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Private & Confidential

Internal Audit Report


Capital Expenditure

Ajanta Pharma Limited


10th March 2017

APL / Capex Management / Apr-16 to Aug-16 1


Chartered
Mahajan & Aibara Accountants
LLP
1, CHAWLA HOUSE, 62, WODEHOUSE ROAD,
COLABA, MUMBAI - 400 005.
TEL: +91-22-2218 2843 FAX: +91-22-2218 8445
Email: admin@mahajanaibara.com website: www.mahajanaibara.com
Private & Confidential

10th March, 2017

Mr. Anand Joshi


Ajanta Pharma Ltd.
Ajanta House, Charkop,
Kandivali (West), Mumbai 400 067

Dear Sir,

Internal Audit Report On Review Of Capital Expenditure

We have completed our review of Capital Expenditure for Ajanta Pharma Ltd. Our observation and recommendations
which have been discussed with the process owners are attached herewith. This report also incorporates replies received in
response to our draft report dated 13th December, 2016 on the same subject.

We appreciate the co-operation and assistance provided to us during the course of this review. We would be pleased to discuss and
clarify on any aspect of our review procedures or this report with you at your convenience.

Yours faithfully,

Mahajan & Aibara


______________________________________________________________________________________________________________________________________________
Table of Contents

Scope and Coverage 04

Key Statistics 05

Executive Summary 06 - 09

Detailed Observations 10 - 25

Exhibits 26 - 40

APL / Capex Management / Apr-16 to Aug-16 3


Scope and Coverage

Scope Audit Approach


The following sub-processes were covered: Our audit approach mainly involved the following work steps:

Capex budgets and approvals Walkthrough to gain understanding of the current process & the
internal control environment.
Procurement of machinery & services

Receipt of machines & services Sample transactions review and data analysis to validate process
understanding.
Bill passing, payments, advances and EMD
Identify risks inherent to various processes.
Performance guarantees
Test effectiveness of existing controls and identify control /
Capex vendor account reconciliation
efficiency gaps for risk mitigation.
Capitalization process
Discuss and agree on recommendations to address control /
efficiency gaps.
Coverage & Period
The review period was from April to August 2016
Audit Team
Mr. Vikas Agarwal

Mr. Saurabh Mandhania

Ms. Avni Agarwal

APL / Capex Management / Apr-16 to Aug-16 4


Key Statistics (Additions During FY 2015-16 and FY 2016-17)

Total Additions during FY 2015-16 and FY 2016-17 (till


Material Category June16)
(In Rs. Crores)
Free Hold Land 127.23
Plant & Machinery 48.00
Laboratory Equipment 52.51
Computers 2.92
Computer Software 1.86
Vehicle 0.47
Free Hold Land Plant & Machinery Laboratory Equipment
Server 0.41
Computers Computer Software Vehicle
Total 233.39 Server

APL / Capex Management / Apr-16 to Aug-16 5


Executive Summary: Capital Expenditure (1/4)
Expand Scope of Existing SOPs (Slide 11)
1. Existing SOP needs to be amended to include areas such as justification for single source procurement, vendor confirmation / account reconciliation,
reconciliation of FAR with books of accounts and estimation of ROI for major capital expenditure (say above Rs.1 crore).
Action Plan: Possibility to calculate ROI / IRR for major capital expenditure will be explored in co-ordination with finance department.
SOP will be amended to include the aforesaid processes such as justification for single source procurement, vendor confirmation etc. as motioned
above. (Jainandra Tripathi - AVP Accounts / Manoharan Pillai Projects; March 2017)
Strengthen Process For Asset Coding, Tagging & Physical Verification (Slide 12)
2. Guidelines are yet to be defined for asset coding logic. FAR review showed accessories / expenses of Rs.74 lakhs are not grouped with the main asset
but capitalized & coded individually. During physical count, it would be difficult to reconcile assets with expenses assigned with independent codes.
3. Physical count of Fixed Assets was done in FY 2015-16 for Paithan location (constituting about 25% of total asset value) for which reconciliation of
physical count vs FAR was yet to be finalized until Sep-2016. Informed asset codes tagged by Plant were varying from that available in FAR.
4. Assets of similar nature worth Rs.6.4 crores capitalized during 2015-16 and 2016-17 were classified under multiple asset group (i.e. Plant & Machinery /
Lab or Office Equipment, etc.). Reasons for such grouping were not available nor impact on depreciation due to such classification was assessed.
Action Plan: Guidelines based on asset coding will be defined by HO and accordingly asset code generated will be circulated to plant. All incidental
expense pertaining to asset cost will be clubbed under same asset code once SAP is implemented.
Going forward, assets to be tagged as per defined asset tagging system i.e. physical assets tagging and FAR tagging of assets will be same and hence
reconcilable. For existing assets we will conduct one time exercise to tag the assets as per the guidelines formulated during the implementation of SAP.
We will review the asset classification for the existing assets based on information shared by the auditors and if necessary pass entries for depreciation
accounting / reversal as applicable. (Jainandra Tripathi - AVP Accounts; April 2017)

APL / Capex Management / Apr-16 to Aug-16 6


Executive Summary: Capital Expenditure (2/4)
Improve Tax Planning Considering Service Tax / VAT / CST Applicability (Slide 14)
5. There is need to improve tax planning on taxes applicable for ongoing projects by involving Tax team at the time of project cost assessment and obtain
expert opinion, if required.
No independent assessment was carried out to identify beneficial sales tax (VAT) scheme. Independent evaluation of the above civil contract
showed that VAT outflow could be reduced by Rs.12 lakhs under standard deduction scheme against current VAT liability of Rs.29 lakhs levied
under composition scheme. VAT under Standard deduction scheme is payable on balance portion after availing standard deduction of 25 / 30%
against 5% of contract value payable under composition scheme.
Possibility to convert contract for Make to Order Material into Works Contract needs to be evaluated. Independent calculation showed potential
reduction in tax outflow of Rs.9 lakhs (VAT @5% and Service Tax @4.94%) if material is sourced under Works Contract, which currently is
procured with CST of Rs.27 lakhs @ 15%.
Under Reverse Charge Mechanism, company may be required to pay service tax on 50% of the portion of free goods supplied to civil contractor
(M/s. Bharuka Construction). During Oct-15 to Aug-16, Rs.8.57 crores was spent on procurement of TMT and Cement for issue to contractor. If ST
liability under reverse charge is applicable, potential liability could be ~Rs.24 lakhs (i.e. Rs.8.57 crores x 5.6% service tax x 50% share) for which
expert opinion needs to be obtained.
Action Plan: SOP will be amended and henceforth all purchase order will be approved by taxation department.
Taxation department clearance will be taken at the time of project planning.
Cost benefit analysis considering various tax schemes will be done by taxation department during approval of purchase order.
Going forward for Make to Order contract, evaluation will be done to choose the best tax structure i.e. Works contract or CST. (Mahesh - Manager
Projects / Rajesh Patel - VP Projects / Vishal Saraiya - Head Taxation; April 2017)
Strengthen Price Discovery Process And Order Management (Slide 17)
6. Amend SOP to include process of price determination for single source purchases (above certain value) including exceptional approval/documenting
reasons/ price hike wrt last purchase price, etc. in view of following:
Justification for procurement from single source vendor was not documented in 121 (out of 163) POs of Rs.46.53 crores. (i.e. 50% in value of
samples reviewed). Further, single source order are not reviewed by accounts due to which there could be risk of sub-optimum tax evaluation for
such purchases.
Observed 5 POs of Rs.1.14 crores. (1%) where purchases were done considering last PO placed 2-3 years back and price hike of 14% to 66% was
allowed without inviting competitive quotes without documenting basis/justification for such hikes.

