Manual-formatted

e. Deduction of Income Tax at Source (TDS), GST TDS and other statutory compliances in respect of payment to contractors. f. Concurrence of proposal after awarding contract related to change of term & condition, extra item & Quantity variation, time extension etc. g. Capitalization of completed project/ AF. h. Finance shall prepare various weekly/fortnightly/ monthly reports e.g. Project/AF expenditure report, BG report, actual cash outflow etc. i. Ensuring proper insurance in case of plan projects/ major non projects. 5.3 RECEIPT AND RELEASE OF EMD Almost all EMDs are received thru’ online banking portal centrally, which are released to unsuccessful vendors / transferred to concerned company code automatically on compliance of AOC in E-tender Portal. For EMD received through online system directly in RHQ account, refer Clause 11.10 of Accounts Manual. Amount is credited in Vendor Account with SGL (Special GL Indicator) X. In other cases, EMD may be received in the form of Physical banking instrument / Bank Guarantee/ Online mode. EMD received through physical banking instrument has to be entered in SAP through t-code F-43. For EMD received through online system directly in RHQ account, refer Clause 11.10 of Accounts Manual. Amount is credited in Vendor Account with SGL (Special GL Indicator) X. At the time of receipt of EMD, vendor code and name need to be checked cautiously as receipt of EMD in wrong vendor code may result in release of EMD to wrong vendor. At the time of award of job, EMD of unsuccessful bidders should be released. For successful bidder, EMD should be converted in SD (Security Deposit). In case of submission of BG in lieu of Security Deposit, amount of EMD should be refunded to the vendor. Liability towards EMD needs to be reviewed periodically (at least at the time of each quarterly closing) to ensure that no EMD for awarded job is lying in liability. EMD received through BG has to be entered through t-code YFU20/ YMBG. 5.4 ADVANCE PAYMENT TO CONTRACTOR Mobilisation advance to contractor a. An interest-bearing advance given to contractor on submission of bank guarantee(s) for mobilisation of site, if specifically provided in the work order or it is approved by the competent authority separately. Mobilisation advance should be given only after Signing of contract agreement, receipt of ISD and receipt of necessary Bank Guarantee. b. GST on mobilization Advance shall be released to Vendor / Contractor only upon receipt of Receipt Voucher bearing their GSTIN No and applicable GST thereon. c. Mobilisation advance given to contractor is recovered along with interest from the running account bill and final bill of the contractor. d. Mobilization advance voucher can be made thru’ transaction code (t-code) FB01/F-43 by debiting vendor account using Spl. GL 6,7 & 8 as applicable and crediting normal vendor liability account. The voucher is to be subsequently posted for e-payment through T-code Works Accounting INDEX Page 126

YF51 & YF51P. TDS has to be deducted from mobilisation advance. However, at the time of Running Bill Payment, TDS has to be deducted on Bill Amount reduced by amount recovered towards mobilisation advance (As TDS on mobilisation advance is already deducted at the time of payment of mobilisation advance). e. GST is also payable on mobilisation advance as per point of taxation rule of GST Rules. GST TDS is also required to be deducted from advance payment as applicable. In such cases, it should be ensured that in Running Bill, GST is paid on Net Bill Value I.e. Gross Bill Value reduced by amount of mobilisation advance pertaining to that bill. However, Input Tax Credit for GST has to be availed on gross value (as no ITC is availed at the time of advance payment). f. Interest income on mobilization advance accrued but not recovered from contractor on balance sheet date should be worked out and posted through SAP code FBS1 in reversal mode. g. Contractors may be required to deduct TDS on Interest recovered by IOCL as this is an expense for Contractors. In such case TDS amount may be reimbursed to them on production of TDS Certificate (Refer Finance Circular F/1/105 dated 21.01.2004 for details). It must be ensured that TDS certificate are timely submitted by contractors and the same are sent to Taxation Cell - Marketing HO. h. Other advances like. Advance against receipt of bill in Finance up to 75% of amount payable, Advance up to 75% of work done but not measured in case of expected delay in measurement, Secured advance against material brought into site can also be paid on same lines after obtaining necessary approvals and complying with Contract Conditions, WPM and Circulars issued in this regard. Compliance to GST Rules on such advances needs to be made as per point no (ii) above. i. Mobilisation Advance BG should be for gross value i.e. including the value of GST paid. Interest should also be charged on gross value i.e. inclusive of GST. Issue should be taken up with Material / Contracts / Engineering group to keep the tender clauses in line. This is considering non availability of Input Tax Credit to IOCL on advance payment. 5.5 PAYMENT TO CONTRACTOR All expenditure incurred on works of capital/ Revenue nature involving fabrication, erection and construction, maintenance of plant and machinery, buildings, water supply, drainage, effluent, electrical works etc executed through contractors, is to be regulated in accordance with the work procedure manual. Payments to the contractors are done after doing invoice verification in SAP through t-code MIRO. Payment is released through E-payment using code YF51 and YF51P. The following may be considered while releasing the payment: - a. All bills should be forwarded through Bill Tracking System before sending to Finance. Detailed procedure is elaborated in 5.5.1 below. b. Payment should be processed as per terms and conditions of work order, GCC & SCC and provision of WPM. c. Units may develop a Check list to be received along with all the bills to ensure nothing is missed out by EIC while forwarding the bills to Finance. Works Accounting INDEX Page 127

d. Bill should be signed by EIC. Measurement should be checked at all the levels as per WPM. In case of involvement of PMC, Measurement should be checked by IOCL as per WPM provision and circular in this regard. e. Material Issue Statement along with Material appropriation statement should be attached. Quantity of free issue material shall be checked with quantity as per t-code YM54N. Losses, if any should be within tolerable range. In case of excess consumption of material, beyond permissible limit, recovery should be done. f. Recovery statement should be received with all the Bills. In case of no recovery, NIL statement should be received. g. TDS (Income Tax and GST), Building and Other Construction Worker’s Cess (BOCW), Security Deposits etc should be deducted as per Contractual/ statutory requirements. h. In case, Bill is for a period after Contractual Completion date, requisite amount should be kept under hold towards price reduction/ BG for price reduction should be received as per GCC terms and conditions. i. It should be ensured that Vendors Email ID is updated, in such case a payment communication will flow to Vendor at the time of payment. Payment advice can be drawn again using t-code YF88. j. In case Measurement sheet is prepared in SAP, the hard copy of the same is not required alongwith SES. Differences, if any, between Measurement Sheet and SES can be checked through SAP T Code YMR124. k. Checks should be ensured for timely receipt and processing of bills. In case SES is received much after the work done period, following process may be followed: - • In case period covered in SES is more than three months old from SES Date, EIC to record the reason in the file. • In case period covered in SES is more than six months old from SES Date, approval of GM to be obtained with reason. • In case period covered in SES is more than twelve months old from SES Date, approval of CGM to be obtained with reason. 5.5.1 Bill Tracking System 5.5.1.1 All the bills should be routed through SAP Bill Tracking System. Vendor shall enter bill details using registered user ID & password in BTS Portal (https://associates.indianoil.co.in/Vendor/). The concerned IOCL department should acknowledge the bill and should review the same. If any error is found, the same shall be rejected. Vendor can resubmit rejected bill after rectifying error in BTS Portal. In case bill is correct, use will acknowledge and receive the bill in the system. 5.5.1.2 User should forward the bill to the concerned person in SAP and send the file to the concerned person for further signature/ approval. Files can be forwarded in the system to any of the users. 5.5.1.3 On receipt of Bill in Finance, the concerned finance person has to receive the bill using t-code YFBTS. At the time of MIRO, Bill No. has to be entered in field “reference”. This will automatically update the status of the bill as MIRO done. After payment against the MIRO through t-code YF51 and YF51P, bill status will automatically be updated as paid. A mail of confirmation of payment is sent to the email ID of the vendor as entered in SAP. Works Accounting Page 128

