as an expense towards contribution to these plans.

Defined Benefit Plans - General Description Gratuity:

The gratuity plan is governed by the Payment of Gratuity Act, 1972. Under the Act, employees who have completed five years of service are entitled to specific benefit. The level of benefit provided depends on the member’s length of service, salary and retirement age. The employee is entitled to a benefit equivalent to 15 days salary last drawn for each completed year of service with part thereof in excess of six months. The same is payable on termination of service or retirement or death whichever is earlier.

This is a funded benefit plan for qualifying employees. The Company makes contributions to LIC policy to cover the liability of the Company. The scheme provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment. Vesting occurs upon completion of five years of service.

These plans typically expose the Company to actuarial risks such as: investment risk, inherent interest rate risk, longevity risk and salary risk.

The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at March 31, 2018 by Mr. K. K. Wadhwa (Membership no. 00209), Fellow of the Institute of Actuaries of India. The present value of the defined benefit obligation, and the related current service cost, were measured using the projected unit credit method.

The following tables summarise the components of net benefit expense recognised in the Statement of Profit and Loss and the funded status and amounts recognised in the Balance Sheet for the respective plans:

The Company makes annual contribution to Life Insurance Corporation (LIC). As LIC does not disclose the composition of its portfolio investments, break-down of plan investments by investment type is not available to disclose.

Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analysis below have been determined based on reasonable possible changes of the respective assumptions occurring at the end of the year, while holding all other assumptions constant.

- If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by Rs. 87.87 lacs (increase by Rs. 95.02 lacs) [as at March 31, 2017: decrease by Rs. 64.94 lacs (increase by Rs. 69.95 lacs)] [as at April 1, 2016: decrease by Rs. 45.10 lacs (increase by Rs. 48.52 lacs)].

- If the expected salary growth increases (decreases) by 50 basis points, the defined benifit obligation would increase by Rs. 93.85 lacs (decrease by Rs. 87.65 lacs) [as at March 31, 2017: increase by Rs. 69.98 lacs (decrease by Rs. 65.55 lacs)] [as at April 1, 2016: increase by Rs. 48.76 lacs (decrease by Rs.45.71 lacs)]

Sensitivities due to change in mortality rate and change in withdrawal rate are not material and hence impact of such change is not calculated.

Sensitivity Analysis

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of reporting year, which is same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet.

The Company expects to make a contribution of Rs. 221.52 lacs (as at March 31, 2017 Rs 165.80 lacs, as at April 1, 2016 Rs. 92.45 lacs) to the defined benefit plans during the next financial year.

5. Disclosure in respect of operating 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.

6. Contingent liabilities, commitments and assets (to the extent not provided for) a. Capital and other commitments

At March 31 2018, the estimated amount of contracts remaining to be executed on capital account was Rs. 200.19 lacs (March 31, 2017: Rs. 59.47 lacs, April 1, 2016: Rs. 257.79 lacs)

The Company has other commitments, for purchase/sales orders which are issued after considering requirements per operating cycle for purchase /sale of goods and services, employee’s benefits including union agreement in normal course of business. The Company does not have any long term commitments or material non-cancellable contractual commitments/contracts, which might have material impact on the financial statements.

* The Company has filed subsidy claim amounting to Rs. 670 lacs equivalent to 20% of the land cost (including enhanced price) related to plant at Manesar with Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDCL) on April 25, 2005 in accordance with the Notification No.2/I/22-IIB-II-99 issued by Industries Department of the State of Haryana, which was rejected by HSIIDCL on May 20, 2008 on certain grounds. The Company, thereafter, challenged the rejection by filing writ petition before High Court of Punjab & Haryana. on July 25, 2014 During the current year, the Company received a favorable order dated August 10, 2017 from High Court directing HSIIDCL to pass fresh orders by November 30, 2017 and pay the subsidy claim within eight weeks. No order is received from HSIIDCL confirming the subsidy claim. till date The Company is considering filing a writ petition to get HSIIDCL to comply with the High Court order