APL / Capex Management / Apr-16 to Aug-16 7


Executive Summary: Capital Expenditure (3/4)
7. For some of the purchases, quotes vary by more than 100% across vendors Though L1 vendor is selected, there is a possibility of vendor not
understanding the requirement or uncomparable quality or vendors considered for comparison.
8. Consider negotiating basic price exclusive of freight with vendors or impact of tax for freight inclusive prices to be documented in approval note. In
Guwahati, Vitrified tiles were procured at price inclusive of freight. Purchase costs were higher to the extent of excise duty & VAT / CST applicable on
freight component. Tax liability could have been reduced by Rs.1 lakh, if such freight was shown separately.
9. Obtain Tax team confirmation on POs before release to vendors to ensure accuracy of taxes considered. Observed POs on M/s Delta Construction was
created with VAT @ 8% instead of 5%, leading to potential excess cost of Rs.17 lakhs on POs value Rs.5.7 crores.
Action Plan: Amendment of SOP in line with the suggestion will be explored.
Justification for procurement from single source vendor for equipment's and machinery will be documented in comparative statement.
Though reasons for such high variation are discussed during POs approval but are not documented as part of comparative quotation or price discovery
documents. Henceforth, reasons for high variation in price of vendors will be documented.
Efforts are made to exclude the freight cost from basic price of the materials, however, sometimes there is disagreement from vendors. Going forward
working for tax implication for basic price inclusive of freight or exclusive of freight will be prepared and the most efficient option will be selected or
deviation if any will be documented.
Confirmation of Tax Department will be taken on Purchase Orders before release of the same. POs of M/s Delta has been amended after being
informed by audit team. (Mahesh - Manager Projects / Rajesh Patel - VP Projects / Rao - V.P. Technical / Manoharan Pillai - Asst. G.M. Projects;
Immediate)
Improve Documentation of Vendor Selection (Civil Contract) (Slide 20)
10. Formal process is yet to be initiated of analyzing and documentating reasons for rate variation vendors at individual item level and calculating least of
the least rates to use during negotiation for large contracts (say > Rs.50 lakhs). Review of contract of Rs.24.84 crores for Phase-II construction at
Guwahati Project showed deviation between the final price & least of the least price (calculated at item level) ranging from 2 to 46% (avg. 23%) on
individual category level & 24% (i.e. 4.72 crores) on aggregate work order value level.
Action Plan: Working for least of least price (APL price) is done, but not attached during purchase order approval as part of price discovery documents
/ comparative. Going forward SOP for format of comparative statement will be amended and least of least cost will added as part of comparative
statement. Further, reasons for variation beyond 20% between final price, architects estimate & least of least price at an aggregate activity level will be
documented and approved by relevant authority. (Mahesh - Manager Projects / Rajesh Patel - VP Projects; March 2017)

APL / Capex Management / Apr-16 to Aug-16 8


Executive Summary: Capital Expenditure (4/4)
Align Depreciation as per Companies Act, 2013 (Slide 21)
11. Depreciation on P&M is calculated considering single shift though Paithan plant operates in double / triple shift. As per Companies Act, if asset is used
at any time during the year for double / triple shift, the depreciation will increase by 50 / 100% respectively for that period.
Action Plan: We will discuss internally with management and initiate action to pass relevant entries as applicable. (Jainandra Tripathi - AVP Accounts
April 2017)
Strengthen Bill Passing and Vendor Reconciliation Process (Slide 22)
12. Introduce periodic review of variation report between RR and Bill amount, with exceptions to be specifically approved and documented. Currently,
project team has rights to edit invoice value without any tolerance limit by recording reasons for variance or need to raise debit note. This results in
concentration of duty since same person (project team) is responsible for bill submission and its approval. Also, no log is generated periodically to
identify exceptional cases having significant variations between RR and Bill amount.
13. Process to perform vendor reconciliation periodically needs to be defined. Currently, Accounts officer selects the vendor on random basis As on Sept
30, 2016, confirmation is yet to received from 120 (out of 194) vendors to whom letters were sent on Mar 31, 2016.
Action Plan: After implementation of SAP exceptional report for Invoice price more than PO price will be extracted and reviewed on quarterly basis.
(Manoharan Pillai - Asst .G.M. Projects / Rao - V.P. Technical; April 2017)
Guideline for vendor balance confirmation will be defined and circulated. Henceforth vendor reconciliation for major contractors will be done on quarterly
basis. (Jainandra Tripathi - AVP Accounts; March 2017)

APL / Capex Management / Apr-16 to Aug-16 9


Detailed Observation

APL / Capex Management / Apr-16 to Aug-16 10


Expand Scope of Existing SOPs

Observation Risk & Impact Recommendation & Action Plan


Issue Risk & Impact Recommendation
Though SOP has been defined for various process Inconsistent, individual Expand the scope of existing SOP to include
from procurement of capital assets to budgeting, dependent practices and suggestions as highlighted.
however, there is scope to expand existing SOP to unintended approval
incorporate the following sub-processes: processes.
Action Plan
Estimating ROI / IRR for major capital expenditure
(say above Rs.1 crore) and post implementation Currently ROI / IRR calculation is not being done,
Root Cause
review for completed projects. Currently, capital however, going forward possibility of the same will
investment approval is prepared and approved Absence of clearly defined be explored in co-ordination with finance.
without ROI / IRR calculation even for projects as policy, guidelines or
SOP will be amended for Justification to include the
high upto Rs.1-2 crores. procedures.
aforesaid mentioned processes.
Justification for procurement from single source Person Responsible: Jainandra Tripathi - AVP
vendor or increased rate from last procurement Accounts / Manoharan Pillai - Projects
price above certain value / percent.
Timeline: April 2017
Vendor confirmation and account reconciliation.
Logic for coding and tagging of fixed assets.
Reconciliation of FAR and Books of accounts.

APL / Capex Management / Apr-16 to Aug-16 11


Strengthen Process For Asset Coding, Tagging & Physical Verification (1/2)

Observation Risk & Impact


Issue Risk & Impact
Assets Grouping & Coding Independent practices being
followed at various locations for
No guidelines are defined for asset coding logic to be followed for various asset categories including
asset tagging.
clubbing of expenses.
Incorrect assets coding &
Review of FAR Register showed accessories or expenses incurred as part of big machine / project are not
accounting impacting presentation
grouped with the main asset but capitalised & coded individually. For instance, on review of assets
of assets in financials.
additions made during FY 2015-16 and FY 2016-17, expenses such as testing, installations consumption
material, cables, etc. (approx. Rs.74 lakhs) were separately shown in FAR instead of mapping to Error in asset grouping might
respective main assets code such as Plant and Machinery / Laboratory equipment (Exhibit 1). impact depreciation.
Reconciliation issues would be faced on each physical count for such expenses which are assigned
independent codes.
Root Cause
Further, similar assets of Rs.6.4 crores capitalized during 2015-16 and 2016-17 were classified under
multiple asset group (Exhibit 2). Reasons for such grouping were not available nor impact on depreciation System deficiency as incidental
due to such classification was assessed. expenses cannot be grouped with
main asset code.
Physical Verification
Lack of defined procedures on
Physical count of Fixed Assets was done in FY 2015-16 for Paithan location (constituting about 25% of
asset coding & grouping to be
total asset value) for which reconciliation of physical count vs FAR was yet to be finalized until audit review
followed.
in Sep-2016. Informed that asset codes tagged by Plant were varying from that available in FAR. Records
of such physical count were not available for review and in absence of correct asset tagging, adequacy of Operational deficiency.
physical count exercise could not be ascertained.
Though company has defined SOP for physical verification of assets, compliance to such policy for such
discrepancies could not be identified.