5.5.1.4 In case there is query in the Bill the same needs to be returned to the concerned EIC. The EIC can return the same to the vendor in YFBTS. 5.5.2 Following deductions should also be considered carefully while making payment to contractors: 5.5.2.1 Security deposit The contractor shall furnish Security Deposit in line with provision of Contract/GCC. Such Security Deposit is to be held by the OWNER as security for the due performance of the contractor's obligations under the contract. Sum equal to 10% of total (gross) value of each bill, up to and until the recovery of full security deposit should be deducted from all the bills. In case Security Deposit amount is more than Rs.1 Lac BG may be submitted for Security Deposit (Clause 10.2.2 of WPM and 2.1.1.2(c) of GCC). In case of successful bidders, amount paid towards, EMD and ISD will also be converted in Security Deposit. Security Deposit should be released after completion of defect liability period and receipt of Final certification of EIC as per clause 6.8.0.0 of GCC. 5.5.2.2 Income Tax Deduction at Source & GST TDS Income Tax Deduction at Source has to be done from each bill as per prevailing Tax deduction rates at the time of passing of bill. In case Vendor Master does not have applicable Withholding Tax Type the same may be maintained through t-code “YMV” In case vendor has submitted exemption certificate granted by Statutory Authorities (authorized for the purpose by the law to do so) from deduction of Income Tax at source/ deduction of TDS at lower rate, the exemption should also be entered in Withholding Tax details in SAP. In such cases while entering withholding tax base amount, full amount on which TDS is applicable (if exemption was not there) should be entered, system will automatically compute TDS at lower/ NIL rate based on exemption entered in Vendor Master. This will be helpful in generating report for cases where TDS has not been deducted/ deducted at lower rate. It should be ensured that the end period of exemption is correctly entered in SAP, so that after exemption period, full TDS is deducted from vendor’s invoices. It should be carefully checked and ensured that in case of professional service TDS has been deducted at the rate applicable as per Section 194J of Income Tax Act and not as per section 194C. TDS Certificate should be issued timely to contractors. Digitally signed TDS certificates are being issued by RHQ-F – Taxation centrally. Income Tax applicability in case of foreign payment is covered under the head payment to contractors in foreign currency. TDS on GST is to be deducted from Bill at the time of processing of bill for payment/advance payment, wherever applicable. 5.5.2.3 GST under Reverse Charge Mechanism Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified Works Accounting Page 129

categories of supply. There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/ SGST (UTGST) Act and section 5 (3) of the IGST Act. Second scenario is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered. Taxation Circulars issued in this regard from time to time may please be referred in this regard. Accounting of GST under reverse charge: On receipt of First RA bill / GST Invoice, it is decided whether the service provided falls under reverse charge mechanism, looking into the nature of the service as described in the work order. In case reverse charge is applicable, the accounting for the same is done in MIRO. The liability towards reverse charge is booked under the respective GL Codes In case input tax credit is not available, the same is debited to the specific expense code of the work order. The GST liability under reverse charge for a specific month is to be deposited in the government account by the 20th of the next month as per law. The recipient who is registered under GST has to issue a payment voucher for the transactions (goods or services) on which reverse charge is applicable to the supplier. A record of each entry of GST paid under reverse charge is also maintained in an excel file with a unique serial no. The file also contains data regarding type of service, work order no, bill no, vendor name, amount etc. the same helps in keeping a check and minimizing the errors. It is also forwarded to the input tax credit availing section along with a copy of all invoices for which GST has been paid under reverse charge and the GST payment challan. Taxation Circulars issued in this regard from time to time may please be referred in this regard. 5.5.2.4 Building and Other Construction Worker’s (BOCW) Cess It has to be noted that IOCL has the responsibility only to deduct the amount of BOCW CESS from the payment to the contractor/vendor and handover the same to designated authority in the respective state with contractor/vendor wise details. Where Contractor/Vendor is depositing BOCW Cess on his/her own account, IOCL has no further liability. But in such cases, we must obtain a copy of proof of deposit made by the Contractor/Vendor for our record. Applicability of Cess a. Building and Other Construction works including repairs & maintenance at all units where provisions of factories Act, 1948,(63 of 1948), or the mines act, 1952 (35 of 1952), does not apply. Hence, all the Refineries, Depots, Terminals, Pipeline locations where Factories Act applies are not covered by aforesaid provision of the act. b. In case of Works at New / expansion projects done prior to the date of issuance of Factory registration certificate, provisions of Cess Act would apply, provisions of Cess Act would apply. 5.5.3 In case of Project related payments following other issues may also be taken care: - Price variation Generally, price variation shall be applicable on supply of bulk steel material for site fabrication/construction for permanent incorporation in work i.e. for structural steel, Works Accounting Page 130

reinforcement bars and steel grating/ chequered plate etc. such price variation is given as per provision of contract. It may be ensured that in all contracts escalation/de-escalation is considered to get the final contract value including GST Implication adjustment. Rebate for de-escalation should be obtained before making the final bill payment in line with circular no. F/12/037 dated 28.10.2010. Forex variation In case of LSTK contract, Indian bidder may quote price for material and service to be imported into India in foreign currency. However, for evaluation purpose, the bid price shall be converted to Indian rupees by converting the foreign currency into Indian rupees at the selling rate of SBI prevailing on the day of opening of last price bid. In above case, contractor claim differential between rupee equivalents of the foreign currency paid to supplier or service provider for indicated service/ material and quoted price in contract for such material/service to be imported into India in foreign currency as Forex variation if specifically provided in the work order or it is approved by the competent authority separately. Such Forex variation including GST paid to contractor as per provision of contract is to be capitalised with project cost. 5.5.4 Payment to contractor in foreign currency In case of foreign contractor, the payment is released in foreign currency as per terms of contract. Flow for payment to contractor in foreign currency should be as follows: - a. SES are prepared by the Engineer In charge (EIC) of work execution in foreign currency through SAP code ML81N and the same is forwarded to finance for payment with all supporting document. b. Following are the list of additional documents required for foreign payment: • Tax Residency Certificate of the country of residence of the payee • Form 10F as per Rule 21AB of Income Tax Rules (to be signed by non-resident payee). • Copy of PAN card (If Available) or Form in Lieu of PAN Card • Permanent Establishment Certificate of the Vendor. • Withholding Tax Certificate issued by Indian Income Tax Department, if available. c. Documents at Sl.1& 2 are required to avail the benefit of DTAA. PAN Copy is required, as in the absence of Permanent Account Number Withholding tax has to be applied at higher rate. d. All documents are checked in line with provisions of agreement with contractor. In case all the documents are in order, MIRO is done and liability is created in SAP. e. It needs to be checked whether the value of Work Order is gross of withholding tax or net of withholding tax. In case the value is net of tax, the same needs to be grossed up at the applicable tax rate, while doing MIRO. Following formula has to be used for grossing up: - Contract Value Net of Withhold Tax * 100/ (100- Applicable Tax Rate) f. WHT Certificate submitted by the Contractor to be uploaded in Vendor Master in SAP. g. The differential expense is transferred to the respective Revenue/ Capital GL code. The exchange rate on date of invoice is taken for conversion. Works Accounting Page 131

