Directors Report of VST Industries Ltd.
Mar 31, 2022
The Directors of your Company have pleasure in presenting before you the Annual Report together with the Audited Statements of Accounts for the year ended 31st March, 2022.
FINANCIAL SUMMARY
DIVIDEND AND TRANSFER TO GENERAL RESERVE
The Directors are pleased to recommend a dividend of ? 140/- per equity share of ''10/- each on the paid up equity share capital of the Company, for consideration and approval of Members at the ensuing Annual General Meeting (AGM). It is proposed to carry forward an amount of ? 3000 lakhs to General Reserve.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as ''Listing Regulations''), the Company adopted a Dividend Distribution Policy which sets out the principles and factors that should be considered by the Board for determining the distribution of dividend to its shareholders. The policy can be accessed on the Company''s website at https://www.vsthyd.com/ mainsite/documents/Dividend-Distribution-Policy.pdf.
MATERIAL CHANGES AND COMMITMENTS
Except as disclosed elsewhere in the Report, there have been no material changes and commitments which affect the financial position of the Company that have ocurred between the end of the financial year to which the financial statements relate and the date of this Report. There has been no change in the nature of business of the Company during the year.
The paid up Equity Share Capital as on 31st March, 2022 was ? 1544.19 lakhs. The Company has neither issued shares with differential rights as to dividend, voting or sweat equity shares.
During the year under review, there has been no change in the VST Employee Stock Option Plan-2020 (VST-ESOP 2020) of the Company and further the said VST-ESOP
2020 are in compliance with SEBI (Share Based Employee Benefits and Sweat Equity} Regulations, 2021. During the financial year, the Company has granted 31,500 stock options pursuant to VST Employee Stock Option Plan 2020 (VST-ESOP 2020) to eligible employees.
The necessary disclosures for the year ended 31st March, 2022 in compliance with Regulation 14 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations,
2021 is available on the website of the Company at https:// www.vsthyd.com/mainsite/Annual-Reports.html.
MANAGEMENT DISCUSSION & ANALYSIS REPORT (MD&A)
Based on feedback from Members on the Annual Report and Accounts, this report includes MD&A as appropriate so that duplication and overlap between the Directors'' Report and a separate MD&A is avoided and the entire material with Company''s state of affairs is provided in a composite and comprehensive document.
The year 2021 -22 started off with COVID 2nd wave impacting business in the first two months. Restricted mobility and restrictions led to significant drop in consumption. As the 2nd wave receded, industry volumes picked up and improved quarter-on-quarter. COVID 3rd wave during the end of third and beginning of fourth quarters had minimal impact on volume recovery.
Industry volumes in 2021-22 were 3% lower than prepandemic level though 14% higher than 2020-21. This recovery was led by a combination of consumer trends broadly centered around affordable (convenient price point) aspiration, variety in the form of indigenous flavors and milder smoker experience.
Illegal non duty paid cigarettes continue to benefit from large price gap (>70% vs. tax paid cigarettes) and remain a threat for legal players.
Your Company recovered well after the initial COVID led business disruption by registering growth in volumes and key financial parameters. Market share was impacted primarily due to large competition brands benefiting from sustained priced stability at convenient price points. Your Company ended the year with upward volume momentum.
Total, the company''s flagship brand and leader in the capsule segment, continues to enjoy strong equity among adult smokers in mid market segment in large markets of North, East and South. Total is now present in almost all major markets across the country and is only the second brand to have such a wide appeal and presence.
Total''s new variant with indigenous flavors launched this year generated good consumer traction in some large markets. This variant is poised for further growth in the next year. The new ''master brand'' architecture was introduced starting with the lead variant. This new architecture will bring alive the brand story centered around ''innovation, quality, modernity'' and establish coherence among variants. These initiatives will also help in overcoming the challenges of low priced ''me-too'' competition brands with heavy inputs. Similar exercise is being carried out for other trademarks such as Editions and Charms.
Your Company continues to expand its geographic footprint by entering new markets such as Gujarat and Maharashtra while strengthening presence in already existing geographies. Significant progress has also been made in automating sales operations leveraging digital platforms
Your Company''s leaf function has registered a strong performance with an elevation in quality of the products offered and achieved a profit of '' 25 Crores. By leveraging
its expertise in all varieties of tobaccos, your Company procured high quality tobaccos for its own manufacturing in line with the changing volumes. It continues its domestic sales in addition to exports in spite of operational disturbances due to the pandemic.
Specific focus is directed towards the need to foster your Company''s development of new varieties and high nicotine tobaccos to meet the changing requirements of tobacco in domestic and international markets. These developments are set in motion to cater to the needs of established customers while also attracting new customers year after year.
In the backdrop of changing climatic conditions, where the farming community faces challenges on cultivation your Company is paying attention to farmers'' interest to sustain the tobacco cultivation. It is satisfying to note that your Company''s farmers continue to grow tobacco with the lowest pesticide residue levels and low TSNAs (Tobacco Specific Nitrosamines) that are well within international standards. This also resulted in the development of backward regions in the leaf growing areas.
To further strengthen the commitment to Social and Economic upliftment of Companies'' tobacco growing areas, your Company is continuing the sponsorship of initiatives like House Hold Toilets, Solar street lighting and school infrastructure to ensure higher standard of living of the farmers and their families
PRODUCTION AND PLANT MODERNISATION
Your Company has gained a competitive edge against other products in the market, with the introduction of innovative products from your Company''s end. This upgrade in the products have been well received by the consumers.
The focus at the plants continue to be extended towards enhancement of capital efficiencies and cost optimisation.
RESEARCH & DEVELOPMENT ACTIVITY
To offer the differentiated products with high Product Quality, your Company''s R&D has played a key role. This focus resulted in the development of quality blends with innovative capsule filter / differentiated flavor variants for new brands, which have been well accepted by consumers in the market place. The R&D lab of your Company received a "Certificate of continuationâ of ISO 17025:2017, from NABL, Quality Council of India, Government of India, for the year 2021-22.
Achievement of the business goals are intrinsically connected to employee engagement and motivation. Your Company is committed to providing a safe, healthy and inclusive work environment for all its employees and staff where they experience the joy of growth and development. As we strive to improve health and happiness, our first
priority in 2021 was to support and guide employees who are returning to work in person in a world where COVID-19 remains a factor.
For our people there are three key drivers that provide impetus to all internal people initiatives - Lead & Develop, Attract & Engage, Transform & Reinvent. Focused in the development of internal talent, your Company has co created with the staff new set of Managerial Competencies that are designed to drive long term growth for the company and individuals. Individual Development Plans have been drawn out to ensure this growth is charted out for each employee to enable him / her to achieve their highest potential. Training programmes have been rolled out to facilitate new age skills that are important for the digital transformation of the organisation. The first ever virtual training programme was conducted for the sales team in 2021.
Driving a high performance culture has been the long term objective for your Company and therefore your Company practices the Management by Objectives method to drive individual performance in the organisation. The performance curve for the year 2021 has been considerably flattened to ensure adequate recognition of performance at the individual level. This is a cultural shift that your Company has embarked upon that will bear fruits in the future.
Your Company has been focused to have a robust recruitment strategy balancing between buying vs building talent internally. The year 2021 has seen good traction for the employer brand of VST attracting senior and niche talent from all over India as well as abroad. Your Company has launched the VST Gold Star Recognition Program to create a culture of appreciation and recognise desired behaviors for success where there are five categories where internal permanent employees will be recognised every quarter.
Your Company, rolled out several engagement initiatives to help employees connect better to the leadership and each other. Indian festivals were celebrated together as one company across state borders.
Your Company has been focused on recruiting, retaining and developing diverse employees, creating awareness of diversity issues and embedding accountability for diversity throughout the organisation.
First ever ESOP was rolled in the company to the Leadership Team, in recognition to their continuous efforts of driving business performance of your company.
To create a safe environment for its female employees, your Company has constituted an Internal Complaints Committee as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act,
2013 and the Rules framed there under. However, no cases were filed during the year under the above Act.
As of 31st March 2022, your Company''s workforce was 773 employees, with 369 Management staff and 404 Workmen.
ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES
300 employees and 105 contract workmen have undergone EHS training, mock drills were also conducted for workers and management during the period to comply with the Company''s EHS guidelines. Half-yearly and Annual EHS audits of the Company''s operations were carried out to ensure compliance of EHS requirements. ISO 14001:2015 & ISO 45001:2018 Surveillance Audit was held at Azamabad & Toopran premises by M/s. Rina India Pvt. Ltd. and received a continuation certificate for ISO 14001:2015 & ISO 45001:2018 for both Azamabad & Toopran locations. Consent for Operation (CFO) was renewed for Toopran factory from Telangana State Pollution Control Board (TSPCB) for a period of 10 years - 2021 to 2031.
Your Company has received "Safety Innovation Award 2021â from the Institution of Engineers (India), New Delhi.
Your Company has renewed "Gold Ratingâ for IGBC Green factory building certification for Toopran factory from CII, Hyderabad.
The world is witnessing a very unique & unprecedented situation due to the Novel Coronavirus (COVID -19). Going by the dynamic nature of the COVID-19 pandemic with multiple waves and a variety of variants, your Company was more proactive in combating the threats posed by the virus.
Your Company has taken up several initiatives over the last one year that have been aimed at ensuring the wellbeing of our people as well as the extended partner network that is critical for business. Most of these initiatives have been path-breaking for the company as well as some of them unique to the whole industry.
Under the VST Cares banner, your Company had taken up several initiatives to support internal employees through the difficult times of the Covid Pandemic Delta variant in 2021. This included re-designing internal policies to ensure support for loss of life of employees. Medical support in the form of remote medical consultation in partnership with leading health care brands in the country and additional doctors were empaneled to provide regular support for employees. Portable Oxygen generators were made available in all regional and remote offices, in case of incidents of Covid, your Company sent a Covid Kit comprising of all necessary equipment and basic medicines to each employee and their family. Additional monetary support was extended for hospitalisation cases through the medical insurance policy.
Covid Vaccination drives not only covered all VST employees but was also extended to their immediate families.
Your Company took initiative during the year to support the frontline Dealer staff and in this regard your Company employees donated 1 days'' salary as Covid support to Dealers staff.
Your Company has installed 1Megawatts PV technology solar power plant (800 KW for Azamabad and 200KW for Toopran plants). The solar plant has been commissioned in January 2022. This plant was constructed by using 2226 numbers of solar modules and it covers an area of 83,247 sft, which is VST''s initiative on renewable energy towards the sustainable development. Your Company''s focus is on accelerating the usage of renewable sources of energy and contributing to the goals of sustainability adopted by the Company.
This Solar power plant generates 25% of our electricity requirement and reduces 29% of Carbon foot print.
As a part of reducing the emissions and carbon footprint, your Company has Converted Boiler primary fuel from HSD to cleaner eco-friendly fuel Piped Natural gas (PNG) in boiler operations instead of using High speed diesel (HSD). Piped Natural gas (PNG) is economical, safer and one of the cleanest burning fuel and helps improve the quality of air.
Your Company has taken this conversion towards environmental benefits to reduce the Carbon foot of 36% and fuel cost saving by '' 130 Lakhs per Annum.
The Profit after Tax of your Company for the year is '' 320.23 crores.
Your Company follows a SLR model (Safety, Liquidity and Return) in deployment of earmarked funds.
The changes (change of 25% or more) as compared to the immediately previous financial ratios of the Company including those listed out and specified under Schedule V (B)(1 )(i) read with Regulation 34(3) and 53(f) of the Listing Regulations, as amended are disclosed in Note No.32 of Notes on Financial Statements to the Accounts in the Annual Report.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
The Company has not taken any loans or given guarantees or made investments in any other Company covered and provided under Section 186 of the Companies Act, 2013 during the year.
The Credit Rating Information Services India Limited (CRISIL) has re-affirmed the rating of your Company to "FAAA/Stable" for Fixed Deposit Schemes, "AA /Stable" for Long Term Non-Convertible Debentures and "A1 " for Non-fund based liabilities (Letter of Credit and Bank Guarantee).
Your Company has not accepted any deposits from public and as such no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet.
Pursuant to the provisions of Sections 124 and 125 of the Companies Act, 2013, the Company has transferred on due dates, the unpaid or unclaimed dividends for the financial year ended 31st March, 2014 to the Investor Education and Protection Fund (IEPF) established by the Central Government.
Further, as per the provisions of Investor Education and Protection Fund (Uploading of Information regarding unpaid and unclaimed amounts lying with Companies) Rules, 2012, the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company as on 31st March, 2021 on the website of the Company (www. vsthyd.com), and also on the website of the Ministry of Corporate Affairs, Government of India.
The details of the dividend due for transfer to IEPF as on 31st March, 2022 is given in the Report on Corporate Governance. The Company has completed the process of complying with the provisions of Section 124(6) of the Companies Act, 2013 read with the IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 and as amended by the Second Amendment Rules of 2017 by transferring 4514 shares on 29th September, 2021.
Your Company has communicated to the Members whose share certificates have been returned undelivered to the Company that these would be transferred to the Unclaimed Suspense Account if not claimed by them, as required under Regulation 34(3) read with Schedule V[F] of the Listing Regulations as amended.
The status of unclaimed shares as on 31st March, 2022 is given in the Report on Corporate Governance.
In terms of Regulation 34 of the Listing Regulations, a Report on Corporate Governance along with Compliance Certificate issued by the Statutory Auditors of the Company is annexed as "Annexure A" and forms part of this Report.
Your Company has taken adequate steps for strict compliance with the Corporate Governance guidelines, as amended from time to time.
The Board met four times during the financial year. The Board and Committee Meetings are pre-scheduled and a tentative calendar of the Meetings finalised in consultation with the Directors are circulated to them in advance to facilitate them to plan their schedule. However, in case of special and urgent business needs, the approval is obtained by way of circular resolution. The details of the meetings held during the year are given in the Corporate Governance Report.
a. Your Company maintains an adequate and effective internal control system commensurate with the size and complexity. Your Company also has well documented Standard Operating Procedures (SOPs) for various processes which are periodically reviewed for changes warranted due to business needs.
b. Your Company remains committed to improve effectiveness of internal financial controls and processes which would help in efficient conduct of its business operations, ensure security to its assets and timely preparation of reliable financial information.
The policies and procedures laid out by your Company capture the control environment prevalent in the organisation. Over a period of three years, the business processes of your Company is reviewed through an internal audit process which reviews the systems on a continuous basis. The objective being to identify potential risk areas and come up with a comprehensive risk mitigation plan.
The Audit Committee of your Board met four times during the year. Review of audit observations covering the operations, consideration of accounts on a quarterly basis and monitoring the implementation of audit recommendations were some of the key areas which were dealt with by the Committee. The Statutory Auditors/Internal Auditors were invited to attend the Audit Committee Meetings and make presentations covering their observations on adequacy of internal financial controls and the steps required to bridge gaps, if any. Chief Financial Officer is a permanent invitee to the Audit Committee and other executives of the Company are invited to address, respond or provide clarifications to relevant issues as and when required.
Your Company has constituted the Risk Management Committee as mandated by Listing Regulations to frame, monitor and implement the risk management plan for the Company. The Committee comprises of Directors and Senior Management as its Members as prescribed under Regulation 21 of the Listing Regulations as amended. The Company Secretary is the Secretary of the Committee. The Committee is responsible for monitoring and reviewing the risk management plan and ensuring its effectiveness.
Pursuant to the amendments notified by SEBI in its circular dated 5th May, 2021, the Board at its meeting held on 27th July, 2021 revised the terms of reference of Risk Management Committee to include the Business Continuity Plan (BCP), sustainability and reviewing the risk management policy at least once in two years.
Your Company has always endeavored to bring together elements of best practices for risk management in relation to existing and emerging risks faced by it at both strategic and operating level. The Company faces a variety of risks from external and internal sources. However, the objective is to be aware of different kinds of risks affecting the business. Rather than eliminating these risks, the decision making process at your Company considers sensible risk taking, and thereby proactive steps are taken to ensure that business is undertaken in an environment which encourages a reasonable amount of risk taking and enables the Company to leverage market opportunities effectively.
The Board is responsible for determining the nature and extent of the principal risks that your Company is willing to take to achieve its strategic objectives and for maintaining sound risk management system. With the support of the Audit Committee, it carries out a review of the effectiveness of your Company''s risk management process covering all material risks including strategic, financial, operational and also compliance levels.
Your Company has substantial operations all over the country and competes on the basis of brand appeal, loyalty, price value connotations and strong trade relationships. The Company''s position is influenced by the economic, regulatory and political situations both nationally and at a state level and of the competitors. The principal risks impacting your Company''s business and steps undertaken to mitigate them are as under:
(i) Regulatory restrictions could have an impact on long
term revenue growth of the Company.
The Company operates under increasingly stringent regulatory regime (COTPA guidelines on packaging and labeling, advertising and promotion). This further gets complicated with adoption of differing regulatory regimes in different states and/or lack of consensus on interpretation/application.
Such restrictive regulations which are subjected to interpretation could result in not only penalties being imposed/loss of reputation, but also impair the Company''s ability to communicate with adult smokers and/or to meet consumer expectations through new/ innovative brand launches or geographic expansion.
The Company addresses this risk by engaging in continuous social dialogue with stakeholders and regulatory community through industry bodies. At the same time, it works on developing strategies and capabilities to effectively launch competitive and consumer acceptable brands within the changing regulatory environment.
(ii) Taxation changes could have an impact on short-term revenue growth of the Company.
The Company''s business is subjected to GST, excise and other cesses as may be made applicable, which could require the Company to take up product prices and in absence of such action, impact its business. The impact increases when due to changes in economic situation, consumer''s disposal income reduces, resulting in down-trading to cheaper cigarettes including non-duty paid illicit cigarettes or alternative tobacco products.
Such risks are addressed by the company through: (a) engagement with tax authorities at levels where appropriate; (b) regular management review to build a well laddered brand portfolio across new segments including new brand creation; and (c) capability buildup through investments in distribution infrastructure to increase geographical spread.
(iii) Regional disruptions could have an impact on short-term revenue growth of the Company as well as reputation.
Regional disturbances through state level restriction on trade or through terrorism and political violence including bandhs, strikes, have the potential to disrupt the Company''s business operations. Such disruptions result in potential loss of assets and increased costs due to more complex supply chain arrangements and/ or maintaining inefficient facilities.
The Company addresses this risk through developing secure multiple sourcing/delivery (supply chain) strategy and through Insurance cover and business continuity planning.
(iv) Counter party risk could have a potential impact on Company''s capital and profitability.
The Company generates positive cash flows which are predominantly invested with financial institutions and
mutual funds. Delay and/or default in settlement on maturity of such investments could result in liquidity and financial loss to Company.
Such risks are mitigated through investment based on principle of Safety; Liquidity & Returns (SLR) and with institutions having strong short-term and long-term ratings assigned by CRISIL.
The loss or misuse of sensitive information, or its disclosure to outsiders, including competitors and trading partners, could potentially have a significant adverse impact on the Company''s business operations and/or give rise to legal liability. For this purpose, the Company has put in place information technology policies and procedures under its cyber security which are reviewed regularly. Further, information technology controls like data back-up mechanism, disaster recovery center, authorisation verification, etc. have also been established.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
Your Company has formulated a Corporate Social Responsibility Policy with the objective to promote inclusive growth and equitable development of identified areas by contributing back to the society. Over the years, your Company has been involved in various social activities focusing on Health & Sanitation like construction of toilets under Swachh Ghar mission, Environment sustainability and Education.
The Company has with the help of Gramalaya, a non-profit organisation, constructed toilets in individual homes (of farmers living) in and around Jogulamba-Gadwal district of Telangana where your Company has its operations, under the ''Swachh Ghar'' programme of your Company. In addition to construction of toilets, the villages and the communities in the area are also sensitised regarding the importance of health & sanitation. Over 1685 household toilets have already been constructed during the financial year, and your Company has plans to extend it further to other houses in the same area and thereafter extend it to other areas.
Your Company has taken up an initiative of supporting environment sustainability by installing 400 solar street lights in 7 villages/towns in Jogulamba-Gadwal districts of Telangana.
In addition to the above, your Company sponsored '' 175 Lakhs as Covid support to KIMS Foundation & Research Centre in Hyderabad for setting up Oxygen Generator plant and also sponsored a CII initiative to build ten bedded Covid hospital for the Hyderabad Police apart from distribution of masks and vaccinations.
Pursuant to the provisions of Section 135 read with Schedule VII of the Companies Act, 2013 as amended by the Companies Amendment Act of 2019 & 2020, the Corporate Social Responsibility (CSR) Committee of the Board of Directors was formed to recommend the policy on Corporate Social Responsibility and monitor its implementation. The composition of the CSR Committee is given in the Annual Report on the CSR activities. The CSR policy and the projects approved by the Board are available on the Company''s website at : https://www.vsthyd.com/ mainsite/documents/corporate-social-responsibility-policy.pdf.
The CSR Policy and the Annual Report on CSR activities is annexed herewith as "Annexure B" and forms part of this Report.
BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT
The Listing Regulations mandates inclusion of Business Responsibility and Sustainability Report (BRSR) as part of the Annual Report for top 1000 listed entities based on market capitalisation with effect from the financial year 2022-23. However, your Company has voluntarily adopted the report for the financial year 2021-22 which forms part of this Report.
The related party transactions entered into by the Company during the year are in its ordinary course of business and on arm''s length basis. There were no materially significant related party transactions between your Company and the Directors, Promoters or Promoter group, Key Managerial Personnel and other designated persons which may have a potential conflict with the interest of your Company at large. During the year, the Company has not entered into any transactions with any person or entity belonging to the promoter or promoter group which holds 10% or more shareholding in the listed entity other than the corporate actions applicable uniformly to all the shareholders. Prior approval for all the related party transactions is obtained from the Audit Committee.
Form AOC-2 pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 for disclosure of particulars of contracts/ arrangements, entered into by your Company with related parties for the year ended 31st March, 2022 is annexed herewith as "Annexure C" and forms part of this Report.
Pursuant to the provisions of the Companies Act, 2013 as amended and Listing Regulations, the performance evaluation of the Board, the committees of the Board and individual Directors [including Independent Directors and
Chairperson] has been carried out. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.
The performance evaluation of the Chairman and the Non-independent Directors was carried out by the Independent Directors. The Board of Directors expressed their satisfaction with the evaluation process.
Nomination and Remuneration Committee has formulated a policy relating to remuneration of directors, key managerial personnel and other employees which has been revised and approved by the Board. The Remuneration Policy and the criteria for determining qualification, position, attributes and independence of a Director as required under Section 178(3) of Companies Act, 2013 are stated in the Corporate Governance Report. The policy is also placed on the website of the Company and can be viewed at https://www.vsthyd.com/mainsite/documents/ remuneration-policy.pdf.
MEETING OF INDEPENDENT DIRECTORS
During the financial year under review, all the Independent Directors of the Company met on 27th April, 2021 through video conference, inter alia, to discuss :
⢠Evaluation of the performance of the Non-Independent Directors and the Board as a whole.
⢠Evaluation of the performance of the Chairman of the Company, Chairman of the Committee''s considering the views of the Executive and Non-Executive Directors.
⢠Evaluation of the quality, content and timelines of flow of information between the Management and the Board that is necessary for the Board to perform its duties effectively and reasonably.
In terms of Section 177 of the Companies Act, 2013, and Regulation 22 of Listing Regulations, the Company has formulated a Whistle Blower Policy as a vigil mechanism to encourage all employees and Directors to report any unethical behavior, actual or suspected fraud or violation of the Company''s ''Code of Conduct and Ethics Policy'' which also provides for adequate safeguard against victimisation of person who use such mechanism and there is a provision for direct access to the chairman of the Audit Committee in appropriate/exceptional cases. The details of the Whistle Blower Policy is given in the Corporate Governance Report and also posted on the Company''s website at: https:// www.vsthyd.com/mainsite/documents/whistle-blower-policy-2022.pdf.
DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors retiring by rotation Mr. Naresh Kumar Sethi
Mr. Naresh Kumar Sethi [DIN:08296486], a nominee of the Raleigh Investment Company Limited, a British American Tobacco group Company was appointed as a Director of the Company with effect from 14th December, 2018 whose office is subject to retirement by rotation. His appointment was approved by the Members at the Annual General Meeting of the Company held on 28th August, 2019.
Pursuant to Article 93 of the Articles of Association of your Company, Mr. Naresh Kumar Sethi is liable to retire from the Board and being eligible, offers himself for re-election. Your Board recommends his reappointment.
Mr. Naresh Kumar Sethi''s [56 years] career spans 32 years as a Global Marketer, General Manager and Strategy Transformation Officer. He has held various marketing roles in India, Indonesia, West Africa Area and Australasia prior to moving to Japan as President of British American Tobacco, Japan. Mr. Sethi is a chemical engineer from Indian Institute of Technology, Varanasi and has an MBA from the Indian Institute of Management, Calcutta, India.
Mr. Naresh Kumar Sethi is not a Director in any other Company in India. He is a Member in CSR Committee, Stakeholders Relationship Committee, Risk Management Committee and the Nomination & Remuneration Committee. Mr. Naresh Kumar Sethi does not hold any shares in the Company and is not related to any other Director of the Company.
Independent Directors
At the Annual General Meeting of the Company held on 28th August, 2019, the Members have approved the appointment of Ms. Rama Bijapurkar, Mr.Sudip Bandyopadhyay and Mr. Rajiv Gulati as Independent Directors of the Company in accordance with Section 149 of the Companies Act, 2013, with effect from 1st April, 2019, 1st June, 2019 and 26th July, 2019 respectively to hold the office for a term of five consecutive years from their respective dates.