APL / Capex Management / Apr-16 to Aug-16 12


Strengthen Process For Asset Coding, Tagging & Physical Verification (2/2)

Recommendation & Action Plan


Recommendation
Define guidelines on asset coding logic to be followed and grouping of assets under various category.
Instruct plant personnel to follow such system generated code for asset identification.
Evaluate clubbing of expenses incidental to purchase in asset cost under same Asset Code.
Initiate Physical tagging of asset as per FAR across all locations. Going forward, assets to be tagged immediately on receipt and being ready for use
or at least on quarterly basis.
Conduct a one-time exercise to review and correct asset classification for existing assets and pass entries for depreciation accounting / reversal as
applicable.
Action Plan
Guidelines based on asset coding will be defined by HO and circulated to and accordingly asset code generated will be circulated to plant.
All incidental expense pertaining to asset cost will be clubbed under same asset code once SAP is implemented.
Going forward, assets to be tagged as per defined asset tagging system i.e. physical assets tagging and FAR tagging of assets will be same and
hence reconcilable. For existing assets we will conduct one time exercise to tag the assets as per the guidelines formulated during the implementation
of SAP.
We will review the asset classification for the existing assets based on information shared by the auditors and if necessary pass entries for
depreciation accounting/reversal as applicable.
Person Responsible: Jainandra Tripathi - AVP Accounts
Timeline: April 2017

APL / Capex Management / Apr-16 to Aug-16 13


Improve Tax Planning Considering Service Tax / VAT/ CST Applicability (1/3)

Observation
Issue
There is need to improve tax planning on taxes applicable for ongoing projects by involving Tax team at the time of project cost assessment and
obtain expert opinion, if required. Review showed following scope for costs optimization or compliances:
Service Tax: For ongoing project at Guwahati, civil contract was allotted to M/s. Bharuka Construction. Company had agreed to supply certain
material to contractor for execution of work, for which no charges were recovered from contractor. Such material consists of TMT bars / cement,
etc. which were supplied free of cost. Under Reverse Charge Mechanism, company is liable to pay service tax on 50% of the portion for such
goods supplied as free. During Oct-15 to Aug-16, Rs.8.57 crores was spend on procurement of TMT and Cement. Considering 50% to be paid by
company, potential service tax liability would be ~Rs.24 lakhs (i.e. Rs.8.57 crores x 5.6% service tax x 50% share). Non-adherence to relevant
provision would attract penalty / interest.
Under composition scheme, Service tax is charged on total amount of contract, where the term total amount refers to sum total of the gross
amount charged for the works contract and the fair market value of all goods and services supplied for execution of the works contract, whether or
not supplied under the same contract or any other contract after deducting amount charged for such goods or services & taxes levied thereon. This
indicates that contractor has to include the fair market value of free issue of materials while calculating service tax payable under works contract.
VAT (Value Added Tax): There is need to assess cost benefit analysis considering tax schemes opted for ongoing project. Independent evaluation
of the above civil contract showed that VAT outflow could be reduced by Rs.12 lakhs under standard deduction scheme against VAT of Rs.29 lakhs
levied under composition scheme (as summarized in subsequent slide). No independent assessment was carried out to identify beneficial scheme.
Currently, there are two options available to a contractor for VAT payment i.e. standard deduction scheme where VAT is payable on balance
portion after availing standard deduction of 25 / 30% under AVAT / MVAT or, composition scheme where VAT @ 5% is payable on total contract
value.
CST or Works Contract: As per CST Act, Form C cannot be issued on building / interior contracts resulting in CST payable @ 15% on such
contracts. Possibility to convert these contracts into works contract where material is being procured on Made to Order basis needs to be explored.
Informed that procurement from M/s Fab-tech Intl. Ltd. is Made to Order (i.e. vendor manufactures the material as per specification provided), still
it has been considered as normal procurement contract on which CST of Rs.27 lakh @ 15% has been paid. Converting this into works contract
would have potentially reduced tax outflow by Rs.9 lakhs VAT @5% and Service Tax @4.94% (as summarized in subsequent slide)

APL / Capex Management / Apr-16 to Aug-16 14


Improve Tax Planning Considering Service Tax / VAT/ CST Applicability (2/3)

Potential Reduction In VAT Outflow Under Standard Deduction Scheme


Amount
Particulars
(In Rs. Crores)
Value of Project (New construction) 5.75
VAT charged in case of Composition scheme @5% (A) 0.29
VAT @5% in case of Standard Deduction scheme @60% of contract value (Company is giving cement and steel on free of cost to
contractor and other materials such as Bricks, aggregate, sand and shuttering materials etc. which are charged VAT @4% to 5% are 0.17
brought by contractor itself) (B)
Potential Cost Benefit (A-B) 0.12

Potential reduction in CST Under Make to Order Contract Basis

Amount
Particulars
(In Rs. Crores)
Procurement Value 1.81
CST @ 15%(A) 0.27
If Works Contract Is Opted
VAT @5% 0.09
Service Tax @4.94% (A) 0.09
Total Tax outflow (B) 0.18
Potential Saving (A-B) 0.09

APL / Capex Management / Apr-16 to Aug-16 15


Improve Tax Planning Considering Service Tax / VAT/ CST Applicability (3/3)

Risk & Impact Recommendation & Action Plan


Risk & Impact Recommendation
Higher costs of assets procured. Involve tax team for tax planning of ongoing projects to optimize costs and ensure compliance to applicable
Possibility of penalty or litigation laws.
under Service Tax. Assess cost benefit analysis considering tax schemes opted for ongoing project and obtain expert option if
Sub optimum VAT structure opted. required, before contract finalization.

Potential service tax liability of Obtain expert opinion on service tax applicability on free material issued for civil works and settle tax
Rs.24 lakhs payable for Guwahati liability accordingly. And, thereafter pass relevant entries for settlement of service tax liability and CENVAT
project. credit applicable.

Additional CST/VAT outflow of Evaluate tax structure beneficial for Make to Order contract before placing orders.
Rs.21 lakhs.
Action Plan
Root Cause SOP will be amended and henceforth all purchase order will be approved by taxation department.
Service tax not paid on free issue of Taxation department clearance will be taken at the time of project planning.
material.
Cost benefit analysis considering various tax schemes will be done by taxation department during approval
Lack of adequate tax planning. of purchase order.
Going forward for Make to Order contract, evaluation will be done to choose the best tax structure i.e.
Works contract or CST.
Person responsible: Mahesh - Manager Projects / Rajesh Patel - VP Projects / Vishal Saraiya - Head
Taxation
Timeline: April 2017

APL / Capex Management / Apr-16 to Aug-16 16


Strengthen Price Discovery Process and Order Management (1/3)

Observation
Issue
Though SOP requires Accounts team to audit competitive bidding purchases, process for single vendor purchases (say above certain value) like
exceptional approval or documenting justification are not defined. Summary of 163 POs of Rs.89.2 crores verified is tabulated in subsequent slides
and discrepancies are given below:
Observed 121 (out of 163) POs of Rs.46.53 crores (i.e. 50% in value of samples reviewed) were placed on single vendor for which justification or
exceptional approval was documented (Exhibit 3). This includes POs of Rs.23.22 crores (56% of Rs.46.53 crores) were made at old POs rate, of
which 16 POs amounting to Rs.4.49 crores were procured at PO rates older than 1 year. (Exhibit 4)
Observed 5 POs of Rs.1.14 crores (1%) where purchases were done considering last POs placed 2-3 years back and price hike of 14 to 66% was
allowed without inviting competitive quotes nor basis / justification for allowing such hike was documented. (Exhibit 5)
In absence of adequate audit by Accounts / Tax team, there could be risk of sub-optimum tax evaluation for such single source purchases.
For some of the purchases, vendor quote comparison shows price variation in the range of more than 100% between vendors (Exhibit 6). Reasons
for such wide variation is not mentioned in the comparison statement. Though L1 vendor is selected, there is a possibility of vendor not understand the
material requirement or vendor selection for quote comparison is not correct considering such rate variation being quite unusual.
In Guwahati, Vitrified tiles were procured from M/s Tej Impex at price inclusive of freight. Purchase costs were higher to the extent of excise duty &
VAT / CST applicable on freight component. Considering such freight would have been shown separately could have reduced tax liability by Rs.1 lakh
(Exhibit 7). Informed vendor did not agree to separate freight cost from basic price, for which documentation was not available. Similarly, VAT was
levied on cement of Rs.1.33 crores procured from M/s Calcom Cement India Limited resulting in costs being higher by Rs.3 lakhs during Apr to Aug-16
(Exhibit 8).
No process is defined to seek Tax team confirmation on taxes considered for POs created, though such PO are sent to Accounts for their review.
Observed PO on M/s Delta Construction was created with VAT @ 8% instead of 5%, leading to potential excess cost of Rs.17 lakhs on PO value
Rs.5.7 crores. Invoices from vendor were yet to be received as on date of review in Oct-16 (Exhibit 9)
Background
As per SOP, Project officer has to send approved comparison sheet to Accounts for audit when Capex sourcing exceeds Rs.5 lakhs & includes
multiple vendors bidding. However, no audit by Accounts is required for capex sourcing less than Rs.5 lakhs or single vendor purchase above Rs.5
lakhs.

