Significant Accounting Policies and Notes on Accounts for the year ended 31st March 2015 Company Overview Petronet LNG Limited referred to as "PLL" or "the Company" was formed by Bharat Petroleum Corporation Limited (BPCL), GAIL (India) Limited (GAIL), Indian Oil Corporation Limited (IOC) and Oil and Natural Gas Corporation Limited (ONGC) primarily to develop, design, construct, own and operate Liquefied Natural Gas (LNG) import and regasification terminals in India. PLL was incorporated on April 2, 1998 under the Companies Act, 1956 and received certificate of commencement of business on June 1, 1998. The Company is involved in the business of import and regasification of LNG and supply to BPCL, GAIL, IOCL and others. Presently the Company owns and operates LNG Regasification Terminal with the name plate capacity of 10 MMTPA at Dahej, in the State of Gujarat. The Company has also commissioned another LNG terminal with a name plate capacity of 5 MMTPA at Kochi, in the State of Kerala. 1. Significant Accounting Policies 1.01 Basis of brparation of financial statements The financial statements are brpared under historical cost convention, on a going concern basis and in accordance with the applicable accounting standards brscribed in the Companies (Accounting Standards) Rules, 2014 issued by the Central Government and as per relevant provisions of the Companies Act, 2013. Accounting policies have been consistently applied except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use. 1.02 Use of Estimates The brparation of financial statements requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Differences between actual results and estimates are recognized in the period in which they materialise. 1.03 Fixed Assets, Intangible Assets and Capital Work-in-progress Fixed Assets are stated at cost less accumulated debrciation and impairment loss, if any. The cost of assets comprises of purchase price and directly attributable cost of bringing the assets to working condition for its intended use, including borrowing cost and incidental expenditure during construction incurred upto the date when the assets are ready to use and share issue expenses related to funds raised for financing the project. Capital work in progress includes cost of assets at sites, construction expenditure and interest on the funds deployed. Intangible Assets are stated at cost less accumulated amortization and impairment loss, if any. 1.04 Debrciation / Amortisation Tangible Assets - (a) Debrciation on fixed asset is calculated on Straight Line Method (SLM) using the rates arrived at based on the estimated useful lives given in Schedule II of the Companies Act, 2013. Useful life of the assets, required to be transferred under Concession Agreement have been restricted up to the end of Concession Agreement. (b) Cost of leasehold land is amortized over the lease period. Intangible Assets- (c) Intangible assets are amortized on straight line method basis over the estimated useful life. Estimated useful life of the Software/Licenses are considered as 3 years. 1.05 Investments Trade investments are the investments made to enhance the Company's business interests. Investments are either classified as current or long term, based on Management's intention at the time of purchase. Current investments are carried at the lower of cost and fair value of each investment individually. Overseas investments are recorded at the exchange rate brvailing on the date of investment. Long term investments are carried at cost after deducting provision, where the decline in value is considered as other than temporary in nature. 1.06 Inventories Raw material, stores and spares are valued at lower of cost or net realizable value. Cost of stores and spares is determined on weighted average cost. Cost of raw material is determined on FIFO basis for respective categories of supplies. 1.07 Sale / Revenue Recognition Revenue is primarily derived from Sale of RLNG and is net of sales tax. Revenue from sales is recognised at the point of dispatch, when risk and reward of ownership stand transferred to the customers. Services are net of service tax. Revenue from services is recognised when services are rendered and related costs are incurred. Interest income is recognised on time proportion basis. Dividend income is recognised, when the right to receive the dividend is established. 1.08 Foreign Currency Transactions (a) Foreign currency transactions are recorded at the exchange rate brvailing on the date of the transaction. (b) Monetary items denominated in foreign currencies (such as cash, receivables, payables etc.) outstanding at the year end, are translated at exchange rates applicable on year end date. (c) Non-monetary items denominated in foreign currency, (such as fixed assets) are valued at the exchange rate brvailing on the date of transaction and carried at cost. (d) Any gains or losses arising due to exchange differences arising on translation or settlement are accounted for in the Statement of Profit and Loss. (e) In case of forward exchange contracts, the brmium or discount arising at the inception of such contracts, is amortised as income or expense over the life of the contract. 1.09 Employee Benefits Provision for leave encashment is made on the basis of actuarial valuation at the end of the year. Actuarial gains or losses are recognized in the Statement of Profit and Loss. Contribution to Provident Fund and Superannuation is accounted for on accrual basis. Liabilities with respects to gratuity are determined by actuarial valuation as on the balance date, based upon which the Company contributes the ascertained liabilities to the insurer (LIC). 