h. Form no. 15 CA is to be filled online and a copy of the same is taken. The same is signed by the competent authority. i. Form 15 CB is obtained from a Chartered Accountant for nature of remittance and determining rate of deduction of tax at source. j. Release of payment through bank/ Letter of Authority along with copy of all documents for remittance to the vendor. TDS is deposited by the Refinery Head Quarters and TDS Certificates are also issued from the office where TDS has been deposited. k. In case of payment through liaison office, debit note for amount remitted and TDS amount is raised on respective unit. The debit note is adjusted against the liability created at the time of MIRO. Difference is accounted for as Exchange Gain/ Loss and booked in GL 4515050000 (Gain) and GL 5291400065 (Loss). l. GST on imported service is payable by recipient of service, if specifically mentioned in the Contract, and accordingly the same has to be paid on or before 20th of the following month in which payment is remitted to foreign vendor. GST should be paid on gross amount i.e. amount including Withholding Tax. This should be ensured that timely details are obtained from liaison office so that there is no delay in payment of GST. GST is payable at the rate of GST and rate of foreign exchange applicable at the time when the taxable services has been provided or agreed to be provided. Exchange rates for the purpose have to be taken as exchange rate notified from time to time for Custom purpose. Since, in this cases GST has to be paid under reverse charge rate applicable for import of goods should be taken Taxation Circulars issued in this regard from time to time may please be referred in this regard. m. Input tax Credit on GST should be availed based on challan as per Input Tax Credit Rule. 5.5.5 Payment to Licensors a. Payment to licensor is done by Refinery Head Quarter (RHQ) as per agreement with licensor and Service entry sheet is prepared by RHQ in the books of unit. At the time of creation of SES, expenditure Payment in foreign currency is made by RHQ. Debit for the remittance with following supporting documents is sent to unit: - • Debit advice for outward remittance of bank • Copy of form no. 15CA & 15CB for nature of remittance and determining rate of deduction of tax at source. • Copy of licensor invoice. b. Debit note is adjusted by unit on the basis of above document and booked in project cost. MIRO is done by unit and Liability is created based on Foreign Exchange rate applicable on invoice date. Differential between remittance and liability is charged to P&L as exchange difference. Withholding tax, based on 15CA/15CB certificate are to be captured in MIRO. c. GST on imported service is deposit by unit on or before 20th of following month in which payment is remitted to licensor. Working of GST is done by RHQ and intimated to unit for payment. Unit takes Input tax credit of GST as per Input Tax Credit Rules on the basis of challan. d. Payments to licensors under various heads will be accounted for as per chapter -2 accounting of Assets. However, any payment to licensors towards training activity should be charged to P&L account as per Ind-AS-38. Works Accounting Page 132

5.6 COST OF BORROWED FUND/ FE VARIATION FOR PROJECT a. Loans for planned projects taken are maintained in the books of RHQ. Interest and other costs of borrowed fund are allocated to relevant projects by RHQ. b. Such cost is booked in construction period expenses GL code 3145315000 for interest and 3145318000 for other cost i.e. agency fee, surveillance fee, monitoring charge etc. c. Such cost is allocated to various units/ assets at the time of capitalization on some logical basis preferably on the basis of cost of the Unit/ Asset. d. Interest & other related cost of borrowed fund should be charge to P&L after commissioning of project/ concerned unit/ asset. e. Revaluation of loan is workout by RHQ, and proportionate revaluation loss or gain is debited/ credited in the book of the unit. Revaluation cost is booked in Construction Period Expenses prior to commissioning of the unit and capitalize along with unit/ asset. FE Variation after commissioning is adjusted toward carrying cost of the assets and depreciated over the balance useful life of assets. 5.7 BANK GUARANTEES 5.7.1 In case of contract, generally following type of bank guarantees are received from the 5.7.2 contractor. 5.7.3 • EMD BG 5.7.4 • BG against ISD /security deposit 5.7.5 • BG against mobilization advance/ milestone payment as per work order condition. • BG in lieu of Price Reduction. All bank guarantees shall be kept in safe custody of finance. Finance keeps control of BG through SAP. At the time of receipt of bank guarantee, Executing Department after checking & verifying the BG, shall enter data in SAP Thru’ T-Code YMBG and forward the same to Finance with Covering Note. Finance, after re-checking the BG, post the same thru’ T-Code YMBG. Upon posting a contra JV is generated in SAP GL Code 2128300000 & 2128400000. A periodical MIS should be sent to concern departments listing BGs expiring in next 60 days so that appropriate action on BG is taken in time by concerned department. If validity of any BG is to expire within 30 days, no payment shall be released to the contractor/ Vendor on any account by finance department unless the BG is extended/ encashed. Report program for bank guarantee can be extracted through t-code YFR 205. It is the responsibility of concerned E-I-C to review BG validity period thru’ T Code YMBG/YFR205. When the BGs are no more required in terms of contractual stipulation, the same shall be returned to the bank under intimation to the contractor by finance on the advice of concerned functional department. Release request shall be generated by concerned department in T Code YMBG and upon getting release request, Finance shall release the BG thru’ T Code YMBG. Original JV shall automatically be reversed. All the circulars issued from time to time in respect of Bank Guarantee should be followed (Latest circular reference F/12/114 dated 17.05.2017). Works Accounting INDEX Page 133

