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Notes to Accounts of Va Tech Wabag Ltd.

Mar 31, 2016

1 General Information

VA Tech Wabag Limited (''the Company''), its subsidiaries, associates and joint ventures (collectively referred to as ''the Group'') is one of the world''s leading companies in the water treatment field. The group''s principal activities include design, supply, installation, construction and operational management of drinking water, waste water treatment, industrial water treatment and desalination plants. The shares of the Company are listed in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

All amounts in the standalone financial statements are presented in Rupees in lakhs except per share data and as otherwise stated. Figures for the previous year have been regrouped / rearranged wherever considered necessary to conform to the figures presented in the current year.

The Company is in the business of execution of turnkey projects for water management and hence the requirements under paragraph 5(ii)(a), 5(ii)(b) and 5(ii) (d) of Part II of Schedule III to the Companies Act, 2013 are not applicable.

2.1 Capital Commitments

The estimated amount of contracts to be executed on capital account and not provided for, (net of advances) Rs. Nil (Previous year - Rs. 516 lakhs). Other commitments are cancellable at the option of the Company and hence not disclosed.

a) The Company had been claiming deduction under section 80-IA of the Income Tax Act, 1961 from the financial year ended 31 March 2002 as a developer of infrastructure projects in India. The Finance Act 2009 amended the provisions of Section 80-IA retrospectively with effect from 01 April 2000 to make it inapplicable for persons having a mere works contract with the government or statutory authority. The Company believes that this amendment is in line with the objective of the government of incentivising only a developer of infrastructure facility and not a mere works contractor.

The Company strongly opines that, being a developer of infrastructure turnkey development contracts starting from the conceptualisation to execution assuming significant financial commitment and risks, the Company would be treated as a developer and the amendment would not apply to it. Based on a legal opinion from a Senior Counsel, the Company has filed a writ petition in the High Court of Madras challenging the Constitutional validity of the retrospective amendment. The Company has subsequently received favourable Appellate Orders from CIT (Appeals) from financial years 2001- 02 to 2006-07 allowing the benefit under section 80-IA of the Income Tax Act, while, the Income Tax department has raised a demand for Rs.939 lakhs denying benefit under section 80-IA for the financial year 2008-09. Further to this, the Income Tax department had gone on appeal against the CIT (Appeals) order and is currently pending at the Income Tax Appellate Tribunal. Considering these facts and as a matter of prudence, the Company has disclosed the total tax benefit so far claimed u/s 80-IA as contingent liability in the standalone financial statements for 31 March 2016. However, on a conservative basis the liability on account of possible denial of deduction prospectively from 01 April 2009 has been fully provided as current tax in the respective years.

b) The Company, also based on an opinion taken from a professional firm believes that the interest under section 234B on account of 80-IA disallowance discussed in paragraph ''a'' above amounting to Rs. 2,855 lakhs as at 31 March 2016 would not be payable as the Jurisdictional High Court rulings and various assessment orders commencing from financial year 2001-02 are in favour of the Company on this aspect and on this basis, the amount of interest has been disclosed as contingent liability.

c) The additional liability assessed by Indirect tax authorities for various financial years from 2003-04 to 2012-13 amounts to Rs. 8,050 lakhs.

2.2 Transfer Pricing

As per the Transfer pricing norms introduced in India with effect from 1 April 2001, the Company is required to use certain specific methods in computing arm''s length price of international transactions between the associated enterprises and maintain prescribed information and documents relating to such transactions. The appropriate method to be adopted will depend on the nature of transactions/class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Transfer pricing study for the fiscal year ended 31 March 2016 is in progress and accordingly, the contracts may be amended subsequently and related adjustment, if any, will be quantified upon completion of this study. However, in the opinion of the Management, the outcome of the study will not have material impact on the Company''s results.

2.3 Corporate Social Responsibility

As mandated by Section 135 of the Companies Act, 2013, the company has constituted a CSR committee. The company has identified areas for its CSR activities as specified in schedule VII of the Companies Act, 2013 and incurred expenses as disclosed in Note 27 to these financial statements towards such activities.

3. Interest in joint venture

The group has 32.5% (31 March 2015 : 32.5%) interest in International Water Treatment LLC, a joint venture, classified as a Jointly controlled entity domiciled in Oman which is involved in construction of a desalination plant. The joint venture was incorporated during February 2013 and commenced operations from April 2013.