7. Related party disclosures under IND AS 24

(i) Names of related parties and related party relationship

(a) Key management personnel and their relatives

- Mr. Yogesh Chander Munjal - Chairman cum Managing Director

- Mr. Matsui Masanao- Non executive director

- Mr. Ashok Kumar Munjal- Non executive director

- Mr. Pankaj Munjal- Independent director

- Ms. Charu Munjal- Non executive director

- Mr. Vinod Kumar Agrawal- Independent director

- Mr. Nand Lal Dhameja- Independent director

- Mrs. Devi Singh- Independent director

- Mr. Surinder Kumar Mehta- Independent director

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

- Mr. Isao Ito - Joint Managing Director- Upto September 30, 2016

- Mr. Shigeki Kobayashi - Joint Managing Director w.e.f. October 26, 2016

(b) Enterprise with significant influence over the Company

- Showa Corporation, Japan

(c) Enterprises owned or controlled 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. Pankaj Gupta- Chief Financial Officer

- Mr. Saurabh Agrawal- Company Secretary

Enterprises in which Director is a member/partner

- Sunbeam Auto Private Limited

- Munjal Castings (Partnership firm)

8. Segment information

The Company primarily operates in the auto components segment. The Company operates as an ancilliary and manufactures auto components for the two-wheeler and four-wheeler industry, primary products being shock absorbers, struts and window balancers.

The board of directors of the Company, which has been identified as being the chief operating decision maker (CODM), evaluates the Company’s performance, allocates resources based on the analysis of the various performance indicators of the Company as a single unit. Therefore, there is no reportable segment for the Company as per the requirement of IND AS 108 “Operating Segments”.

Geographical Locations: The Geographical segments have been considered for disclosure as the secondary segment, under which the domestic segment includes sales to customers located in India and overseas segment includes sales to customer located outside India.

a) Domestic segment includes sales to customers located in India.

b) Overseas segment includes sales to customers located outside India.

c) There are no non-current assets located outside India.

d) The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Revenue from operations have been allocated to segments on the basis of their relationship to the operating activities of the segment.

Information about major customers

Included in revenue from operations (net of taxes) arising from domestic sales are revenues which arose from following customers which were 10% or more of the Company’s revenue:

No other single customers contributed 10% or more to the company’s revenue for both 2017-2018 and 2016-2017.

9. Financial instruments

10 Capital Management

The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the return to stakeholders through efficient allocation of capital towards expansion of business, optimisation of working capital requirements and deployment of surplus funds into various investment options. The Company does not have debts and meets its capital requirement through equity.

The Company is not subject to any externally imposed capital requirements

The management of the Company reviews the capital structure of the Company on regular basis. As part of this review, the Board considers cost of capital and the risks associated with the movement in the working capital.

11 Fair value measurements

The Company uses the following hierarchy for determining and/or disclosing the fair value of financial instruments by valuation techniques:

The following is the basis of categorising the financial instruments measured at fair value into Level 1 to Level 3: Level 1: This level includes financial assets that are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities. This category consists of quoted debentures and open-ended mutual funds Level 2: This level includes financial assets and liabilities, measured using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 3: This level includes financial assets and liabilities measured using inputs that are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part, using a valuation model based on assumptions that are neither supported by prices from observ able current market transactions in the same instrument nor are they based on available market data.

Fair value of the Company’s financial assets that are measured at fair value on a recurring basis:

There are certain Company’s financial assets which are measured at fair value at the end of each reporting period. Following table gives information about how the fair values of these financial assets are determined:

The fair value of the financial assets and financial liabilities are included at the amount that would be received to sell an asset and paid to transfer a liability in an orderly transaction between the market participants. The following methods and assumptions were used to estimate the fair values:

- Investments traded in active markets are determined by reference to quotes from the financial institutions; for example: Net asset value (NAV) for investments in open-ended mutual funds declared by mutual fund house, quoted price of equity shares in the stock exchange etc.