All the Independent Directors have given a declaration in terms of Section 149(6) of the Companies Act, 2013 as amended and Regulation 25 and 16(1)(b) of the Listing Regulations as amended for the financial year ended 31st March, 2022, that they meet the criteria of independence. They also declared that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties as an Independent Director with an objective independent judgment and without any external influence. The Board carried out an assessment of the declarations and took the same on record.
None of the Independent Directors are related to any other director of the Company.
Key Managerial Personnel
The Managing Director & CEO Mr. Aditya Deb Gooptu, the Chief Financial Officer Mr. Anish Gupta and the Company Secretary Mr. Phani K. Mangipudi are the Key Managerial Personnel as per the provisions of Section 203 of the Companies Act, 2013.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 134(5) of the Companies Act, 2013 your Directors confirm that:
1. i n the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
2. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as on 31st March, 2022 and of the statement of profit and loss and cash flow of your Company for the period ended 31st March, 2022;
3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis.
5. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and were operating effectively; and
6. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems were adequate and operating effectively.
Criteria for selection and appointment of Directors
The Nomination and Remuneration Committee is responsible for identifying, screening, recommending to the Board a candidate for appointment as Director. Based on the recommendation of the Committee, the Board identifies the candidate for the position of Director. While identifying the candidate, inter alia the following are taken into consideration :
⢠Qualification, experience and expertise;
⢠Skills, abilities and personal contribution;
⢠Commitment to spare time to attend Board/Committee and other Meetings as may be necessary;
⢠Diversity of perspectives brought to the existing Board;
⢠Existing composition of the Board.
The qualification of the candidate is scrutinised by the Committee considering educational degree, college/ institution, professional qualification if any, etc. In addition, there is also a criteria regarding minimum work experience and the positive attributes such as leadership quality, level of maturity, management capabilities, strategic vision, problem solving abilities, etc., on which the candidate is judicially scrutinised.
In case of an internal candidate, the senior management employee is also evaluated on the above criteria before being recommended for promotion as a Director. While considering re-appointment of the Directors, their performance evaluation report is considered.
In case of Independent Director, the independence, integrity, expertise, experience and interest pecuniary or otherwise as per the statutory provisions are also assessed before appointment.
SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There are no significant or material orders passed by the Regulators, Courts or Tribunals which impact the going concern status of the Company and its future operations. However, Members'' attention is drawn to the following:
TAXATION
i. Luxury Tax
The then Government of Andhra Pradesh introduced a levy of luxury tax on cigarettes and its virus was challenged before the then High Court of Andhra Pradesh and before the Supreme Court which was struck down. The Commercial Tax department claimed that during pendency of the matter before the courts between 1999-2005, your Company had collected luxury tax amounting to '' 34.86 crores but not paid to the Government. Your Company denied collecting luxury tax and the litigation on the same is now pending before the appellate authority of the department and the High Court of Telangana.
ii. Entry Tax
Entry Tax levy by the States of West Bengal, Jharkhand and Assam has been challenged before the respective State High Courts by your Company, basis the directions of the Hon''ble Supreme Court. Demand of interest on entry tax was challenged before the High Court of Allahabad and is pending adjudication. In the
State of West Bengal, the High Court remanded the matter to Taxation Tribunal and the said Tribunal was pleased to allow the Petitions filed by your Company and it is likely the State may prefer an appeal before the High Court of Kolkata.
iii. Excisea. Wrapping Materials
The Excise department has issued show cause notices demanding payment of duty of '' 4.51 crores on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by your Company without payment of duty during the period April 1996 to July 2015. Demand for the period till March 2002 has been adjudicated and the CESTAT decided in favour of your Company. Department preferred an appeal before the Supreme Court which is pending. Demands for period after March, 2002 till July, 2015 are yet to be adjudicated by the original authority.
Your Company has received show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse since January 2005 till June 2017 amounting to '' 14.52 crores. Demand for the period till October, 2013 has been adjudicated and the CESTAT decided in favour of your Company. Department preferred an appeal before Supreme Court which is pending. Demands for period after October, 2013 till June, 2017 are yet to be adjudicated by the original authority.
Your Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on various input services on the ground that the same are not in relation to the manufacture of final products. Upon adjudication, credit on most of the services was allowed in favor of your Company. Some of them have been disputed. Since 2005 till 2017, the matters are pending before various adjudicating authorities and before the CESTAT and are being effectively contested.
PUBLIC INTEREST LITIGATION (PIL)
i) Your Company has been impleaded in the petition filed in the Supreme Court by an NGO called ''Centre for Transforming India'' against the Union of India along with other cigarette manufacturers, Tobacco Institute of India, Bidi Manufacturers and Bidi Manufacturers'' Association, seeking prohibition/ban of the
manufacture, storage and sale of all forms of tobacco within the territory of India. This is being contested.
ii) Petitions have also been filed in other courts such as High Court of Madhya Pradesh - Jabalpur, National Green Tribunal, Delhi seeking ban on sale of cigarettes and before High Court of Madhya Pradesh - Indore Bench seeking directions to mention tar and nicotine content on cigarette packs by the manufacturers. All of the above are being effectively contested by your Company.
FINANCIAL SERVICES BUSINESS
The Company petition filed by the Official Liquidator before the High Court of Andhra Pradesh (now Telangana High Court) seeking directions against some of the Ex-Directors of ITC Agro Tech Finance and Investments Limited (ITCATF), the Company in liquidation, into which one of the subsidiaries of your Company, viz. VST Investments Limited was amalgamated, and its related matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)
i. In view of the provisions of COTPA, various restrictions such as ban on advertising in print, visual media and outdoors, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years, etc. have been in force. Printing of pictorial warnings on cigarette packets, came into effect from 31st May 2009 were further revised and the pictorial warning covering 85% of the front and back side of the packets was implemented w.e.f. 1st April 2016 and is being duly complied with by your Company.
ii. Your Company also filed a writ petition in the Hon''ble High Court of Andhra Pradesh (now Telangana High Court) challenging The Cigarettes and Other Tobacco Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the notifications issued there under (including those seeking implementation of graphic health warnings) should be quashed. The said writ petition has been admitted but no interim orders were passed by the Hon''ble Court.
iii. Before the High Court of Karnataka, a Writ Petition was filed by Tobacco Institute of India (TII) on behalf of your Company and other manufacturers against the proposed notification dated 15th October 2014 by Health Ministry to print health warning on both sides
of the pack occupying 85% of space. The 85% health warning came into effect from 1st April 2016. Your Company also filed a Writ Petition before the High Court bench at Dharwad against the implementation of 85% health warning. The Hon''ble Supreme Court on hearing a PIL filed by Health for Millions, constituted a Bench before the Karnataka High Court to hear all the matters relating to graphical health warning. The Writ Petitions filed by TII and your Company were heard before the Bangalore Bench and it was held on 15th December 2017 that the amendment made to the Packaging Rules imposing 85% graphic health warning is ultra vires the Constitution. Against the said Judgment, an appeal was filed by the Ministry of Health before the Supreme Court. A stay has been granted on the said judgement and is pending before the Supreme Court.
The then Government of Andhra Pradesh had filed a land grabbing case against your Company in 1991 in relation to a piece and parcel of vacant land which has been under possession and occupation by your Company for over four decades. By its judgment dated 28th July 2010, the Special Court had held that your Company is not a land grabber but had given the State Government the right to initiate proceedings to recover possession of the land at some future date. Against this part of the judgement, your Company filed a writ petition before the then Hon''ble High Court of Andhra Pradesh to expunge that part of the Order giving such liberty to the Department despite the fact that your Company has already been declared not to be a land grabber.
The writ petition is still pending. The State Government has also filed a writ petition in the Hon''ble High Court of Andhra Pradesh seeking to set aside the said judgment of the Land Grabbing Court. An interim Order was passed restraining your Company from changing the status of the land or creating any third party interest therein. Your Company is taking all the necessary steps for speedy disposal of the above writ petitions which are pending before the Court.
One more case of land grabbing was filed by the then Government of Andhra Pradesh against your Company in the year 1989 on a piece of land along with building called ''Lal-e-Zar'', before the Special Court. In the year 2010, the Special Court passed a judgment stating that your Company is not a land grabber. After 7 years, the Government of Telangana filed an appeal before the Hon''ble High Court of Telangana and Andhra Pradesh seeking a direction from the court that the nature of the land is not to be altered and no third party interest to be created. Your Company filed a counter and vacate stay application seeking permission to construct on the
said land. Judgment was pronounced on the vacate stay petition allowing your Company to construct but with certain conditions. The State Government preferred an appeal before the Supreme Court which was dismissed.
The information required pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended in respect of employees of the Company, are annexed herewith as "Annexure D" and forms part of this Report. The statement containing particulars of employees as required under Section 197 of the Act read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in a separate annexure forming part of this Report. However, in terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees'' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing AGM. In case any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary of the Company.
The Nomination and Remuneration Committee of the Company has affirmed that the remuneration is as per the Remuneration Policy of the Company.
Your Directors take this opportunity to record their deep appreciation of the continuous support and contribution from all employees of your Company.
As required under Section 92(3) of Companies Act, 2013 and Rule 12(1) of Companies (Management and Administration) Amendment Rules, 2020, Annual Return is available on the Company''s website at https://www.vsthyd.com/mainsite/ Annual-Returns.html.
Statutory Auditors
In compliance with the provisions of Sections 139 and 141 of the Companies Act, 2013 as amended and Companies (Audit and Audit Rules), 2014, including any statutory modification(s), re-enactments and amendments thereof, for the time being in force, M/s. BSR & Associates, LLP, Chartered Accountants, were re-appointed as the Statutory Auditors of the Company to hold office for a second term of five years from the conclusion of the 90th AGM to the conclusion of the 95th AGM. The Report given by the Auditors on the financial statements of the Company is part of the
Annual Report. There has been no qualification, reservation or adverse remark in their Report. During the year under review, the Auditors have not reported any matter under Section 143(12) of the Companies Act, 2013 and hence, no detail is required to be disclosed under Section 134(3)(ca) of the Companies Act, 2013.
Secretarial Auditor
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company appointed M/s. Tumuluru and Company Firm as Secretarial Auditor of the Company for the financial year 2021-22. The Secretarial Audit Report is annexed herewith as "Annexure E" and forms part of this Annual Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
COMPLIANCE WITH SECRETARIAL STANDARDS
Your Company has complied with applicable Secretarial standards, i.e. on Meetings of the Board of Directors [SS-1] and on General Meetings [SS-2] issued by The Institute of Company Secretaries of India (ICSI) and approved by the Central Government under Section 118(10) of the Companies Act, 2013.
The maintenance of cost accounts and records as specified by the Central Government under Section 148(1) of the Companies Act, 2013 are not applicable for the business activities carried out by the Company.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
Information in accordance with clause (m) of sub-section (3) of Section 134 of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014 is given in the "Annexure F" forming part of this Report.
SUBSIDIARY/ASSOCIATES/JOINT VENTURES
Addition or cessation of subsidiaries, associates or joint ventures is not applicable to the Company as the Company does not have any subsidiary company, associates and joint ventures.
INSOLVENCY AND BANKRUPTCY CODE 2016
There was no application made or any proceedings pending under the Insolvency and Bankruptcy Code 2016(31 of 2016) during the financial year.
Your Company has not raised any funds during the year through preferential allotment or Qualified Institutional Placement, as a result question of providing details of utilisation of such funds does not arise.
Your Company does not have any debentures and as a result the requirement to appoint debenture trustees does not arise.
A vibrant brand portfolio based on consumer relevant innovation remains a top priority for your Company. This will be supported by investments in generating superior consumer insights, research and development, best-in-class product quality and a fully integrated digital ecosystem.
The Directors are grateful to all valuable stakeholders of the Company viz. customers, shareholders, dealers, vendors, banks and other business associates for their excellent support rendered during the year. The Directors also acknowledge the unstinted commitment and valued contribution of all employees of the Company.
On behalf of the Board,
Naresh Kumar Sethi
Chairman
DIN :08296486 Dated this 26th day of April, 2022 Azamabad, Hyderabad - 500 020
Mar 31, 2018
The Directors of your Company have pleasure in presenting before you the Annual Report together with the Audited Statements of Accounts for the year ended 31st March, 2018.
Financial Results (Rs. Lakhs)
|
2017-18 |
2016-17 |
|
|
Revenue from Operations |
138244 |
228137 |
|
Profit after Tax |
18189 |
15153 |
|
Retained earnings brought forward from previous year 29008 |
27700 |
|
|
Balance available for Appropriation |
47197 |
42853 |
|
Amount transferred to General Reserves |
900 |
835 |
|
Dividend paid * |
11581 |
10809 |
|
Corporate Dividend Tax thereon |
2358 |
2201 |
|
Balance in retained earnings |
32358 |
29008 |
|
* Note :- The financial statement for financial year 2017-18 are prepared under Ind AS (Indian Accounting Standard) for the first time. The financial statement for financial year 2016-17 has been reinstated in accordance with Ind AS for comparative information. |
||
|
KEY RATIOS |
||
|
Earnings Per Share (Rs.) |
117.79 |
98.13 |
|
Dividend Per Share (Rs.) |
75.00 |
70.00 |
- Value creation during the decade has been Compounded Annual Growth Rate (CAGR), 11.4% in Earnings Per Share (EPS) and 14.1% in Dividend Per Share (DPS).
The Board has approved and adopted a Dividend Distribution Policy and the same is disclosed on the Companyâs website at http://www.vsthyd.com/iZ Dividend-Distribution-Policy.pdf.
DIVIDEND
The Directors are pleased to recommend a dividend of Rs.77.50 per equity share of Rs.10 each on the paid up equity share capital of the Company, for consideration and approval of Members at the Annual General Meeting (AGM). It is proposed to carry forward an amount of Rs.900 lakhs to General Reserve.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities, based on market capitalization, are required to formulate a Dividend Distribution Policy.
MATERIAL CHANGES AND COMMITMENTS
Except as disclosed elsewhere in the Report, there have been no material changes and commitments made between the end of the financial year of the Company and the date of this Report.
SHARE CAPITAL
The paid up Equity Share Capital as on 31st March, 2018 was Rs.1544.19 lakhs. The Company has neither issued shares with differential rights as to dividend, voting or otherwise nor issued shares (including sweat equity shares) to the employees or Directors of the Company, under any Scheme.
No disclosure is required under Section 67(3)(c) of Companies Act, 2013 in respect of voting rights not exercised directly by the employees of the Company as the provisions of the said Section are not applicable.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
Your Company has formulated a Corporate Social Responsibility Policy with the objective to promote inclusive growth and equitable development of identified areas by contributing back to the society. Over the years, your Company has been involved in social activities like provision of clean water etc.
Your Company has been actively discouraging child labour involvement in tobacco growing/processing. Your Company has also facilitated installation of solar lights in the tobacco growing areas in association with the village panchayats.
Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, the Corporate Social Responsibility (CSR) Committee of the Board of Directors was formed to recommend the policy on Corporate Social Responsibility and monitor its implementation. The CSR policy is available on the Companyâs website at : www.vsthyd.com/i/CSRPolicy.pdf. Your Company has initially decided to focus on âSanitationâ as a key area.
The Company has with the help of Gramalaya, a non-profit organization constructed toilets in individual homes (of farmers living) in and around Jogulamba-Gadwal and Medak districts of Telangana where your Company has its operations, under the âSwachh Gharâ programme of your Company. In addition to construction of toilets, the villages and the communities in the area are also sensitized about the importance of health & sanitation. Over 1,200 toilets have already been constructed during the financial year and your Company has plans to extend it further to other houses in the same area and thereafter extend it to other areas. Your Company has also taken up the identified project of installing more than 300 solar street lights in villages in the above Districts. The CSR Policy and the Annual Report on CSR activities is annexed herewith as âAnnexure Bâ and forms part of this Report.
BUSINESS RESPONSIBILITY REPORT
The Listing Regulations mandates inclusion of Business Responsibility Report (BRR) as part of the Annual Report for top 500 listed entities based on market capitalization. In compliance with the Regulation, the BRR is provided as part of this Annual Report.
RELATED PARTY TRANSACTIONS
There were no related party transactions during the year except that in the ordinary course of business and on arms length basis. There were no materially significant related party transactions between your Company and the Directors, Promoters, Key Managerial Personnel and other designated persons which may have a potential conflict with the interest of your Company at large.
Form AOC-2 for disclosure of particulars of contracts/arrangements, entered into by your Company with related parties is annexed herewith as âAnnexure Câ and forms part of this Report.
BOARD EVALUATION
Pursuant to the provisions of the Companies Act, 2013 and Listing Regulations, the performance evaluation of the Board, the Committees of the Board and individual Directors has been carried out. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.
REMUNERATION POLICY
Nomination and Remuneration Committee has formulated a policy relating to remuneration of directors, key managerial personnel and other employees which has been approved by the Board.The Remuneration Policy and the criteria for determining qualification, position attributes and independence of a director are stated in the Corporate Governance Report.
MEETING OF INDEPENDENT DIRECTORS
The performance of the Non-Executive Director, the Chairman and the Board as a whole is done by the Independent Directors in their exclusive Meeting as per the policy formulated by the Board in this regard. In addition, the Independent Directors in such Meeting also review their role, functions and duties under the Companies Act, 2013 and the flow of information from the management.
VIGIL MECHANISM
In terms of Section 177 of the Companies Act, 2013, the Company has formulated a Whistle Blower Policy as a vigil mechanism to encourage all employees and directors to report any unethical behavior, actual or suspected fraud or violation of the Companyâs âCode of Conduct and Ethics Policyâ which also provides for adequate safeguard against victimization of person who use such mechanism and there is a provision for direct access to the chairman of the Audit Committee in appropriate/exceptional cases. The details of the Whistle Blower Policy is given in the Corporate Governance Report and also posted on the Companyâs website at : www.vsthyd.com/i/WhistleBlower Policy.pdf.
DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors retiring by rotation Mr. Ramakrishna V. Addanki
In accordance with Article 93 of the Articles of Association of your Company, Mr. Ramakrishna V. Addanki retires from the Board and being eligible, offers himself for re-election. Your Board recommends his re-appointment.
Mr. Ramakrishna V. Addanki, a nominee of Raleigh Investment Company Limited, a British American Tobacco (BAT) group Company, has been appointed as a Director of the Company with effect from 21st April, 2015 and by the Members at their Meeting held on 12th August, 2015 and re-appointed at their Meeting held on 2nd August, 2017.
Mr. Ramakrishna V. Addanki, [48] is a Commerce graduate from Osmania University and an associate member of the Institute of Cost Accountants of India and has over 24 years of experience in the tobacco industry. Having started his career in India, Mr. Addanki for the past 19 years has been with British American Tobacco Group in different countries with experiences in finance and general management. Mr. Addanki is currently the Area Director - South Central Europe based in Romania, covering 10 markets including Romania, Bulgaria and Former Yugoslavia. Prior to this he was the General Manager for the Groupâs Adria cluster headquartered in Croatia, covering markets of Bosnia, Herzegovina and Slovenia. Before this assignment, he was the Finance Director for Groupâs subsidiary in Turkey and before that was the CEO of the Groupâs business in the Czech Republic and was responsible for the Czech Cluster as a whole. He specializes in finance and general management functions.
He is not a Member of any Committee of the Board and is not a Director of any other Company in India.
Mr. Addanki does not hold any shares in the Company and is not related to any other Director of the Company.
Directorsâ Retirement/ Resignation/Appointments Mr. Raymond S. Noronha
Mr. Raymond S. Noronha resigned as Director and Chairman of your Company to be effective from the close of business hours on 12th April, 2018. The Board of Directors place on record their deep appreciation of the outstanding contribution made to your Company by Mr. Raymond S. Noronha.
Mr. N. Sai Sankar
Mr. N. Sai Sankar retired as Managing Director of your Company with effect from the close of business hours on 27th November, 2017. The Board of Directors place on record their deep appreciation of the contribution made to your Company by Mr. N. Sai Sankar.
Mr. Devraj Lahiri
The Board of Directors of your Company (âthe Boardâ) at its Meeting held on 20th April, 2016 on the recommendation of Nomination & Remuneration Committee appointed Mr. Devraj Lahiri as Deputy Managing Director of the Company, with effect from. 1st July, 2016 to 27th November, 2017 (both days inclusive) and was approved by the Members at the Annual General Meeting held on 11th August, 2016. At the Meeting of the Board of Directors held on 31st October, 2017 on the recommendation of the Nomination & Remuneration Committee, Mr. Devraj Lahiri was appointed as Managing Director of the Company subject to the approval of the Members. He shall also be a Key Managerial personnel under Section 203 of the Companies Act, 2013.
Mr. Devraj Lahiri, [45] is a Commerce Graduate from St. Xavierâs College, Kolkata and Masters in Business Administration from Indian Institute of Social Welfare and Business Management, Kolkata. He joined the Company in the year 2001 and has made significant contributions during his association with the Company. He was elevated to the level of Marketing Head and was appointed as Wholetime Director of the Company with effect from 1st August, 2011. He is a Member of the Corporate Social Responsibility Committee, Committee of Directors and Stakeholders Relationship Committee of the Company and is also a director on the board of The Tobacco Institute of India. He has been instrumental in the growth of the Company and has successfully launched various new brands. Mr. Lahiri does not hold any shares in the Company and is not related to any other Director of the Company.
A suitable Resolution is being put up for your approval.
Mr. Pradeep V. Bhide
The Board of Directors of your Company at its Meeting held on 12th April, 2018 on the recommendation of the Nomination & Remuneration Committee appointed Mr. Pradeep V. Bhide as an Additional Director of the Company with effect from 12th April, 2018.
Mr. Pradeep Bhide, [68] is a former Senior lAS Official and former Secretary in the Ministry of Finance. He spent 27 years in the Indian Government/ Administrative Service, and has worked both at National and State levels.
Mr. Bhide was Secretary of the Department of Revenue, Ministry of Finance from 2007-2010. He has also held other senior roles in the Ministry, including Joint Secretary and subsequently Secretary, Department of Disinvestment and Deputy Secretary, Department of Economic Affairs. In addition, he has also served as Special Secretary, Ministry of Home Affairs, and as Advisor to Indiaâs Executive Director to the International Board for Reconstruction and Development in Washington D.C.
Mr. Bhide was Managing Director of the Apex Cooperative Marketing Society for Handloom (APCO) from 1981-1983, and was Managing Director for listed fertiliser manufacturer Godavari Fertilisers from 1997-2002. Since retiring from Government service in 20I0, Mr. Bhide has been active in the private sector, serving in a number of Non-Executive roles, primarily in Indian listed companies and subsidiaries of multinational companies across a variety of industries. Mr. Bhide is Chairman of the Hyderabad-based, privately-owned venture capital group APIDC Venture Capital Ltd. He presently is a Director for Heidelberg Cements (India) Ltd., GlaxoSmithKline (India) Pharmaceuticals Ltd., NOCIL Ltd., Tube Investments India Ltd., L&T Finance Holdings Ltd., L&T Finance Ltd., BILT Paper B.V. and, in addition, he has served as Advisor on the India Advisory Board for Joshi Technologies International Inc., Deutsche Telekom and Citibank (India). Mr. Bhide obtained his B.Sc. in Chemistry (Hons.) in 1970 and his LL.B in 1973, both from Delhi University. He later obtained his M.B.A. with specialisation in Financial Management from Indira Gandhi National Open University in 2002.
Mr. Bhide does not hold any shares in the Company and is not related to any other Director of the Company.
A suitable Resolution is being put up for your approval.
Independent Directors
At the Annual General Meeting held on 12th August, 2014, the Members of your Company appointed Ms. Mubeen Rafat and Mr. S. Thirumalai as Independent Directors under the Companies Act, 2013 for a period of five years with effect from 12th August, 2014 and 1st October, 2014 respectively.
All Independent Directors have given declarations as required under Section 149(7) that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. None of the Independent Directors are related to any other Director of the Company.
Key Managerial Personnel
The Managing Director Mr. Devraj Lahiri, the Chief Financial Officer Mr. Anish Gupta and the Company Secretary Mr. Phani K. Mangipudi are the Key Managerial Personnel as per the provision of the Companies Act, 2013.
DIRECTORSâ RESPONSIBILITY STATEMENT
Pursuant to Section 134(5) of the Companies Act, 2013 your Directors confirm that :
1. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
2. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as on 31st March, 2018 and of the statement of profit and loss and cash flow of your Company for the period ended 31st March, 2018;
3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis.
5. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and were operating effectively; and
6. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems were adequate and operating effectively.
SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There are no significant or material orders passed by the Regulators, Courts or Tribunals which impact the going concern status of the Company and its future operations. However, Membersâ attention is drawn to the following :
TAXATION i. Income Tax Financial Services Business
Your Company had diversified into Financial Services Business and Foods Business in the early nineties. Subsequently in the year 1998-99, your Company incurred a total loss of Rs.38.67 crore in the financial services business of which Rs.29.70 crore was claimed as loss under the head âIncome from Businessâ and Rs.8.97 crore was claimed as a capital loss under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67 crore as a capital loss. It may be noted that the department had treated the entire loss as a âSpeculation Lossâ.