1.10 Borrowing Costs Borrowing cost (net of any income on the temporary investments of those borrowings) attributable to acquisition, construction or production of qualifying assets are capitalised as part of the cost till the assets are ready for use. Other borrowing costs are recognized as expense in the period in which these are incurred. 1.11 Taxes on Income Provision is made for deferred tax for all timing differences arising between taxable income and accounting income at currently enacted or substantially enacted tax rates. Deferred tax assets are recognized, only if there is reasonable / virtual certainty that they will be realized and are reviewed for the appropriateness of their respective carrying values at each Balance Sheet date. 1.12 Provisions, Contingent Liabilities and Contingent Assets Provisions, involving substantial degree of estimation in measurement, are recognized when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the Notes to Accounts. Contingent assets are neither recognized nor disclosed in the financial statements. 1.13 Impairment of Assets An asset is treated as impaired, when the carrying cost of asset exceeds its recoverable value. An impairment loss, if any, is charged to Statement of Profit and Loss, in the year in which an asset is identified as impaired. 27. Contingent Liabilities and commitments (to the extent not provided for) A. Commitments (a) Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for Rs. 1,08,476 lac (brvious year 1,83,213 lac). (b) The Company has long term LNG purchase commitments against which back to back sale agreements have been made, for which there are no foreseeable losses as on the Balance Sheet date. (c) Outstanding Bank guarantees as on 31st March 2015 Rs. 5,12,667 lac (brvious year 4,30,046 lac) issued to LNG suppliers against long term purchase agreement. B. Contingent Liability (a) The Collector of Electricity Duty, Gandhinagar (Gujarat) had issued notices classifying the business activities of the Company as "Storage(HTP-IIA)" instead of "Industrial Undertaking(HTP I)" and hence levied Electricity Duty @ 45% instead of 20% of the consumption charges and charging 70 paisa per unit on the power generated by the Company for its own consumption. The Company has challenged the legality and validity of the notices by way of writ petitions before the High Court of Gujarat. Meanwhile Company continues to make payment of Electricity Duty @15%(Revised rate of HTP-I) on the basis of the stay order granted by the High Court. The High Court vide order dated 1.7.2014 has set aside the notice and quashed the supplementary bill/demand notice and remanded the case back to the Collector of Electricity Duty, Gandhinagar to decide the nature of undertaking of the Company. The Company has made it's oral and written submissions before the Collector of Electricity Duty, Gandhinagar and the order is awaited. The total contingent liability till March, 2015 calculated on the differential payable (25% Revised rates for "HTP-II A") as classified by GEB and what is actually paid by the Company on "HTP-I" rate (i.e. 15%) is Rs. 2,251 lac (Previous year Rs. 1,745 lac). (b) The Company has filed a writ petition before the Gujarat High Court challenging the legality and correctness of the notice dated April 1, 2006 from the Collector of Stamps, Bharuch stating that pursuant to the amendment to Section 24 of the Bombay Stamp Act, 1958, the Company is required to pay stamp duty @ Re.1 per Rs. 1000/ or part thereof of the value mentioned in the Delivery Order of the goods imported through ports in Gujarat. The Hon'ble High Court of Gujarat vide its order dated February 24, 2010 has quashed the notice issued by the Stamp Authorities. Stamp authorities have filed Special Leave Petition (SLP) in Subrme Court against the same and the case is pending as on 31st March 2015. The contingent liability from the effective date of amendment i.e. April 1, 2006 till March 31, 2015 on the CIF value is estimated to be Rs. Rs. 15,258 lac. (Previous year till March, 2014 Rs. 11,806 lac). (c) The Company has received refund of Rs. 112 lac, Rs. 284 lac and Rs. 346 lac from Customs Department vide CESTAT order dated November 7, 2013, September 9, 2011 and May 31, 2010 respectively mainly pertaining to custom duty on short landing of LNG. The Custom Authorities have filed appeal against the order of the CESTAT with the Hon'ble High court of Gujarat which is pending as on March 31, 2015. Further, differential custom duty amounting Rs. 2,455 lac is lying as recoverable in books as on 31st March 2015. (Rs. 2,177 lac as on 31st March 2014) against the same. (d) Taxes and duties recoverable (Note 14) includes service tax of Rs. 4,005 lac on vessel hire charges (including interest of Rs. 297 lac) paid under protest for the period from May 16, 2008 to September 30, 2009 under section 65(105)(zzzzj) of the Finance Act, 1994 (as amended) - "Supply of Tangible Goods for Use". The Commissioner of the Service Tax, vide Order dated March 6, 2012 has confirmed the demand. Against the Order of the Commissioner, Service Tax, the Company has filed an appeal before CESTAT, Delhi on June 6, 2012. CESTAT Delhi has passed an order in favour of the Company on October 24, 2013, vide order no. ST/A/58706/2013-CU(DB), upholding Company's contention that Vessel Hire Charges are not subject to Service Tax. The department has initiated the process to file an appeal against the CESTAT order before the Subrme Court. Refund application has been pending with the department since December 13, 2013 and no refund has been received by the Company till date. (e) Few