5.8 PROJECT EXPENDITURE REPORT Project expenditure report should be based on accrual basis. For this purpose, SAP T- Code YCR- 24 is to be used for generating Capex Report in the prescribed format. In order to ensure correct generation of Capex Report, the following discipline is required: - • It's may be ensured that SAP POs are created under approved Projects/AF only. • All cost element of PO shall be created as line items instead of written in the text of the PO. Accurate tax code also needs to be ensured for accuracy in arriving landed cost of the PO. • All Project Expenditure E.g. Establishment Cost, Insurance, Finance cost etc are needs to be booked in respective Project by giving \"WBS Element / Network No/ I/O No\". CPE Expenditure with WBS element are getting captured in YCR24 Report of SAP. • All Posting for Project Material in Transit (MIT) and Provision liabilities to be posted/reversed in respective Project by giving Purchase Order No and WBS Element / Network No/ I/O No. • All commitments shall be considered by creation of SAP only. PO to be created in SAP immediately after acceptance of FOA/ DLOA. No commitment booking shall be reported on FOA/ DLAO created outside the SAP System. • The BE/RE for the respective Project in SAP shall be maintained by Project Planning Department, RHQ. • Monthly /Quarterly settlement of GL Code 5991000000/5220400100/5220100100 shall be done thru’CJ88. • Units shall ensure that expenditure booked/allocated in the respective project by taking into account of expenditure incurred & subsequently transferred from RHQ(PJ). • Finance Officers, who are assigned for release PR/PO and budget to ensure that no duplicate Project definition created for a particular Project • Advance payments (after pairing off) are also to be considered for Project Expenditure Reporting (Difference in opening and closing balance). 5.9 DELAYS IN CONTRACTUAL COMPLETION/ MECHANICAL COMPLETION If the job is not completed within contractual completion time by the contractor as specified in contract, the owner shall be entitled to a discount in the Order Price/ Lump Sum price. Price adjustment as per provision of Clause 6.4.4.0 of GCC and clause 4.4.0.0 of LSTK GCC should be kept under withhold till decision in respect of price reduction is finalized. Accounting treatment of price adjustment is as follows: - a. For delay in works contracts, the price adjustment amount is deducted from the running bill and kept in liabilities account till final adjustment is made on completion of contract. Sometimes, the final adjustments are made after considering time extension for completion of the work. b. Price reduction should be adjusted against the project cost /Additional Facilities as the case may be. c. Price adjustment amount, shall be removed from the liability account after 3 years in case of private parties and 5 years in case of public sector companies (from the date of completion of job) / decision is taken w.r.t applicability of price reduction, whichever is earlier. The same shall be adjusted against project cost if directly identifiable with the Works Accounting INDEX Page 134

project cost. However, amount should be written back only if, final bill has been processed and there is no litigation. d. Credit note to be issued by the Contractor for Price reduction on account of delay in delivery for lower incidence of GST or Net of PRD Invoicing shall be done in Final Bill. If there is no credit note given by contractor, IOCL shall issue Debit Note/Invoice using SAP T code YF28S (As per exiting Tax Guidelines). As per clause 6.4.4.0 of GCC, Contractor has an option to provide Bank Guarantee in lieu of amount to be held for price discount. Further in case of LSTK contract, deferment of levy of price discount till actual date of mechanical completion against adequate securities including existing bank guarantees with suitable amendments, if necessary, after approval of competent authority. (Minutes of meeting dated 28th November 2008- Agenda item no.SC/1531). 5.10 POST AWARD CONCURRENCE In case of post award concurrence for change in Scope / Increase in Quantity, it needs to be ensured that L1 status of the bidder is not changed. In case there is change in the status, approval has to be obtained accordingly (on other than L1 basis). 5.11 SAP ACCOUNTING Following is the flow of entries in SAP in case of payment to Contractors: - At the time of Acceptance of SES Dr. SES Amount Expenditure/ 5220400100 with Network Cr. SES Amount GRIR Clearing Account (2410400000) At the time of Invoice Verification (MIRO) by Finance GRIR Clearing Account (2410400000) Dr. SES Amount GST Dr. ITC Available for Basic Portion Vendor Account Cr. Amount Payable to Vendor TDS (2120820000) Cr. Amount to be deducted towards GST TDS TDS Cr. Amount to be deducted towards GST TDS GST under Reverse Charge Cr. GST payable on reverse Charge- a. In case full credit for GST is not available, differential amount should be booked under relevant expenditure/ capital GL code. Works Accounting INDEX Page 135

b. Liability for TDS, and GST Reverse Charge is cleared by debiting the Liability and crediting the bank. This should be cleared before statutory due dates. c. Vendor Liability is cleared through E-Payment debiting Vendor and crediting bank account and various recoveries and withhold (as suggested by EIC). This process is done through maker –checker using t-code YF51 and YF51P. d. Balance in GL 5220400100 is cleared by writing rules through t-code CJ02 and running the settlement rule through t-code CJ88. Generally, balance in this GL is transferred to AUC. Balance from AUC is transferred to Asset on completion of the job through t-code AIAB. Balance in ITC Account is cleared at the time of utilisation of Input Tax Credit against GST Liability. CONTRADICTION IN WPM AND CONTRACT In case of contradiction between WPM/ Internal Guidelines and Contract, Contract will prevail. Works Accounting Page 136

Annexure – 5.1 LIST OF T-CODE AND SAP PROCEDURES SCRIPT CODE. Action to be taken in SAP T Code Approval/ Release of PR ME54 Release/ De-release work order ME29N Display of Work order ME23N Payment against work order MIRO Cancellation of MIRO MR8M EMD receipt voucher YFU132 BG Entry YMBG BG reversal YMBG Initial advance FB01, YF51, YF51P For E-payment (Preapprove) YF51 For E-payment (Post Approve) YF51P Display project actual cost CJI3 Maintain settlement rule CJ02 Actual Settlement CJ88 Display Assets AS03 Transfer of AUC Balance to Asset AIAB Display commitments WO and PR against AF CJI5 Capital Commitment N_YCO9/CJI5 Document Display FB03 Voucher Printing YFR121 Purchase Orders awarded to vendors ME2L Deviation report YM55 Display of Comparative statement YM16 Free Issue Material w.r.t. Work Orders YM54 Vendor line Items FBL1N View General Ledger Line Items FBL3N SAP Bill Tracking system YFBTS Vendor Creation and Vendor extension module YMV Open Work Order List YMR172 Confirmation of Vendor Changes FK08 Vendor Bank Data Updation and Deletion YF106 View Vendor Bank Data YF107 Capex Reporting YCR24 Works Accounting INDEX Page 137