- The fair value of debenture is based on direct market observable inputs.

- Trade receivables, cash & cash equivalents, other bank balances, loans, other current financial assets, trade payables and other current financial liabilities: Approximate their carrying amounts largely due to short-term maturities of these instruments.

- Management uses its best judgment in estimating the fair value of its financial instruments. However, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented above are not necessarily indicative of all the amounts that the Company could have realized or paid in sale transactions as of respective dates. As such, the fair value of the financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each year end.

12. Financial risk management objectives

The Company’s senior management monitors and manages the financial risks relating to the operations of the Company. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Company seeks to minimise the effects of these risks by using diversification of investments, credit limit to exposures, etc., to hedge risk exposures. The use of financial instruments is governed by the Company’s policies on foreign exchange risk and the investment. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Market risk

“Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates risk/ liquidity which impact returns on investments. The Company enters into derivative financial instruments to manage its exposure to foreign currency risk including import payables. Future specific market movements cannot be normally predicted with reasonable accuracy. Market risk exposures are measured using sensitivity analysis.

Foreign currency risk management

The Company undertakes transactions denominated in foreign currencies and consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The counter party for these contracts is generally a bank, however there are no outstanding forward exchange contracts at year end. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows.

Foreign currency sensitivity

The following table details the Company’s sensitivity to a 5% increase and decrease in the Rs. against the relevant foreign currencies. ( )/(-)5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit or equity where the Rs. strengthens ( )(-)5% against the relevant currency. For a 5% weakening of the Rs. against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be positive or negative.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year/ in future years.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and wherever appropriate, the credit ratings of its counterparties are continuously monitored and spread amongst various counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management of the Company. Financial instruments that are subject to concentrations of credit risk, principally consist of balance with banks, investments in debt instruments/ bonds, trade receivables, loans and advances and derivative financial instruments. None of the financial instruments of the Company result in material concentrations of credit risks.

Balances with banks were not past due or impaired as at the year end. In other financial assets that are not past dues and not impaired, there were no indication of default in repayment as at the year end.

The age analysis of trade receivables as of the balance sheet date have been considered from the due date and disclosed in the note no. 9 above.

The Company has used a practical expedient by computing the expected loss allowance for financial assets based on historical credit loss experience and adjustments for forward looking information.

Other price risks including interest rate risk

The Company has deployed its surplus funds into various financial instruments including units of mutual funds, debentures, etc. The Company is exposed to NAV (net asset value) price risks arising from investments in these funds. The value of these investments is impacted by movements in interest rates , liquidity and credit quality of underlying securities.

NAV price sensitivity analysis

The sensitivity analyses below have been determined based on the exposureto NAV price risks at the end of the reporting period. If NAV prices had been 1% higher/lower:

- profit for the year ended March 31, 2018 would increase/decrease by Rs. 244.05 lacs (for the year ended March 31, 2017: increase/decrease by Rs. 170.94 lacs).

Liquidity risk

Liquidity risk represents the inability of the Company to meet its financial obligations within stipulated time. To mitigate this risk, the Company maintains sufficient liquidity by way of readily convertible instruments and working capital limits from banks.

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

14. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund. Unpaid dividend (refer note 16 (b)) does not include any amount outstanding as at March 31, 2018 which are required to be credited to Investor Education and Protection Fund.

15. The financial statements were approved for issue by the board of directors on May 30, 2018.

16. First-time adoption of Ind AS

The Company has prepared the opening balance sheet as per Ind AS as of April 1, 2016 (the transition date) by recognising all assets and liabilities whose recognition is required by Indian AS, not recognising items of assets or liabilities which are not permitted by Indian AS, by classifying items from previous GAAp as required under Ind AS in measurement of recognised assets and liabilities.