Your Company has filed an appeal before the then Honâble High Court of Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in the financial year 1999-00, your Company had incurred a total loss of Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the head âIncome from Businessâ and Rs.9.50 crore was claimed as a capital loss under the provisions of the Income Tax Act. The Income Tax Department has disallowed the entire amount excepting Rs.5.70 crore which was allowed as a capital loss. The Commissioner of Income Tax (Appeals) further allowed Rs.11.24 crore out of the balance amount of Rs.47.98 crore, on appeal before him and the same was upheld by the Income Tax Appellate Tribunal. Your Company has preferred an appeal against the above order before the then Honâble High Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued consequential orders under Section 154 of the Income Tax Act demanding Rs.28.86 crore (revised) which was paid by your Company.
ii. Luxury Tax
The Honâble Supreme Court by its judgement dated 20th January, 2005 set aside levy of luxury tax on tobacconists by various states. The Court had also directed the Companies to pay back to the state any amount of luxury tax recovered from the customers after obtaining stay orders from the Court. The Department has alleged that your Company has failed to pay an amount of Rs.34.86 crore being the luxury tax collected from customers by your Company after passing of the interim order dated 1st June, 1999, to the then undivided State Government of Andhra Pradesh which is in violation of the said judgement dated 20th January, 2005 and filed the contempt petition against the then Managing Director of your Company. The contempt charges were dismissed by the Honâble Supreme Court in March, 2010.
The State decided to continue with the legal proceedings for recovery of luxury tax from your Company by substituting the Companyâs Managing Director with your Company as the Respondent. The Supreme Court appointed an independent Auditor to examine and verify the accounts of your Company for the period 1st April, 1999 to 20th January, 2005 and submit their report as to whether any sum was collected by your Company towards luxury tax during the operation of the Stay Order dated 1 st April, 1 999. The Auditor forwarded its report to the Supreme Court endorsing your Companyâs stand. The Supreme Court, after examining the report of the Auditor, disposed off the petition with an observation that no contempt lies against your Company. However, the State Government has been given an opportunity to issue a show cause notice to your Company for refund of the luxury tax collected after obtaining interim order from the Supreme Court. Show cause notice should be backed and supported by the evidence the department wishes to rely upon in support of its case and is subject to contest by the parties as per Law.
The Commercial Tax Department has issued a show cause notice and reply to the same has been filed by your Company. The matter was adjudicated on 11th March, 2017 and an Assessment Order, A.O.No.4208 RC No.LT/SEC/01/1/1001/1996-97 dated 13th February, 2017 was passed by the department confirming the demand. Against the same, a Writ Petition in WP No. 8240 of 2017 was filed by your Company in the High Court of Judicature at Hyderabad praying to issue a writ of certiorari quashing the above mentioned Assessment Order. The matter came up for admission on 9th March, 2017 before the Honâble High Court of Telangana & Andhra Pradesh. The Honâble High Court was pleased to admit the Writ but at the same time remanded the matter to be adjudicated by the Appellate Authority as factual information was also involved and directed the Petitioners to file the appeal within two weeks from the date of receipt of the Order. Your Company approached the Honâble Supreme Court and had withdrawn the SLP and filed an appeal with a delay of one day before the Appellate Authority. The said Appellate Authority had issued a show cause notice to your Company asking why the delay of one day in filing the appeal should be condoned and against which your Company has approached the Honâble High Court of Telangana & Andhra Pradesh for condonation of delay of one day. The matter is pending before the said High Court.
iii. Entry Tax
Several High Courts in the country including those of Andhra Pradesh, Kerala, Tamil Nadu and Assam have struck down the levy of entry tax on the ground that it is violative of Article 301 and not saved under Article 304(b) of the Constitution, as it is not compensatory in the manner required in terms of the Supreme Court judgement in the case of M/s. Jindal Stainless Limited. Thereafter, several states such as Uttar Pradesh, Bihar, West Bengal, Haryana and Assam have attempted to re-introduce entry tax by amending the original Acts, sparking a fresh round of legal challenges in the high courts. Most of the appeals filed by the various states and individual companies have been clubbed together.
The Honâble Supreme Court in the batch of cases headed by Jai Prakash
Associates Vs the State of MP has referred a number of vital questions on levy of entry tax, to the Constitutional Bench in terms of Article 145(3) of the Constitution.
The Honâble Supreme Court constituted a 9 Judges Bench and heard the matter and vide its Judgment dated 11th November, 2016 held that relevant State Entry Tax matters are not violative on compensatory grounds but if the Act is found to be discriminatory, then it is violative of Article 304(a) of the Constitution. Certain tests have been laid out in the aforesaid judgement, namely, discrimination and local area applicability to ascertain whether the respective state acts are unconstitutional or not and remanded the matter to be heard by the Regular Bench of the Supreme Court. Your Company believes, based on legal advice, that it has defendable grounds on merits and intends to file necessary petitions if required before the regular bench of the Supreme Court or the respective State High Courts and contest the matter on the grounds of discrimination and local area.
The Single Bench of Honâble High Court of Calcutta struck down the levy of entry tax imposed by the State Government of West Bengal in the case of Bharti Airtel and others and aggrieved by the same, the State Government has preferred an appeal before the Division Bench. On identical grounds, the Single Bench of Honâble High Court of Calcutta allowed the Writ Petition in favour of your Company with a direction to file implead petition and an early hearing petition before the division bench.
Your Company, as directed, has filed an implead petition and an early hearing application which is pending before the Division Bench of High Court of Calcutta. Subsequently the State of West Bengal amended the Entry Tax Act to give retrospective effect of levy on locally manufactured goods in order to avoid discrimination of local and outside manufacturers. There was also an amendment to the State Finance Act and effect of the same being that all Entry Tax matters to be heard by the Tribunal. Hence your Company intends to file an application before the Tribunal to contest the West Bengal Entry tax matter.
Your Company has filed fresh petitions before the Allahabad and Ranchi High Courts to contest the entry tax matter pertaining to Uttar Pradesh and Jharkhand and also filed amendment petitions before the High Court of Patna and Guwahati to contest the matters pertaining to Bihar and Assam Entry Tax.
iv. Excise
a. Wrapping Materials
The Excise department claimed a sum of Rs.3.62 crores on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by your Company without payment of duty during the period April 1996 to March 2002. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore had allowed your Companyâs appeal against the said demand and set aside the demand of the Excise Department. An appeal against the said Order was filed by the Excise Department and the Honâble Supreme Court was pleased to allow the appeal by way of remand to CESTAT to decide the matter afresh and pass an order on merits. The Honâble
CESTAT heard the matter and allowed the appeal in favour of your Company. Against the CESTATâs order, the department filed an appeal before the Supreme Court and when the matter came up for admission, the Honâble Supreme Court tagged your Company matter to be heard along with another identical matter pending before it.
b. Cigarette manufacture in North Eastern states
The Excise Department had demanded a sum of Rs.31.20 crore along with interest of Rs.12.69 crore from the Companyâs former contract manufacturers consequent upon the judgement of the Honâble Supreme Court upholding the withdrawal of exemptions granted in the North Eastern states. Thereafter, a total sum of Rs.39.06 crore was paid to the Department. A Division Bench of the Gauhati High Court confirmed the judgement of the single judge and held that interest was also payable for the period 1st August, 2003 to 7th February, 2006 on the principal amount already repaid. Appeals have been filed in the Supreme Court against the said judgements of the Gauhati High Court which were admitted but no stay of the said judgements was granted.
c. Tobacco Refuse
Your Company has been receiving periodical show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse together with interest and penalty thereon from January 2005 to October 2013, amounting to Rs.15.92 crore. All the pending appeals before CESTAT in this matter until October 2013 were allowed in favour of your Company. Against the said orders, the department preferred an appeal before the Honâble Supreme Court on which hearing is pending. Show cause notices for subsequent period have been received and same are pending before original authority.
d. Service Tax
Your Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on service tax paid by various service providers on the ground that the same are not in relation to the manufacture of final products. Upon adjudication, credit on most of the services were allowed in favour of your Company, however some of them are contested by the department before CESTAT. Cross appeal has been filed by your Company before CESTAT. One of the appeals filed by your Company for the period April 2008 was heard and allowed by CESTAT by way of remand to the original authority to be decided in light of earlier judicial pronouncements.
PUBLIC INTEREST LITIGATION (PIL)
i] The two PILs filed in the Madras High Court and the Andhra Pradesh High Court against the Central Government and the cigarette manufacturers including your Company, seeking strict implementation of Cigarettes and Other Tobacco Products (Prohibition of Advertisement And Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 (COTP Act) and Rules are pending.The Madras High Court disposed off the PIL on the lines that the Government has to take necessary steps to build laboratories to check the tar and nicotine content in the cigarettes.
ii) Your Company has been impleaded in the petition filed in the Supreme Court by an NGO called âCentre for Transforming Indiaâ against the Union of India along with other cigarette manufacturers, Tobacco Institute of India, Bidi Manufacturers and Bidi Manufacturersâ Association seeking prohibition/ban of the manufacture, storage and sale of all forms of tobacco within the territory of India.
iii) A PIL was filed before the Uttarakhand High Court in India relating to printing of Tar-Nic contents on cigarette packets. The High Court passed an Order allowing the petition and directing ban on sale of loose cigarettes without printing health warning. The Court has also ordered ban on sale of cigarettes in the state of Uttarakhand if the union does not prescribe safe or maximum permissible limit of nicotine & tar contents in each cigarettes or label or package.
A review petition has been filed by your Company along with others against the order and it was disposed off by the High Court of Uttarakhand in favour of your Company.
Petitions have also been filed in other courts such as High Court of Jabalpur, National Green Tribunal, Delhi seeking ban on sale of cigarettes and before High Court of Madhya Pradesh, Indore Bench seeking directions to mention tar and nicotine content on cigarette packs by the manufacturers and a PIL before the High Court of Mumbai seeking directions that the Insurance Companies shall not invest in the cigarette companies.
INTELLECTUAL PROPERTY
The suit for infringement and passing off filed by ITC Limited against your Company alleging that your Company had violated ITC Limitedâs âGold Flakeâ trade mark by using a deceptively similar get up and trade dress consisting of a combination of red and gold colors, on its âSpecialâ brand of cigarettes is still pending in the Honâble Calcutta High Court and the trial is yet to begin. ITCâs application for temporary injunction was refused by the single bench of the Honâble Calcutta High Court. Appeal was filed by ITC, and the Division Bench without allowing the appeal, directed the hearing of the Suit to be expedited. Your Company, however, has been directed to submit the sales figures of the âSpecialâ brand of cigarettes every month to the Court, which is being duly complied with.
FINANCIAL SERVICES BUSINESS
The Company Petition filed by the Official Liquidator in the Honâble High Court of Andhra Pradesh seeking directions against some of the ExDirectors of ITC Agro Tech Finance and Investments Limited (ITCATF), the Company in liquidation, into which one of the subsidiaries of your Company, viz. VST Investments Limited was amalgamated, to file a Statement of Affairs is still pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the Honâble High Court of Andhra Pradesh had directed the Regional Director, Department of Corporate Affairs, Chennai to conduct an investigation and submit a report showing the persons who promoted ITCATF and the persons who were responsible in conducting its affairs until its winding up. A comprehensive report was prepared and filed in the Court by the Regional Director in July 2008. Further, the Division bench, against the appeal filed by one of the Ex-Directors of ITCATF, remanded the matter to the Company Judge to decide afresh keeping in view the report submitted by the Regional Director. All the matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)
i. In view of the provisions of COTPA various restrictions such as ban on advertising in print and visual media, ban on outdoor advertising, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years, etc. have been in force. Printing of pictorial warnings on cigarette packets, which came into effect from 31st May, 2009 were further revised with effect from 1st December, 2011. A new set of pictorial warnings were notified to come into force with effect from 1st April, 2013. In October, 2014 the Government notified a new set of pictorial warning covering 85% of the front and back side of the packets with effect from 1st April, 2015. However, after extension, the same have now been implemented from 1st April, 2016 and is being duly complied with by your Company.
ii. Some Tobacco manufacturers have challenged various provisions of COTPA and Rules made thereunder in different high courts across the country. The Union Government filed transfer petitions in the Honâble Supreme Court seeking to transfer 31 pending writ petitions from various high courts to the Honâble Supreme Court. All the transfer petitions were allowed and the writ petitions have thus been moved to the Honâble Supreme Court, for final adjudication.
iii. Your Company had also filed a writ petition before the then Honâble High Court of Andhra Pradesh challenging The Cigarettes and Other Tobacco Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the notifications issued there under (including those seeking implementation of graphic health warnings) should be quashed. The said writ petition has been admitted but no interim orders were passed by the Honâble Court.
iv. The Government of India, Ministry of Health and Family Welfare on 13th January, 2015 as part of pre-legislative consultation invited views and comments from the stakeholders and the public on the proposed Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Amendment Bill, 2015 which proposes further restrictions on the industry and more stringent penalty provisions. Your Company as a stakeholder has expressed objections to the said amendment bill.
v. Before the High Court of Karnataka, a Writ Petition was filed by Tobacco Institute of India (TII) on behalf of your Company and other manufacturers against the proposed notification dated 15th October, 2014 by Health Ministry to print health warning on both sides of the pack occupying 85% of space. The 85% health warning to come into effect from 1st April, 2016. Your Company also filed a Writ Petition before the High Court bench at Dharwad against the implementation of 85% health warning. The Honâble Supreme Court on hearing a PIL filed by Health for Millions, constituted a Bench before the Karnataka High Court to hear all the matters relating to graphical health warning. The Writ Petitions filed by TII and your Company are being heard before the Bangalore Bench. The Bench continuously heard the matters till 28th February, 2017 and the Karnataka Bench held on 15th December, 2017 that the amendment made to the Packaging Rules imposing 85% graphic health warning is ultra vires the Constitution. Against the said Judgment, the aggrieved parties filed SLP before the Supreme Court seeking stay and the same was granted. The matter is scheduled for hearing shortly.
REAL ESTATE
The Government of Andhra Pradesh had filed a land grabbing case against your Company in 1991 in relation to a piece and parcel of vacant land which has been under possession and occupation by your Company for over four decades. By its judgement dated 28th July, 2010, the Special Court had held that your Company is not a land grabber but had given the State Government the right to initiate proceedings to recover possession of the land at some future date. Against this part of the judgement, your Company had filed a writ petition before the Honâble High Court of Andhra Pradesh to expunge that part of the Order giving such liberty to the Department despite the fact that your Company has already been declared not to be a land grabber. The writ petition is still pending. The State Government has also filed a writ petition in the Honâble High Court of Telangana and Andhra Pradesh seeking to set aside the said judgement of the Land Grabbing Court. An interim Order was passed restraining your Company from changing the status of the land or creating any third party interest therein. Your Company has taken all the necessary steps for speedy disposal of the above writ petitions which are pending before the Court.
One more case of land grabbing was filed by the then Government of Andhra Pradesh against your Company in the year 1989 on a piece of land along with building called âLal-e-Zarâ, before the Special Court and in the year 2010, the Special Court passed a judgment stating that your Company is not a land grabber. After 7 years, the Government of Telangana filed an appeal before the Honâble High Court of Telangana and Andhra Pradesh seeking a direction from the court that the nature of the land should not be altered and no third party interest to be created. Your Company filed a counter and a vacate stay application. Order was pronounced on the vacate stay petition allowing your Company to continue to carry on construction activities, subject to the Writ Petition and not to create any third party rights.
PARTICULARS OF EMPLOYEES
The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, are annexed herewith as âAnnexure Dââ and forms part of this Report. The statement containing particulars of employees as required under Section 197 of the Act read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in a separate annexure forming part of this Report. However, in terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employeesâ particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing AGM. In case any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary of the Company.
The Nomination and Remuneration Committee of the Company has affirmed that the remuneration is as per the Remuneration Policy of the Company.
Your Directors take this opportunity to record their deep appreciation of the continuous support and contribution from all employees of your Company.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of Companies Act, 2013 and Rule 12(1) of Companies (Management and Administration) Rules, 2014, an extract of Annual Return in Form MGT-9 is annexed as âAnnexure E## and forms part of this report.
AUDITORS
Statutory Auditors
M/s. B S R & Associates LLP, Chartered Accountants, were recommended for appointment as the Statutory Auditors of the Company to hold office from the conclusion of the 85th AGM to the conclusion of the 90th AGM. In terms of the first proviso to Section 139 of the Companies Act, 2013, the Auditorsâ appointment has to be ratified at every AGM. Accordingly, the appointment of M/s. B S R & Associates LLP, Chartered Accountants, Firmâs Registration Number:116231W/W-100024 as the statutory auditors of the Company, is placed for ratification by the Members. The Company has received a certificate from M/s. B S R & Associates, LLP to the effect that they are not disqualified from continuing to act as Auditors and would be in accordance with the provisions of Section 139 and 141 of the Companies Act, 2013 and Companies (Audit and Audit Rules), 2014. The Report given by the Auditors on the financial statements of the Company is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Auditors had not reported any matter under Section 143(12) of the Companies Act, 2013 and hence, no detail is required to be disclosed under Section 134(3)(ca) of the Companies Act, 2013.
Secretarial Auditor
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed Dr. K.R. Chandratre, Company Secretary in Whole-time Practice, as Secretarial Auditor of the Company for the financial year 2017-18. The Secretarial Audit Report is annexed herewith as âAnnexure Fâ and forms part of this Annual Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
Information in accordance with clause (m) of sub-section (3) of Section 134 of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014 is given in the âAnnexure Gâ forming part of this Report.
DEPOSITS
Your Company has stopped accepting fresh deposits for several years now. As on 31st March, 2018, your Company does not have any deposits for the purpose of its business.
THE FUTURE
Despite adverse market conditions, your Company is well placed to exploit opportunities through innovative new brand launches, coupled with expansion of operational areas.
ACKNOWLEDGEMENTS
The Directors are grateful to all valuable stakeholders of the Company viz., customers, shareholders, dealers, vendors, banks and other business associates for their excellent support rendered during the year. The Directors also acknowledge the unstinted commitment and valued contribution of all employees of the Company.
On behalf of the Board,
RAYMOND S. NORONHA
Chairman
DIN : 00012620
Dated this 12th day of April, 2018
Azamabad, Hyderabad - 500 020
Mar 31, 2017
The Directors of your Company have pleasure in presenting before you the Annual Report together with the Audited Statements of Accounts for the year ended 31st March, 2017.
|
Financial Results |
|
Rs. Lakhs |
|
|
2016-17 |
2015-16 |
|
Revenue from Operations |
228239 |
205878 |
|
Net Profit after Tax |
16721 |
15311 |
|
Profit brought forward from previous year |
12595 |
11758 |
|
Balance available for Appropriation |
29316 |
27069 |
|
Amount transferred to General Reserve |
835 |
1525 |
|
Dividend proposed* |
_ |
10809 |
|
Corporate Dividend Tax (Net)* |
_ |
2140 |
|
Surplus in the Statement of Profit and Loss |
28481 |
12595 |
*(Refer Note 7 in the Notes on Financial Statements)
|
KEY RATIOS |
|
|
|
Earnings per Share (Rs.) |
108.28 |
99.15 |
|
Dividend per Share (Rs.) |
75.00 |
70.00 |
- Value creation during the decade has been Compounded Annual Growth Rate (CAGR), 11.1% in Earnings Per Share (EPS) and 13.3% in Dividend Per Share (DPS).
DIVIDEND
The Directors are pleased to recommend a dividend of Rs. 75 per equity share of Rs.10 each in the paid up equity share capital of the Company, for consideration and approval of Members at the Annual General Meeting (AGM). It is proposed to carry forward an amount of Rs.835 lakhs to General Reserve.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities, based on market capitalization, are required to formulate a Dividend Distribution Policy.
The Board has approved and adopted a Dividend Distribution Policy and the same is disclosed on the Company''s website at: http://www.vsthyd.com/i/ Dividend-Distribution-Policy.pdf.
MATERIAL CHANGES AND COMMITMENTS
Except as disclosed elsewhere in the Report, there have been no material changes and commitments made between the end of the financial year of the Company and the date of this Report.
SHARE CAPITAL
The paid up Equity Share Capital as on 31st March, 2017 was Rs.1544.19 lakhs. The Company has neither issued shares with differential rights as to dividend, voting or otherwise nor issued shares (including sweat equity shares) to the employees or Directors of the Company, under any Scheme.
No disclosure is required under Section 67(3)(c) of Companies Act, 2013 in respect of voting rights not exercised directly by the employees of the Company as the provisions of the said Section are not applicable.
INDUSTRY STRUCTURE & DEVELOPMENT
The trend of year-on-year tax hike continues with an excise increase of 10% across segments announced in the Union Budget presented in February 2016. Arbitrary increases in state taxes (VAT) witnessed in Assam, Rajasthan & Chhattisgarh posed a challenge to legal players.
Fifth successive year of tax increase led to companies adopting a strategy of conservative price hikes to ensure minimal decline in volumes. On the other hand legitimate stakeholders continue to be under pressure through the increasing presence of non-duty paid cigarettes. Legal cigarettes cost, on an average, seven times more than non-duty paid cigarettes.
New pictorial warning covering 85% on both front & back panels replaced 40% warning on front panel in April 2016. The government has made it mandatory to change the graphic every 12 months. Other regulations including sale of loose cigarettes & selling restrictions continue to operate in some large states such as Uttar Pradesh, Tamil Nadu & Kerala.
Regulatory pressures including taxation are likely to continue as policies in India get increasingly aligned with FCTC (Framework Convention on Tobacco Control) directives.
COMPANY PERFORMANCE
Your Company largely operates in the value segment. Recurrent tax hikes & growth of non-duty paid cigarettes affect your Company disproportionately. Concerted efforts are underway to premiumise the portfolio & build price resilience.
Your Company''s strategy of portfolio expansion through relevant differentiation has culminated in establishing higher priced trademarks such as Editions King size & Total 69mm in the last two years. Your Company''s existing trademarks such as Special & Red Charms have also delivered a strong performance in key markets.
Your Company is focused on developing a robust brand portfolio appealing to varying consumer preferences across socio economic profiles. It is also your Company''s ongoing endeavor to increase geographic presence through necessary investments in distribution infrastructure.
MARKET SCENARIO
Cigarette volumes of your Company during 2016-17 stood at 7283 mns compared to 7332 mns in 2015-16. Your Company has largely retained its volume base in spite of another year of double digit excise hike.
LEAF TOBACCO
Your Company has recorded leaf sales turnover of Rs.274 crore in the year 2016-17, leveraging its expertise in all varieties of tobacco. Your Company is continuing domestic sales in addition to exports for maximizing turnover and profits.
The focus on the development of niche varieties and high nicotine tobaccos continued in view of the changing requirements of tobacco in the international market with established customers. Besides helping develop backward regions, it has also helped in improving the Company''s profitability.
It is satisfying to note that your Company''s farmers continue to grow tobacco with the lowest pesticide residue levels and low TSNAs (Tobacco Specific Nitrosamines) that are well within international standards.
Your Company''s leaf tobacco function continues to be certified by Registro Italiano Navale, Genova, Italy for SA8000 reflecting Company''s resolve to follow best international practices in its operations. Your Company''s Vice President, Leaf was honored with Ambedkar Ratna award by Kalpana Saroj foundation in Mumbai and Mahatma Gandhi Samman award by NRI Welfare Society of India in House of Lords, London. Your Company is socially responsible and involved in various programmes like rural sanitation, street lighting etc for the improvement of living conditions in tobacco growing areas.
PRODUCTION AND PLANT MODERNISATION
In order to give competitive edge to the Company''s products in the market place, your Company has offered innovative products to consumers, which have been well received.
HUMAN RESOURCE DEVELOPMENT
Your Company''s Human Resource Management focus continues to attract and retain the best talent, in an increasingly competitive market place.
Development plans have been drawn up for key managers to assume higher responsibilities as well as to enhance their job effectiveness.
As on 31st March, 2017, your Company had a strength of 772 employees, with 327 management staff and 445 workmen.
The Long Term Agreement was signed with the Company''s recognized union for a period of 3V2 years commencing from 1st August, 2016.
Your Company has constituted an Internal Complaints Committee as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules framed there under. No cases were filed during the year under the above Act.
ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES
Your Company continues to keep EHS squarely in the forefront.
Environment, Health and Safety (EHS) in day-to-day business operations is given high priority by your Company. 424 employees and 51 contractors have undergone EHS training and 465 employees have undergone fire fighting training programme. Mock fire drills were also conducted for workers and management during the period to comply with the Company''s EHS guidelines.
Quarterly and annual EHS audits of the Company''s operations were carried out to ensure compliance of EHS requirements. Surveillance Audit of ISO 14001:2004 & OHSAS 18001:2007 for the year 2016-17 were conducted by Registro Italiano Navale India (RINA).
All statutory compliances are in place.
The thrust on EHS will continue while emphasizing the focus on Best International Work practices.
FINANCE
a. Profits
The Profit after Tax of your Company for the year is Rs.167.2 crore.
The continuous increase in taxation over the last several years has brought about increased pressure on margins.
b. Treasury Operations
Your Company follows a SLR model (Safety, Liquidity and Return) in deployment of earmarked funds.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
The Company has not taken any loans or given guarantees or made investments in any other company.
RATING
The Credit Rating Information Services India Limited (CRISIL) has re-affirmed the rating of your Company to ''FAAA/ Stable'' for Fixed Deposit Schemes, ''AA /Stable'' for Long Term Nonconvertible Debentures and ''A1 '' for Non-fund based liabilities (Letter of Credit and Bank Guarantee). Your Company has stopped accepting fresh deposits for the past several years.
UNCLAIMED DIVIDENDS
Pursuant to the provisions of Sections 205A(5) and 205C of the Companies Act, 1956, the Company has transferred on due dates, the unpaid or unclaimed dividends for the financial year ended 31st March, 2009 to the Investor Education and Protection Fund (IEPF) established by the Central Government.
Further as per the provisions of Investor Education and Protection Fund (Uploading of Information regarding unpaid and unclaimed amounts lying with Companies) Rules, 2012, the Company has uploaded the details of unpaid and unclaimed amounts lying with the Company as on 31st March, 2016 on the website of the Company (www.vsthyd.com), and also on the website of the Ministry of Corporate Affairs, Government of India.