CHAPTER 6 : ACCOUNTING OF PURCHASES 6.1 GENERAL OUTLINE OF PURCHASE FUNCTION 6.1.1 The transactions relating to procurement of materials from the indenting stage to the payment stage have been divided in various parts, whereby each part of the work is handled by an 6.1.2 independent agency till the transaction is completely closed. This division of work between various agencies operates as a system of internal check and is a vital part of the system as a 6.1.3 whole. Detailed procedure as prescribed in the Materials Management Manual/Concurrence chapter of Accounts Manual/DOP/Related Finance Circulars is to be followed for all purchases. A general outline of the functions involved in the procurement of materials is given hereunder. All these may vary from division to division based on their approved policies and practices. The authority to place indent or purchase requisition (PR) for materials is subject to provisions in the approved budgets. In SAP, PR has to be raised after surplus and availability check of the indented materials thru’ t-code ME51N and has to be released/ approved by competent authority after Finance concurrence (wherever required as per DOA) thru’ t-code ME54/ME54N. PR contains information regarding previous PO reference & rates, present stock, release status. PR for materials on capital account are raised against approved capital/ additional facilities/ schemes, G/L code to be used is 5991000000 (Project stock – Inventory) where tracking on this inventory is required. PR has to be done thru’ network (t-code CN22) where the materials procured, will be issued to AF/project directly and in such cases, GL code to be used in PR is 5220100100. The balance lying at the end of the quarter/year in the GL code 5991000000 is to be transferred to the following GL codes depending upon the nature of Purchase Order. GL code Description Remarks 3143030100 Capital stores at site For Indigenous Project (Project) – Indigenous PO’s 3143030200 Capital stores at site For Imported Project (Project) Imported PO’s 3143020100 Capital stores at site For Indigenous AF PO’s (AF) Indigenous 3143020200 Capital stores at site For Imported AF PO’s (AF) Imported If AF is for procurement of one-time items, for which no stock will be maintained like furniture, PC, printer, photocopy machine, guest house item, hospital items (Against Internal orders I/O), G/L code to be used is 5999999999 (I/O settlement Asset). In case of procurement of IND-AS spares having value equal to or more than Rs. 10 Lakh (net of ITC), the same shall also be procured under AF (Internal Order) and GL code shall be 5999999999. 10-digit Material code of the same shall be end with 8. Once any Spare is identified as IND-AS spares, all subsequent purchases of said Spare shall be done against AF (Internal order). On revenue account, PRs are raised by I/C section of Materials department for I/C items and for non-I/C items, PRs are raised by user departments. Accounting of Purchases INDEX Page 184

Therefore, to ensure proper accounting, the above aspect should be kept in mind at the time of concurrence/release of PR and PO. In this connection, selection of proper account assignment category at the time preparation of PR is of utmost important. In case of Repair & Maintenance item, Maintenance order shall be used in PR. The following table depicts the accounts assignment category that is to be selected at the time of creation of PR for proper accounting. Scenario A/c Description GL Code assignm Revenue ent Standard revenue inventory 3411101036 - procurement category - Blank procurement Stores - AF Procurement F 3411200000 Chem (Ind) 3411200010 Chem (Imp) Procurement under AF i.e. I/O 5999999999 Procurement Maint Order against Maint. Order 5261100010 Direct charge to K Procurement of stationery/Misc items Expense a/c with HSN code. P&L Procurement of items for inventory 5991000000 tracking Project Q Procurement of items without routing 5220100100 to Stores (directly charged to capital Procurement cost) Project N Procurement The necessity for purchase of the required materials is to be determined solely by the indenting department and approved by indent approving authority as per DOA/Materials Management Manual. The PRs are to be raised for the right quantity and at the right time. In PR, material code should be there as far as possible other than medical, stationery items. If material codes are not available in SAP, material code has to be created in SAP Thru’ COIS department with consultation of Local Materials departments. The indenting departments are answerable for any stock outs or over-stocking of the materials. 6.1.4 Subject to specific exceptions permitted for purchase of small petty items through imprest etc. 6.1.5 all purchases of materials are authorised to be procured only by the Materials Department. If material is available in surplus stock of other IOCL locations (information available in PR), Materials/Stores department should prepare Stock Transfer Order (STO) on that IOCL Location. The Purchases are to be made in accordance with the Tendering Procedure prescribed in the Materials Management Manual. The objective of the Tendering Procedure is to ensure that right Accounting of Purchases Page 185

6.1.6 quality of materials is purchased from competitive sources and on best available terms and rates, keeping in view the delivery considerations. Single tender purchase other than 6.1.7 proprietary items should be avoided as far as possible. After receipt of approved PR, Materials 6.1.8 department has to create RFQ thru’ t-code ME41. After the tenders are invited by the Materials Department, the selection of suppliers and the placement of purchase order is done as per recommendations of the Tender committee with the concurrence of Finance Department. If any supplier has been rejected, specific reason is to be recorded in file. After acceptance of techno-commercially accepted tenders, Materials department will enter quotation details of suppliers e.g. basic price, P&F, Inspection charges, Freight, insurance etc. in SAP thru’ t-code ME47 giving RFQ no. of the respective suppliers and will draw comparative statement from SAP thru’ t-code YMR166. Materials department has to enter quotation comment e.g. SLP (for lowest bidder against press tender) in ME47 & take PO proposal printout thru’ t-code YM46. Purchase department has to ensure that while placement of PO correct account assignment is given as mentioned in para no 5.1.3. Purchase department has to further ensure that no Capital procurement is placed in the Revenue head and vice versa. At the time of creation of PO, details of E-tender no., E-Challan no for EMD, SD/BG amount/%age, Price Reduction clause, Down payment are to be maintained in PO. Proper GST code shall be considered in PO considering usage of materials and GST registration type of vendors (i.e. Registered/ unregistered/ composition scheme/ import/Govt etc). If Vendor will supply materials from places, other than address mentioned in Vendor code or Invoicing will be done from other places, invoicing vendor code need to be created with Group code and same shall be maintained in PO header (Partner function). Finance department has to check the PO details including account assignment, PO conditions, and Capital/ Revenue head and concur it for approving authority for placement of PO. Materials department will create PO thru’ t-code ME21N by adopting RFQ no. of the acceptable bidder. If some amount like freight, insurance, TPI charges are to be paid to agencies other than supplying vendor, then that line conditions has to be modified in ME21N. Proper GST Tax code shall be selected in PO based on usage of materials in order to avail correct Input Tax Benefit. Before creation of PO, Material department has to see that all materials are having SAP Materials code & related HSN Code barring one-time items. For one-time items, HSN code shall be put in PO. The placement of purchase orders is to be approved/ released by the competent authority in SAP thru’ t-code ME28 in accordance with the financial limits prescribed as per delegation of powers. The Stores Department is authorised to receive the materials, waybills and duplicate copy of tax invoices against duly approved purchase orders. On receipt of materials, Stores department has to prepare receipt entry thru’ t-code MIGO using movement type 103 and then arrange for the inspection/ Quality clearance and acceptance of materials in accordance with the terms of the Purchase Order. After the materials are accepted, a Goods Receipt Note is raised by the Stores Department thru’ t-code MIGO using movement type 105, which is a conclusive evidence that the material has been inspected, accepted and all the documents required as per statutory norms or according to the purchase order specification are received. Accounting entry for receipt of material is generated only when material receipt is done using movement type 101 or 105. For Stock transfer PO, at the time of receipt of materials, movement type 101 shall be Accounting of Purchases Page 186