APL / Capex Management / Apr-16 to Aug-16 17


Strengthen Price Discovery Process and Order Management (2/3)
Location Wise PO Amount ( In Rs. Crores)
"%"
Sr. Total
Particulars Dahej to
No. Guwahati KVL Advent R&D 24 R&D 77 Others Value of Order
SEZ Total
Raised
A Total PO Value 54.13 23.60 17.62 14.93 2.87 1.41 1.27 115.84
1 Import 1.26 7.23 15.97 7.25 1.27 - 0.01 32.98 28%
2 Local 52.87 16.37 ]1.65 7.69 1.60 1.41 1.26 82.86 72%
B Sample Selection Value 41.45 17.81 16.87 10.39 1.51 0.60 0.56 89.20 77%
1 Import 0.76 6.18 15.91 7.15 1.27 - - 31.27 95%
2 Local 40.70 11.62 0.96 3.24 0.25 0.60 0.56 57.93 70%
"%" of Sample Selected 77% 75% 96% 70% 53% 42% 45% 77%
Classification According To No. Of Quotations Obtained
I Single Source Procurement 9.36 12.36 11.49 9.48 1.31 0.03 0.29 44.32 50%
II Quotations obtains from two vendors 4.79 0.28 - 0.19 0.05 0.35 0.04 5.69 6%
III Quotations obtains from more than two vendors 27.30 5.16 5.38 0.73 0.16 0.22 ]0.23 39.18 44%

APL / Capex Management / Apr-16 to Aug-16 18


Strengthen Price Discovery Process and Order Management (3/3)

Risk & Impact Recommendation & Action Plan


Risk & Impact Recommendation
Sub-optimized rates Amend SOP to include process of price determination for single source purchases (above certain value) including
exceptional approval/documenting reasons/ price hike wrt last purchase price, etc.
Excess purchase cost
will not be identified. Invite quote from vendors which are competitive & comparable. In case variation is too high, document the reasons for
such variation & approval for L1 selection.
Additional tax outflow
of Rs.21 lakh due to Consider negotiating basic price exclusive of freight with vendors, who should be asked to raise debit notes separately
freight inclusive prices for freight reimbursement. Alternatively, impact of tax for freight inclusive prices to be documented in approval note.
and error in tax
Obtain Tax team confirmation on PO before release to vendor to ensure accuracy of taxes considered.
considered in PO.
Action Plan
Amendment of SOP in line with the suggestion will be explored.
Root Cause
Justification for procurement from single source vendor for equipment's and machinery will be documented in
Process design
comparative statement.
deficiency.
Though reasons for such high variation are discussed during PO approval but are not documented as part of
No defined guidelines
comparative quotation or price discovery documents. Henceforth, reasons for high variation in price of vendors will be
on single source
documented.
purchases.
Efforts are made to exclude the freight cost from basic price of the material, however sometimes there is disagreement
Freight not shown
from vendor. Going forward working for tax implication for basic price inclusive of freight or exclusive of freight will be
separately by vendors
prepared and the most efficient option will be selected . Deviation if any will be documented.
in pricing.
Confirmation of Tax Department will be taken on Purchase Order before release of the same. PO order of M/s Delta
has been amended after being informed by audit team.
Person Responsible: Mahesh - Manager Projects / Rajesh Patel - VP Projects / Rao - V.P. Technical / Pillai - Asst. G.M.
Projects
Timeline: Immediate

APL / Capex Management / Apr-16 to Aug-16 19


Improve Documentation of Vendor Selection (Civil Contract)

Observation Risk & Impact Recommendation & Action Plan


Issue Risk & Impact Recommendation
Formal process of analyzing and documentation Sub-optimized rates Reasons for major variations (beyond specified
reasons for rate variation across the quotes at percentage / value) between final price, architects
individual item level, calculating least of the least estimate & least of least price at an aggregate
rates & using the same for negotiation, etc. for large Root Cause activity level needs to be documented.
contracts (say > Rs.50 lakhs) was yet to be initiated. Non-documentation of
Although multiple quotes are received based on reasons for activity-wise
Action Plan
drawings / BOM approved by Architects, comparison major variations between
of rates at individual line item level between various final price & least of least Working for least of least price(APL price) is done,
contractors and reasons for high variation (beyond prices. but not attached during purchase order approval as
specified percentage / value) is not carried out. Least part of price discovery documents/comparative.
of the least rates for better negotiation is not Going forward SOP for format of comparative
calculated. Contract labor works are generally statement will be amended and least of least cost will
negotiated & given to L1 on an aggregate value added as part of comparative statement. Further,
basis, however if other than L1 vendor is selected reasons for variation beyond 20% between final
order justification for the same is mentioned in the price, architects estimate & least of least price at an
comparison. aggregate activity level will be documented and
Review of one contract of Rs.24.84 crores for approved by relevant authority.
construction of Phase-II of at Guwahati Project Person Responsible: Mahesh - Manager Projects /
showed deviation between the final price & least of Rajesh Patel - VP Projects
the least price (calculated at item level) of ranging
from 2% to 46% (avg. 23%) on individual category Timeline: March 2017
level & 24% (i.e. 4.72 crores) on aggregate work
order value level. (Exhibit 10)

APL / Capex Management / Apr-16 to Aug-16 20


Align Depreciation as per Companies Act, 2013

Observation Risk & Impact Recommendation & Action Plan


Issue Risk & Impact Recommendation
There is need to review the basis followed for Incorrect financials due to Reassess asset life as allowed under law and
calculating depreciation rates/useful lives of assets. incorrect classification or compute impact of depreciation to be reversed, if
depreciation not being any.
Currently, depreciation of Plant and Machinery
charged as per Companies
(P&M) is calculated considering 15 years as useful
Act, 2013.
life though Companies Act 2013 (Part C of Schedule
Action Plan
II), for specific assets such as distillation columns,
reactors, Drying equipment, Vessels and Storage We will discuss internally with management and
Root Cause
tanks etc. used in manufacture of pharmaceuticals initiate action to pass relevant entries as applicable.
should be charged as per useful life of 20 years Non-alignment of
Person Responsible: Jainandra Tripathi - AVP
(details shared with process owner). This results in depreciation
Accounts
claiming higher depreciation than permissible under
law. Timeline: April 2017

Further, depreciation on P&M is calculated


considering single shift though Paithan plant
operates in double / triple shift. As per Companies
Act, if asset is used for any time during the year for
double / triple shift, the depreciation will increase by
50%/100% respectively for that period. (Except for
assets in respect of which no extra shift depreciation
is permitted (indicated by NESD in Part C of the
schedule).