The details of the dividend due for transfer to IEPF as on 31st March, 2017 is given in the Report on Corporate Governance. The Company has commenced the process of complying with the provisions of Section 1 24(6) of the Companies Act, 2013 read with the IEPF Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 and any amendment thereof and will be completed by the due dates as specified under the relevant statutes.
UNCLAIMED SHARE CERTIFICATES
Your Company has communicated to the Members whose share certificates have been returned undelivered to the Company that these would be transferred to the Unclaimed Suspense Account if not claimed by them, as required under Regulation 34(3) read with Schedule V(F) of the Securities & Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as ''Listing Regulations'').
The status of unclaimed shares as on 31st March, 2017 is given in the Report on Corporate Governance.
CORPORATE GOVERNANCE
In terms of Regulation 34 of the Listing Regulations, a Report on Corporate Governance along with Compliance Certificate issued by Statutory Auditor''s of the Company is annexed as ''Annexure A'' and forms part of this Report.
Your Company has taken adequate steps for strict compliance with the Corporate Governance guidelines, as amended from time to time.
MEETINGS
The Board and Committee Meetings are pre-scheduled and a tentative calendar of the meetings finalized in consultation with the Directors are circulated to them in advance to facilitate them to plan their schedule. However, in case of special and urgent business needs, the approval is obtained by way of circular resolution. During the year, four Board Meetings and four Audit Committee Meetings were convened and held. The details of the Meetings including composition of Audit Committee are given in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
INTERNAL CONTROL SYSTEMS
a. Your Company maintains an adequate and effective internal control system commensurate with the size and complexity. Your Company also has well documented Standard Operating Procedures (SOPs) for various processes which are periodically reviewed for changes warranted due to business needs.
b. Your Company remains committed to improve effectiveness of internal financial controls and processes which would help in efficient conduct of its business operations, ensure security to its assets and timely preparation of reliable financial information.
The policies and procedures laid out by your Company capture the control environment prevalent in the organization. Over a period of three years, the business processes of your Company are reviewed through an internal audit process which reviews the systems on a continuous basis. The objective is to identify potential risk areas and come up with a comprehensive risk mitigation plan.
The Audit Committee of your Board met four times during the year. Review of audit observations covering the operations, consideration of accounts on a quarterly basis and monitoring the implementation of audit recommendations were some of the key areas which were dealt with by the Committee. The Statutory Auditors/ Internal Auditors were invited to attend the Audit Committee Meetings and make presentations covering their observation on adequacy of internal financial controls and the steps required to bridge gaps, if any. Chief Financial Officer is a permanent invitee to the Audit Committee and other executives of the Company are invited to address, respond or provide clarifications to relevant issues as and when required.
Risk Management
Your Company has always endeavored to bring together elements of best practices for risk management in relation to existing and emerging risks faced by it at both strategic level and in operations. The Company faces a variety of risks from external and internal sources, however, the objective is to be aware of different kinds of risks affecting the business. Rather than eliminating these risks, the decision making process at your Company considers sensible risk taking and thereby proactive steps are taken to ensure that business is undertaken in an environment which encourages a reasonable amount of risk taking and enables the Company to leverage market opportunities effectively.
The Board is responsible for determining the nature and extent of the principal risks that your Company is willing to take to achieve its strategic objectives and for maintaining sound risk management system. With the support of the Audit Committee, it carries out a review of the effectiveness of your Company''s risk management process covering all material risks including strategic, financial, operational and also compliance levels.
Your Company has substantial operations all over the country and competes on basis of brand appeal and loyalty, product quality and taste, packaging, marketing and price. This competitive position is influenced by the economic, regulatory and political situations both on an all India basis as well as that prevailing at the state level, and actions of the competitors. The principal risks impacting your Company''s business and steps undertaken to mitigate them are as under:
(i) Regulatory restrictions could have an impact on long-term revenue growth of the Company
The Company operates under increasingly stringent regulatory regime (COTPA guidelines on packaging and labeling, advertising and promotion). This further gets complicated with adoption of differing regulatory regime in different states and/or lack of consensus on interpretation/application.
Such restrictive regulations which are subjected to interpretation could result in not only penalties being imposed/loss of reputation, but also impair the Company''s ability to communicate with adult smokers and/or to meet consumer expectations through new/ innovative brand launches or geographic expansion.
The Company addresses this risk by engaging in continuous social dialogue with stakeholders and regulatory community through industry bodies. At the same time, it works on developing strategies and capabilities to be able to launch competitive and consumer acceptable brands within the changing regulatory environment.
(ii) Taxation changes could have an impact on short-term revenue growth of the Company
The Company''s business is subjected to substantial central and state level taxes whereby due to differential increase in excise duties in various segments; change in length of cigarette stick on which excise duty is payable; and tax (VAT) rate differential between various states particularly if it is in case of adjoining states could result in cross border movement of goods, which could require the Company to take up product prices and in absence of such action, impact its business. The impact increases when due to change in economic situation, consumers disposal income reduces resulting in down-trading to cheaper cigarettes or alternative tobacco products.
Such risks are addressed by the Company through: (a) engagement with tax authorities both at centre as well as state level as appropriate; (b) regular management review to build a brand portfolio across segments as well as across geographies and focus on new brand creation; and (c) capability build-up through investments in distribution infrastructure to increase geographical spread.
(iii) Regional disruptions could have an impact on short-term revenue growth of the Company as well as reputation
Regional disturbances through state level restriction on trade or through terrorism and political violence including bandhs, strikes, has the potential to disrupt the Company''s business operations. Such disruptions result in potential loss of assets and increased costs due to more complex supply chain arrangements and/or maintaining inefficient facilities.
The Company addresses this risk through developing secure multiple sourcing/delivery (supply chain) strategy and through Insurance cover and business continuity planning.
(iv) Counter party risk could have a potential impact on Company''s capital and profitability
The Company generates positive cash flows which are predominantly invested with financial institutions and mutual funds. Delay and/or default in settlement on maturity of such investments could result in liquidity and financial loss to Company.
Such risks are mitigated through investment based on principle of Safety, Liquidity & Returns (SLR) and with institutions having strong short-term and long-term ratings assigned by CRISIL.
(v) Data risks
The loss or misuse of sensitive information, or its disclosure to outsiders, including competitors and trading partners, could potentially have a significant adverse impact on the Company''s business operations and/or give rise to legal liability. For this purpose, the Company has put in place information technology policies and procedures which are reviewed regularly. Further, information technology controls like data back-up mechanism, disaster recovery center, authorization verification, etc. have also been established.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
Your Company has formulated a Corporate Social Responsibility Policy with the objective to promote inclusive growth and equitable development of identified areas by contributing back to the society. Over the years, your Company has been involved in social activities like provision of clean water etc.
Your Company has been actively discouraging child labour involvement in tobacco growing/processing. Your Company has also facilitated installation of solar lights in the tobacco growing areas in association with the village panchayats in the tobacco growing areas.
Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, the Corporate Social Responsibility (CSR) Committee of the Board of Directors was formed to recommend the policy on Corporate Social Responsibility and monitor its implementation. The CSR policy is available on the Company''s website at: www.vsthyd.com/i/CSRPolicy.pdf. Your Company has initially decided to focus on ''Sanitation'' as a key area.
The Company has with the help of Gramalaya, a non-profit organization constructed toilets in individual homes (of farmers living) in and around Jogulamba Gadwal and Medak districts of Telangana where your Company has its operations, under the ''Swachh Ghar'' programme of your Company. In addition to construction of toilets, the villages and the communities in the area are also sensitized about the importance of health & sanitation. Over 1,000 toilets have already been constructed during the financial year and your Company has plans to extend it further to other houses in the same area and thereafter extend it to other areas. Your Company has also taken up the identified project of installing more than 500 solar street lights in villages in the above Districts.
The CSR Policy and the Annual Report on CSR activities is annexed herewith as ''Annexure B'' and forms part of this Report.
BUSINESS RESPONSIBILITY REPORT
The Listing Regulations mandates inclusion of the Business Responsibility Report (BRR) as part of the Annual Report for top 500 listed entities based on market capitalization. In compliance with the Regulation, the BRR is provided as part of this Annual Report.
RELATED PARTY TRANSACTIONS
There were no related party transactions during the year except that in the ordinary course of business and on arms length basis. There were no materially significant related party transactions between your Company and the Directors, Promoters, Key Managerial Personnel and other designated persons which may have a potential conflict with the interest of your Company at large.
Form AOC-2 for disclosure of particulars of contracts/arrangements, entered into by your Company with related parties is annexed herewith as ''Annexure C'' and forms part of this Report.
BOARD EVALUATION
Pursuant to the provisions of the Companies Act, 2013 and Listing Regulations, the performance evaluation of the Board, the Committees of the Board and individual Directors has been carried out. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.
REMUNERATION POLICY
Nomination and Remuneration Committee has formulated a policy relating to remuneration of directors, key managerial personnel and other employees which has been approved by the Board. The Remuneration Policy and the criteria for determining qualification, position attributes and independence of a director are stated in the Corporate Governance Report.
MEETING OF INDEPENDENT DIRECTORS
The performance of the Non-Executive Director, the Chairman and the Board as a whole is done by the Board and the Independent Directors in their exclusive meeting as per the policy formulated by the Board in this regard. In addition, the Independent Directors in such meeting also review their role, functions and duties under the Companies Act, 2013 and the flow of information from the management.
VIGIL MECHANISM
In terms of Section 177 of the Companies Act, 2013, the Company has formulated a Whistle Blower Policy as a vigil mechanism to encourage all employees and directors to report any unethical behavior, actual or suspected fraud or violation of the Company''s ''Code of Conduct and Ethics Policy'' which also provides for adequate safeguard against victimization of person who use such mechanism and there is a provision for direct access to the chairman of the Audit Committee in appropriate/exceptional cases. The details of the Whistle Blower Policy is given in the Corporate Governance Report and also posted on the Company''s website at: www.vsthyd.com/i/Whistle Blower Policy.pdf.
DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors retiring by rotation Mr. Ramakrishna V. Addanki
In accordance with Article 93 of the Articles of Association of your Company, Mr. Ramakrishna V. Addanki retires from the Board and being eligible, offers himself for re-election. Your Board recommends his reappointment.
Mr. Ramakrishna V. Addanki, a nominee of Raleigh Investment Company Limited, a British American Tobacco (BAT) group Company, has been appointed as a Director of the Company with effect from 21 st April, 2015 and by the Members at their Meeting held on 12th August, 2015.
Mr. Addanki is a Commerce graduate from Osmania University and an associate member of the Institute of Cost Accountants of India and has over 20 years of experience in the tobacco industry. Having started his career in India, Mr. Addanki for the past 18 years has been with British American Tobacco Group in different countries with experiences in finance and general management. Mr. Addanki is currently the General Manager for the Group''s Adria cluster headquartered in Croatia, covering markets of Bosnia, Herzegovina and Slovenia. Prior to this, he was the Finance Director for Group''s subsidiary in Turkey and before that was the CEO of the Group''s business in the Czech Republic and was responsible for the Czech Cluster as a whole. He specializes in finance and general management functions.
He is not a member of any Committee of the Board and is not a director of any other company in India.
Mr. Addanki does not hold any shares in the Company and is not related to any other director of the Company.
Independent Directors
At the AGM held on 12th August, 2014, the Members of your Company appointed Ms. Mubeen Rafat and Mr. S. Thirumalai as Independent Directors under the Companies Act, 2013 for a period of five years with effect from 12th August, 2014 and 1st October, 2014, respectively.
All Independent Directors have given declarations as required under Section 149(7) that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. None of the Independent Directors are related to any other director of the Company.
Key Managerial Personnel
The Managing Director Mr. N. Sai Sankar, the Deputy Managing Director Mr. Devraj Lahiri, the Chief Financial Officer Mr. Anish Gupta and the Company Secretary Mr. Phani K. Mangipudi are the Key Managerial Personnel as per the provisions of the Companies Act, 2013.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 134(5) of the Companies Act, 2013 your Directors confirm that:
1 . in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
2. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as on 31st March, 2017 and of the statement of profit and loss and cash flow of your Company for the period ended 31st March, 2017;
3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis;
5. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and were operating effectively; and
6. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems were adequate and operating effectively.
SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There are no significant or material orders passed by the Regulators, Courts or Tribunals which impact the going concern status of the Company and its future operations. However, Members'' attention is drawn to the following:
TAXATION
i. Income Tax
Financial Services Business
Your Company had diversified into Financial Services Business and Foods Business in the early nineties. Subsequently in the year 1998-99, your Company incurred a total loss of Rs.38.67 crore in the financial services business of which Rs.29.70 crore was claimed as loss under the head ''Income from Business'' and Rs.8.97 crore was claimed as a capital loss under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67 crore as a capital loss. It may be noted that the department had treated the entire loss as a ''Speculation Loss''.
Your Company has filed an appeal before the Hon''ble High Court of Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in the financial year 1999-00, your
Company had incurred a total loss of Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the head ''Income from Business'' and Rs.9.50 crore was claimed as a capital loss under the provisions of the Income Tax Act. The Income Tax Department has disallowed the entire amount excepting Rs.5.70 crore which was allowed as a capital loss. The Commissioner of Income Tax (Appeals) further allowed Rs.11.24 crore out of the balance amount of Rs.47.98 crore, on appeal before him and the same was upheld by the Income Tax Appellate Tribunal. Your Company has preferred an appeal against the above order and the matter is now before the Hon''ble High Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued consequential orders under Section 154 of the Income Tax Act demanding Rs.28.86 crore (revised) which was paid by your Company.
ii. Luxury Tax
The Hon''ble Supreme Court by its judgement dated 20th January, 2005 set aside levy of luxury tax on tobacconists by various states. The Court had also directed the companies to pay back to the state any amount of luxury tax recovered from the customers after obtaining stay orders from the Court. The Department has alleged that your Company has failed to pay an amount of Rs.34.86 crore being the luxury tax collected from customers by your Company after passing of the interim order dated 1st June, 1999, to the State Government of Andhra Pradesh which is in violation of the said judgement dated 20th January, 2005 and filed the contempt petition against the then Managing Director of your Company. The contempt charges were dismissed by the Hon''ble Supreme Court in March, 2010.
The State of Andhra Pradesh decided to continue with the legal proceedings for recovery of luxury tax from your Company by substituting the Company''s Managing Director with your Company as the Respondent. The Supreme Court appointed an independent Auditor to examine and verify the accounts of your Company for the period 1st April, 1999 to 20th January, 2005 and submit their report as to whether any sum was collected by your Company towards luxury tax during the operation of the Stay Order dated 1st April, 1999. The Auditor forwarded its report to the Supreme Court endorsing your Company''s stand. The Supreme Court, after examining the report of the Auditor, disposed off the petition with an observation that no contempt lies against your Company. However, the State Government has been given an opportunity to issue a show cause notice to your Company for refund of the luxury tax collected after obtaining interim order from the Supreme Court. Show cause notice should be backed and supported by the evidence the department wishes to rely upon in support of its case and is subject to contest by the parties as per Law.
The Commercial Tax Department has issued a show cause notice and reply to the same has been filed by your Company. The matter was adjudicated on 11th February, 2017 and an Assessment Order, A.O.No.4208 RC No.LT/SEC/ 01/1/1001/1996-97 dated 13th February, 2017 was passed by the department confirming the demand. Against the same, a Writ Petition in WP No.8240 of 2017 was filed by your Company in the High Court of Judicature at Hyderabad praying to issue a writ of certiorari quashing the above mentioned Assessment Order. The matter came up for admission on 9th March, 2017 before the Hon''ble High Court of Telangana & Andhra Pradesh and it has been reserved for Orders.
iii. Entry Tax
Several High Courts in the country including those of Andhra Pradesh, Kerala, Tamil Nadu and Assam have struck down the levy of entry tax on the ground that it is violative of Article 301 and not saved under Article 304(b) of the Constitution, as it is not compensatory in the manner required in terms of the Supreme Court judgement in the case of M/s. Jindal Stainless Limited. Thereafter, several states such as Uttar Pradesh, Bihar, Haryana and Assam have attempted to re-introduce entry tax by amending the original Acts, sparking a fresh round of legal challenges in the high courts. Most of the appeals filed by the various states and individual companies have been clubbed together.
The Hon''ble Supreme Court in the batch of cases headed by Jai Prakash Associates Vs the State of MP has referred a number of vital questions on levy of entry tax, to the Constitutional Bench in terms of Article 145(3) of the Constitution which are still pending adjudication.
The Hon''ble Supreme Court constituted a 9 Judges Bench and heard the matter and vide its Judgment dated 11th November, 2016 held that relevant State Entry Tax matters are not violative on compensatory grounds but if the Act is found to be discriminatory, then it is violative of Article 304(a) of the Constitution. Certain tests have been laid out in the aforesaid judgment, namely, discrimination and local area applicability to ascertain whether the respective State Acts are unconstitutional or not and remanded the matter to be heard by the Regular Bench of the Supreme Court. Your Company believes, based on legal advice, that it has defendable grounds on merits and intends to file necessary petitions if required before the regular bench of the Supreme Court or the respective State High Courts and contest the matter on the grounds of discrimination and local area.
The Single Bench of Hon''ble High Court of Calcutta struck down the levy of entry tax imposed by the State Government of West Bengal in the case of Bharti Airtel and others and aggrieved by the same, the State Government has preferred an appeal before the Division Bench. On identical grounds, the Single Bench of Hon''ble High Court of Calcutta allowed the Writ Petition in favour of your Company with a direction to file implead petition and an early hearing petition before the division bench.
Your Company, as directed, has filed an implead petition and an early hearing application, which is pending before the Division Bench of High Court of Calcutta.
iv. Excise
a. Wrapping Materials
The Excise department claimed a sum of ''3.62 crore on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by your Company without payment of duty during the period April 1996 to March 2002. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore had allowed your Company''s appeal against the said demand and set aside the demand of the Excise Department. An appeal against the said Order was filed by the Excise Department and the Hon''ble Supreme Court was pleased to allow the appeal by way of remand to CESTAT to decide the matter afresh and pass an order on merits. The Hon''ble CESTAT heard the matter and allowed the appeal in favour of your Company. Against the CESTAT''s order, the department filed an appeal before the Supreme Court and when the matter came up for admission, the Hon''ble Supreme Court tagged your Company matter to be heard along with another identical matter pending before it (Sri Kumar Agencies case).
b. Cigarette manufacture in North Eastern states
The Excise Department had demanded a sum of Rs.31.20 crore along with interest of Rs.12.69 crore from the Company''s former contract manufacturers consequent upon the judgment of the Hon''ble Supreme Court upholding the withdrawal of exemptions granted in the North Eastern states. Thereafter, a total sum of Rs.39.06 crore was paid to the Department. A Division Bench of the Gauhati High Court confirmed the judgment of the single judge and held that interest was also payable for the period 1st August, 2003 to 7th February, 2006 on the principal amount already repaid. Appeals have been filed in the Supreme Court against the said judgments of the Gauhati High Court which were admitted but no stay of the said judgments was granted.
c. Tobacco Refuse
Your Company has been receiving periodical show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse together with interest and penalty thereon from January 2005 to October 2013, amounting to Rs.15.92 crore. All the pending appeals before CESTAT in this matter until October 2013 were allowed in favour of your Company. Against the said orders, the department preferred an appeal before the Hon''ble Supreme Court on which hearing is pending. Show cause notices for subsequent period have been received and same are pending before original authority.
d. Service Tax
Your Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on service tax paid by various service providers on the ground that the same are not in relation to the manufacture of final products. Upon adjudication, credit on most of the services were allowed in favour of your Company, however some of them are contested by the department before CESTAT. Cross appeal has been filed by your Company before CESTAT. One of the appeals filed by your Company for the period April 2008 was heard and allowed by CESTAT by way of remand to the original authority to be decided in light of earlier judicial pronouncements.
PUBLIC INTEREST LITIGATION (PIL)
i) The two PILs filed in the Madras High Court and the Andhra Pradesh High Court against the Central Government and the cigarette manufacturers including your Company, seeking strict implementation of Cigarettes and Other Tobacco Products (Prohibition of Advertisement And Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 (COTP Act) and Rules are pending. The Madras High Court disposed off the PIL on the lines that the Government has to take necessary steps to build laboratories to check the tar and nicotine content in the cigarettes.
ii) Your Company has been impleaded in the petition filed in the Supreme Court by an NGO called ''Centre for Transforming India'' against the Union of India along with other cigarette manufacturers, Tobacco Institute of India, Bidi Manufacturers and Bidi Manufacturers'' Association seeking prohibition/ban on the manufacture, storage and sale of all forms of tobacco within the territory of India.
iii) A PIL was filed before the Uttarakhand High Court relating to printing of Tar-Nic contents on cigarette packets. The High Court passed an Order allowing the petition and directing ban on sale of loose cigarettes without printing health warning. The Court has also ordered ban on sale of cigarettes in the state of Uttarakhand if the union does not prescribe safe or maximum permissible limit of nicotine & tar contents in each cigarettes or label or package.
A review petition has been filed by your Company along with others against the order and it was disposed off by the High Court of Uttarakhand in favour of your Company.
Petitions have also been filed in other courts such as High Court of Jabalpur, National Green Tribunal, Delhi seeking ban on sale of cigarettes.
INTELLECTUAL PROPERTY
The suit for infringement and passing off filed by ITC Limited against your Company alleging that your Company had violated ITC Limited''s ''Gold Flake'' trade mark by using a deceptively similar get up and trade dress consisting of a combination of red and gold colors, on its ''Special'' brand of cigarettes is still pending in the Hon''ble Calcutta High Court and the trial is yet to begin. ITC''s application for temporary injunction was refused by the single bench of the Hon''ble Calcutta High Court. Appeal was filed by ITC, and the Division Bench without allowing the appeal, directed the hearing of the Suit to be expedited. Your Company, however, has been directed to submit the sales figures of the ''Special'' brand of cigarettes every month to the Court, which is being duly complied with.
FINANCIAL SERVICES BUSINESS
The Company Petition filed by the Official Liquidator in the Hon''ble High Court of Andhra Pradesh seeking directions against some of the Ex-Directors of ITC Agro Tech Finance and Investments Limited (ITCATF), the Company in liquidation, into which one of the subsidiaries of your Company, viz. VST Investments Limited was amalgamated, to file a Statement of Affairs is still pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the Hon''ble High Court of Andhra Pradesh had directed the Regional Director, Department of Corporate Affairs, Chennai to conduct an investigation and submit a report showing the persons who promoted ITCATF and the persons who were responsible in conducting its affairs until its winding up. A comprehensive report was prepared and filed in the Court by the Regional Director in July 2008. Further, the Division bench, against the appeal filed by one of the Ex-Directors of ITCATF, remanded the matter to the Company Judge to decide afresh keeping in view the report submitted by the Regional Director. All the matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)
i. In view of the provisions of COTPA various restrictions such as ban on advertising in print and visual media, ban on outdoor advertising, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years, etc. have been in force. Printing of pictorial warnings on cigarette packets, which came into effect from 31st May, 2009 were further revised with effect from 1 st December, 201 1. A new set of pictorial warnings were notified to come into force with effect from 1st April, 2013. In October, 2014 the Government notified a new set of pictorial warning covering 85% of the front and back side of the packets to take effect from 1st April, 2015. However, after extension, the same have now been implemented from 1st April, 2016 and is being duly complied with by your Company.
ii. Some tobacco manufacturers have challenged various provisions of COTPA and Rules made there under in different high courts across the country. The Union Government filed transfer petitions in the Hon''ble Supreme Court seeking to transfer 31 pending writ petitions from various high courts to the Hon''ble Supreme Court. All the transfer petitions were allowed and the writ petitions have thus been moved to the Hon''ble Supreme Court, for final adjudication.
iii. Your Company had also filed a writ petition in the Hon''ble High Court of Andhra Pradesh challenging The Cigarettes and Other Tobacco Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules, 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the notifications issued there under (including those seeking implementation of graphic health warnings) should be quashed. The said writ petition has been admitted but no interim orders were passed by the Hon''ble Court.
iv. The Government of India, Ministry of Health and Family Welfare on 13th January, 2015 as part of prelegislative consultation invited views and comments from the stakeholders and the public on the proposed Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Amendment Bill, 2015 which proposes further restrictions on the industry and more stringent penalty provisions. Your Company as a stakeholder has expressed objections to the said amendment bill.
v. Before the High Court of Karnataka, a Writ Petition was filed by Tobacco Institute of India (TII) on behalf of your Company and other manufacturers against the proposed notification dated 1 5th October, 2014 by the Health Ministry to print health warning on both sides of the pack occupying 85% of space. The 85% health warning was to come into effect from 1st April, 2016. Your Company also filed a Writ Petition before the High Court bench at Dharwad against the implementation of 85% health warning. The Hon''ble Supreme Court on hearing a PIL filed by Health for Millions, constituted a Bench before the Karnataka High Court to hear all the matters relating to graphical health warning. The Writ Petitions filed by TII and your Company are being heard before the Bangalore Bench. The Bench continuously heard the matters till 28th February, 2017 and the matter has now been reserved for judgment.