However, this principle is subject to optional exemptions availed by the Company as detailed below

Deemed cost-Previous GAAP carrying amount: (Property, Plant and Equipment and Intangible)

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets and investment property covered by Ind AS 40 Investment Properties.

Accordingly, the company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

17 Cash flow Statements

There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.


Mar 31, 2017

(b) 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, 2017, the amount of per share dividend recognized as distributions to equity shareholders is Rs. Nil (March 31, 2016: Rs. 4.00).

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.

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last two to five years as per warranty period on respective models, based on past experience of level of repairs and returns. Assumption used to calculate the provision for warranties are based on current sales level and current information available about returns based on the warranty period for all products sold. The table below gives information about movement in warranty provision:

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. National Green Tribunal has disposed off our Appeal vide Judgment dated 03.11.2016 stated that we see no reason to interfere with the order dated 09.08.2010 passed by the HSPCB, partially encashing the bank guarantee furnished by the appellant industry to the extent of Rs.125 Lakhs and directed the Chairman of the HSPCB to personally conduct an inquiry into the matter, fix responsibility and take action in accordance with law. Provision of Rs. 7,500,000 (March 31, 2016; 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 :

4. 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 summarize 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.

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. There has been significant change in expected rate of return on assets due to the improved debt market scenario.

5. 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.

6. Segment Information

Based on the guiding principles given in Accounting Standard on ‘Segmental Reporting’ (AS-17), notified under the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting standards) Amendment Rules, 2016 , 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- Upto September 30, 2016

- Mr. Shigeki Kobayashi - Joint Managing Director w.e.f. October 26, 2016

- 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. Pankaj Gupta- Chief Financial Officer

- Mr. Saurabh Agrawal- Company Secretary

Enterprises in which Director is a member/partner

- Sunbeam Auto Private Limited

- Munjal Castings (Partnership firm)

8. Capital and other commitments

At March 31, 2017, the estimated amount of contracts remaining to be executed on capital account and not provided for is Rs.5,947,449 (March 31, 2016: Rs.25,778,837).

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 Officer to follow the order of earlier years. The total amount involved is Rs. 298,942 (March 31, 2016: Rs. 298,942).

ii) In respect of Assessment Years 2003-04, allowability of prior period expenses of Assessment year 2004-05 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 CIT(A) has allowed the appeal filed by us and received the appeal effect. However, while giving appeal effect, the assessing officer had not given the credit of TDS. On filing of application for rectification the assessing office has passed the rectification order in April 2017 in favour of the Company. The amount involved is Rs. Nil (March 31, 2016: Rs. 252,082).

iii) 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, 2016: Rs. 92,272,211).

iv) 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. During the current year, the assessing officer has decided the case in favour of the Company and refund was granted with interest. Total amount involved is Rs. Nil (March 31, 2016: Rs.103,112,323) including interest.

v) 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. During the current year, the assessing officer has decided the case in favour of the Company and refund was granted with interest. Total amount involved is Rs. Nil (March 31, 2016: Rs. 99,266,894 ) including interest.

vi) 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, 2016: Rs. 125,175,660) including interest.

vii) 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, 2016: Rs 138,590,560).

viii) 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. The matter is pending before ITAT. The amount of disallowances is Rs.385,573,006, on which income tax amounts to Rs. 206,046,500, including interest (March 31, 2016: Rs. 206,046,500).

ix) In respect of Assessment Year 2012-13, 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 matter is pending before ITAT The amount of disallowances is Rs.432,743,656 on which income tax amounts to Rs.216,398,770, including interest (March 31, 2016: Rs. 140,403,679) (excluding interest, penalty etc.).

x) In respect of Assessment Year 2013-14, 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 on account of margin computation of comparable and specified domestic transaction. 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.40,901,950, on which income tax amounts to Rs. 13,270,638 (March 31, 2016: Rs. Nil) (excluding interest, penalty etc.).

xi) In respect of Assessment Year 2015-16, an adjustment was made by not allowing bad debts written off claimed in the income tax return in the intimation under section 143(1) by CPC Centre. The matter is pending before CIT(A). The amount of disallowances is Rs. 1,653,264 on which income tax amounts to Rs. 625,857 including interest (March 31, 2016: Rs. Nil).