APL / Capex Management / Apr-16 to Aug-16 21


Strengthen Bill Passing and Vendor Reconciliation Process

Observation Risk & Impact Recommendation & Action Plan


Issue Risk & Impact Recommendation
Bill Submission / GRN Potential of excess Introduce periodic review of variation report
payout without between RR and Bill amount and exceptions to be
On bill submission process (i.e. invoice being parked),
adequate review or specifically approved and documented.
invoice value is derived through 3-way match of PO rates
approval
and GRN done by plant. However, project team has rights Define guidelines on vendor balance confirmation
to edit invoice value without any tolerance limit. System Potential disputes with process and expedite follow-up with vendors for
auto-calculates excess amount and requires Project team vendors in absence of pending replies.
to capture reasons for such variance or need to raise debit periodic confirmation.
note. Thereafter, Accounts can post that bill in books.
Action Plan
There is concentration of duty since same person is
Root Cause
responsible for bill submission and its approval. Also, no After implementation of SAP exceptional report for
log is generated periodically to identify exceptional cases Absence of periodic Invoice price more than PO price will be extracted
having significant variation between RR and Bill amount. review of variation and reviewed on quarterly basis.
Though sample review did not show any discrepancy, risk report for RR amount
Person Responsible: Pillai - Asst. G.M. Projects /
of concentration of duty cannot be ignored. against bill amount.
Rao, V.P. Technical
Vendor Reconciliation Lack of defined
Timeline: April 2017
process for vendor
Process to perform vendor reconciliation periodically needs
confirmation. Guideline for vendor balance confirmation will be
to be defined. No guidelines / SOP for selection of vendors defined and circulated.
for seeking confirmation/periodicity, etc. is defined.
Currently, Accounts officer selects the vendor on random Henceforth vendor reconciliation for major
basis from whom confirmation is required and shares contractors will be done on quarterly basis.
details to Project department for obtaining confirmation. As Person Responsible: Jainandra Tripathi - AVP
on 30th September 2016, confirmation is yet to received Accounts
from 120 vendors out of 194 vendors to whom letters were
sent in 31st March 2016. (Exhibit 11) Timeline: March 2017

APL / Capex Management / Apr-16 to Aug-16 22


Define Checklist for Standard Terms & Conditions

Observation Risk & Impact Recommendation & Action Plan


Issue Risk & Impact Recommendation
No checklist is defined on standard terms & Non-standard terms used Formulate checklist on standard terms & conditions
conditions to be included in PO and its exception without adequate approval to be adopted and its exception management.
management during audit by Accounts team. or evaluation.
Bank Guarantee (BG) and Performance BG (PBG) Exposure to risk of default
Action Plan
by the vendors.
In 2 instances, advance of Rs.12 lakhs was paid to
Adequate care is taken at the time of PO creation to
vendor without including Bank Guarantee clause in
include all relevant terms.
POs (Exhibit 12). Further, in 3 instances of Rs.1.99
Root Cause
crores, Performance Guarantee (PBG) clause was Highlighted instances are sourced from regular
not mentioned in PO. Informed material was Standard terms & suppliers and hence no BG, PBG or liquidation
procured from regular vendor, hence PBG was not conditions not defined. clause was incorporated.
obtained nor mentioned in Pos. (Exhibit 13) Person Responsible: Pillai - Asst. G.M. Projects / Rao
Liquidation Clause - V.P. Technical

Company doesnt have defined policy for penalty Timeline: Not Applicable
clause for delay in delivery of material, Though
generally penalty clause for delayed delivery in
material is in PO, observed 3 POs of Rs.1 crores
issued without penalty clause for delayed delivery
(Exhibit 14)

APL / Capex Management / Apr-16 to Aug-16 23


Others (1/2)

Observation Risk & Impact


Issue Risk & Impact
Material Master Management Sub-optimized rates
Observed instances of same material having dual code. PO of Rs.23.8 lakhs were placed during Oct-15 Increased cost of purchase
to Aug-16 (Exhibit 15). This would impact goods receipt entry
Delay in material receipt
Marine Insurance
There is need to conduct cost benefit analysis for procurement at CIF / FOB considering costs of marine
Root Cause
insurance policy.
Operational deficiency
During Oct-15 to Aug-16, majority of import purchase of Rs.75.27 crores was on CIF / CIP (i.e. cost
inclusive of freight and insurance). Informed, insurance component is considered @ approx. 0.50% to Non-assessment of price across
1% of total import cost. Purchase costs can be reduced if prices are negotiated excluding insurance various delivery terms
since current insurance costs are 0.1%.
Inadequate monitoring of material
EPCG Evaluation receipt against open POs.
For capex imports, cost benefit analysis is done on whether to import under EPCG or normal imports.
Rate for EPCG duty is considered @3%, though 0% is applicable under the current EPCG license.
Though sample review did not reveal any exceptions, error in considering rate carries risk of incorrect Background
cost benefit being done. Company has taken marine
Review of Open Purchase Order insurance policy for materials
imported, indigenous (domestic)
Monitoring of receipt of materials against open POs & closure of POs not required needs to be improved. movement and exports except Plant
Though report for pending delivery order is available from system, review is performed by compiling and Machinery. Existing Premium @
data manually without using such report. Further, no exceptional MIS is being prepared for deliveries 0.10% (45 Lakhs) is paid on the
beyond schedule date with reason documented. overall sum insured of Rs.450 crores.

APL / Capex Management / Apr-16 to Aug-16 24


Others (2/2)

Recommendation & Action Plan


Recommendation
Review material master and block unwanted / dual / obsolete codes.
Perform cost benefit analysis for procurement at CIF or FOB & policy for marine insurance for capital goods (plant and machinery).
Inform tax team to consider applicable duty rate while EPCG evaluation.
Utilize existing report on pending deliveries for review of Open POs.
Consider review of delayed delivery and document action required against vendors for exceptional delays (say above 30 days from schedule date).

Action Plan
Material master is being reviewed and the same will be standardized post SAP implementation.
Cost benefit analysis for procurement at CIF or FOB will be evaluated for sample 5-6 project and based on differential & quantum, decision for
obtaining own marine insurance policy will be taken.
Henceforth evaluation for EPCG will not be done, and material will procured under EPCG. Only for material below 1L will not be procured under EPCG
as license cost would be higher.
Post SAP implementation, open PO will be reviewed on quarterly basis.
Person Responsible: Pillai Asst. G.M. Projects / Rao - V.P. Technical
Timeline: April 2017

APL / Capex Management / Apr-16 to Aug-16 25


Exhibit 1: Instances of Sub Asset Not Linked To Main Asset

(Amt in Rs. Crores)

F.Y. Category Asset ID Description of Asset Date Put to Use Cost Depreciation WDV