cases are pending with Service Tax Department at various levels, pertaining to applicability of service tax on charges paid for External Commercial Borrowings taken from IFC, ADB & Proparco. Amount involved in such cases including penalty is Rs. 479 lac (approx). (f) The DGCEI (Ahmedabad) has issued show cause notice dated 10th October 2014 claiming service tax of Rs. 1,416 lac on the boil off quantity of LNG during regasification process. The Company has adequately replied against the notice and no further query/demand has been raised by the department. (g) During the year, the Company has received the assessment order for AY 2008-09, which was referred back to AO by ITAT for recalculation of 14A disallowance. The assessing officer has raised a demand of Rs. 1,244 lac vide it's order dated 20.03.2015. The Company is in the process of filing the appeal to CIT(A). (h) The Company has filed Service Tax Refund Application for services availed in the Special Economic Zone for it's LNG Terminal at Kochi, amounting to Rs. 1,919 lac, out of which Rs. 774 lac is before the CESTAT level and Rs. 1,145 lac is at Assistant Commissioner level. (i) Demand Order amounting to Rs. 882 lac raised by Dy. Commissioner of Customs, for inclusion of additional charges towards transportation in the Assessable value for Free on Board (FOB) cargoes and appeal for the same has been filled at Commissioner of Customs (Appeals). (j) There are certain claims of Rs. 18,362 lac made by a Contractor against capital works for which the Company has also made certain counter claims. As per the terms of the contract, Independent expert's opinion is being sought and pending the settlement of liability, claims are not determinable and therefore no provision has been made in the books. (k) Dahej Second Jetty Topside contract awarded to a consortium of two parties was terminated by the Company in July, 2012 because of the failure of the contractor to carry out the work as per schedule. Contractor invoked arbitration and claimed Rs. 15,156 lac. PLL has also filed counter claim of Rs. 11,671 lac as per the contract. Pending the outcome of arbitration proceedings, liability against the claims, if any, is not determinable and therefore no provision has been made in the books. (l) The Company had entered into a lease agreement with Cochin port trust (CPT) for 33.4015 hectare of land for building and operating port and regasification facility at Kochi. CPT has raised demand for enhanced lease rent (almost 10 times), by quoting the order of Tariff Authority for Major Ports (TAMP) dated 10th June 2010. CPT has invoked arbitration and claimed Rs. 4,258 lac as on 31st March 2015. Further, an additional demand amounting Rs. 2,000 lac has been raised by CPT for usage of dredged sand by the Company. PLL has been contesting the increase in lease rent as well as dredging sand claims. As such, the matter has been referred to Arbitration. Pending the outcome of arbitration proceedings, liability against the claims, if any, is not determinable and therefore no provision has been made in the books. 28. Income Tax cases are pending at various appellate authorities/levels regarding addition of income at the time of Income Tax assessment. The Company has deposited Rs. 9,427 lac against the demand raised by the tax authorities. Pending the final outcome of the cases, demand raised by the tax authorities have been provided for in the books of account in the year of receipt of the demand. 29. Custom Duty on import of Project material / equipment has been assessed provisionally (current and brvious years) and additional liability/refund, if any, on this account will be accounted for in books on final assessment. 30. The Company has not received any information from suppliers or service providers, whether they are covered under the "Micro, Small and Medium Enterprises (Development) Act, 2006. Disclosure relating to amount unpaid at the year-end together with interest payable, if any, as required under the said Act are not ascertainable. 31. Segment Reporting (Accounting Standard - 17) Since the Company primarily operates in one segment - Natural Gas Business, segment reporting as required under Accounting Standard - 17 is not applicable. There is no reportable geographical segment either. 35. There is no impairment loss of any assets that has occurred in terms of Accounting Standard 28. 36. The Company is eligible for deduction under section 80IA of the Income Tax Act, 1961, with respect to power generation and port undertakings at Dahej. Till brvious year, provision for Income Tax has been made in the books without considering deduction under section 80IA, as the deduction was disallowed by the Income Tax Department at the time of assessment. During the year, the Company has been allowed deduction under Section 80IA for AY 2012-13 and therefore, tax benefits amounting to Rs. 12,314 lac has been accounted for in the books w.r.t. AY 201213 to AY 2014-15. Further, the Company has claimed Income tax deduction benefit of Rs. 2,048 lac under Section 32AC at the time of filing of Income Tax return for AY 2014-15 and the same has been accounted for in the books during the current year. 40. Previous year figures have been regrouped/rearranged wherever necessary, to correspond to current year figures. Annexure to our report on even date attached For T.R. Chadha & Co. Chartered Accountants ICAI Firm Regn. No. 006711N Sd/- Neena Goel Partner Membership No - 057986 For and on behalf of Petronet LNG Limited Sd/- Dr. A. K. Balyan MD & CEO Sd/- K C Sharma Company Secretary Sd/- R K Garg Director - Finance Place : New Delhi Dated : 25th April, 2015 |