4. Segment reporting

The Company publishes standalone financial statements along with the consolidated financial statements in the annual report. In accordance with Accounting Standard 17, Segment Reporting, the Company has disclosed the segment information in the consolidated financial statements.


Mar 31, 2013

1.1 General Information

All amounts in the financial statements are presented in Rupees in Lakhs except per share data and as otherwise stated. Figures for the previous year have been regrouped / rearranged wherever considered necessary to conform to the figures presented in the current year.

The Company is in the business of execution of turnkey projects for water management and hence the requirements under paragraph 5(ii)(a), 5(ii)(b) and 5(ii)(d) of Part II of Schedule VI to the Companies Act, 1956 are not applicable.

1.2 Company Overview

VA TECH WABAG Limited (''the Company''), its subsidiaries, associates and joint ventures (collectively referred to as ''the Group'') is one of the world''s leading companies in the water treatment field. The group''s principal activities include design, supply, installation, and operational management of drinking water and waste water treatment plants.

VA TECH WABAG Limited was part of the Austrian group, VA Tech and formed the water technology and engineering division of the Company.

In July 2005, VA TECH WABAG worldwide was acquired by Siemens. Soon after in September 2005, the Company had a Management buyout with 20% of the shares with the management team and 60% of the shares with ICICI Ventures and the rest with Siemens.

In November 2007, the Company acquired 100% stake in its erstwhile parent VA TECH WABAG GmbH, Vienna through its wholly owned subsidiary VA TECH WABAG (Singapore) Pte Limited.

Pursuant to an Initial Public offering of its shares, the shares of the Company were listed on 13 October, 2010 in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

2 Others

2.1 Capital Commitments

The estimated amount of contracts to be executed on capital account and not provided for (net of advances) Rs.2,138 lakhs (Previous year - Rs.1,612 lakhs). Other commitments are cancellable at the option of the Company and hence not disclosed.

2.2 Contingent liabilities Rs. in Lakhs

As at As at 31 March 2013 31 March 2012

Income tax impact on account of non- deductibility U/s 80-IA (Refer ''a'' below) 2,422 2,422

- Out of the above, Income tax demand contested in appeal 939 939

Interest U/s 234B on the tax liability referred above (Refer ''b'' below) 1,968 1,672

Sales tax matters under dispute (Refer ''c'' below) 395 325

a) The Company had been claiming deduction under section 80-IA of the Income Tax Act, 1961 from the financial year ended 31 March 2002 as a developer of infrastructure projects in India. The Finance Act 2009 amended the provisions of Section 80-IA retrospectively with effect from 01 April 2000 to make it inapplicable for persons having a mere works contract with the government or statutory authority. The Company believes that this amendment is in line with the objective of the government of incentivising only a developer of infrastructure facility and not a mere works contractor. The Company strongly opines that, being a developer of infrastructure turnkey development contracts starting from the conceptualisation to execution assuming significant financial commitment and risks, the Company would be treated as a developer and the amendment would not apply to it. Based on a legal opinion from a Senior Counsel, the Company has filed a writ petition in the High Court of Madras challenging the Constitutional validity of the retrospective amendment. Also, the Company has subsequently received favourable Appellate Orders from CIT (Appeals) from financial years 2001-02 to 2006-07 allowing the benefit under section 80-IA of the Income Tax Act, while, the Income Tax department has raised a demand for Rs.939 lakhs denying benefit under section 80-IA for the financial year 2008-09. Considering these facts and as a matter of prudence, the Company has presented the total tax benefit so far claimed u/s 80-IA as contingent liability in the financial statement for 31 March 2013.

However, on a conservative basis the liability on account of possible denial of deduction prospectively from 01 April 2009 has been fully provided as current tax in the respective years.

b) The Company, also based on an opinion taken from a professional firm believes that the interest under section 234B on account of 80-IA disallowance discussed in paragraph ''a'' above amounting to Rs. 1,968 lakhs as at 31 March 2013 would not be payable as the Jurisdictional High Court rulings and various assessment orders commencing from financial year 2001-02 are in favour of the Company on this aspect and on this basis, the amount of interest has been disclosed as contingent liability.

c) The additional liability assessed by sales tax authorities for various financial years from 2002-03 to 2008-09 amounts to Rs. 395 Lakhs.