6.1.9 used. It is necessary for receiving locations to review pending stock transfer cases on a regular basis thru’ T code MB5T and highlight the same to Stores to liquidate the same. Payment of bills is done by the Finance Department on the strength of Goods Receipt Note in accordance with the terms and conditions of the purchase order. It is also the responsibility of the Finance Department to comply all accounting requirements in respect of purchase transaction. 6.2 FUNCTIONS The Section dealing with the accounting of purchases is responsible for: a. Receipts of deposits and Payment of advance to suppliers including retiring of document from bank through LSC payment. b. Passing of bills received from suppliers, Pricing of Goods Receipt Notes and Adjustment of advances. c. Receipt & release of Performance & advance Bank guarantee. d. Receipt & release of EMD. e. VAT/Sales Tax matters. Finance shall also prepare various weekly/fortnightly/ monthly reports e.g. pending Advance report, Defective documents status report, BG report etc. f. Monitoring of Closure of Purchase orders. 6.3 DEPOSITS AND ADVANCE PAYMENTS TO SUPPLIERS 6.3.1 Three types of advances can normally be seen in Purchase order: - I) initial advances against various conditions e.g. identification of materials by TPI, mobilization advances, approval of drawings etc. as a part of agreed payment terms ii) Advance against proforma invoice and iii) Payment thru’ bank against negotiated LR/RR copy. Advance payments shall be made to the suppliers only in such cases when it is specifically provided in the purchase order or it is approved by the competent authority separately and amendment done in SAP Purchase order. 6.3.2 Initial advances can be released to the suppliers, based on PO conditions, thru’ SAP code F-48. In case of e-payment, advance voucher can be made thru’ transaction code (t-code) FB01 by debiting vendor account using Spl. GL 6,7 & 8 as applicable and crediting normal vendor liability account. The voucher is to be subsequently posted for e-payment thru’ t-code YF51 & YF51P. Payment is to be made against Suppliers’ invoices duly confirmed by Materials department regarding compliance of PO conditions by suppliers and acceptance of valid Advance Bank Guarantee, if any. Payment against proforma invoice is to be made by following the same procedure. In case payment is to be made by Demand Draft/Cheque, prior approval of the competent authority is to be sought for releasing payment thru’ DD/Cheque. 6.3.3 In case of advance payment against document through banks, it is advisable that Suppliers is to be instructed properly in PO to send advance copy of documents to Finance department. After receipt of intimation from bank, Finance will check the bill & LR/RR/RPP copy with PO conditions and release payment thru’ SAP t-code F-48 with document type “LA”. An 83* series document will be generated. A printout of the payment order is taken out through transaction code F.61 Accounting of Purchases INDEX Page 187

6.3.4 using correspondence type ZLSC wherein details of payment mentioning the LSC no, invoice no, date, and amount is submitted to the Bank for release of advance amount against the documents. Following safeguard may be taken while releasing payment against documents thru’ bank: a. Amount shown as down payment as displayed in Purchase order history should be cross- checked with the amount appearing in the individual vendor’s account through t-code FBL1N, to ensure its correctness or for any other payment made against the subject Purchase order to avoid possibility of any double payments or recovery of any other unadjusted amount. b. In case where the supplier is required to comply with certain formalities such as submission of bank guarantee, performance guarantee, endorsement of insurance policies, or hypothecation of materials, interchangeability certificate etc. it should be ensured that all such formalities are complied with before the payment is released. c. It should be ensured that material has been dispatched by vendor through Bank approved transporter/ Transporters’ name mentioned in the PO. If not, payment shall be made only on the receipt of material in Stores. The list of Bank approved transporter can be accessed from the website of Indian Bankers Association. The link is www.iba.org.in/searchtransporter1.asp d. In case of supply made on “To pay” basis, freight is directly paid to the transporter on the receipt of advice of Stores (Materials department). e. It should be ensured that the vendor has provided proper GST invoice to avail Input Tax credit, else same may be deducted while retiring the LSC. f. Bank will release original documents after receipt of Letter of Authority copy duly signed by two Finance officials. Prompt action for retirement of documents shall be taken to avoid delay and consequent payment of demurrage. If any deduction is required to be made from LSC amount on account of Delay delivery clause or non-submission of PBG or non- submission of documentary evidence for freight/inspection charges etc., the same can be deducted from Party’s payment after consultation with Bank/Suppliers. A condition may be maintained in PO/ tender conditions that Party will accept deduction in payment on account of price reduction clause/GST documents/ freight documents/ TPI charges etc. against LSC in order to avoid demurrages. 6.3.5 Any payment made before the supplies are inspected and accepted (i.e. before preparation of 6.3.6 GRN) shall be shown as an advance payment. 6.3.7 In respect of orders placed on foreign suppliers, involving opening of irrevocable Letter of Credit in favour of the supplier, prompt action shall be taken to open such Letter of Credit with the bankers. Cylinder deposits, if any payable, shall be booked separately in GL code 3447299000 – Sundry deposits UCG – Others. 6.4 PASSING OF BILLS FOR SUPPLIES RECEIVED Accounting of Purchases INDEX Page 188

6.4.1 Suppliers are to be instructed properly so that one copy of documents consisting of Tax Invoice, 6.4.2 Photocopy of LR/RR, TPI release note, bill for Freight & TPI, Guarantee certificate etc. should be sent to Finance & Materials departments. As and when supplies are received & accepted, Stores Department shall prepare GRN using t-code MIGO and send it to Finance along with Duplicate for transporter copy of GST Invoice Stock (Revenue/Capital) Account will be debited and corresponding clearing Account (e.g. GR/IR clearing, Freight clearing, Inspection clearing, Misc. Clearing Etc.) gets credited, based on PO conditions, immediately with posting of GRN. YFBTS entry can be generated for proper bill tracking. Suppliers can also enter their bill details in YFBTS thru’ Registered user ID & Password. If vendor enters bill details in Bill tracking System, then printout generated from BTS shall be sent along with physical Documents. If any material, for which IOCL is not able to get Input Tax credit of GST, Tax amount shall become a part of cost of materials, which is based on the tax code mentioned in the PO. It would be good practice to check the “condition” tab of the relevant PO before any payment is released to ensure that the valuation of the items under the PO is correct. 6.4.2 GRNs is to be linked with bills/ files (where bank payments already released) and shall be verified with reference to the purchase orders. After checking, MIRO has to be performed in SAP with respect to the GRNs. At the time of MIRO, Tax code, HSN Code, GSTN number shall also be checked with Vendor’s invoice. A 53* series document will be generated with doc type RE. In many cases, various related charges like Freight, TPI charges is to be paid to agencies other than suppliers. In such cases, t-code YMIROPRD has to be performed for suppliers’ payment and t-code YMIROOTH has to be done for other agencies payment. a. It may so happen that at the time of executing MIRO, some additional approved amount over and above the PO amount is to be released to the vendor. The resultant document (doc type: RE) at the time of saving will be automatically blocked for payment and the amount will not be available for adjustment/ payment. b. In order to unblock such document for effecting adjustment/payment, t-code MRBR is to be used. c. In order to reverse the MIRO document t-code MR8M is to be used. d. In case of import PO, Finance has to capture Bill of Entry amount (i.e. Customs duty, IGST, Cess on Customs) before receipt of materials in SAP thru’ T code YMIROOTH (before GR- 103). While doing YMIROOTH, please enter Invoice no. as 6-digit port code followed by 7 digit Bill of entry no. and in invoice date, Bill of entry number should be given. Port code can be checked at http://dgftebrc.nic.in/ebrc/downloads/port.htm. It is also available in Bill of entry (Custom stn.). Select only Customs & Cess on Customs line. Check/rectify HSN code/s in line item. Put assessable value in Customs line and select appropriate Tax code for both customs & Cess line to calculate IGST. After posting, 52* series document number shall be generated. f) Finance should now inform Stores department the 52* series commercial invoice number along with the B/E no. and date as obtained in the previous step to prepare GRN (GR-103 & 105). Stores will do MIGO for goods receipt with respect to PO. The system will ask for the commercial invoice number and year which should be exactly the same 52* series document number and year. The system will link the GRN with the BOE which has been already captured and the screen will populate the duty values accordingly. Then the user will select the exact quantity in the GRN based on the BOE. Here the user should be careful to select only the same material and the exact quantity based on the BOE. Then in the excise tab, select “no excise entry” in the document header. GRN Accounting of Purchases Page 189