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 of Service tax on royalty payments amounting to Rs. 157,284,357 (March 31, 2016: 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, 2016: Rs. 122,561,221) has 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 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. 20,361,664 (March 31, 2016: Rs 20,361,664 ). 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. The Company has filed reply against the above show cause/ demand notices. During the year, the case has been decided in favour of the Company. The total demand is aggregating to Rs. Nil (March 31, 2016: Rs. 2,948,481).

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 (xi), (b) (i) to (iii) and (c) above and hence, no provision is considered necessary against the same at this stage.

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


Mar 31, 2016

(b) 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.

2. During the year ended March 31, 2016, the amount of per share dividend recognized as distributions to equity shareholders is Rs. 4.00 (March 31, 2015: Rs. 4.00).

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.

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last one to five years as per warranty period on respective models, based on past experience of level of repairs and returns. Assumption used to calculate the provision for warranties are based on current sales level and current information available about returns based on the warranty period for all products sold. The table below gives information about movement in warranty provision: _

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, 2015: 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 :

4. 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 summaries 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.

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. There has been significant change in expected rate of return on assets due to the improved debt market scenario.

Note :

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

5. 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).

6. 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. Pankaj Gupta- Chief Financial Officer

- Mr. Saurabh Agrawal- Company Secretary

Enterprises in which Director is a member/partner

- Sunbeam Auto Private Limited

- Munjal Castings (Partnership firm)

7. Capital and other commitments

At March 31, 2016, the estimated amount of contracts remaining to be executed on capital account and not provided for is Rs.25,778,837 (March 31, 2015: Rs..38,147,834).

(a) Demands raised by Income Tax Authorities:

i) In respect of Assessment Year 1998-99, allow ability 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 Officer to follow the order of earlier years. The total amount involved is Rs. 298,942 (March 31, 2015: Rs.298,942).

ii) In respect of Assessment Years 2003-04 , allow ability of prior period expenses of Assessment year 200405 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 CIT(A) has allowed the appeal filed by us and received the appeal effect. However, while giving appeal effect, the assessing officer has not given the credit of TDS. The amount involved is Rs. 252,082 (March 31, 2015: Rs. 36,53,248 ).

iii)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, 2015: Rs.92,272,211).

iv) 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, 2015: Rs.103,112,323) including interest.

v) 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, 2015: Rs.99,266,894 ) including interest.

vi) 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, 2015: Rs 125,175,660) including interest.

vii) 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, 2015: Rs 138,590,560).

viii) 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. The matter is pending before ITAT. The amount of disallowances is Rs.385,573,006, on which income tax amounts to Rs.206,046,500 (March 31, 2015: Rs. 115,935,434) (excluding interest, penalty etc).

ix) In respect of Assessment Year 2012-13, 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.432,743,656, on which income tax amounts to Rs. 140,403,679 (March 31, 2015: 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, 2015: 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, 2015: Rs. 122,561,221) has 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 before CESTAT which is pending for disposal.

(ii) The Excise authorities have issued show cause/ demand notices (SCN’s) on the Company for wrong a ailment of service tax credit and cenvat aggregating to Rs. 20,361,664 (March 31, 2015: Rs 24,368,034 ). 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. 2,948,481 (March 31, 2015: Rs. 2,967,690). 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 favorable 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.

8. Effective April 1, 2014, Schedule II of the Companies Act, 2013 became applicable to the Company. Accordingly, during the year ended March 31, 2015, the Company revised the estimated useful life of its assets from rates prescribed under Schedule XIV of the Companies Act, 1956 to the rates and useful life prescribed under Schedule II of Companies Act, 2013 and in accordance with transitional provisions of Schedule II, Rs. 17,798,818 (net of deferred tax) was adjusted from reserves as at April 01, 2014.