2.3 Transfer Pricing

As per the Transfer pricing norms introduced in India with effect from 1 April 2001, the Company is required to use certain specific methods in computing arm''s length price of international transactions between the associated enterprises and maintain prescribed information and documents relating to such transactions. The appropriate method to be adopted will depend on the nature of transactions/class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Transfer pricing study for the fiscal year ended 31 March 2013 is in progress and accordingly, the contracts may be amended subsequently and related adjustment, if any, will be quantified upon completion of this study. However, in the opinion of the Management, the outcome of the study will not have material impact on the Company''s results.

Note 3

SEGMENT REPORTING

The Company publishes standalone financial statements along with the consolidated financial statements in the annual report. In accordance with Accounting Standard 17, Segment Reporting, the Company has disclosed the segment information in the consolidated financial statements.


Mar 31, 2012

1.1 General Information

All amounts in the financial statements are presented in Rupees in Lakhs except per share data and as otherwise stated. Figures for the previous year have been regrouped / rearranged wherever considered necessary to conform to the figures presented in the current year.

The Company is in the business of execution of turnkey projects for water management and hence the requirements under paragraph 5(ii)(a), 5(ii)(b) and 5(ii)(d) of Part II of Revised Schedule VI to the Companies Act, 1956 are not applicable.

1.2 Company Overview

VA TECH WABAG Limited ('the Company'), its subsidiaries, associates and joint ventures (collectively referred to as 'the Group') is one of the world's leading companies in the water treatment field. The group's principal activities include design, supply, installation, and operational management of drinking water and waste water treatment plants.

VA TECH WABAG Limited was part of the Austrian group, VA Tech and formed the water technology and engineering division of the Company.

In July 2005, VA TECH WABAG worldwide was acquired by Siemens. Soon after in September 2005, the Company had a Management buyout with 20% of the shares with the management team and 60% of the shares with ICICI Ventures and the rest with Siemens.

In November 2007, the Company acquired 100% stake in its erstwhile parent VA TECH WABAG GmbH, Vienna through its wholly owned subsidiary VA TECH WABAG (Singapore) Pte Limited.

Pursuant to an Initial Public offering of its shares, the shares of the company were listed on 13th October, 2010 in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

2. Others

2.1 Capital Commitments

The estimated amount of contracts to be executed on capital account and not provided for (net of advances) Rs.1,612 lakhs (Previous year - Rs.771 lakhs). Other commitments are cancellable at the option of the Company and hence not disclosed.

2.2 Guarantees (Rs. in Lakhs)

As at As at 31 March 2012 31 March 2011

Bank Guarantees/ Letter of Credit issued by the banks on behalf of the Company

-Bank Guarantee 37,194 46,300

-Letter of Credit 14,928 9,787

Corporate Guarantees issued by the Company on behalf of its subsidiary

-For VA Tech Wabag GmbH, Vienna 14,949 11,506

3.1 Segment reporting

The Company operates in a single segment "Construction and maintenance of Water and Waste water treatment plant. Therefore, the Company's business does not fall under different business segments as defined by AS-17 "Segment Reporting' issued by Companies (Accounting Standards) Rules, 2006.

3.2 Transfer Pricing

As per the Transfer pricing norms introduced in India with effect from April 1, 2001, the Company is required to use certain specific methods in computing arm's length price of international transactions between the associated enterprises and maintain prescribed information and documents relating to such transactions. The appropriate method to be adopted will depend on the nature of transactions/class of transactions, class of associated persons, functions performed and other factors, which have been prescribed. The Transfer pricing study for the fiscal year ending March 31, 2012 is in progress and accordingly, the contracts may be amended subsequently and related adjustment, if any, will be quantified upon completion of this study. However, in the opinion of the Management, the outcome of the study will not have material impact on the Company's results.

a) Terms/ rights attached to equity shares

The Company has issued only one class of equity shares having a face value of Rs. 2 per share (Previous year Rs. 5 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, except interim dividend.

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

During the year ended 31 March 2012, the amount of dividend per share, recognized as distributions to the equity shareholders of face value Rs. 2 each (Previous year Rs. 5 each) was Rs. 6 (Previous year : Rs. 10).

b) Shares reserved for issue under options

The Company had reserved issuance of 933,070 Equity shares of Rs. 2 each (Previous year : 455,410 shares of Rs. 5 each) for offering to eligible employees of the Company and its subsidiaries under Employees Stock Option Scheme (ESOS).

c) During the year, on 18 August 2011, the Company subdivided 10,576,434 fully paid equity shares of face value of Rs. 5 each into 26,441,085 equity shares of Rs. 2 each fully paid up pursuant to the approval of the shareholders at the Annual General Meeting on 15 July 2011

d) Employee share based plan

In August 2006, the Board of Directors approved and the Company adopted the "ESOP 2006" (the "Plan") under which not more than 204,080 shares of the Company's equity shares was reserved for issuance to employees. The Board of Directors determined that the options granted under the Plan would vest not less than one year and not more than five years from the date of grant. The exercise price of options shall be Rs 200 (face value of Rs. 10 each) on the grant date. The exercise period of the options is 4 years.