should then be posted. g) After generation of GRN, finance user will do MIRO against the material supply based on the LC/ Bank remittance details. All MIRO’s should be done in INR and not in foreign currency. Please note that Tax code should be G0. 6.4.3 Normally, for import purchases, payments like FOB, freight, insurance, port charges, clearing agent charges is released by IOCL port offices and Debit notes are raised by them. Unit Finance, while performing MIRO (GRN Verification) for GRN, should ensure that all costs is getting accounted/adjusted and exchange variation as per Ind AS 21 and notification under Companies Act is getting properly booked. Exchange loss/gain is the difference of exchange rate between date of handing of goods to IOCL freight forwarder/bill of lading date/invoice date (based on Price Basis mentioned in PO) and payment/ settlement date. Difference is accounted for in GL code 4515050000 (Gain) and GL Code 5291400065 (Loss). 6.4.4 Before the bills are passed for payment, the following checks shall be exercised: a. That all particulars in the supplier's bill such as name of the supplier, specifications of the material quantity, price, taxes, freight etc. are in conformity with the provisions of the corresponding purchase order. b. That the particulars given in the GR Notes are in conformity with the particulars in supplier's bill. c. That the terms and conditions of the purchase order have been complied with by the supplier. d. In case of special requirement of inspection or test certificate etc. is provided in the purchase order, to ensure that such inspection report or test certificate is available before the creation of GRV. However, sometimes the submission of test/inspection certificate is required at the time of release of LSC also. e. In case the supplies are in excess of the quantity stipulated in the purchase order, such excess has to be incorporated in the purchase order by giving tolerance limit. Accordingly, GRN shall be prepared. f. In cases where the excess is beyond the prescribed limits, the matter should be taken up with the Materials Department for issuing an amendment to the Purchase Order supported by an approved indent; otherwise rejection of excess quantity shall be done by Materials Department. g. In case of delay in supply, the same may be deducted with intimation to Materials departments. Waiver, if any, to be granted by the respective division in accordance with works manual or any circular/approval in vogue. h. Where demurrage charges have been paid to the railways/ Transporters due to the delay on the part of the supplier in sending the documents, such demurrage charges shall be recovered from the bill of the supplier if they are more than Rs.1000/- in case of each consignment. Demurrage charges below Rs.1000/- in each case shall be ignored. i. In all cases of transit losses, necessary insurance claim action shall be taken by the Stores Department. In cases where the purchase orders terms provide for F.O.R. destination deliveries, the value of the transit losses shall be deducted from the bill of the supplier. j. In case of F.O.R. despatch station purchase orders (i.e. Ex-Works Basis), no deduction shall be made from the supplier's bill, provided a clean LR/RR is sent by the supplier. However, if the outward condition of the package is found to be intact but shortages are found after Accounting of Purchases Page 190

opening the cases the value of such shortages shall be recovered from the bill of the supplier. k. In such cases where the deductions are made from the bill of the supplier on account of transit losses, the claim shall be processed with the carriers/ underwriters on behalf of the supplier and in case the claim is settled favourably, refund amount shall be remitted to the supplier. l. Before passing the bill, it will be checked whether any advance payment has been made previously to the supplier, which is deductible from the bill. m. In cases where materials have been received, inspected but the same has been rejected, no further payment will be made to the party and the party should be asked by Materials Department to lift the rejected material. Till the time, such rejected material is lying in our stores; the same shall be at the risk and loss of the supplier. Advance, if any, paid against the supplier shall be recovered from the Party. n. MIRO shall be done for full value of materials as per PO terms & Conditions. If against one Tax invoice, there are more than one GRN prepared, then all GRNs shall be processed in single Miro to capture GST bill details correctly. o. It must be ensured that Bank account of the vendor is uploaded in SAP as well as bank’s website to avoid possibility of failure of transaction. It is encouraged to update bank accounts in SAP as well as in Bank’s site at the time of creation of PO. 6.4.5 After MIRO transaction, Bank voucher will be prepared thru’ t-code YF51 & YF51P after adjustment of advance & withheld amount if any and shall be sent to the Cash Section after 6.4.6 having been signed by the competent authority. In case, Price reduction Clause & PBG clause 6.4.7 was maintained at SAP PO Header, Price reduction amount (based on LR date maintained at GR- 103) & PBG/SD amount shall be deducted automatically while doing YF51. For e-payment, 6.4.8 Finance shall prepare 835* series documents capturing documents generated thru’ MIRO. 6.4.9 Cash Section while sending cheques/ drafts (in Exceptional circumstances)/ e-payment intimations to the suppliers shall attach a forwarding letter generated thru’ t-code YF88 showing details of payment and deductions. If email id is maintained against the vendor code in SAP, there is no need to send YF88 printout as auto-generated email has been sent thru’ SAP. No correspondence shall be undertaken directly with the suppliers except relating to payment details, Accounts Reconciliation and issue of 'C' form etc. Letters received from suppliers concerning the matters of contractual performance and obligations shall be passed on to the Materials Department. The matter relating to issue of any Debit/ credit note by Vendor against supply shall be done thru’ Materials Department. The additional debit/ credit amount shall be processed thru’ subsequent debit/ credit MIRO. Care shall be taken to see that all linked bills are passed promptly as soon as they are received in the Section. Normally a bill shall be cleared within 7 days of receipt of GRN in the Section. Debit notes received from Head Office in respect of import purchases made by Head Office on behalf of units shall be responded by performing MIRO and subsequent adjustment thru’ FB05. Proper care is to be taken so that no payment can be released from Units in case of HQ payments. Accounting of Purchases Page 191