REAL ESTATE
The Government of Andhra Pradesh had filed a land grabbing case against your Company in 1991 in relation to a piece and parcel of vacant land which has been under possession and occupation by your Company for over four decades. By its judgment dated 28th July, 2010, the Special Court had held that your Company is not a land grabber but had given the State Government the right to initiate proceedings to recover possession of the land at some future date. Against this part of the judgment, your Company had filed a writ petition in the Hon''ble High Court of Andhra Pradesh to expunge that part of the
Order giving such liberty to the Department despite the fact that your Company has already been declared not to be a land grabber. The writ petition is still pending. The State Government has also filed a writ petition in the Hon''ble High Court of Andhra Pradesh seeking to set aside the said judgment of the Land Grabbing Court. An interim Order was passed restraining your Company from changing the status of the land or creating any third party interest therein. Your Company has taken all the necessary steps for speedy disposal of the above writ petitions which are pending before the Court.
PARTICULARS OF EMPLOYEES
The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and any amendment thereof, in respect of employees of the Company, are annexed herewith as ''Annexure D'' and forms part of this Report. The statement containing particulars of employees as required under Section 197 of the Act read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in a separate annexure forming part of this Report. However, in terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees'' particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing AGM. In case any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary of the Company.
The Nomination and Remuneration Committee of the Company has affirmed that the remuneration is as per the Remuneration Policy of the Company.
Your Directors take this opportunity to record their deep appreciation of the continuous support and contribution from all employees of your Company.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of Companies Act, 2013 and Rule 12(1) of Companies (Management and Administration) Rules, 2014, an extract of Annual Return in Form MGT-9 is annexed as ''Annexure E'' and forms part of this Report.
AUDITORS Statutory Auditors
M/s. B S R & Associates LLP, Chartered Accountants, were recommended for appointment as the Statutory Auditors of the Company to hold office from the conclusion of the 85th AGM to the conclusion of the 90th AGM. In terms of the first proviso to Section 1 39 of the Companies Act, 2013, the Auditors'' appointment has to be ratified at every AGM. Accordingly, the appointment of M/s. B S R & Associates LLP, Chartered Accountants, Firm''s Registration Number:116231W/W-100024 as the statutory auditors of the Company, is placed for ratification by the Members. The Company has received a certificate from M/s. B S R & Associates, LLP to the effect that they are not disqualified from continuing to act as Auditors and would be in accordance with the provisions of Sections 139 and 141 of the Companies Act, 2013 and Companies (Audit and Audit Rules), 2014. The Report given by the Auditors on the financial statements of the Company is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Auditors had not reported any matter under Section 143(12) of the Companies Act, 2013 and hence, no detail is required to be disclosed under Section 134(3)(ca) of the Companies Act, 2013.
Secretarial Auditor
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed Dr. K.R. Chandratre, Company Secretary in Whole-time Practice, as Secretarial Auditor of the Company for the financial year 20161 7. The Secretarial Audit Report is annexed herewith as ''Annexure F'' and forms part of this Annual Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
Information in accordance with clause (m) of sub-section (3) of Section 134 of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014 is given in the ''Annexure G'' forming part of this Report.
DEPOSITS
Your Company has stopped accepting fresh deposits for several years now. As on 31st March, 2017, your Company does not have any deposits for the purpose of its business.
THE FUTURE
Despite adverse market conditions, your Company is well placed to exploit opportunities through innovative new brand launches, coupled with expansion of operational areas.
MATERIAL CHANGES AND COMMITMENTS
There have been no material changes and commitments made between the end of the financial year of this Company and the date of this Report.
ACKNOWLEDGEMENTS
The Directors are grateful to all valuable stakeholders of the Company viz., customers, shareholders, dealers, vendors, banks and other business associates for their excellent support rendered during the year. The Directors also acknowledge the unstinted commitment and valued contribution of all employees of the Company.
On behalf of the Board,
RAYMOND S. NORONHA
Chairman
DIN: 00012620
Dated this 18th day of April, 2017.
Azamabad, Hyderabad - 500 020
Mar 31, 2016
The Directors of your Company have pleasure in presenting before you
the Annual Report together with the Audited Statements of Accounts for
the year ended 31st March, 2016.
Financial Results Rs.Lakhs
2015-16 2014-15
Revenue from Operations 205878 171690
Net Profit after Tax 15311 15221
Profit brought forward from previous year 11758 11133
Balance available for Appropriation 27069 26354
Amount transferred to General Reserves 1525 1525
Dividend proposed 10809 10809
Corporate Dividend Tax (Net) 2140 2262
Surplus in the Statement of Profit and Loss 12595 11758
KEY RATIOS
Earnings per Share (Rs.) 99.15 98.57
Dividend per Share (Rs.) 70.00 70.00
- Value creation during the decade has been Compounded Annual Growth
Rate (CAGR), 10.8% in Earnings Per Share (EPS) and 18.8% in Dividend
Per Share (DPS).
DIVIDEND
The Directors are pleased to recommend a dividend of 700% on the paid
up equity share capital of the Company, which amounts to Rs.70 per
equity share of Rs.10 each for consideration and approval of Members at
the Annual General Meeting. The total outgo amounts to Rs.130.10 crore
including dividend distribution tax of Rs.22.01 crore. It is proposed
to carry forward an amount of Rs.15.25 crore to General Reserve.
SHARE CAPITAL
The paid up Equity Share Capital as on 31st March, 2016 was Rs.1544.19
lakhs. The Company has neither issued shares with differential rights
as to dividend, voting or otherwise nor issued shares (including sweat
equity shares) to the employees or Directors of the Company, under any
Scheme.
No disclosure is required under Section 67(3)(c) of Companies Act, 2013
in respect of voting rights not exercised directly by the employees of
the Company as the provisions of the said Section are not applicable.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
Your Company has formulated a Corporate Social Responsibility Policy
with the objective to promote inclusive growth and equitable
development of identified areas by contributing back to the society.
Over the years, your Company has been involved in social activities
like provision of clean water, construction of school buildings etc.
Your Company has been actively discouraging child labour involvement in
tobacco growing/processing. Your Company has also facilitated
installation of solar lights in the tobacco growing areas in
association with the village panchayats in the tobacco growing areas.
Pursuant to the provisions of Section 135 and Schedule VII of the
Companies Act, 2013, the Corporate Social Responsibility (CSR)
Committee of the Board of Directors was formed to recommend the policy
on Corporate Social Responsibility and monitor its implementation. The
CSR policy is available on the Company''s website at:
www.vsthyd.com/i/CSRPolicy.pdf.
Your Company has initially decided to focus on ''Sanitation'' as a key
area which requires attention as it believes improving sanitation has a
direct impact on health which in turn has an impact on overall
productivity and the quality of life of the common people, thereby
making a positive impact on society.
The Company has with the help of Gramalaya, a non-profit organisation
constructed toilets in individual homes of villages in and around
Mahaboobnagar, Kurnool and Raichur villages in the states of Telangana,
Andhra Pradesh and Karnataka where your Company has its leaf
operations, under the ''Swachh Ghar'' programme of your Company. In
addition to construction of toilets, the villages and the communities
in the area are also sensitised about the importance of health &
sanitation. Over 1,100 toilets have already been constructed during the
financial year and your Company has plans to extend it further to other
houses in the same area and thereafter extend it to other areas. Your
Company has also taken up the environment sustainability project of
installing solar street lights in villages in the above states. The CSR
Policy and the Annual Report on CSR activities is annexed herewith as
''Annexure B'' and forms part of this Report.
RELATED PARTY TRANSACTIONS
There were no related party transactions during the year except that in
the ordinary course of business and on arms length basis. There were no
materially significant related party transactions between your Company
and the Directors, Promoters, Key Managerial Personnel and other
designated persons which may have a potential conflict with the
interest of your Company at large.
Form AOC-2 for disclosure of particulars of contracts/arrangements,
entered into by your Company with related parties is annexed herewith
as ''Annexure C'' and forms part of this Report.
BOARD EVALUATION
Pursuant to the provisions of the Companies Act, 2013 and Listing
Regulations, the performance evaluation of the Board, the Committees of
the Board and individual Directors has been carried out. The manner in
which the evaluation has been carried out has been explained in the
Corporate Governance Report.
REMUNERATION POLICY
Nomination and Remuneration Committee has formulated a policy relating
to remuneration of directors, key managerial personnel and other
employees which has been approved by the Board. The Remuneration Policy
and the criteria for determining qualification, position attributes and
independence of a director are stated in the Corporate Governance
Report.
MEETING OF INDEPENDENT DIRECTORS
The performance of the Non-Executive Director, the Chairman and the
Board as a whole is done by the Board and the Independent Directors in
their exclusive meeting as per the policy formulated by the Board in
this regard. In addition, the independent directors in such meeting
also review their role, functions and duties under the Companies Act,
2013 and the flow of information from the management.
VIGIL MECHANISM
In terms of Section 177 of the Companies Act, 2013, the Company has
formulated a Whistle Blower Policy as a vigil mechanism to encourage
all employees and directors to report any unethical behavior, actual or
suspected fraud or violation of the Company''s ''Code of Conduct and
Ethics Policy'' which also provides for adequate safeguard against
victimisation of person who use such mechanism and there is a provision
for direct access to the Chairman of the Audit Committee in
appropriate/exceptional cases. The details of the Whistle Blower Policy
is given in the Corporate Governance Report and also posted on the
Company''s website at:
www.vsthyd.com/i/Whistle Blower Policy.pdf.
DIRECTORS AND KEY MANAGERIAL PERSONNEL
Directors retiring by rotation
Mr. Devraj Lahiri
In accordance with Article 93 of the Articles of Association of your
Company, Mr. Devraj Lahiri retires from the Board and being eligible,
offers himself for re-election. Your Board recommends his
re-appointment.
Mr. Devraj Lahiri has been appointed a Whole-time Director of the
Company for a period of five years with effect from 1st August, 2011,
by the Members at their meeting held on 12th July, 2012.
Directors'' Resignation/ Appointment
Mr. Devraj Lahiri
The Board of Directors of your Company (''the Board'') at its meeting
held on 20th April, 2016 on the recommendation of Nomination &
Remuneration Committee approved the appointment of Mr. Devraj Lahiri as
Deputy Managing Director of the Company, with effect from 1st July,
2016 to 27th November, 2017 (both days inclusive), subject to the
approval of the Members. The Deputy Managing Director shall also be a
Key Managerial Personnel under Section 203 of the Companies Act, 2013.
Mr. Devraj Lahiri, aged 43 years, is a Commerce Graduate from St.
Xavier''s College, Kolkata and Masters in Business Administration from
Indian Institute of Social Welfare and Business Management, Kolkata. He
joined the Company in the year 2001 and has made significant
contributions during his association with the Company. He was elevated
to the level of Marketing Head and was appointed as Whole-time Director
of the Company with effect from 1st August, 2011. He is a member of the
Corporate Social Responsibility Committee, Committee of Directors and
Stakeholders Relationship Committee of the Company and is also a
director on the board of the Tobacco Institute of India. He has been
instrumental in the growth of the Company and has successfully launched
various new brands. Mr. Lahiri does not hold any shares in the Company
and is not related to any other director of the Company.
A suitable resolution is being put up for your approval.
British American Tobacco (BAT) Group Nominee
Mr. James H. Yamanaka, Director has resigned with effect from close of
business on 16th April, 2015 and Mr. Ramakrishna V. Addanki was
nominated by the Raleigh Investment Company Limited, a BAT group
Company as a Director of your Company in the place of Mr. James H.
Yamanaka with effect from 21st April, 2015 and his appointment as
Non-Executive Director of your Company was approved by the Members in
the Annual General Meeting held on 12th August, 2015.
Independent Directors
At the Annual General Meeting held on 12th August, 2014, the Members of
your Company appointed Ms. Mubeen Rafat and Mr. S. Thirumalai as
Independent Directors under the Companies Act, 2013 for a period of
five years with effect from 12th August, 2014 and 1st October, 2014,
respectively.
All Independent Directors have given declarations as required under
Section 149(7) that they meet the criteria of independence as laid down
under Section 149(6) of the Companies Act, 2013. None of the
Independent Directors are related to any other director of the Company.
Key Managerial Personnel
The Managing Director Mr. N. Sai Sankar, the Whole-time Director Mr.
Devraj Lahiri, the Chief Financial Officer Mr. Anish Gupta and the
Company Secretary Mr. Nitesh Bakshi are the Key Managerial Personnel as
per the provisions of the Companies Act, 2013.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 134 of the Companies Act, 2013, your Directors
confirm that:
1. in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures, if any;
2. appropriate accounting policies have been selected and applied
consistently. Judgement and estimates which are reasonable and prudent
have been made so as to give a true and fair view of the state of
affairs of your Company as at the end of the financial year 2015-16 and
of the profit of your Company for the period;
3. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 2013 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis;
5. proper internal financial controls have been laid down to be
followed by your Company and such internal financial controls are
adequate and were operating effectively; and
6. proper systems to ensure compliance with the provisions of all
applicable laws have been devised, and such systems were adequate and
operating effectively.
SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR
TRIBUNALS
There are no significant or material orders passed by the Regulators,
Courts or Tribunals which impact the going concern status of the
Company and its future operations. However, Members'' attention is drawn
to the following:
TAXATION
i. Income Tax
Financial Services Business
Your Company had diversified into Financial Services Business and Foods
Business in the early nineties. Subsequently in the year 1998-99, your
Company incurred a total loss of Rs.38.67 crore in the financial
services business of which Rs.29.70 crore was claimed as loss under the
head ''Income from Business'' and Rs.8.97 crore was claimed as a capital
loss under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67
crore as a capital loss. It may be noted that the department had
treated the entire loss as a ''Speculation Loss''.
Your Company has filed an appeal before the Hon''ble High Court of
Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in
the financial year 1999-00, your Company had incurred a total loss of
Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the
head ''Income from Business'' and Rs.9.50 crore was claimed as a capital
loss under the provisions of the Income Tax Act. The Income Tax
Department has disallowed the entire amount excepting Rs.5.70 crore
which was allowed as a capital loss. The Commissioner of Income Tax
(Appeals) further allowed Rs.11.24 crore out of the balance amount of
Rs.47.98 crore, on appeal before him and the same was upheld by the
Income Tax Appellate Tribunal. Your Company has preferred an appeal
against the above order and the matter is now before the Hon''ble High
Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued
consequential orders under Section 154 of the Income Tax Act demanding
Rs.28.86 crore (revised) which was paid by your Company.
ii. Luxury Tax
The Hon''ble Supreme Court by its judgement dated 20th January, 2005 set
aside levy of luxury tax on tobacconists by various states. The Court
had also directed the companies to pay back to the state any amount of
luxury tax recovered from the customers after obtaining stay orders
from the Court. The Department has alleged that your Company has failed
to pay an amount of Rs.34.86 crore being the luxury tax collected from
customers by your Company after passing of the interim order dated 1st
June, 1999, to the State Government of Andhra Pradesh which is in
violation of the said judgement dated 20th January, 2005 and filed the
contempt petition against the then Managing Director of your Company.
An amount of Rs.29.81 crore has also been claimed as interest thereon @
24% per annum. The contempt charges against the then Managing Director
of your Company were dismissed by the Hon''ble Supreme Court in March,
2010.
The State of Andhra Pradesh decided to continue with the legal
proceedings for recovery of luxury tax from your Company by
substituting the Company''s Managing Director with your Company as the
Respondent. The Supreme Court appointed an independent Auditor to
examine and verify the accounts of your Company for the period 1st
April, 1999 to 20th January, 2005 and submit their report as to whether
any sum was collected by your Company towards luxury tax during the
operation of the Stay Order dated 1st April, 1999. The Auditor
forwarded its report to the Supreme Court endorsing your Company''s
stand. The Supreme Court, after examining the report of the Auditor,
disposed off the petition with an observation that no contempt lies
against your Company. However, the State Government has been given an
opportunity to issue a show cause notice to your Company for refund of
the luxury tax collected after obtaining interim order from the Supreme
Court. Show cause notice should be backed and supported by the evidence
the department wishes to rely upon in support of its case and is
subject to contest by the parties as per law.
The Commercial Tax Department has issued a show cause notice and reply
to the same has been filed by your Company.
iii. Entry Tax
Several High Courts in the country including those of Andhra Pradesh,
Kerala, Tamilnadu and Assam have struck down the levy of entry tax on
the ground that it is violative of Article 301 and not saved under
Article 304(b) of the Constitution, as it is not compensatory in the
manner required in terms of the Supreme Court judgement in the case of
M/s. Jindal Stainless Limited. Thereafter, several states such as Uttar
Pradesh, Bihar, Haryana and Assam have attempted to re-introduce entry
tax by amending the original acts, sparking a fresh round of legal
challenges in the high courts. Most of the appeals filed by the various
states and individual companies have been clubbed together.
The Hon''ble Supreme Court in the batch of cases headed by Jai Prakash
Associates vs the State of MP has referred a number of vital questions
on levy of entry tax, to the Constitutional Bench in terms of Article
145(3) of the Constitution which are still pending adjudication.
The Single Bench of Hon''ble High Court of Calcutta struck down the levy
of entry tax imposed by the State Government of West Bengal in the case
of Bharti Airtel and others and aggrieved by the same, the State
Government has preferred an appeal before the Division Bench. On
identical grounds, the Single Bench of Hon''ble High Court of Calcutta
allowed the Writ Petition in favour of your Company with a direction to
file implead petition and an early hearing petition before the division
bench.
Your Company, as directed, has filed an implead petition and an early
hearing application which is pending before the Division Bench of High
Court of Calcutta.
iv. Excise
a. Wrapping Materials
The Excise Department claimed a sum of Rs.3.62 crore (including penalty
and interest @ 24%) on the ground that Gay Wrappers (printed paper used
for wrapping cigarette packets) had been manufactured and consumed by
your Company without payment of duty during the period April 1996 to
March 2002. The Customs, Excise and Service Tax Appellate Tribunal
(CESTAT), Bangalore had allowed your Company''s appeal against the said
demand and set aside the demand of the Excise Department. An appeal
against the said Order was filed by the Excise Department and the
Hon''ble Supreme Court was pleased to allow the appeal by way of remand
to CESTAT to decide the matter afresh and pass an order on merits. The
Hon''ble CESTAT heard the matter and allowed the appeal in favour of
your Company.
b. Cigarette manufacture in North Eastern states
The Excise Department had demanded a sum of Rs.31.20 crore along with
interest of Rs.12.69 crore from the Company''s former contract
manufacturers consequent upon the judgement of the Hon''ble Supreme
Court upholding the withdrawal of exemptions granted in the North
Eastern states. Thereafter, a total sum of Rs.39.06 crore was paid to
the Department. A Division Bench of the Gauhati High Court confirmed
the judgement of the single judge and held that interest was also
payable for the period 1st August, 2003 to 7th February, 2006 on the
principal amount already repaid. Appeals have been filed in the Supreme
Court against the said judgements of the Gauhati High Court which were
admitted but no stay of the said judgements was granted.
c. Tobacco Refuse
Your Company has been receiving periodical show cause notices demanding
recovery of duty on cut tobacco used in the manufacture of tobacco
refuse together with interest and penalty thereon from January 2005 to
October 2013, amounting to Rs.15.92 crore. All the pending appeals
before CESTAT in this matter until October 2013 were allowed in favour
of your Company. Against the said orders, the department preferred an
appeal before the Hon''ble Supreme Court on which hearing is pending.
Show cause notices for subsequent period have been received and same
are pending before original authority.
d. Service Tax
Your Company has received show cause notices from the Excise Department
seeking to deny CENVAT credit availed on service tax paid by various
service providers on the ground that the same are not in relation to
the manufacture of final products. Upon adjudication, credit on most of
the services were allowed in favour of your Company, however some of
them are contested by the department before CESTAT. Cross appeal has to
be filed by your Company before CESTAT. One of the appeals filed by
your Company for the period April 2008 was heard and allowed by CESTAT
by way of remand to the original authority to be decided in light of
earlier judicial pronouncements.
PUBLIC INTEREST LITIGATION (PIL)
i. The two PILs filed in the Madras High Court and the Andhra Pradesh
High Court against the Central Government and the cigarette
manufacturers including your Company, seeking strict implementation of
Cigarettes and Other Tobacco Products (Prohibition of Advertisement And
Regulation of Trade and Commerce, Production, Supply and Distribution)
Act, 2003 (COTP Act) and Rules are pending.
ii. Your Company has been impleaded in the petition filed in the
Supreme Court by an NGO called ''Centre for Transforming India'' against
the Union of India along with other cigarette manufacturers, Tobacco
Institute of India, Bidi Manufacturers and Bidi Manufacturers''
Association seeking prohibition/ban of the manufacture, storage and
sale of all forms of tobacco within the territory of India.
iii. A PIL was filed before the Uttarakhand High Court in India
relating to printing of Tar-Nic contents on cigarette packets. The High
Court passed an Order allowing the petition and directing ban on sale
of loose cigarettes without printing health warning. The Court has
also ordered ban on sale of cigarettes in the state of Uttarakhand if
the union does not prescribe safe or maximum permissible limit of
nicotine & tar contents in each cigarettes or label or package.
A review petition has been filed by your Company along with others
against the order and is pending before the High Court of Uttarakhand.
Petitions have also been filed in other courts such as High Court of
Jabalpur, National Green Tribunal, Delhi seeking ban on sale of
cigarettes.
INTELLECTUAL PROPERTY
The suit for infringement and passing off filed by ITC Limited against
your Company alleging that your Company had violated ITC Limited''s
''Gold Flake'' trade mark by using a deceptively similar get up and trade
dress consisting of a combination of red and gold colors, on its
''Special'' brand of cigarettes is still pending in the Hon''ble Calcutta
High Court and the trial is yet to begin. ITC''s application for
temporary injunction was refused by the single bench of the Hon''ble
Calcutta High Court. Appeal was filed by ITC and the Division Bench,
without allowing the appeal, directed the hearing of the suit to be
expedited. Your Company, however, has been directed to submit the
sales figures of the ''Special'' brand of cigarettes every month to the
Court.
FINANCIAL SERVICES BUSINESS
The Company Petition filed by the Official Liquidator in the Hon''ble
High Court of Andhra Pradesh seeking directions against some of the Ex-
Directors of ITC Agro Tech Finance and Investments Limited (ITCATF),
the Company in liquidation, into which one of the subsidiaries of your
Company, viz. VST Investments Limited was amalgamated, to file a
Statement of Affairs is still pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the
Hon''ble High Court of Andhra Pradesh had directed the Regional
Director, Department of Corporate Affairs, Chennai to conduct an
investigation and submit a report showing the persons who promoted
ITCATF and the persons who were responsible in conducting its affairs
until its winding up. A comprehensive report was prepared and filed in
the Court of by the Regional Director in July 2008. Further, the
Division bench, against the appeal filed by one of the Ex-Directors of
ITCATF, remanded the matter to the Company Judge to decide afresh
keeping in view the report submitted by the Regional Director. All the
matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS
(PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE,
PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)
i. In view of the provisions of COTPA various restrictions such as ban
on advertising in print and visual media, ban on outdoor advertising,
regulation of in-store advertising, prohibition of sale of cigarettes
to persons below the age of 18 years, etc. have been in force. Printing
of pictorial warnings on cigarette packets, which came into effect from
31st May, 2009 were further revised with effect from 1st December,
2011. A new set of pictorial warnings were notified to come into force
with effect from 1st April, 2013. In October, 2014 the Government
notified a new set of pictorial warning covering 85% of the front and
back principle display area of the packets with effect from 1st April,
2015. However, after extension, the same have now been implemented from
1st April, 2016.
ii. Some tobacco manufacturers have challenged various provisions of
COTPA and Rules made there under in different high courts across the
country. The Union Government filed transfer petitions in the Hon''ble
Supreme Court seeking to transfer 31 pending writ petitions from
various high courts to the Hon''ble Supreme Court. All the transfer
petitions were allowed and the writ petitions have thus been moved to
the Hon''ble Supreme Court, for final adjudication.
iii. Your Company had also filed a writ petition in the Hon''ble High
Court of Andhra Pradesh challenging the Cigarettes and Other Tobacco
Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules
2008, on the grounds inter alia that they are ultra vires of COTPA and
therefore the notifications issued there under (including those seeking
implementation of graphic health warnings) should be quashed. The said
writ petition has been admitted but no interim orders were passed by
the Hon''ble Court.
iv. The Government of India, Ministry of Health and Family Welfare on
13th January, 2015 as part of pre- legislative consultation invited
views and comments from the stakeholders and the public on the proposed
Cigarettes and Other Tobacco Products (Prohibition of Advertisement and
Regulation of Trade and Commerce, Production, Supply and Distribution)
Amendment Bill, 2015 which proposes further restrictions on the
industry and more stringent penalty provisions.
REAL ESTATE
The Government of Andhra Pradesh had filed a land grabbing case against
your Company in 1991 in relation to a piece and parcel of vacant land
which has been under possession and occupation by your Company for over
four decades. By its judgement dated 28th July, 2010, the Special Court
had held that your Company is not a land grabber but had given the
State Government the right to initiate proceedings to recover
possession of the land at some future date. Against this part of the
judgement, your Company had filed a writ petition in the Hon''ble High
Court of Andhra Pradesh to expunge that part of the Order giving such
liberty to the Department despite the fact that your Company has
already been declared not to be a land grabber. The writ petition is
still pending. The State Government has also filed a writ petition in
the Hon''ble High Court of Andhra Pradesh seeking to set aside the said
judgement of the Land Grabbing Court. An interim Order was passed
restraining your Company from changing the status of the land or
creating any third party interest therein. Your Company has taken all
the necessary steps for disposal of the above writ petitions which are
pending before the Court.