Employee share based plan- ESOP 2010 Scheme

In August 2010, the Board of Directors approved and the Company adopted the "ESOP 2010" (the "Plan") under which not more than 467,831 shares of the Company's equity shares was reserved for issuance to employees. The Board of Directors determined that the options granted under the Plan would vest not less than one year and not more than five years from the date of grant. The exercise price of options shall be Rs 900 (Face value of Rs. 5 each) on the grant date. The exercise period of the options is 4 years. The company has calculated the value of options using fair value, which is lower than the exercise price.

A provision is recognized for expected warranty claims on construction contracts completed, based on past experience of level of repairs and returns. It is expected that these costs would be incurred within two years from the balance sheet date, which generally coincides with the completion of warranty period of the contract. The assumption used to calculate the provision for warranties are based on the company's current status of contracts under execution and information available about expenditure more probable to be incurred based on the company's warranty period for contracts completed.

The Company provides performance guarantees to its customers which require it to complete projects within a specified timeframe. In the event of failure to complete a project as scheduled, or in case of a performance shortfall, the Company may generally be held liable for penalties in the form of agreed liquidated damages. The Company provides for liquidated damages when it reasonably expects that a delay in the completion of the project or a shortfall in the performance parameters might give rise to a claim from the customer. Liquidated damages are measured and recognized in accordance with the terms of the contracts with customers.

The Company provides for litigations, which is predominantly on account of disputes on statutory dues. The Company assesses each demand raised by the statutory authorities and based on responses and discussions with the attorneys and when there is a present obligation as a result of a past event, where the outflow of economic resources is probable and a reliable estimate of the amount of obligation, a provision for litigation is created. Instances when there is no present obligation or where the present obligation would probably not require outflow of resources or where the same cannot be reliably estimated, the same is disclosed as contingent liability in the financial statements. The Company reverses its provisions on receipt of a favorable order from the appropriate authority and when no further obligation is envisaged.

a) Employee benefits

i) Gratuity

In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan ("the Gratuity Plan") covering eligible employees. The Gratuity Plan provides for a lump sum payment to vested employees on retirement (subject to completion of five years of continuous employment), death, incapacitation or termination of employment that are based on last drawn salary and tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation on the reporting date and the Company makes annual contribution to the gratuity fund maintained by LIC of India.

ii) Compensated absences

The Company permits encashment of compensated absences accumulated by their employees on retirement, separation and during the course of service. The liability in respect of the Company, for outstanding balance of privilege leave at the balance sheet date is determined and provided on the basis of actuarial valuation performed by an independent actuary. The Company doesn't maintain any plan assets to fund its obligation compensated absences.

1. During the year, the Company has availed two Secured overdraft facilities, one for an amount of Rs. 3,975 Lakhs from Punjab National Bank, Chennai at an interest rate of 10.40%-11.25%, which is secured against the Fixed Deposits of Rs. 4,300 Lakhs placed with the bank and another for amount of Rs. 2,843 Lakhs from Bank of India at an interest rate of 11.20%, which is secured against the Fixed Deposits of Rs. 3,000 Lakhs.

2. On 15 February 2012, the Company has availed a Working capital loan repayable on demand from Punjab National Bank for an amount of Rs. 3,500 Lakhs repayable within 60 days from the date of disbursement and is secured by the entire current assets both present and future.

b) Variable Pay and Productivity Reward

The Company has a performance related Variable pay program and the computation of the eligible pay for employees was hitherto made annually using various parameters depending on functional goals. During the year, the Company modified its Variable pay program such that it is related to quarterly target and performance. Pursuant to this updated scheme, the company has paid part of the variable pay related to performance of first half of the current year ended 31 March 2012 amounting to Rs. 102 Lakhs and has also accrued for the variable pay payable based on performance of second half of the year amounting to Rs.576 lakhs. The company has also expensed off an amount of Rs 664 lakhs, paid as variable pay to employees based on achievement of functional goals for year ended 2010-11.

 
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