2015-16 Laboratory Equipment lab\Lab R&D\00046 Nozzle,Recommended Spares,Tablet Coater,Ptional Feature 30-Sep-15 0.24 0.05 0.20
2015-16 Plant & Machinery P&M\P&M\04044 Hvac Installation Charges 14-Jan-16 0.05 0.00 0.04
2015-16 Plant & Machinery P&M\P&M\04072 Labour Charges For Hvac Instalation 31-Mar-16 0.05 0.00 0.05
2015-16 Plant & Machinery P&M\P&M\03970 Ms Erw Pipes For Fire Fighting System 26-Apr-15 0.04 0.01 0.03
2015-16 Plant & Machinery P&M\ELE\00772 Industrial Cable ,Cu/Pvc Insul Sht 30-Sep-15 0.04 0.01 0.03
2015-16 Office Equipment OFFE\OFER&D\00179 Installation Of Ac 20-May-15 0.04 0.02 0.02
2015-16 Plant & Machinery P&M\ELE\00791 Cable 31-Mar-16 0.02 0.00 0.02
2015-16 Laboratory Equipment lab\Lab R&D\00196 Stainless Steel Standard Weight,Thermo Hygrometer Digital Make,Stop Watch Digital Make: Racer 29-Feb-16 0.02 0.00 0.02
2015-16 Plant & Machinery P&M\P&M\03974 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.02 0.00 0.02
2015-16 Plant & Machinery P&M\P&M\03972 Ms Erw Pipes For Fire Fighting System 26-Apr-15 0.02 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03971 Ms Erw Pipes For Fire Fighting System 26-Apr-15 0.02 0.00 0.01
2015-16 Plant & Machinery P&M\ELE\00800 Industrial Cable 1.5Sqmm 31-Mar-16 0.02 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03977 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03978 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.01 0.00 0.01
2015-16 Office Equipment OFFE\OFER&D\00234 Low Side Work -Installation Testing & Comissioning Split & Cassate Ac 28-Feb-16 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03976 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\ELE\00766 Smoke Sensor & Cables 30-Sep-15 0.01 0.00 0.01
2016-17 Plant & Machinery P&M\ELE\00803 Industrial Cable 240Sqmm X 3.5 14-Jun-16 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03975 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.01 0.00 0.01
2015-16 Office Equipment OFFE\OFER&D\00235 Circuller Fan Supply & Installation 28-Feb-16 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\PMR&D\01582 Stainless Steel Standard Weigh 18-Apr-15 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\03979 Ms Erw Pipes For Fire Fighting System 29-Apr-15 0.01 0.00 0.01
2015-16 Laboratory Equipment lab\Lab\00012 Stainless Steel Standard Weight E2 Class 20-Oct-15 0.01 0.00 0.01
2015-16 Laboratory Equipment lab\Lab R&D\00013 Stainless Steel Standard Weight 10-Jun-15 0.01 0.00 0.01
2015-16 Laboratory Equipment lab\Lab R&D\00064 Stainless Steel Standard Weight E2 12-Dec-15 0.01 0.00 0.01
2015-16 Plant & Machinery P&M\P&M\04084 Labour Charges Of Hvac Installation 31-Mar-16 0.01 0.00 0.01
2016-17 Laboratory Equipment lab\Lab\00044 Mettler Toledo Make"Ind235 ,232 Cable For Printer 2-Apr-16 0.01 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00794 Temp. Sensor Model Pt-100 With Temp. Sensor Cable 3 Core 31-Mar-16 0.00 0.00 0.00
2015-16 Furniture & Fixture F&F\F&F\01785 Steel Office Computer Table Si ,Storwell Cupboard Size: 78"X36 9-Dec-15 0.00 0.00 0.00
2015-16 Office Equipment OFFE\OFER&D\00223 Installation Of Low Side Work 29-Feb-16 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00798 Cable Tie 400 Mm X 4.8 Mm ,6 Module Metal Box Make Roma,25 Mm Pvc Pipe Conduit Pipe 31-Mar-16 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00798 Cable Tie 400 Mm X 4.8 Mm ,6 Module Metal Box Make Roma,25 Mm Pvc Pipe Conduit Pipe 31-Mar-16 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00784 Installation Of Split Ac 21-Oct-15 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\P&M\03973 Ms Erw Pipes For Fire Fighting System 26-Apr-15 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\PMR&D\01623 Level Sensor & Dry Preventer Instalation 8-May-15 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00783 Installation Of Split Ac & Fixing Charges 21-Oct-15 0.00 0.00 0.00
2015-16 Plant & Machinery P&M\ELE\00781 Cat 6 Lan Cable, 4 Pair Telephone Cable, 25 Mm Pvc Saddel 21-Oct-15 0.00 0.00 0.00
Total 0.74 0.13 0.61

APL / Capex Management / Apr-16 to Aug-16 26


Exhibit 2: Instances Of Same Asset Classified Under Different Category

Description of Asset PO No. Category Cost (Rs.) Remarks


PROJECT/R&D/18/723 Plant & Machinery 10,602,798 Same asset classified as P&M and lab.
Agilent 1260 Hplc System
PROJECT/R&D24/19/28 Laboratory Equipment 38,806,318 Equipment, both are used in R&D.
PROJECT/R&D/19/26 Laboratory Equipment 11,244
Contech Balance Model Cp-100K PROJECT/R&D102/18/176 Plant & Machinery 11,244 Multiple classification for same material
PROJECT/R&D149/19/166 Laboratory Equipment 11,244
PROJECT/R&D/19/8 Laboratory Equipment 3,324,740
Electrolab -8 Station Dissolut
PROJECT/R&D102/18/45 Plant & Machinery 765,483
PROJECT/R&D102/18/45 Plant & Machinery 1,530,967
Electrolab -8 Station Dissolution Tester
PROJECT/R&D24/18/124 Laboratory Equipment 3,905,103
PROJECT/R&D/19/554 Laboratory Equipment 146,625
Griffin Flask Shaker(Wrist Act
PROJECT/R&D102/18/154 Plant & Machinery 146,625
PROJECT/R&D/19/541 Laboratory Equipment 33,575
Incinerator (Gmp Model)
PROJECT/R&D102/18/150 Plant & Machinery 33,575
PROJECT/R&D/19/11 Office Equipment 196,988
Online Ups System
PROJECT/R&D102/18/184 Plant & Machinery 382,500
PROJECT/19/314 Laboratory Equipment 24,000
PROJECT/R&D/18/977 Plant & Machinery 24,499
PROJECT/R&D/19/547 Laboratory Equipment 96,000
Printer Rs-P25 For Xp/Xs Balance PROJECT/R&D/19/641 Laboratory Equipment 24,000
PROJECT/R&D/20/148 Laboratory Equipment 48,000
PROJECT/R&D149/20/6 Laboratory Equipment 102,530
PROJECT/R&D77/19/38 Laboratory Equipment 216,000
PROJECT/R&D102/18/119 Plant & Machinery 1,135,439
Rapid Mixer Granulator
PROJECT/R&D24/18/153 Laboratory Equipment 1,128,879
PROJECT/R&D/19/72 Plant & Machinery 50,400
Refrigerator Make-Sharp
PROJECT/R&D24/19/14 Laboratory Equipment 37,244
PROJECT/R&D24/18/185 Plant & Machinery 72,000
S.S.Standard Weight Box -E2 Cl
PROJECT/R&D24/19/405 Laboratory Equipment 72,000
PROJECT/R&D24/18/82 Plant & Machinery 28,000
Scanner
PROJECT/R&D24/19/40 Laboratory Equipment 79,800
PROJECT/R&D113/19/125 Plant & Machinery 124,200
Asstes used in R&D however classified as
Water Treatment Plant PROJECT/R&D113/19/126 Plant & Machinery 202,860
Plant and Machinery
PROJECT/R&D77/19/77 Plant & Machinery 327,059
PROJECT/R&D113/19/126 Plant & Machinery 86,940
Asstes used in R&D however classified as
Water Treatment Plant Capacity 500 Lph PROJECT/R&D149/19/56 Plant & Machinery 124,200
Plant and Machinery
PROJECT/R&D149/19/57 Plant & Machinery 86,939

APL / Capex Management / Apr-16 to Aug-16 27


Exhibit 3: Summary of Single Source Procurement

(Amt in Rs. Crores)

Location Name Import Local Total

KVL 6.20 6.16 12.36

Dahej SEZ 10.64 0.84 11.49

Advent 6.68 2.80 9.48

Guwahati 2.39 6.97 9.36

R&D 24 1.27 0.04 1.31

R&D 102 0.13 0.13

R&D 149 0.12 0.12

R&D 113 0.04 0.04

R&D 77 0.03 0.03

Total 27.19 17.14 44.32

APL / Capex Management / Apr-16 to Aug-16 28


Exhibit 4: Instances Where Procurement Of Labour Or Service Is Made At Rates Older Than 1 Year