PARTICULARS OF EMPLOYEES
The information required pursuant to Section 197 of the Companies Act,
2013 read with Rule 5(1) of the Companies (Appointment and Remuneration
of Managerial Personnel) Rules, 2014 in respect of employees of the
Company, are annexed herewith as ''Annexure D'' and forms part of this
Report. The statement containing particulars of employees as required
under Section 197 of the Act read with Rule 5(2) of Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 is
provided in a separate annexure forming part of this report. However,
in terms of Section 136 of the Act, the Report and Accounts are being
sent to the Members and others entitled thereto, excluding the
information on employees'' particulars which is available for inspection
by the Members at the Registered Office of the Company during business
hours on working days of the Company up to the date of the ensuing
Annual General Meeting. In case any Member is interested in obtaining a
copy thereof, such Member may write to the Company Secretary of the
Company.
The Nomination and Remuneration Committee of the Company has affirmed
that the remuneration is as per the Remuneration Policy of the Company.
You may be pleased to note that your Company was presented the Best
Management Award-2015 by the Telangana Government.
Your Directors take this opportunity to record their deep appreciation
of the continuous support and contribution from all employees of your
Company.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of Companies Act, 2013 and Rule 12(1)
of Companies (Management and Administration) Rules, 2014, an extract of
Annual Return in Form MGT-9 is annexed as ''Annexure E'' and forms part
of this report.
AUDITORS
Statutory Auditors
The Report given by the Auditors, Messrs. Lovelock & Lewes, Chartered
Accountants on the financial statement of the Company is part of the
Annual Report. There has been no qualification, reservation or adverse
remark or disclaimer in their Report. During the year under review, the
Auditors had not reported any matter under Section 143(12) of the
Companies Act, 2013 and hence, no detail is required to be disclosed
under Section 134(3)(ca) of the Companies Act, 2013.
The current Statutory Auditors retire at the ensuing Annual General
Meeting.
In compliance with Section 139 of the Companies Act, 2013, the Board,
on the recommendation of the Audit Committee and subject to approval of
the Members, has proposed appointment of Messrs. BSR & Associates LLP,
Chartered Accountants as statutory auditor of your Company for a period
of five years commencing from the conclusion of 85th Annual General
Meeting till the conclusion of 90th Annual General Meeting subject to
ratification by the Members at every Annual General Meeting. The
Company has received their written consent that the appointment, if
made, will be in accordance with the applicable provisions of the Act
and rules framed there under.
Secretarial Auditor
Pursuant to the provisions of Section 204 of the Companies Act, 2013
and Rule 9 of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014, the Company had appointed Dr. K.R. Chandratre,
Company Secretary in Whole-time Practice, as Secretarial Auditor of the
Company for the financial year 2015-16. The Secretarial Audit Report is
annexed herewith as ''Annexure F'' and forms part of this Annual Report.
There are no qualifications, reservations or adverse remarks in the
Secretarial Audit Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS AND OUTGO
Information in accordance with clause (m) of sub-section (3) of Section
134 of the Companies Act, 2013 read with Rule 8 of Companies (Accounts)
Rules, 2014 is given in the ''Annexure G'' forming part of this Report.
DEPOSITS
Your Company has stopped accepting fresh deposits for several years
now. As on 31st March, 2016, your Company does not have any deposits
for the purpose of its business.
THE FUTURE
Despite adverse market conditions, your Company is well placed to
exploit opportunities through innovative new brand launches, coupled
with expansion of operational areas.
MATERIAL CHANGES AND COMMITMENTS
There have been no material changes and commitments made between the
end of the financial year of this Company and the date of this Report.
ACKNOWLEDGEMENTS
The Directors are grateful to all valuable stakeholders of the Company
viz. customers, shareholders, dealers, vendors, banks and other
business associates for their excellent support rendered during the
year. The Directors also acknowledge the unstinted commitment and
valued contribution of all employees of the Company.
On behalf of the Board,
RAYMOND S. NORONHA
Chairman
DIN: 00012620
Dated this 20th day of April, 2016.
Azamabad, Hyderabad - 500 020
Mar 31, 2014
The Directors of your Company have pleasure in presenting their Annual
Report and Accounts for the year ended 31st March, 2014.
Financial Results Rs. Lakhs
2013-14 2012-13
Revenue from Operations 162672 162109
Net Profit after Tax 15015 12625
Profit brought forward from previous year 10274 10205
Balance available for Appropriation 25289 22830
Amount transferred to General Reserves 1510 1265
Dividend proposed 10809 9651
Corporate Dividend Tax 1837 1640
Surplus in the Statement of Profit and Loss 11133 10274
KEY RATIOS
Earnings per Share (Rs.) 97.24 81.76
Dividend per Share (Rs.) 70.00 62.50
- Value creation during the decade has been Compounded Annual Growth
Rate (CAGR), 10.8% in Earnings Per Share (EPS) and 26.4% in Dividend
Per Share (DPS).
INDUSTRY STRUCTURE & DEVELOPMENT
In the Union Budget presented in March 2013, the industry witnessed
another round of steep hike in excise duty of 18% on all segments
except 64mm. This successive increase in excise has adversely impacted
consumption levels resulting in year-on-year volume decline. Industry
volumes have been under pressure during the year 2013-14.
The industry continues to face significant taxation challenges. Most
states revised the tax rates again in 2013-14. Significant hikes that
impacted your Company were in Bengal and Bihar where the rates
increased from 20% to 35% and 34.5% respectively. The overall tax rate
for your Company has increased from 22% to 26% in 2013-14.
The trend of steep tax hikes is likely to continue and will be a
challenge moving forward.
The recently introduced 64mm filter segment has helped in mitigating
overall industry volume losses. The segment now contributes 14% to
industry volumes. However, the mid segment which largely comprises 69mm
filter cigarettes is under significant pressure.
SEGMENT WISE PERFORMANCE
Your Company considers tobacco and related products as the primary
segment for reporting. Geographical segments considered for disclosure
primarily consist of sales within and outside India. The entire
activity pertaining to sales outside India is carried out from India.
Your Company has leveraged the opportunities arising from the
introduction of 64mm cigarettes in 2012-13 by launching 64mm variants
of key brands. Your Company''s key brands Moments, Special & Charms have
registered growth in volumes when compared to last year in Uttar
Pradesh, North Bengal and Bihar respectively. This has helped your
Company to compensate volumes in a declining industry.
Market Scenario
Cigarette volumes of your Company during 2013-14 stood at 8100 mns,
marginally higher than 2012-13. This was primarily due to superior
performance in the 64mm segment.
Your Company strives to strengthen its position further through a
combination of geographic expansion and introduction of new brands.
Leaf Tobacco
Your Company has recorded leaf sales turnover of Rs.241 crore, in the
year 2013-14 leveraging its expertise in all varieties of tobacco. Your
Company is concentrating on domestic sales by utilizing its image with
the local trade in addition to exports for maximizing turnover and
profits.
The focus on developing niche varieties of tobacco continued. Besides
helping develop the backward regions, it has also helped in improving
the Company''s profitability. The oriental project continues with
improved agronomic practices.
It is satisfying to note that your Company''s farmers continue to grow
tobacco with the lowest pesticide residue levels and low TSNAs (Tobacco
Specific Nitrosamaines) that are well within international standards.
Your Company''s leaf tobacco function continues to be certified by
Registro Italiano Navale, Genova, Italy for SA8000 reflecting Company''s
resolve to follow best international practices in its operations.
PRODUCTION AND PLANT MODERNISATION
In view of rapid growth in the value filter segments (64mm), during the
year 2013-14, your Company has successfully converted the cigarette
making and packing machines by deploying in-house expertise.
In continuance with its tradition, 143 workmen were trained during the
year to improve their technical skills.
World class high speed makers and packers were inducted in the shop
floor as part of your Company''s upgradation plan.
HUMAN RESOURCE DEVELOPMENT
Your Company''s Human Resource Management focus continue to attract and
retain the best talent, in an increasingly competitive market place.
Development plans have been drawn up for key managers to assume higher
responsibilities as well as to enhance their job effectiveness.
Your Company has constituted an Internal Complaints Committee as per
the Sexual Harassment of Women at Workplace (Prevention, Prohibition
and Redressal) Act, 2013 and the Rules there under. No cases were filed
during last year under the above Act.
As on 31st March, 2014, your Company had a strength of 885 employees,
with 291 management staff and 594 workmen.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS AND OUTGO
Information in accordance with clause (e) of sub-section (1) of Section
217 of the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 is given
in the Annexure to this Report.
ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES
Your Company has been maintaining high safety performance.
President Award for the year 2013 was presented to your Company by
Royal Society for Prevention of Accidents (RoSPA), U.K. for maintaining
highest standards in Occupational, Health and Safety.
Safety Innovation Award for the year 2013 was awarded to your Company
by Institution of Engineers India, New Delhi.
Environment, Health and Safety (EHS) in day-to-day business operations
is given very high priority by your Company. 504 employees and 20
contractors have undergone EHS training and 570 employees have
undergone fire fighting training programme. Mock fire drills were also
conducted for workers and management during the period to comply with
the Company''s EHS guidelines. Involvement by workmen in quarterly EHS
reviews along with staff members and periodical inspections have kept
the performance standards at high level. Quarterly and annual EHS
audits of Company operations were carried out to ensure compliance of
EHS requirements, and to measure the performance of EHS. EHS Road Map
rating for your Company was assessed at 3.54 as against the scale of
4.0 for the year 2013-14.
Surveillance Audit of ISO 14001: 2004 & OHSAS 18001: 2007 for the year
2013-14 were conducted by Registro Italiano Navale India (RINA).
As a social responsibility your Company has been actively discouraging
child labor involvement in tobacco growing/ processing. Your Company
has also facilitated installation of solar lights in the tobacco
growing areas in association with the village panchayats.
All statutory compliances are in place.
The thrust on EHS will continue while emphasizing the focus on Best
International Work practices.
FINANCE
a. Profits
The Profit after Tax of your Company for the year is Rs.150 crore.
The continuous increase in taxation over the last several years has
brought about increased pressure on margins.
b. Treasury Operations
Your Company follows a SLR model (Safety, Liquidity and Return) in
deployment of surplus funds which arise periodically during the year.
The Company predominantly deploys monies in debt funds of reputed
mutual funds and tax free bonds issued by Government bodies. Such
investments earned Rs.15 crore during the current year.
ENTERPRISE RESOURCE PLANNING (ERP)
Your Company was able to successfully manage the entire ERP system by
developing an in-house team. All routine business issues as well as
improvements in existing systems have been undertaken by the team. This
team interacts with managers of the operating teams and works
continuously to help improve the business processes. Your Company has
also developed adequate skills to manage issues arising out of
facilities management and networking which are the other components of
the IT infrastructure.
RATING
The Credit Rating Information Services India Limited (CRISIL) has
re-affirmed the rating of your Company to ''FAAA/ Stable'' for Fixed
Deposit Schemes, ''AA /Stable'' for Long Term Non- convertible Debentures
and ''A1 '' for Non-fund based liabilities (Letter of Credit and Bank
Guarantee). Your Company has stopped accepting fresh deposits for the
past several years.
UNCLAIMED DIVIDENDS
Pursuant to the provisions of Section 205A(5) of the Companies Act,
1956, the declared dividends, which remained unpaid or unclaimed for a
period of seven years, are transferred by the Company to Investor
Education and Protection Fund (IEPF) established by the Central
Government pursuant to Section 205C of the said Act. The final dividend
for the year ended 31st March, 2007 remaining unpaid would be deposited
by 23rd August, 2014 to IEPF in accordance with Section 205C of the
Companies Act, 1956.
The details of the dividend due for transfer to IEPF as on 31st March,
2014 is given in the Report on Corporate Governance.
UNCLAIMED SHARE CERTIFICATES
Your Company has communicated to the Members whose share certificates
have been returned undelivered to the Company that these would be
transferred to the Unclaimed Suspense Account if not claimed by them,
as required under the Listing Agreement amended by SEBI vide its
Circular dated 16th December, 2010.
The status of unclaimed shares as on 31st March, 2014 is given in the
Report on Corporate Governance.
CORPORATE GOVERNANCE
The Company''s Report on Corporate Governance is annexed to this Report.
Certificate of the Statutory Auditors of your Company regarding
compliance of the conditions of Corporate Governance as stipulated in
Clause 49 of the Listing Agreement with stock exchanges is annexed to
this Report.
Your Company has taken adequate steps for strict compliance with the
Corporate Governance guidelines, as amended from time to time.
The Ministry of Corporate Affairs has released draft guidelines for
voluntary compliance covering various aspects. Your Company has
already implemented most of the items and is considering feasibility of
implementation of the balance items.
INTERNAL FINANCIAL CONTROLS
Your Company remains committed to improve effectiveness of internal
financial controls and processes which would help in efficient conduct
of its business operations, ensure security to its assets and timely
preparation of reliable financial information.
The policies and procedures laid out by your Company capture the
control environment prevalent in the organization. Over a period of
three years, the business processes of your Company is reviewed through
an internal audit process which reviews the systems on a continuous
basis. The objective being to identify potential risk areas and come up
with a comprehensive risk mitigation plan.
The Audit Committee of your Board met five times during the year.
Review of audit observations covering the operations, consideration of
accounts on a quarterly basis and monitoring the implementation of
audit recommendations were some of the key areas which were dealt with
by the Committee. The Statutory Auditors/Internal Auditors were invited
to attend the Audit Committee meetings and make presentations covering
their observation on adequacy of internal financial controls and the
steps required to bridge gaps, if any.
Risk Management
Risk Management is monitored by a Committee comprising of members from
various functions. The Committee meets periodically to identify the
potential risks as well as to take adequate steps for mitigating the
risks. A comprehensive note covering various aspects is placed before
the Board every quarter.
DIRECTORS
Directors retiring by rotation
In accordance with Article 93 of the Articles of Association of your
Company, Mr. Raymond S. Noronha retires from the Board and being
eligible, offers himself, for re-election. Your Board recommends his
re-appointment.
Mr. Raymond S. Noronha
At the Annual General Meeting held on 12th July, 2012, Mr. Raymond S.
Noronha was appointed as Non- Executive Director of your Company with
effect from 3rd September, 2012. Mr. Noronha was elected as Chairman
of your Company and of its Board of Directors with effect from 1st
October, 2012.
Mr. Noronha is a B.A. (Hons.) from St. Stephen''s College, Delhi and
attended the Wharton Advanced Management Program (1995) at
Philadelphia, USA. He has had over 39 years of varied experience in
the cigarette business both international and domestic and has held
several top level positions for over a decade. Mr. Noronha retired as
Managing Director of your Company and was appointed as Non-Executive
Director with effect from 3rd September, 2012. He is the Chairman of
Committee of Directors and a Member of the Audit Committee,
Shareholders Grievance Committee and Nomination & Remuneration
Committee of your Company. Mr. Noronha neither holds any shares in the
Company nor is related to any other Director of the Company.
Directors'' Resignation/ Appointment
Mr. T. Lakshmanan
The Board of Directors place on record with deep regret the sad demise
of Mr. T. Lakshmanan, the Non-Executive Director of your Company on
24th September, 2013. The Board of Directors place on record their deep
appreciation of the contribution made to your Company by Late
Mr.Lakshmanan.
Mr. Peter G. Henriques
Mr. Peter G. Henriques ceased to be a Director of your Company with
effect from close of business on 31st December, 2013. The Board of
Directors place on record their deep appreciation of the contribution
made to your Company by Mr. Peter G. Henriques.
Mr. James Yamanaka
Mr. James Yamanaka was nominated by the Raleigh Investment Company
Limited, a British American Tobacco group company as a Director of your
Company with effect from 1st January, 2014 in place of Mr. Peter G.
Henriques.
Mr. James Yamanaka is B.A. in Political Science & Economics from
University of California, San Diego, MS in Foreign Service from
Georgetown University, USA and M.B.A. from London Business School, U.K.
He has 20 years of experience in the area of Strategy and Planning. He
is currently the Group Head of Strategy and Planning of British
American Tobacco Plc. Mr.Yamanaka neither holds any shares in the
Company nor is related to any other Director of the Company.
A suitable resolution is being put up for your approval.
Prof. Mubeen Rafat
Prof. Mubeen Rafat was appointed as Additional Director of your Company
with effect from 1st January, 2014.
Prof. Mubeen Rafat is B.Sc.(Statistics) from Elphinstone College,
Mumbai and M.M.S. (Finance) from Jamnalal Bajaj Institute of Management
Studies, Mumbai. She has over 25 years of experience in the area of
Finance as a manager and as faculty. She is currently the Professor in
Administrative Staff College of India (ASCI). She is a Member of the
Audit Committee, Committee of Directors and Nomination & Remuneration
Committee and is the Chairperson of Shareholders Grievance Committee of
your Company. Prof. Rafat neither holds any shares in the Company nor
is related to any other Director of the Company.
A suitable resolution for appointment of Prof. Mubeen Rafat as an
Independent Director as per the provisions of Companies Act, 2013 is
being put up for your approval.
Mr. S. Thirumalai
Mr. S. Thirumalai was re-appointed at the Annual General Meeting held
on 30th July, 2013.
Mr. S. Thirumalai is a Commerce and Law Graduate and is a Fellow Member
of Institute of Chartered Accountants of India and Institute of Company
Secretaries of India. He is also a Certified Associate of the Indian
Institute of Bankers. He attended the Advanced Management Program at
Harvard Business School, Boston, M.A. (USA) in 1992. He has over 31
years of experience in manufacturing industry covering all aspects of
Finance, Taxation and General Management (including three years with
Reserve Bank of India/Unit Trust of India as an Officer). He is now the
Senior Advisor to the consulting firm Deloitte Touche Tohmatsu India
Private Limited. He is the Chairman of the Audit Committee and
Nomination & Remuneration Committee and a Member of Shareholders
Grievance Committee and Committee of Directors of your Company. Mr.
Thirumalai holds 25 shares in the Company and is not related to any
other Director of the Company.
A suitable resolution for appointment of Mr. S. Thirumalai as an
Independent Director as per the provisions of Companies Act, 2013 is
being put up for your approval.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies Act, 1956 your Directors
confirm that:
1. in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures, if any;
2. appropriate accounting policies have been selected and applied
consistently. Judgement and estimates which are reasonable and prudent
have been made so as to give a true and fair view of the state of
affairs of your Company as at the end of the financial year and of the
profit of your Company for the period;
3. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities; and
4. the annual accounts have been prepared on a going concern basis.
TAXATION
i. Income Tax
a. Financial Services
Business
Your Company had diversified into Financial Services Business and Foods
Business in the early nineties. Subsequently in the year 1998-99, your
Company incurred a total loss of Rs.38.67 crore in the financial services
business of which Rs.29.70 crore was claimed as loss under the head
''Income from Business'' and Rs.8.97 crore was claimed as a capital loss
under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67
crore as a capital loss. It may be noted that the department had
treated the entire loss as a ''Speculation Loss''.
Your Company has filed an appeal before the Hon''ble High Court of
Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in
the financial year 1999-00, your Company had incurred a total loss of
Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the
head ''Income from Business'' and Rs.9.50 crore was claimed as a capital
loss under the provisions of the Income Tax Act. The Income Tax
Department has disallowed the entire amount excepting Rs.5.70 crore which
was allowed as a capital loss. The Commissioner of Income Tax
(Appeals) further allowed Rs.11.24 crore out of the balance amount of
Rs.47.98 crore, on appeal before him and the same was upheld by the
Income Tax Appellate Tribunal. Your Company has preferred an appeal
against the above order and the matter is now before the Hon''ble High
Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued
consequential orders under Section 154 of the Income Tax Act demanding
Rs.28.86 crore (revised) which was paid by your Company.
b. North East
Pursuant to the withdrawal of exemption notification for manufacture of
cigarettes in the North Eastern region in terms of Supreme Court
judgement of 19th September, 2005, your Company had paid an amount of
Rs.31.20 crore towards principal and provided an amount of Rs.12.69 crore
towards interest.
In the income tax return filed by your Company for the relevant year,
this amount was considered as an allowable expenditure in the
assessment for the year 2006-07. However, subsequently the Income Tax
Department has sent a demand notice seeking payment of Rs.19.30 crore
being tax payable along with interest which was paid by your Company.
Your Company has contested the same.
ii. Luxury Tax
The Hon''ble Supreme Court by its judgement dated 20th January, 2005 set
aside levy of Luxury Tax on tobacconists by various States. The Court
had also directed the companies to pay back to the State any amount of
luxury tax recovered from the customers after obtaining Stay orders
from the Court. The Department has alleged that your Company has failed
to pay an amount of Rs.34.86 crore being the Luxury Tax collected from
customers by your Company after passing of the interim order dated
1st June, 1999, but not paid to the State Government of Andhra Pradesh
which is in violation of the said judgement dated 20th January, 2005
and filed the contempt petition against the Managing Director of your
Company. An amount of Rs.29.81 crore has also been claimed as interest
thereon @ 24% per annum. The contempt charges against the Managing
Director of your Company were dismissed by the Hon''ble Supreme Court on
19th March, 2010.
The State of Andhra Pradesh decided to continue with the legal
proceedings for recovery of Luxury Tax from your Company by
substituting the Company''s Managing Director with your Company as the
Respondent. The Supreme Court by its Order dated 9th November, 2012
appointed an independent auditor to examine and verify the accounts of
your Company for the period 1st April, 1999 to 20th January, 2005 and
submit their report as to whether any sum was collected by your Company
towards luxury tax during the operation of the Stay Order dated 1st
April, 1999. The auditor forwarded its report to the Supreme Court
giving a clean chit to your Company. The Supreme Court, after examining
the report of the auditor, disposed off the petition with an
observation that no contempt lies against your Company. However, the
State
Government has been given an opportunity to issue a show cause notice
to your Company for refund of the luxury tax collected after obtaining
interim order from the Supreme Court. The show cause notice should be
backed and supported by the evidence the department wishes to rely upon
in support of its case and is subject to contest by the parties as per
the law.
iii. Entry Tax
As mentioned in last year''s Report, several High Courts in the country
including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have
struck down the levy of Entry Tax on the ground that it is volatile of
Article 301 and not saved under Article 304(b) of the Constitution, as
it is not compensatory in the manner required in terms of the Supreme
Court judgement in the case of M/s. Jindal Stainless Limited.
Thereafter, several states such as Uttar Pradesh, Bihar, Haryana and
Assam have attempted to re-introduce Entry Tax by amending the original
Acts, sparking a fresh round of legal challenges in the High Courts.
Most of the appeals filed by the various states, and individual
companies have been clubbed together.
The Hon''ble Supreme Court in the batch of cases headed by Jai Prakash
Associates vs the State of MP has referred a number of vital questions
on levy of Entry Tax, to the Constitutional Bench in terms of Article
145(3) of the Constitution which are still pending adjudication.
iv. Excise
a. Wrapping Materials
The Excise Department claimed a sum of Rs.3.62 crore (including penalty
and interest @ 24%) on the ground that Gay Wrappers (printed paper used
for wrapping cigarette packets) had been manufactured and consumed by
your Company without payment of duty during the period April 1996 to
March 2002. The Customs, Excise and Service Tax Appellate Tribunal
(CESTAT), Bangalore had allowed your Company''s appeal against the said
demand and set aside the demand of the Excise Department. An appeal
against the said Order has been filed by the Excise Department and is
presently pending in the Hon''ble Supreme Court.
b. Cigarette manufacture in North Eastern states
The Excise Department had demanded a sum of Rs.31.20 crore along with
interest of Rs.12.69 crore from the Company''s former contract
manufacturers consequent upon the judgement of the
Hon''ble Supreme Court upholding the withdrawal of exemptions granted in
the North Eastern states. Thereafter, a total sum of Rs.33.22 crore was
paid to the Department. A Division Bench of the Gauhati High Court
confirmed the judgement of the single judge and held that interest was
also payable for the period 1st August, 2003 to 7th February, 2006 on
the principal amount already repaid. Appeals have been filed in the
Supreme Court against the said judgements of the Gauhati High Court
which were admitted but no stay of the said judgements was granted. A
sum of Rs.2.92 crore was paid to the department during the current
financial year.
c. Tobacco Refuse
Your Company has been receiving periodical show cause notices demanding
recovery of duty on cut tobacco used in the manufacture of tobacco
refuse together with interest and penalty from January 2005 to October
2013, amounting to Rs.15.80 crore, five of which were confirmed by the
Orders of the Commissioner of Central Excise. Your Company''s Stay
applications in the appeals before CESTAT were heard favourably and
stay with complete waiver of pre-deposit has been granted in the
interim pending final hearing of the appeals by the Appellate Tribunal.
d. Service Tax
Your Company has received show cause notices from the Excise Department
seeking to deny CENVAT credit availed on service tax paid by various
service providers on the ground that the same are not in relation to
the manufacture of final products. They are all pending adjudication at
various levels. Total amount involved is approximately Rs.7.28 crore
together with interest and penalty.
e. Enhancement of duties - Budget 2012
Your Company has received a show cause notice from the Excise
Department seeking payment of differential duty amounting to Rs.15.60
crore together with interest and penalty for the period 17th March,
2012 to 27th May, 2012 on the ground that the proposed excise duty
increase which was further enhanced during the pendency of the Finance
Bill, 2012 in Parliament was saved by the declaration under the
Provisional Collection of Taxes Act, 1931 and would therefore, come
into effect from 17th March, 2012 i.e. the date when the Finance Bill
was introduced in the Lok Sabha and not from 27th May, 2012 when the
Bill received the assent of the President. Similar demands have also
been raised on the other major cigarette manufacturers in the country.
Circular No.981/5/2014-CX dated 11th February, 2014 was issued by the
Ministry of Finance clarifying that the date of enhancement shall be
from 28th May, 2012 and not from 17th March, 2012. Your Company having
provided the amount of Rs.15.60 crore during the previous financial year
has written back the same in the book. Your Company has written to the
Department seeking to drop further proceedings in the matter.