9. During earlier years, the Company had received demand notice of Rs. 216,052,602 from Haryana State Industrial and Infrastructure Development Corporation Limited (HSIIDC) towards payment of enhanced compensation for Company’s Manesar land. During the year ended March 31, 2015, the Hon’ble High Court, Punjab & Haryana (HC), in its decision against the writ petition filed against HSIIDC, reduced the demand. Considering HSIIDC had accepted the basis of enhanced compensation as decided by the Hon''ble Court, the Company in accordance with the HC order recomputed the liability and reduced Rs. 7,762,931 from Manesar land cost capitalized in earlier years and further, had written back interest liability of Rs. 6,774,393 (disclosed as an exceptional item) during the previous year.

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


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, 2011

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.

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).

3. Related party disclosure

(i) Names of related parties

(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)

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

- Mr. Suresh Munjal- Relative 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

- Hero Honda Motors Limited

- Sunbeam Auto Private 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

- Shivam Autotech Limited

* Public limited company till 18th May, 2010.

Provision for Warranty

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. Assumption 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 in the last year 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 had 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. The management has initiated adequate steps suggested by the experts and has completed the plan within the overall time frame. The matter is pending with Appellate Authority, HSPCB. Since the matter is sub-judice, provision of Rs.20,000,000 (Previous year Rs. 32,500,000) is being retained towards any contingency, as per managements assessment of the costs to be incurred.

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

Particulars March 31, 201 March 31, 2010

a) Demands raised by Income Tax Authorities, being disputed by the Company. 217,314,420 151,149,021

b) Show cause notices issued by Excise Authorities, being disputed by the Company. 177,506,951 39,228,000

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

d) Pending cases with Income Tax Appellate Authorities / High Liability not Liability not Court 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. 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 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. 32,433,639).

iv) 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. 115,302,063 (Previous year Rs. 116,848,019).

v) 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 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.53,191,210 excluding interest, penalty etc).

vi) In respect of Assessment Year 2007-08, 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 1,433,774,260, on which income tax amounts to Rs.482,608,417 (excluding interest, penalty etc).

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

(i) The Excise authorities have issued Show Cause Notices (SCNs) on the Company proposing to levy Service tax on royalty payments amounting to Rs. 157,284,357 (Previous year Rs. 39,228,000) 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. The amount of interest and penalty at this stage is not determinable. The Company has filed reply against the above show cause notices for rectification of mistake by Rs. 70,280,250 and has protested the balance demand of Rs. 87,004,107. The hearing on the same is pending for disposal. However, the Company can claim service tax credit of material amount.

(ii) The Excise authorities have issued show cause/ demand notices (SCNs) on the Company for wrong availment of service tax and cenvat aggregating to 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 Honble Judge, Employee Insurance Court, Gurgaon.

5. In accordance with explanations below Para 10 of Notified Accounting Standard 9 - Revenue Recognition, excise duty on sales amounting to Rs. 975,728,763 (Previous Year Rs. 730,594,416) 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. 426,523 (Previous Year income of Rs. 860,690) has been considered as expense in the financial statements.

6. 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.

7. 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. 2,371,400 (Previous Year Rs. 1,754,900)

Minimum Lease Payments:

Not later than one year – Rs 1,837,800 (Previous Year Rs. 2,342,250)

Later than one year but not later than five years – Rs 509,250 (Previous Year Rs. 1,085,340)

Later than five years – Rs. Nil

8. A sum of Rs. 2,620,522 (Previous year Rs. 847,089) on account of unamortized foreign exchange premium on outstanding forward exchange contracts is being carried forward to be charged to Profit and Loss Account of subsequent period.

9. Previous year comparatives

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


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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