(Amt in Rs. crores)


PO No. PO Date Material Description Import / Local Vendor Name Old PO Date PO Amount
PROJECT/20/383 25-Aug-16 Primary Area Ground & First Floor Modification Local Bharuka Constructions 7-Oct-15 1.04
PROJ/GHT/20/103 16-Jun-16 Ahu Panels Of Pilot Plant Local Chandra Electricals & Electronics Unit Ii 1-Aug-14 0.54
PROJ/GHT/20/272 3-Aug-16 Qc Block Air Handling Units Local D. J. K. Industries 15-16& 13-14 0.38
PROJ/GHT/20/238 25-Jul-16 Elevator With Given Technical Specifications As Per Annexure - 1 Local Eskay Elevators (India) Pvt. Ltd. 18-Oct-13 0.36
PROJ/GHT/20/243 26-Jul-16 Pilot Plant Hvac Area Low Side Work Local Msw Engineers. 21-Feb-14 0.35
Ss Tank Of 700L Capacity With Top Mounted Stirrer, Dimension:1000 Mm
PROJ/GHT/20/174 6-Jul-16 Import Bright Pharma Engineering Pvt Ltd 8-Jun-15 0.32
Idx2100 Mm Ht(Refer Annexure 2
Ldo Tank,Drinking Water Tank, Utility Building, Canteen Building,Dg,Driver
PROJ/DHJ/20/38 3-Aug-16 Local K. P. Construction 15-16 0.32
Room,Etp,Main Plant Civil
PROJ/GHT/20/235 25-Jul-16 Piping And Structural Work Local Laxmi Engineering 9-Apr-15 0.29
PROJECT/20/18 14-Apr-16 Ez Raman-H Hand Held Raman Analyser Local Tsi Incorporated. 26-Aug-15 0.24
Checkweigher System Model Cw-1200-01
PROJ/DHJ/20/57 31-Aug-16 Import Technofour Electronics Pvt Ltd 25-Mar-14 0.19
( Refer Annexure-2)
PROJECT/20/236 14-Jul-16 Pac Drive (Pc 506 02 003A) Local Romaco S.R.L. 24-Jun-15 0.17
Twin Applicator For Tamper Evident Labels For Mono Cartons , As Per
PROJ/GHT/20/90 8-Jun-16 Local Xebbekk Engineering 25-Apr-15 0.12
Annexure-2
PROJECT/R&D/20/152 24-May-16 Media Degasser & Dispanser : Model Ezfill 4500 Local Distek Inc. 14-Jan-15 0.10
PROJ/GHT/20/136 25-Jun-16 Bottle Top Dispenser Dispensette; Range: 10-100Ml; Cat No. 4730171 Local B.Patel & Sons.. 12-Jul-14 0.04
PROJECT/20/84 11-May-16 Surgical Hand Gloves Size- 7 1/2" Import Sunil Surgicals. 8-Apr-13 0.01
Smf Batteries Of 12V/42Ah Capacity
PROJECT/R&D113/20/2 4-Apr-16 Local Power Gun Systems Pvt Ltd 31-Mar-15 0.01
Providing 1Hrs. Backup Make -Hi-Power With Battery Rack
Total 4.49

APL / Capex Management / Apr-16 to Aug-16 29


Exhibit 5: Instances Where Procurement is Made at Old Rates Which Have Increased by More
Than 10%

(Amt in Rs.Crores)
Last Last "%"
Division Current
PO No. PO Date Material Description Vendor Name Purchase Purchase Increase in
Name Cost
Order Date Order Cost LPO Price

KVL PROJECT/20/93 18-May-16 Transmitter Gansons Limited. 19-Feb-08 0.38 0.51 33%

Guwahati PROJ/GHT/20/181 8-Jul-16 Vitrified Tiles Escalade 1St Quality With TcMake Tej Impex Pvt Ltd 13-Jan-15 0.31 0.36 15%

Guwahati PROJ/GHT/20/371 31-Aug-16 Advanced Static Dissipative Sieves For Vibrosifter Pharma Spares Pvt. Ltd. 6-Sep-15 0.04 0.07 66%

KVL PROJECT/20/290 27-Jul-16 Digital Metal Detection System. Acg-Pam Pharma Technologies Pvt. Ltd. 15-Oct-13 0.04 0.04 14%

Ipc Container For Compression Machine Of Ss 316


Guwahati PROJ/GHT/20/369 31-Aug-16 Bright Pharma Engineering Pvt Ltd FY 2013-14 0.13 0.16 17%
Of 2.5Mm Thickness ,Gross-500 Litrs
Total 1.14

APL / Capex Management / Apr-16 to Aug-16 30


Exhibit 6: Instance Of Significant Variation Between Cost Of L1, L2 & L3 Vendors

(Amt in Rs. Crores


PO No. of L1 L2 Variation Variation
Location L3 Vendor
PO No. Material Description Amount Vendor Name Quotations Vendor Vendor Between Between
Name Cost
(In Cr.) Obtained Cost Cost L1 and L2 L1 and L3

PROJ/GHT/20/111 Effluent Treatment Plant Cap:100Kld Guwahati 0.52 Wte Infra Projects Pvt Ltd 2 0.52 1.07 NA 106% NA
Architecture, Landscape, Mep &
PROJECT/20/1 KVL 1.29 Niteen Parulekar Architects Pvt Ltd 3 1.48 2.99 4.08 102% 176%
Structure Service
PROJECT/20/116 Contour Survey KVL 0.02 Zenith 2 0.02 0.03 NA 55% NA
PROJECT/20/353 Label Designing Software KVL 0.25 Sundaram Technologies 2 0.25 0.39 NA 56% NA
PROJECT/R&D77/20/178 Civil Work R&D 77 0.25 Shreyas Industries 2 0.18 0.25 NA 39% NA
Passive Rock Anchor Work Under
PROJECT/R&D/20/101 Advent 0.09 Kgn Prestress Pvt Ltd 2 0.09 0.12 NA 29% NA
Ground Tank, Car Lift Depth 8M
PROJECT/R&D113/20/10 Civil Work R&D 113 0.01 Private India 2 0.01 0.01 NA 28% NA
PROJECT/R&D77/20/78 Beaker R&D 77 0.04 Mettler-Toledo India Private Limited 2 0.05 0.06 NA 26% NA
Coolingcabinet-1000 Liter.Temp-Range-
PROJECT/R&D113/20/29 R&D 113 0.02 Mack Pharmatech Pvt. Ltd. 3 0.02 0.02 0.04 14% 108%
2 Deg To 8 Deg C
Painting Work, Phase-I (Admin & Qc
PROJ/GHT/20/342 Guwahati 0.26 Private India 3 0.26 0.29 0.44 10% 67%
Building , Solvent, Utility Building)

Pt Beam Design,Erection Work (Ground


PROJECT/R&D/20/167 Advent 0.19 Kgn Prestress Pvt Ltd 3 0.21 0.23 0.34 7% 57%
Floor (Transverse Girder)+6 Floor)

Total 2.94

APL / Capex Management / Apr-16 to Aug-16 31


Exhibit 7: Potential Saving If Freight is Excluded from Basic Price

Amount
Particulars
(Rs. Crores)

Total Procurement of vitrified tiles (Oct-15 to Aug-16) 0.32

Freight portion on above 0.08

Potential CST saving on above freight portion@12.5% 0.01

APL / Capex Management / Apr-16 to Aug-16 32


Exhibit 8: Excess Cost As VAT Is Being Charged On Freight Portion

Sr.
Particulars Amount
No.