PUBLIC INTEREST LITIGATION (PIL)
i. The two PILs filed in the Madras High Court and the Andhra Pradesh
High Court against the Central Government and the cigarette
manufacturers including your Company, seeking strict implementation of
Cigarettes and Other Tobacco Products (Prohibition of Advertisement And
Regulation of Trade and Commerce, Production, Supply and Distribution)
Act, 2003 (COTP Act) and Rules are still pending.
ii. A PIL was filed in the Karnataka High Court by Mr. Ravishankar, an
advocate/activist against various ministries of the central government,
state government, Advertising Standards Council of India, your Company
and other cigarette manufacturing companies seeking several reliefs on
various aspects and issues relating to COTPA and its implementation.
The Bench disposed off the matter with directions to the State
Government to take steps to enforce the provisions of COTPA through the
mechanism already provided under the Act and direct the authorities
specified to take steps accordingly. The Bench also observed that it is
not proper for an individual to invoke the extraordinary jurisdiction
of the High Court under Article 226 in matters such as these where
there is no individual complaint and a mechanism has already been
provided to deal with the question of violation.
iii. Your Company has been impleaded in the petition filed in the
Supreme Court by an NGO called ''Centre for Transforming India'' against
the Union of India along with other cigarette manufacturers, Tobacco
Institute of India, bidi manufacturers and bidi manufacturers''
Association seeking prohibition/ban of the manufacture, storage and
sale of all forms of tobacco within the territory of India.
INTELLECTUAL PROPERTY
The suit for infringement and passing off filed by ITC Limited against
your Company alleging that your Company had violated ITC Limited''s
''Gold Flake'' trade mark by using a deceptively similar get up and trade
dress consisting of a combination of red and gold colors, on its
''Special'' brand of cigarettes is still pending in the Hon''ble Calcutta
High Court and the trial is yet to begin. ITC''s application for
temporary injunction was refused by a single judge of the Hon''ble
Calcutta High Court. Appeal was filed by ITC and the Division Bench
without allowing the Appeal directed the hearing of the suit to be
expedited. Your Company, however, has been directed to submit the sales
figures of the ''Special'' brand of cigarettes every month to the Court.
FINANCIAL SERVICES BUSINESS
The Company Petition filed by the Official Liquidator in the Hon''ble
High Court of Andhra Pradesh seeking directions to some of the
Ex-Directors of ITC Agro Tech Finance and Investments Limited (ITCATF)
into which one of the subsidiaries of your Company, viz. VST
Investments Limited was amalgamated, to file a Statement of Affairs is
still pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the
Hon''ble High Court of Andhra Pradesh had directed the Regional
Director, Department of Corporate Affairs, Chennai to conduct an
investigation and submit a report showing the persons who promoted
ITCATF and the persons who were responsible in conducting its affairs
until its winding up. A comprehensive report was prepared and filed in
the Hon''ble High Court of Andhra Pradesh by the Regional Director in
July 2008. All the matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT
AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND
DISTRIBUTION) ACT, 2003 (COTPA)
i. Some of the provisions of COTPA have come into force with effect
from 1st May, 2004. These include ban on advertising in print and
visual media, ban on outdoor advertising, regulation of in-store
advertising, prohibition of sale of cigarettes to persons below the age
of 18 years and printing of pictorial warnings on cigarette packets,
which came into effect from 31st May, 2009 and were further revised
with effect from 1st December, 2011. A new set of pictorial warnings
have been notified to come into force with effect from 1st April, 2013.
All cigarette packets manufactured after that date bear the new
warning.
ii. Some Tobacco manufacturers have challenged various provisions of
COTPA and Rules made there under in different High Courts across the
country. The Union Government filed transfer petitions in the Hon''ble
Supreme Court seeking to transfer 31 pending writ petitions from
various high courts to the Hon''ble Supreme Court. All the transfer
petitions were allowed and the writ petitions have thus been moved to
the Hon''ble Supreme Court, for final adjudication.
iii. Your Company had also filed a writ petition in the Hon''ble High
Court of Andhra Pradesh challenging the Cigarettes and Other Tobacco
Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules
2008, on the grounds inter alia that they are ultra vires of COTPA and
therefore the Notifications issued there under (including those seeking
implementation of graphic health warnings) should be quashed. The said
writ petition has been admitted but no interim orders were passed by
the Hon''ble Court.
iv. A ban on smoking in public places as envisaged under COTPA, came
into effect on 2nd October, 2008, under which smoking has been banned
in virtually all public places including courts, public buildings,
restaurants, bars, cinema halls etc. A batch of writ petitions
challenging this was filed in the Hon''ble Delhi High Court and
transferred to the Hon''ble Supreme Court, which was admitted by the
Hon''ble Supreme Court in 2008. However, interim relief prayed for by
the petitioners seeking to postpone implementation of the ban on
smoking in public places was declined.
REAL ESTATE
The Government of Andhra Pradesh had filed a land grabbing case against
your Company in 1991 in relation to a piece and parcel of vacant land
which has been under possession and occupation by your Company for over
45 years. By its judgement in July, 2010, the Land Grabbing Court had
held that your Company was not a land grabber but had given the State
Government the right to initiate proceedings against your Company to
recover possession of the land at some future date. Against this part
of the judgement, your Company had filed a writ petition in the Hon''ble
High Court of Andhra Pradesh to expunge that part of the order giving
such liberty to the Department despite the fact that your company has
already been declared not to be a land grabber. The writ petition is
still pending. In the meantime, after a lapse of over 3 years, the
State Government has also filed a writ petition in the Hon''ble High
Court of Andhra
Pradesh seeking to set aside the said judgement of the Land Grabbing
Court. An interim Order was passed without the Company being present,
restraining your Company from changing the status of the land or
creating any third party interest therein. Your Company is taking steps
to consolidate all the pending matters, get the interim orders vacated
and seek speedy disposal so that the property becomes available for
development.
COMPANY EMPLOYEES
Under the provisions of Section 217(2A) of the Companies Act, 1956,
read with Companies (Particulars of Employees) Rules, 1975 as amended,
the particulars of employees are set out in annexure to the Directors''
Report.
However, as per the provisions of Section 219(1)(b)(iv) of the Act, the
Report and Accounts are being sent to all the shareholders of the
Company excluding the aforesaid information. Any shareholder
interested in obtaining such particulars may write to the Company
Secretary.
Your Directors take this opportunity to record their deep appreciation
of the continuous support and contribution from all employees of your
Company.
AUDITORS
The Auditors, Messrs. Lovelock & Lewes, Chartered Accountants, retire
at the ensuing Annual General Meeting and being eligible, offer
themselves for re- appointment.
THE FUTURE
Your Company is well placed to exploit the opportunities in various
geographies. The strategy of new brand launches, coupled with
geographical expansion will further strengthen the market position of
your Company. Your Company has been successful in improving its margins
and has plans to further consolidate the momentum.
On behalf of the Board,
RAYMOND S. NORONHA
Chairman
Dated this 22nd day of April, 2014.
Azamabad, Hyderabad - 500 020
Mar 31, 2013
The Directors of your Company have pleasure in presenting their Annual
Report and Accounts for the year ended 31st March, 2013.
Financial Results
Rs. Lakhs
2012-13 2011-12
Revenue from Operations 162109 159846
Net Profit after Tax 12625 14251
Profit brought forward
from previous year 10205 9070
Balance available for Appropriation 22830 23321
Amount transferred to General Reserves 1265 1450
Dividend proposed 9651 10037
Corporate Dividend Tax 1640 1629
Surplus in the Statement
of Profit and Loss 10274 10205
KEY RATIOS
Earnings per Share (Rs.) 81.76 92.29
Dividend per Share (Rs.) 62.50 65.00
- Value creation during the decade has been Compounded Annual Growth
Rate (CAGR), 16% in Earnings per Share (EPS) and 28% in Dividend per
Share (DPS).
DIRECTORS
Directors retiring by rotation
In accordance with Article 93 of the Articles of Association of your
Company, Mr. T. Lakshmanan and Mr. S. Thirumalai retire from the Board
and being eligible, offer themselves, for re- election. Your Board
recommends their re-appointment.
Mr. T. Lakshmanan
Mr. T. Lakshmanan was re-appointed at the Annual General Meeting held
on 14th July, 2011. He is now due to retire by rotation at the
forthcoming Annual General Meeting and being eligible, offers himself
for re-appointment.
Mr. Lakshmanan is a Post Graduate in Science and a Member of FFII. He
has over 33 years of experience in various departments of General
Insurance Corporation (GIC) and retired as General Manager of GIC in
2001. He was a Nominee Director on the Board of your Company prior to
his appointment as a Director. He is the Chairman of the Audit
Committee and
a Member of Committee of Directors and Shareholders Grievance Committee
of your Company. Mr. Lakshmanan neither holds any shares in the
Company nor is related to any other Director of the Company.
Mr. S. Thirumalai
Mr. S. Thirumalai was re-appointed at the Annual General Meeting held
on 14th July, 2011. He is now due to retire by rotation at the
forthcoming Annual General Meeting and being eligible, offers himself
for re-appointment.
Mr. S. Thirumalai is a Commerce and Law Graduate and is a Fellow Member
of Institute of Chartered Accountants of India and Institute of Company
Secretaries of India. He is also a Certified Associate of the Indian
Institute of Bankers. He attended the Advanced Management Program at
Harvard Business School, Boston, M.A. (USA) in 1992. He has over 30
years of experience in manufacturing industry covering all aspects of
Finance, Taxation and General Management (including three years with
Reserve Bank of India/Unit Trust of India as an Officer). He is now the
Senior Advisor to the consulting firm Deloitte Touche Tohmatsu India
Private Limited. He is the Chairman of the Shareholders Grievance
Committee and a Member of Audit Committee and Committee of Directors of
your Company. Mr. Thirumalai holds 25 shares in the Company and is not
related to any other Director of the Company.
Directors Resignation/
Retirement/Appointment
Mr. Milind A. Kharat
Mr. Milind A. Kharat ceased to be a
Director of your Company with effect from 1st October, 2012. The Board
of Directors place on record their deep appreciation of the
contribution made to your Company by Mr. Milind A. Kharat.
Mr. R.V.K.M. Suryarau
Mr. R.V.K.M. Suryarau has resigned as Director of your Company with
effect from close of business on 31st March, 2013. The Board of
Directors place on record their deep appreciation of the contribution
made to your Company by Mr. R.V.K.M. Suryarau.
Mrs. Asha Nair
Mrs. Asha Nair was nominated by the General Insurers'' (Public Sector)
Association of India as a Director of your Company with effect from 1st
October, 2012 in place of Mr. Milind A. Kharat.
Mrs. Asha Nair is B.A. in Economics (Hons.) and M.A. from Delhi
University. She is a Fellow of Insurance Institute of India (FIII).
She has rich experience of over 30 years in the insurance industry.
She joined the insurance industry as Direct Recruit Officer and is now
Director of United India Insurance Company Limited. Mrs. Asha Nair
neither holds any shares in the Company nor is related to any other
Director of the Company.
Mr. Raymond S. Noronha
At the meeting of the Board of Directors held on 12th July, 2012, Mr.
Raymond S. Noronha was elected as Chairman of your Company and of its
Board of Directors with effect from 1st October, 2012.
Mr. Noronha is a B.A. (Hons.) from St.
Stephen''s College, Delhi and attended the Wharton Advanced Management
Program (1995) at Philadelphia, USA. He has had over 38 years of
varied experience in the cigarette business both international and
domestic and has held several top level positions for over a decade.
Mr. Noronha retired as Managing Director of your Company and was
appointed as Non-Executive Director with effect from 3rd September,
2012. He is a Member of the Audit Committee, Committee of Directors and
Shareholders Grievance Committee of your Company. Mr. Noronha neither
holds any shares in the Company nor is related to any other Director of
the Company.
Mr. N. Sai Sankar
At the meeting of the Board of Directors held on 12th July, 2012, Mr.
N. Sai Sankar was appointed as Managing Director of your Company with
effect from 3rd September, 2012 in place of Mr. Raymond S. Noronha.
Mr. Sai Sankar is a Commerce Graduate from St. Xavier''s College,
Kolkata and is a Fellow Member of Institute of Chartered Accountants of
India, Institute of Cost & Works Accountants of India and Institute of
Company Secretaries of India. He has about 31 years of experience in
finance, accounting and secretarial field. He was the Deputy Managing
Director of your Company since February 2009. He is a Member of the
Committee of Directors and Shareholders Grievance Committee of your
Company. He is a director on the board of the Tobacco Institute of
India. Mr. Sai Sankar neither holds any shares in the Company nor is
related to any other Director of the Company.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies Act, 1956 the Directors
confirm that:
1. in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures, if any;
2. appropriate accounting policies have been selected and applied
consistently. Judgement and estimates which are reasonable and prudent
have been made so as to give a true and fair view of the state of
affairs of your Company as at the end of the financial year and of the
profit of your Company for the period;
3. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis.
TAXATION
i. Income Tax
a. Financial Services
Business
It may be recalled that your
Company had diversified into Financial Services Business and Foods
Business in the early nineties. Subsequently in the year 1998-99, your
Company incurred a total loss of Rs.38.67 crore in the financial services
business of which Rs.29.70 crore was claimed as loss under the head
''Income from Business'' and Rs.8.97 crore was claimed as a capital loss
under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67
crore as a capital loss. It may be noted that the department had
treated the entire loss as a ''Speculation Loss''.
Your Company has filed an appeal before the Hon''ble High Court of
Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in
the financial year 1999-00, your Company had incurred a total loss of
Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the
head ''Income from Business'' and Rs.9.50 crore was claimed as a capital
loss under the provisions of the Income Tax Act. The Income Tax
Department has disallowed the entire amount excepting Rs.5.70 crore which
was allowed as a capital loss. The Commissioner of Income Tax
(Appeals) further allowed Rs.11.24 crore out of the balance amount of
Rs.47.98 crore, on appeal before him and the same was upheld by the
Income Tax Appellate Tribunal. Your Company has preferred an appeal
against the above order and the matter is now before the Hon''ble High
Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued
consequential orders under Section 154 of the Income Tax Act demanding
Rs.28.86 crore (revised) which was paid by your Company.
b. North East
You would recall that pursuant to the withdrawal of exemption
notification for manufacture of cigarettes in the North Eastern region
in terms of Supreme Court judgement of 19th September, 2005, your
Company had paid an amount of Rs.31.20 crore towards principal and
provided an amount of Rs.12.69 crore towards interest.
In the income tax return filed by your Company for the relevant year,
this amount was considered as an allowable expenditure in the
assessment for the year 2006-07. However, subsequently the
Income Tax department has sent a demand notice seeking payment of Rs.19.3
crore being tax payable along with interest which was paid by your
Company. Your Company has contested the same.
ii. Luxury Tax
The Hon''ble Supreme Court by its judgement dated 20th January, 2005 set
aside levy of Luxury Tax on tobacconists by various States. The Court
had also directed the companies to pay back to the State any amount of
luxury tax recovered from the customers after obtaining Stay orders
from the Court. The Department has alleged that your Company has failed
to pay an amount of Rs.34.86 crore being the Luxury Tax collected from
customers by your Company after passing of the interim order dated 1st
June, 1999, but not paid to the State Government of Andhra Pradesh
which is in violation of the said judgement dated 20th January, 2005
and filed the contempt petition against the Managing Director of your
Company. An amount of Rs.29.81 crore has also been claimed as interest
thereon @24% per annum. The contempt charges against the Managing
Director of your Company were dismissed by the Hon''ble Supreme Court on
19th March, 2010.
The State of Andhra Pradesh decided to continue with the legal
proceedings for recovery of Luxury
Tax from your Company by substituting the Company''s Managing Director
with your Company as the Respondent. The Supreme Court by its Order
dated 9th November, 2012 appointed M/s. Lakshminivas Neeth & Co.,
Chartered Accountants to examine and verify the accounts of your
Company for the period 1st April, 1999 to 20th January, 2005 and submit
their reply within 6 months, as to whether any sum was collected by
your Company towards luxury tax during the operation of the Stay Order
dated 1st April, 1999. The process of examination and verification of
relevant documents and accounts has already begun and is in progress.
Thereafter, the final report of the Chartered Accountant will be
submitted to the Supreme Court before the next date of hearing in July,
2013.
iii. Entry Tax
As mentioned in last year''s Report, several High Courts in the country
including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have
struck down the levy of Entry Tax on the ground that it is violative of
Article 301 and not saved under Article 304(b) of the Constitution, as
it is not compensatory in the manner required in terms of the Supreme
Court judgement in the case of M/s. Jindal Stainless Ltd. Thereafter,
several states such as Uttar Pradesh, Bihar, Haryana and Assam have
attempted to re- introduce Entry Tax by amending the original Acts,
sparking a fresh round of legal challenges in the High Courts. Most of
the appeals filed by the various states, and individual companies have
been clubbed together.
The Hon''ble Supreme Court by its Order dated 18th December, 2008 in the
batch of cases headed by Jai Prakash Associates vs the State of MP has
referred a number of vital questions on levy of Entry Tax, to the
Constitutional Bench in terms of Article 145(3) of the Constitution
which are still pending adjudication.
iv. Excise
a. Wrapping Materials
As mentioned in last year''s Report, the Customs, Excise and Service Tax
Appellate Tribunal, Bangalore by its Order dated 8th October, 2004, had
allowed your Company''s appeal and set aside the demand of the Excise
Department for an amount of Rs.3.62 crore (including penalty and interest
@24%) on the ground that Gay Wrappers (printed paper used for wrapping
cigarette packets) had been manufactured and consumed by your Company
without payment of duty during the period April 1996 to March 2002. An
appeal against the said Order has been filed by the Excise Department
and is presently pending in the Hon''ble Supreme Court.
b. Cigarette manufacture in North Eastern states
As mentioned in last year''s Report, the Excise Department had demanded
a sum of Rs.5.85 crore from two of your Company''s former contract
manufacturers, by way of interest on the principal amount of Rs.31.20
crore repaid to the Excise Department, consequent upon the judgement of
the Hon''ble Supreme Court dated 19th September, 2005. A Division Bench
of the Gauhati High Court by its judgement dated 18th June, 2012,
confirmed the judgement of the single judge and held that interest was
also payable for the period 1st August, 2003 to 7th February, 2006 on
the principal amount already repaid. Special Leave Petitions have been
filed in the Supreme Court against the said judgement of the Gauhati
High Court. By its order dated 11th January, 2013, the Supreme Court
admitted the SLPs but declined to grant stay of the said judgement.
c. Tobacco Refuse
Your Company has received show cause notices demanding recovery of duty
on cut tobacco used in the manufacture of tobacco refuse together with
interest and penalty from January 2005 to October 2012, amounting to
Rs.14.40 crore, four of which were confirmed by the Orders of the
Commissioner of Central Excise. Your Company''s stay applications in the
appeals before CESTAT were heard favourably and stay with complete
waiver of pre-deposit has been granted in the interim as prayed for.
Your Company continues to receive show cause notices for subsequent
periods pending final hearing of the appeals to the Appellate Tribunal.
d. Service Tax
Your Company has received show cause notices from the Excise Department
seeking to deny CENVAT credit availed on service tax paid by various
service providers on the ground that the same are not in relation to
the manufacture of final products. They are all pending adjudication at
various levels. Total amount involved is approximately Rs.5.27 crore with
equivalent penalty and interest thereon.
e. Enhancement of duties - Budget 2012
Your Company has received a show cause notice from the Excise
Department seeking payment of differential duty amounting to Rs.15.6
crore together with interest and penalty for the period 17th March,
2012 to 27th May, 2012 on the ground that the proposed excise duty
increase which was further enhanced during the pendency of the Finance
Bill, 2012 in Parliament was saved by the declaration under the
Provisional Collection of Taxes Act, 1931 and would therefore, come
into effect from 17th March, 2012 i.e. the date when the Finance Bill
was introduced in the Lok Sabha and not from 27th May, 2012 when the
Bill received the assent of the President. Similar demands have also
been raised on the other major cigarette manufacturers in the country.
Your Company will be preparing and submitting a detailed reply to the
show cause notice in support of its contention that the excise duties
were correctly paid during the period in question and no differential
duty is payable.
PUBLIC INTEREST LITIGATION (PIL)
i. The two PILs filed in the Madras High Court and the Andhra Pradesh
High Court against the Central Government and the cigarette
manufacturers including your Company, seeking strict implementation of
COTP Act and Rules are still pending.
ii. A PIL was filed in the Karnataka High Court by Mr. Ravishankar, an
Advocate/Activist against various Ministries of the Central Government,
State Government, Advertising Standards Council of India, your Company
and other cigarette manufacturing companies seeking several reliefs on
various aspects and issues relating to COTPA and its implementation.
Notice has been received by your Company and steps are being taken to
prepare and file a suitable reply denying any violations of the
existing legislations together with other cigarette manufacturing
companies.
INTELLECTUAL PROPERTY
As mentioned in the last year''s report, the suit for infringement and
passing off filed by ITC Limited against your Company alleging that
your Company had violated ITC Limited''s ''Gold Flake'' trade mark by
using a deceptively similar get up and trade dress consisting of a
combination of red and gold colors, on its ''Special'' brand of
cigarettes is still pending in the Calcutta High Court and the trial is
yet to begin. ITC''s application for temporary injunction was refused by
a single Judge of the Calcutta High Court by his order dated 4th March,
2011. Their appeal against the said order is pending before the
Division Bench.
FINANCIAL SERVICES BUSINESS
As mentioned in last year''s Report the Company Petition filed by the
Official Liquidator in the Hon''ble High Court of Andhra Pradesh seeking
directions to some of the Ex-Directors of ITC Agro Tech Finance and
Investments Limited (ITCATF) to file a Statement of Affairs is still
pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the
Hon''ble High Court of Andhra Pradesh had directed the Regional
Director, Department of Corporate Affairs, Chennai to conduct an
investigation and submit a report showing the persons who promoted
ITCATF and the persons who were responsible in conducting its affairs
until its winding up. A comprehensive report dated 19th May, 2008 was
prepared and filed in the Hon''ble High Court of Andhra Pradesh by the
Regional Director in July 2008. All the matters are still pending final
adjudication.
THE CIGARETTES AND
OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF
TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003
(COTPA)
i. Some of the provisions of COTPA have come into force with effect
from 1st May, 2004. These include ban on advertising in print and
visual media, ban on outdoor advertising, regulation of in-store
advertising, prohibition of sale of cigarettes to persons below the age
of 18 years and printing of pictorial warnings on cigarette packets,
which came into effect from 31st May, 2009 and were further revised
with effect from 1st December, 2011. A new set of pictorial warnings
have been notified to come into force with effect from 1st April, 2013.
All cigarette packets manufactured after that date will bear the new
warning.
ii. Some tobacco manufacturers have challenged various provisions of
COTPA and Rules made thereunder in different High Courts across the
country. The Union Government filed transfer petitions in the Hon''ble
Supreme Court seeking to transfer 31 pending writ petitions from
various High Courts to the Hon''ble Supreme Court. On 18th November,
2008 all the transfer petitions were allowed and the writ petitions
have thus been moved to the Hon''ble Supreme Court, for final
adjudication.
iii. Your Company had also filed a writ petition in the Hon''ble High
Court of Andhra Pradesh challenging The Cigarettes and Other Tobacco
Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules
2008, on the grounds inter alia that they are ultra vires of COTPA and
therefore the Notifications issued there under (including those seeking
implementation of graphic health warnings) should be quashed. The said
writ petition was admitted on 17th October, 2008 but no interim orders
were passed by the Hon''ble Court.
iv. A ban on smoking in public places as envisaged under COTPA, came
into effect on 2nd October, 2008 under which smoking has been banned in
virtually all public places including courts, public buildings,
restaurants, bars, cinema halls etc. A batch of writ petitions
challenging this was filed in the Hon''ble Delhi High Court and
transferred to the Hon''ble Supreme Court, which came up for admission
on 29th September, 2008. While the Hon''ble Supreme Court admitted the
transfer petitions it declined to grant interim relief prayed for by
the petitioners seeking to postpone implementation of the ban on
smoking in public places.
REAL ESTATE
The Government of Andhra Pradesh had filed a land grabbing case against
your Company in 1991 in relation to a piece and parcel of vacant land
which has been under possession and occupation by your Company for over
45 years. By its judgement dated 28th July, 2010, the Land Grabbing
Court had held that your Company was not a land grabber but had given
the State Government the right to initiate proceedings against your
Company to recover possession of the land at some future date. Against
this part of the judgement, your Company had filed a writ petition in
the Hon''ble High Court of Andhra Pradesh to expunge that part of the
order giving such liberty to the Department despite the fact that your
Company has already been declared not to be a land grabber. The writ
petition is still pending. In the meantime, after a lapse of over 3
years, the State Government has also filed a writ petition in the
Hon''ble High Court of Andhra
Pradesh seeking to set aside the said judgement of the Land Grabbing
Court. An interim Order was passed without the Company being present,
restraining your Company from changing the status of the land or
creating any third party interest therein. Your Company is taking steps
to consolidate all the pending matters, vacate the interim orders and
seek speedy disposal so that the property becomes available for
development.
COMPANY EMPLOYEES
Under the provisions of Section 217(2A) of the Companies Act, 1956,
read with Companies (Particulars of Employees) Rules, 1975 as amended,
the particulars of employees are set out in annexure to the Directors
Report.
However, as per the provisions of Section 219(1)(b)(iv) of the Act, the
Report and Accounts are being sent to all the shareholders of the
Company excluding the aforesaid information. Any shareholder
interested in obtaining such particulars may write to the Company
Secretary.
Your Directors take this opportunity to record their deep appreciation
of the continuous support and contribution from all employees of your
Company.
AUDITORS
The Auditors, Messrs. Lovelock & Lewes, Chartered Accountants, retire
at the ensuing Annual General Meeting and being eligible, offer
themselves for re- appointment.
THE FUTURE
The focus of your Company will continue to remain on cigarettes and
tobacco with thrust on twin strategies of growth and productivity. VAT
rates vary from 12.5% to 65% from state to state and it is expected
that high taxation will continue to be a norm. Implementation of Goods
and Services Tax is expected shortly which could throw up new
challenges. However, your Company is geared up to meet these
challenges.
New pictorial warning on the cigarettes have come into force effective
1st April, 2013 and the same could be found on cigarette packs.
New Companies Bill encompassing wide range of changes is on the anvil
and after being approved by the Lok Sabha is awaiting the approval of
the Rajya Sabha.
Leaf tobacco exports have been growing over the last several years and
your Company''s thrust on this area will continue.
On behalf of the Board,
RAYMOND S. NORONHA
Chairman
Dated this 18th day of April, 2013.
Azamabad, Hyderabad - 500 020, Andhra Pradesh.
Mar 31, 2011
The Directors of your Company have pleasure in presenting their Annual
Report and Accounts for the year ended 31st March, 2011.
Financial Results Rs. Lakhs
2010-11 2009-10
Revenue from Operations 139654 112542
Net Profit after Tax 9501 6205
Profit brought forward from previous year* 8620 8200
Balance available for Appropriation 18121 14405
Amount transferred to General Reserves 975 625
Dividend proposed 6949 4632
Corporate Dividend Tax 1127 770
Surplus carried in Profit and Loss Account 9070 8378
*Including Rs. 242 lakhs taken over on amalgamation of the wholly owned
subsidiary VST Distribution, Storage & Leasing Company Private Limited
with the Company.
KEY RATIOS
Earnings Per Share (Rs.) 61.53 40.18
Dividend Per Share (Rs.) 45.00 30.00
The financial year 2010-11 recorded an improvement of 24.1% in Sales
(Gross) and 53.1% Profit after Tax when compared to the previous year.
A record year with record Sales, record Profit after Tax and Dividends
Per Share of Rs. 45, the best in the decade. Value Creation during the
decade has been Compounded Annual Growth Rate (CAGR) of 9.9% in
Earnings Per Share (EPS) and 28.2% in Dividends Per Share (DPS).
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS AND OUTGO
Information in accordance with clause (e) of sub-section (1) of Section
217
read with the Companies (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988 is given in the Annexure to this
Report.
ENVIRONMENT, HEALTH & SAFETY (EHS) AND COMMUNITY SERVICES
Your Company has been maintaining a high safety performance for the
last 364 days without any accident.
Gold Award for the year 2010 was presented to your Company by Royal
Society for Prevention of Accidents (RoSPA), U.K. for maintaining
highest standards in Occupational, Health and Safety.
Accident Free Award was awarded to your Company from British American
Tobacco on 5th April, 2010 for One Year Accident Free from 21st March,
2009 to 20th March, 2010.
Safety Innovation award was awarded to your Company from Institution of
Engineers India on 28th December, 2010.
Environment, Health and Safety (EHS) in day-to-day business operations
is given very high priority by your Company. 395 employees and 30
contractors have undergone EHS training and 543 employees have
undergone fire fighting training programme. Mock Fire Drills were also
conducted for workers and management during the period to comply with
the Companys EHS guidelines. Involvement by workmen in quarterly EHS
reviews along with staff members and periodical inspections have kept
the performance monitoring on vigil. Quarterly and annual EHS audits of
Company operations including leaf godowns was carried out to ensure
compliance of EHS requirements and to measure the EHS progress. EHS
Road Map rating for your Company was assessed at 3.54 as against the
scale of 4.0 for the year 2010-11.
Your Company celebrated National Safety Day on 4th March, 2011 by
conducting safety meetings inside factory and all contractors attended
safety programme conducted by National Safety Council.
Surveillance Reviews of ISO 14001: 2004 & OHSAS 18001: 2007 for the
year 2010 by Registro Italiano Navale India (RINA) revalidated your
Companys certifications.
On the environmental side, as a responsible corporate, your Company
continues to put in sustained efforts in the upkeep and improvement of
existing systems like Scrubber, DRF systems, rain water harvesting
pits, ETP with soil bio- technology and also in energy conservation
installation of solar water heating panels for boiler feed water and
for workers canteen boiler.
Water Consumption was reduced by 30 Kl/day.
As a social responsibility and to conserve greenery, your Company is
encouraging social forestry through afforestation and Trees for Life
programme. It is also actively discouraging child labour involvement in
tobacco growing/processing. Your Company has installed water purifiers
in major tobacco growing villages to improve health through supply of
clean drinking water to the rural community.
All statutory compliances are in place.
The thrust on EHS will continue while emphasizing the focus on Best
International Work practices.
FINANCE
a. Profits
The Profit after Tax for the year at Rs. 95 crore is the highest ever
recorded by your Company in its history.
The continuous increase in taxation over the last several years has
made improvement in margins a daunting task thereby impacting
profitability.
Your Companys thrust on growing volumes continued during the year with
reasonable success though industry growth remained flat.
Your Companys focus on working capital management and budgetary
control on expenses has resulted in improvement of profitability. When
compared to previous year, your Companys profits improved both in
cigarettes and leaf tobacco operations.
b. Treasury Operations
Your Company follows a SLR model (Safety, Liquidity and Return) in
deployment of surplus funds which arise during various periods of time.
The Company predominantly deploys money in income funds of reputed
mutual funds and tax free bonds. Such investments earned Rs. 13 crore
during the current year.
ENTERPRISE RESOURCE PLANNING (ERP)
Your Company was able to successfully manage the entire ERP system by
developing an in-house team. All routine business issues as well as
improvements in existing systems have been
undertaken by the team. This team interacts with managers of the
operating teams and works continuously to help improve the overall
business processes. Your Company has also developed adequate skills to
manage issues arising out of facilities management and networking which
are the other limbs of the IT infrastructure.
FIXED DEPOSITS
Your Company has stopped accepting fresh deposits for several years
now.
As on 31st March, 2011, your Company does not have any deposits for the
purpose of its business. Unclaimed deposits amounting to Rs. 8,000 is
outstanding.
RATING
The Credit Rating Information Services India Limited (CRISIL) has
re-affirmed the rating of your Company to "FAAA/ Stable" for Fixed
Deposit Schemes, "AA+/Stable" for Long Term Non- convertible Debentures
and P1+ for Non-fund based liabilities (Letter of Credit and Bank
Guarantee).
UNCLAIMED DIVIDENDS
Your Company had by its letter dated 25th October, 2001 communicated to
all the Members about the promulgation of rules pertaining to the
Investor Education and Protection Fund. Dividends which remain unpaid
or unclaimed for a period of seven years would be deposited in the
Investor Education and Protection Fund. The final dividend for the year
ended 31st March, 2004 remaining unpaid would be deposited by 26th
August, 2011 in accordance with Section 205C read with Investor
Education and Protection Fund (Awareness and Protection of Investors)
Rules, 2001.
UNCLAIMED SHARE CERTIFICATES
Your Company has communicated to the Members whose share certificates
are returned undelivered to the Company that these would be transferred
to the Unclaimed Suspense Account if not claimed by them, as required
under the Listing Agreement amended by SEBI vide its Circular dated
16th December, 2010.
CORPORATE GOVERNANCE
The Companys Report on Corporate Governance is annexed to this Report.
Certificate of the Statutory Auditors of your Company regarding
compliance of the conditions of Corporate Governance as stipulated in
Clause 49 of the Listing Agreement with stock exchanges is annexed to
this Report.
Your Company has taken adequate steps for strict compliance with the
Corporate Governance guidelines, as amended from time to time.
The Ministry of Corporate Affairs has released draft guidelines for
voluntary compliance covering various aspects. Your Company has
already implemented most of the items and examined the balance
provisions for implementation.
INTERNAL CONTROL SYSTEMS
Your Company remains committed to improve effectiveness of internal
control systems and processes which would help in increasing the
efficiency of operations and provide security of its assets.
The internal audit process in your Company captures the control
environment prevalent in the
organization. Over a period of three years, the entire business process
of your Company is reviewed through a systems audit process which helps
review the systems on a continuous basis. The objective is to identify
potential risk areas and come up with a comprehensive mitigation plan.
The Audit Committee of your Board met four times during the year.
Review of audit observations covering the operations, consideration of
accounts on a quarterly basis and monitoring the implementation of
audit
recommendations were some of the key areas of focus which were dealt
with by the Committee. The Statutory Auditors/System Auditors were
invited to attend all the Audit Committee meetings and make
presentations covering their observation on adequacy of internal
controls and the steps required to bridge gaps, if any.
The self-evaluation system which was put in place on internal controls
is being reviewed continuously to improve its effectiveness.
Risk Management
Risk Management is monitored by a Committee comprising members from
various functions. The Committee meets periodically to identify the
potential risks as well as to take adequate steps for mitigating the
risks which have been identified. A comprehensive note covering various
aspects is reported to the Board every quarter.
DIRECTORS
Directors retiring by rotation
In accordance with Article 93 of the Articles of Association of your
Company, Mr. T. Lakshmanan and
Mr. S. Thirumalai retire from the Board and being eligible, offer
themselves, for re-election. Your Board recommends their
re-appointment.
Mr. T. Lakshmanan
Mr. T. Lakshmanan was re-appointed at the Annual General Meeting held
on 17th July, 2008. He is now due to retire by rotation at the
forthcoming Annual General Meeting and being eligible, offers himself
for re-appointment.
Mr. Lakshmanan is a Post Graduate in Science and a Member of FFII. He
has over 33 years of experience in various departments of General
Insurance Corporation (GIC) and retired as General Manager of GIC in
2001. He was a nominee Director on the Board of your Company prior to
his appointment as an Additional Director. He is the Chairman of the
Audit Committee and a Member of Committee of Directors and Shareholders
Grievance Committee of your Company. Mr. Lakshmanan does not hold any
shares in the Company and is not related to any other Director of the
Company.
Mr. S. Thirumalai
Mr. S. Thirumalai was re-appointed at the Annual General Meeting held
on 16th July, 2009. He is now due to retire by rotation at the
forthcoming Annual General Meeting and being eligible, offers himself
for re-appointment.
Mr. S. Thirumalai is a Commerce and Law Graduate and is a Fellow Member
of Institute of Chartered Accountants of India and Institute of Company
Secretaries of India. He is also a Certified Associate of the Indian
Institute of Bankers. He attended the Advanced
Management Program at Harvard Business School, Boston, MA (USA) in
1992. He has over 30 years of experience in manufacturing industry
covering all aspects of Finance, Taxation and General Management
(including three years with Reserve Bank of India/Unit Trust of India
as an Officer). He is now the Senior Advisor to the consulting firm
Deloitte Touche Tohmatsu India Private Limited. He is the Chairman of
the Shareholders Grievance Committee and a Member of Audit Committee
and Committee of Directors of your Company. Mr. Thirumalai holds 25
shares in the Company and is not related to any other Director of the
Company.
Directors Resignation/ Appointment
Mr. R.V.K.M. Suryarau
Mr. R.V.K.M. Suryarau is elected Chairman of your Company and of its
Board of Directors with effect from 15th October, 2010 in place of Mr.
Abhijit Basu who had tendered his resignation.
The Board of Directors place on record their deep appreciation of the
contribution made to your Company by Mr. Abhijit Basu.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000 the
Directors confirm that:
1. in the preparation of the Annual Accounts, the applicable
accounting standards have been followed;
2. appropriate accounting policies have been applied consistently.
Judgement and estimates which are reasonable and prudent have been made
so as to give a true and fair view of the state of affairs of your
Company as at the end of the financial year and of the profit of your
Company for the period;
3. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
4. the Annual Accounts have been prepared on a going concern basis.
VST DISTRIBUTION, STORAGE & LEASING COMPANY PRIVATE LIMITED
The wholly owned subsidiary, VST Distribution, Storage & Leasing
Company Private Limited was merged with your Company effective 1st
April, 2010 in terms of Court Order dated 16th March, 2011.
TAXATION
i. Income Tax
a. Financial Services
Business
It may be recalled that your Company had diversified into Financial
Services Business and Foods Business in the early nineties.
Subsequently in the year 1998-99, your Company incurred a total loss of
Rs. 38.67 crore in the financial services business of which Rs. 29.70
crore was claimed as loss under the
head "Income from Business" and Rs. 8.97 crore was claimed as a capital
loss under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.
38.67 crore as a capital loss. It may be noted that the department had
treated the entire loss as a "Speculation Loss".
Your Company has filed an appeal before the Honble High Court of
Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in
the financial year 1999-2000, your Company had incurred a total loss of
Rs. 53.68 crore, of which Rs. 44.18 crore was claimed as a loss under
the head "Income from Business" and Rs.9.50 crore was claimed as a
capital loss under the provisions of the Income Tax Act. The Income Tax
Department has disallowed the entire amount excepting Rs. 5.70 crore
which was allowed as a capital loss. The Commissioner of Income Tax
(Appeals) further allowed Rs. 11.24 crore out of the balance amount of
Rs. 47.98 crore, on appeal before him and the same was upheld by the
Income Tax Appellate Tribunal. Your Company has preferred an appeal
against the above order and the
matter is now before the Honble High Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued
consequential orders under Section 154 of the Income Tax Act demanding
Rs. 28.86 crore (revised) which was paid by your Company.
b. North East
You would recall that pursuant to the withdrawal of exemption
notification for manufacture of cigarettes in the North Eastern region
in terms of Supreme Court judgement of 19th September, 2005. Your
Company had paid an amount of Rs. 31.20 crore towards principal and
provided an amount of Rs. 12.69 crore towards interest.
In the income tax return filed by your Company for the relevant year,
this amount was considered as an allowable expenditure in the
assessment for the year 2006-07. However, subsequently the Income Tax
department has now sent a demand notice seeking payment of Rs. 20 crore
being tax payable along with interest. Your Company will contest the
same.
c. Subsidiary Company
During the financial year 1998-1999, your Companys subsidiary had
received financial assets worth of Rs. 1200 lakhs against a future
liability of Rs. 5200 lakhs. This was settled on 31st March, 1999 for
an immediate payment of Rs. 1250 lakhs. The settlement was not accepted
during the assessment proceedings and accordingly disallowed by the
Income Tax Authorities. On appeal before the CIT(A), the matter was
held in favour of your Companys subsidiary. However, the Income Tax
Tribunal while holding the matter against your Companys subsidiary
held that the ratification of the said settlement agreement by the
Board did not relate to 31st March, 1999 and
consequently the liability to pay Rs. 1250 lakhs did not arise in the
financial year 1998- 1999 and therefore not allowable as a deduction
for the year. The tax liability on this is Rs. 420 lakhs apart from
interest.
Your Companys subsidiary preferred an appeal against the above order
before the Honble High Court of Andhra Pradesh.
ii. Luxury Tax
As mentioned in last years Report, a Contempt Petition has been filed
in the Honble Supreme Court by the Commercial Tax Officer, on behalf
of the Government of Andhra Pradesh against the Managing Director of
your Company alleging contempt of the Honble Supreme Courts judgement
dated 20th January,
2005, which had set aside levy of Luxury Tax. The Department has
alleged that your Company has failed to pay an amount of Rs. 34.86
crore being the Luxury Tax collected from customers by your Company
after passing of the interim order dated 1st June,1999, but not paid to
the State Government of Andhra Pradesh which is in violation of the
said judgement dated 20th January, 2005. An amount of Rs. 29.81 crore
has also been claimed as interest thereon @ 24% per annum. Your Company
and the Managing Director have both filed separate counter affidavits
strenuously denying that there has been any contempt on their part of
the said judgement of the Honble Supreme Court. The contempt case
against the Managing Director of your Company was dismissed by Honble
Supreme Court. As far as the case against the Company is concerned,
there have been no further developments during the year.
iii. Entry Tax
As mentioned in last years Report, several High Courts in the country
including those of Andhra Pradesh, Kerala, Tamilnadu and Assam have
struck down the levy of Entry Tax on the ground that it is violative of
Article 301 and not saved under Article 304(b) of the Constitution, as
it is not compensatory in the manner required in terms of the Supreme
Court judgement in the case of M/s.Jindal Stainless Ltd. Thereafter,
several states such as Uttar Pradesh, Bihar and Haryana
have attempted to re-introduce Entry Tax by amending the original Acts,
sparking a fresh round of legal challenges in the High Courts. Most of
the appeals filed by the various states, and individual companies have
been clubbed together. The Honble Supreme Court by its Order dated
18th December, 2008 in the batch of cases headed by Jai Prakash
Associates vs the State of MP has referred a number of vital questions
on levy of Entry Tax, to the Constitutional Bench in terms of Article
145(3) of the Constitution which are still pending adjudication.
iv. Excise
a. Wrapping Materials
As mentioned in last years Report, the Customs, Excise and Service Tax
Appellate Tribunal, Bangalore by its Order dated 8th October, 2004, had
allowed your Companys appeal and set aside the demand of the Excise
Department for an amount of Rs. 3.62 crore (including penalty and
interest @ 24%) on the ground that Gay Wrappers (printed paper used for
wrapping cigarette packets) had been manufactured and consumed by your
Company without payment of duty during the period April 1996 to March
2002. An appeal against the said Order has been filed by the Excise
Department and is presently pending in the Honble Supreme Court.
In the meantime, the Honble Supreme Court by its Order dated 27th
November, 2008 has remanded various other similar appeals pertaining to
other manufacturers back to their respective Tribunals for
re-adjudication in the light of individual facts of each case. Notices
for subsequent periods have also been received by your Company which
have been kept pending awaiting the decision of the Honble Supreme
Court.
b. Cigarette manufacture in North Eastern states
As mentioned in the last years Report, the Excise Department had
demanded a sum of Rs. 5.85 crore from two of your Companys former
contract manufacturers, by way of interest on the principal amount of
Rs. 31.20 crore repaid to the Excise Department, consequent upon the
judgement of the Honble Supreme Court dated 19th September, 2005. The
two contract manufacturers had filed Writ Petitions challenging the
said demands in the Honble Guwahati High Court and obtained Interim
Orders staying partial recovery until final disposal. Against the said
Interim Orders, the Department had filed appeals in the Honble Supreme
Court. By its Order dated 15th April, 2009 the Honble Supreme Court
has requested the Honble High Court to dispose
off the Writ Petitions within a period of two months from the date of
communication of the Order. A Single Member Bench disallowed the writ
petitions and upheld levy of interest. Against the judgement, the
contract manufacturers filed appeals before the Division Bench, which
passed interim orders staying the judgement of the Single Bench. First
hearing has been completed and the appeals are reserved for judgement.
c. Tobacco Refuse
Your Company has received show cause notices demanding recovery of duty
on cut tobacco used in the manufacture of tobacco refuse together with
interest and penalty from January 2005 to November 2009.
Your Company has now received a demand for Rs. 10.22 crore being excise
duty and penalty for the period upto 30th November, 2009. Interest is
payable separately till the date of payment. Your Company is in the
process of filing an appeal before CESAT.
v. Service Tax
Your Company has received show cause notices from the Excise Department
seeking to deny CENVAT credit availed on service tax paid by various
service providers on the ground that the
same are not in relation to the manufacture of final products. They are
pending adjudication at various levels. Total amount involved is
approximately Rs. 2.5 crore with equivalent penalty and interest
thereon.
PUBLIC INTEREST LITIGATION (PIL)
i. A PIL was filed in the Honble Supreme Court by an NGO Health for
Millions seeking immediate implementation of various provisions of
COTPA including the pictorial warnings, is still pending.
ii. A PIL has been filed by Mr. A. Sherfuddin in the Honble Madras
High Court against the Health Ministry and tobacco companies (including
your Company) seeking various reliefs including printing of ingredients
contained in cigarettes on packets and their ill effects so as to
inform the public of the dangers of smoking, removal of all hoardings
and other visible representations of the brands which is still pending.
iii. A PIL has been filed in the Honble High Court of Andhra Pradesh
by the Old Students Association, PG College, Secunderabad against the
Central Government and the tobacco companies (including your Company)
seeking introduction of stronger pictorial warnings on both sides of
the packets. Your Company has entered appearance in the Court.
INTELLECTUAL PROPERTY
A Suit for infringement and passing off was filed by ITC Limited
against the
Company in the Original Side of Calcutta High Court alleging that the
Company had violated ITC Limiteds Gold Flake trade mark by using a
deceptively similar get up and trade dress consisting of a combination
of red and gold colors, on its Special brand of cigarettes. A Single
judge of the Calcutta High Court by his Order dated 4th March, 2011 has
dismissed ITC Limiteds application for interim injunction. The main
suit is posted for trial in August 2011. Your Company has filed a
Caveat in the Division Bench of the Calcutta High Court in anticipation
of ITC Limited filing an appeal against this said interim order of the
Single Judge.
FINANCIAL SERVICES BUSINESS
As mentioned in last years Report the Company Petition filed by the
Official Liquidator in the Honble High Court of Andhra Pradesh seeking
directions to some of the Ex-Directors of ITC Agro Tech Finance and
Investments Limited (ITCATF) to file a Statement of Affairs is still
pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the
Honble High Court of Andhra Pradesh had directed the Regional
Director, Department of Corporate Affairs, Chennai to conduct an
investigation and submit a report showing the persons who promoted
ITCATF and the persons who were responsible in conducting its affairs
until its winding up. A comprehensive report dated 19th May, 2008 was
prepared and filed in the Honble High Court of Andhra Pradesh by the
Regional Director in July 2008. All the matters are still pending
final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT
AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND
DISTRIBUTION) ACT, 2003 (COTPA)
i. Some of the provisions of COTPA have come into force with effect
from 1st May, 2004. These include ban on advertising in print and
visual media, ban on outdoor advertising, regulation of in-store
advertising, prohibition of sale of cigarettes to persons below the age
of 18 years.
ii. The tobacco industry has been told to print the prescribed graphic
health warnings on all its product packing. The Cigarettes and Other
Tobacco Products (Packaging & Labelling) Rules, 2006 (COTPR) had
originally prescribed pictorial warnings along with health messages and
sign of skull and cross bones. However, due to vociferous objections
from various sections of the industry and public, a Committee of a
Group of Ministers (GoM) was constituted to relook at the warnings.
Based on their recommendations, a new set of labelling requirements has
been prescribed under the COTPR which were published on 16th March,
2008. However, these have again been modified based on representations
made. The GoM is yet to give its conclusive recommendations. The
revised implementation date as originally envisaged from 1st November,
2010 has been deferred.
iii. In the meantime, some Tobacco manufacturers had challenged various
provisions of COTPA and Rules made thereunder in different High Courts
across the country. The Union Government filed Transfer Petitions in
the Honble Supreme Court seeking to transfer 31 pending Writ Petitions
from various High Courts to the Honble Supreme Court. On 18th
November, 2008 all the Transfer Petitions were allowed and the Writ
Petitions have thus been moved to the Honble Supreme Court, for final
adjudication.
iv. Your Company had also filed a Writ Petition in the Honble High
Court of Andhra Pradesh challenging COTPR and the Amendment Rules 2008,
on the grounds inter alia that they are ultra vires of COTPA and
therefore the Notifications issued thereunder (including those seeking
implementation of Graphic Health Warnings) should be quashed. The said
Writ Petition was admitted on 17th October, 2008 but no interim orders
were passed by the Honble Court.
v. A ban on smoking in public places as envisaged under COTPA, came
into effect on 2nd October, 2008, under which smoking has been banned
in virtually all public places including courts, public buildings,
restaurants, bars, cinema halls etc. A batch of writ petitions
challenging this was filed in the Honble Delhi High Court and
transferred to the Honble Supreme Court, which came up for admission
on 29th September, 2008. While the Honble Supreme Court admitted the
Transfer Petitions it declined to grant interim relief prayed for by
the petitioners seeking to postpone implementation of the ban on
smoking in public places.
COMPANY EMPLOYEES
Under the provisions of Section 217 (2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975 as
amended, the particulars of employees are set out in annexure to the
Directors Report.
However, as per the provisions of Section 219(1)(b)(iv) of the Act, the
Report and Accounts are being sent to all the shareholders of the
Company excluding the aforesaid information. Any shareholder
interested in obtaining such particulars may write to the Company
Secretary.
Your Directors take this opportunity to record their deep appreciation
of the continuous support and contribution from all employees of your
Company.
AUDITORS
The Auditors, Messrs. Lovelock & Lewes, Chartered Accountants, retire
at the ensuing Annual General Meeting and being eligible, offer
themselves for re-appointment.
THE FUTURE
In the current years Budget no increase in excise duties has been
proposed which has been a welcome relief.
The focus of your Company will continue to remain on cigarettes and
tobacco. The strategy of offering "value for money" brands in both
existing and new geographies which provide opportunities will continue
as it has improved the performance of your Company for the last several
years.
The challenge to cope with increased bout of taxation across various
states would continue as would be the challenge when comprehensive
Goods and Services Tax (GST) is introduced in the financial year
2012-13 as per current indication, as GST would lead to change in the
operation structure.
New pictorial warnings would have to be displayed on the packs
effective financial year 2011-12. However the exact date for change in
graphical warning is awaited.
Leaf tobacco exports have been growing over the last several years and
your Companys thrust on this area will continue.
On behalf of the Board,
R.V.K.M. SURYARAU
Chairman
Dated this 13th day of April, 2011.
Azamabad, Hyderabad - 500 020,
Andhra Pradesh.
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