1 Value of Cement procurement (Apr-16 to August-16) (Rs. Crore) 1.33

2 Basic price as per PO #PROJ/GHT/20/350 (Rs.) 4,521.74

3 Freight portion on above price (Rs.) 577.00

4 Basic Price without freight portion (Rs.) 3,944.74

5 VAT on freight portion (Rs.) 86.55

6 "% " of potential saving 2%

7 Total Saving (Apr-16 to August-16) (Rs. Crore) 0.03

Annualized Impact (In Crore) 0.06

APL / Capex Management / Apr-16 to Aug-16 33


Exhibit 9: Potential Cost Benefit If Correct VAT Structure Is Applied

Amount
Particulars
(In Rs. Crores)

Value of Project (New construction) 5.75

VAT charged @8% 0.46

VAT to be charged i.e. @5% 0.29

Potential Cost Benefit 0.17

APL / Capex Management / Apr-16 to Aug-16 34


Exhibit 10: Instance of Variation in Contract Value Awarded Vs Sub Category-Wise Lowest
Contract Value

(Amt in Rs.Crores)

M/s Total Least of


Sub- Activity Level Wise JK Bharuka Minimum of "%"
Sunderland Least Rate at
Bifurcation Engineering Constructions ThreeVendors Variation
Developers Item Level

Earthworks and Hard Stone Soling 2.08 1.92 2.31 1.92 1.82 27%

Anti Terminate Treatment 0.03 0.04 0.02 0.02 0.02 0%

RCC Form Work and Steel 9.64 9.11 8.47 8.47 8.32 2%

Mansory and Platering Work 1.21 1.48 1.68 1.21 1.18 43%

Flooring , Skirting and Dado 0.91 1.04 0.76 0.76 0.71 8%

Sanitary, plumbing and water supply 0.46 0.65 0.49 0.46 0.39 26%

Miscellneous Item 0.58 0.86 0.58 0.58 0.45 28%

Road and Storm water line 13.60 9.53 10.42 9.53 7.12 46%

Total 28.51 24.63 24.73 22.94 20.00 24%

APL / Capex Management / Apr-16 to Aug-16 35


Exhibit 11: Summary of Vendor Reconciliation Status

(No. of Vendors)
"%" to
Sr. No. Particulars HO Advent R&D 24 R&D 77 R&D 102 Total
Total
1 Reconciliation done 15 14 16 9 20 74 12%

2 Party Bal. nil 227 35 11 0 11 284 46%

3 Opening bal. 0 0 1 0 2 3 0%

4 2-5 transaction 41 35 20 20 25 141 23%

5 Ledger required 41 31 15 9 24 120 19%

Total Party 324 115 63 38 82 622

APL / Capex Management / Apr-16 to Aug-16 36


Exhibit 12: Instances Where Though Advance Is Given To Vendor However Bank Guarantee Has
Not Been Obtained

(Amt in Rs.)
PO Payment Advance
PO No. PO Date Material Description Vendor Name
Amount Terms Given
PROJECT/GHT/20/69 23-May-16 Ind780(P)-3 Scale Nso. Mettler-Toledo India Private Limited 4,865,629 20% advance 973,126

Dual Drum Firability Tester With Weighing


PROJECT/GHT/20/117 24-Jun-16 Scale Interface,Model Ef-2W (Body Made Acg Inspection Systems Private Limited 1,417,500 20% advance 283,500
Of S.S.As Per Cgmp)

Total 6,283,129 1,256,626

APL / Capex Management / Apr-16 to Aug-16 37


Exhibit 13: Instances Where Performance Guarantee is not Mentioned

(Amt in Rs. Crores)

PO No. Vendor Name Material Description PO Amount

PROJ/DHJ/20/63 ACG pampac Machine model BQS 1.10

PROJ/20/131 Gansons Limited CFR for coater machine 0.24

PROJ/20/93 Gansons Limited Coating systrem 0.65

Total 1.99

APL / Capex Management / Apr-16 to Aug-16 38


Exhibit 14: Instances Where Penalty in Delayed Delivery Is Not Mentioned

Scheduled PO
PO No. PO Date Material Description Vendor Name
Delivery Amount (Rs. Cr.)

E3 21 Cfr Part 11 Compliant Scada System With


PROJ/GHT/20/92 9-Jun-16 Gansons Limited. 20-Aug-16 0.18
Contec 15 Inch Ipc For Gac 1200.
19Mm Thk. Thermal Insulation Material With Metpet On
PROJ/GHT/20/306 12-Aug-16 Pararth Enterprise 30-Aug-16 0.33
One Side Class-1. Grade-Sil-Xlc 1.25(W) X 20(L)

PROJ/GHT/20/69 23-May-16 Ind780(P)-3 Scale Nso. Mettler-Toledo India Private Limited 31-Aug-16 0.49
Total 1.00

APL / Capex Management / Apr-16 to Aug-16 39


Exhibit 15: Instances of Material Having Dual Code
(Amt In Rs.)
Procurement
Material Per Unit
Material Desription Value (Oct-15 to Quantity
Code Price
Aug-16)
M56369 6,678 9 742
WOODEN CANTILIVER AT THE JOIN OF BACK TABLE 600 X 725 MM
M57390 742 1 742
M56501 50,250 25 2,010
PACIFIC MAKE 7MM ROUND SHAPE UPPER PUNCHES PLAIN, LOWER PUNCH PLAIN AND DIES FOR D TOOLING
M57368 50,250 25 2,010
M56175 221 15 15
25 MM DIA
M56182 796 15 53
M51526 6,500 50 130
350X120 BACK BOX ABOVE TABLE
M58070 29,900 230 130
M51527 7,000 50 140
400X120 BACK BOX BELOW TABLE
M58071 16,800 120 140
M55118 51,840 400 130
4SQMM X 4C CU ARM CABLE
M55879 38,880 300 130
M57904 126,000 600 210
ALU. FIX GALSS - JINDAL ALU. SECTION 18 GAZE REGULAR ANODIZING - CLEAR RUBBER, 5 MM THK, ONEWAY
M57907 178,500 850 210
M57905 21,840 84 260
ALU. SINGLE GLASS - PROVIDING AND FIXING ALU. SINGLE DOOR JINDAL ALU. SECTION 18 GAZE, MADE OUT OF
M57908 36,400 140 260
M56258 26,000 1 26,000
BIOLOGICAL INDICATOR -CERTIFICATE NO -ND/16/2801/001
M56259 14,000 1 14,000
M58324 184,500 9 20,500
CHILLED WATER CASSETTE TYPE OF SPLIT UNITS WITH PRE-FITTED VALVE STATION WITH ALL NECESSARY
M58325 24,650 1 24,650
M56507 6,800 8 850
DIE BORE GO NO GO GAUGE
M57375 7,650 9 850
M1092 53,100 3 17,700
GUIDE TRACK
M20450 155,824 8 19,478
POLYPROPYLENE TILE PROTECTOR SHEET 3MM THK. M58284 44,250 7500 6
SIZE: 6' X 4' -250GSM COLOUR - WHITE M58589 85,550 14500 6
M20448 360,000 9 40,000
PUNCHING TOOL
M5308 40,000 1 40,000
SS TABLE FOR CANTEEN M56311 24,300 2 12,150
MATERIAL : MADE IN 304 QUALITY, SS SHEET 18SWG WITH SHIFFNER LEGS MADE IN M56312 8,000 1 8,000
M21158 3,900 200 20
SYRINGE FILTER
M21632 64,500 3000 22
M52506 96,600 46 2,100
SYSTIMAX M2000 24PORT UNLOADED PANEL
M55347 29,400 14 2,100
M54234 213,750 1 213,750
V SHAPED BLENDER BOWLS, HAVING PRODUCT PARTS SS 316, WITH DETACHABLE TROLLEY HAVING PU COATED NYLON M54235 168,750 1 168,750
M54236 146,250 1 146,250

APL / Capex Management / Apr-16 to Aug-16 40