6.4.10 In respect of petty bills for supply where no GR Notes are prepared, such bills shall be passed by Miscellaneous Section on the basis of certification by the Department concerned confirming that such supplies have been received. However, this should be avoided as far as possible. 6.4.11 After passing, the bills along with supporting papers shall be filed properly and kept in safe custody till the annual audit is over. After the audit, the bills shall be transferred to the record room duly indexed. 6.5 DELAY IN DELIVERY 6.5.1 Application of delayed delivery clause shall be decided by GPC & Party’s accepted offers against IOCL’s Tender If there is delay in delivery, while deciding whether Price Reduction should be enforced or not, the following should be kept in view: a. Price Reduction should not be enforced if the following conditions are fulfilled: • i) If the delay in delivery is solely attributable to IOC. • ii) If delay in delivery is due to force majeure conditions as per purchase order conditions. • iii) Where delayed delivery clause was not accepted by the vendor at the time of finalisation of purchase order conditions. The same shall be mentioned clearly in PO. b. Price Reduction should be enforced in the following circumstances: • i) Delay in delivery has resulted in payment of extra cost due to escalation clause in the purchase order or increase in excise duty, customs duty or Sales Tax. • ii) Delay in delivery has significantly contributed in delay in the completion of the project. • iii) Delay in delivery has resulted in paying extra compensation/extended stay compensation to the erection contractor. • iv) The relevant purchase order was placed on other than lowest basis because delivery period of lowest tenderer was not acceptable. 6.5.2 In case of project purchases, the time and date of delivery of the materials/ equipment is the essence of the contract. In the event of delay in the execution of the order, beyond the date of delivery, as stipulated in the order or any extension granted, the project authorities may at their option either: • i) Accept delayed delivery at prices reduced by a sum equivalent to ½ % (or whatever % mentioned in the Purchase order) of the value of goods not delivered for every week of delay or part thereof limited to a maximum of 5% (or 10% as per the terms of the Purchase order) of the contract value. OR • ii) Cancel the order in part or full and purchase such cancelled materials from elsewhere on account and at the risk & cost of the supplier without prejudice to its right in respect of goods delivered. Accounting of Delayed Delivery Clause: MIRO shall be done at full price, i.e. without reducing basic price. Price reduction amount shall be kept at Special GL Code “)”. After consultation with Materials Department, the same shall be credited to Material cost/repair & maintenance expenditure or released to the Suppliers (in case of waiver of price discount). In case, Price reduction Clause was maintained at SAP PO Header, Price reduction amount (based on LR date Accounting of Purchases INDEX Page 192

maintained at GR-103 by Stores Department) shall be deducted automatically while doing YF51. However, in case of AF/ projects, the Price Reduction amount shall be adjusted from the individual project cost. While recovering PRS, GST amount applicable on PRS amount shall also to be recovered. If Party provides credit notes against PRS, Subsequent Miro shall be done and PRS amount shall be adjusted. 6.6 ARRANGEMENT FOR INSURANCE OF TRANSIT RISK 6.6.1 Arrangement shall be made to obtain an open transit insurance policy thru’ tendering for all 6.6.2 indigenous purchases against monthly declarations of purchases to be made to the insurers by the Corporation. It covers both incoming & outgoing materials and material sent for repair. 6.6.3 Package Marine transit Policy are taken by RHQ on Annual basis. The Stores Department shall fill up the required particulars in Monthly Transit declaration statement on the basis of RRs/ consignment notes received by them and the statement shall be forwarded to Finance Department. It will be ensured by Finance Department that such declaration statements are submitted promptly by the Stores Department within the prescribed dates. In case of imports, an open insurance cover (warehouse of foreign supplier to IOCL warehouse) should be taken and declaration of each shipment is submitted by Materials Department of Port offices to insurers for issue of policy in time. Advance Premium bills received from the insurer shall be verified with reference to the previous declaration statement and the same shall be passed for payment. 6.7 BANK GUARANTEES 6.7.1 All Bank Guarantees should be received directly from the Bank. In certain cases, when the time 6.7.2 does not permit, Bank Guarantees may be received from the vendors, but in such a case, the letters/telegrams should be issued to the concerned Banks for confirmation of the issuance of 6.7.3 the Bank Guarantees. The concerned department/Engineer-in-charge must ensure that Bank Guarantees are strictly as per the approved proforma given in Material Management manual and Accounts Manual. If there are any deviations and the same are considered as acceptable, the approval of competent authority should be obtained along with the Finance concurrence. On receipt of BG (irrespective of whether received directly from Bank or received from Vendor), the concerned functional department shall write to the BG issuing bank by Regd. post/ Speed Post seeking bank confirmation of issuance of the BG. Until the confirmation is received, the BG will not be considered as a valid security. Confirmation of Bank Guarantees to be done preferably through SFMS (Structured Financial Messaging System) wherever available. Necessary instruction in Tender/LOA/PO to be inserted so that IFSC Code of IOCL’s bank is given by the supplier/ vendor/customer to its bank at the time of issuance of the BG. Before the Bank Guarantee is accepted by the concerned department, Finance Department should also check that the same is in order and the deviations, if any, have the approval of the competent authority. Accounting of Purchases INDEX Page 193

6.7.4 Details of Bank Guarantee shall be entered into SAP by Concerned Department/ EIC thru’ T code 6.7.5 YMBG and IOM for BG forwarding to Finance shall be generated from SAP. All Bank Guarantees should be forwarded to the Finance Department for safe custody keeping a photocopy in the 6.7.6 concerned Department for follow up action. 6.7.7 6.7.8 A register may be maintained by the concerned Department/Engineer-in-charge for ensuring 6.7.9 timely action for encashment, extension of validity etc. The same is also available in SAP and it can be viewed thru’ T code YFR205. After checking BG, Finance shall post FI document thru’ T code YMBG. Finance should keep the Bank guarantees in safe custody The Bank guarantee report in SAP can be accessed through T- code YFR205 for monitoring Bank guarantee. After expiry of the Bank guarantee, the documents posted earlier through YMBG, should be reversed by t-code YMBG after generation of release request by Concerned Department/ EIC in YMBG. Primary responsibility of encashment/ extension of Bank Guarantee shall be with the concerned Department/Engineer-in-charge. However, to ensure double check, Finance Department should also inform the concerned department at least 60 days before the expiry of Bank Guarantee period so that appropriate action on bank guarantees is taken in time. In case there is a failure on the part of the contractor/supplier and it is intended to encash the bank guarantee, or an extension is necessary, the concerned department/Engineer-in-charge should write by registered post to the concerned bank for extension of validity of bank guarantee or encashment thereof as the case may be at least 21 days before the expiry date of the relevant bank guarantee. The local Finance Department will be consulted and kept into picture. When the bank guarantees are no more required in terms of the Purchase Order stipulations, as may be advised by concerned functional department the same shall be returned to the bank under intimation to the contractor/supplier. No payment may be released if the Bank Guarantee is expiring within 30 days and Bank Guarantee extension is required. Circular no. F/12/56 & F/12/58 shall be strictly complied with in this regard. 6.8 CENTRALISED PROCUREMENT CELL (CPC) Based on quantities provided by all Refinery units, an estimate is prepared by CPC, RHQ. Based on estimate, tendering is done by CPC and Rate contract is being created in SAP thru’ ME31K. Individual Refinery will create Call up PO against their PR. GRN & payment shall be made against call up PO. 6.9 CLOSURE OF OPEN PURCHASE ORDER The steps involved in the closure of open Purchase orders depend on whether the said work order is under “Release strategy” or not. The following are the steps involved in the closure of work orders under the two categories: 6.9.1 Work orders not under “Release strategy” Accounting of Purchases INDEX Page 194

a. Select the relevant work order through transaction code ME23N b. The system will display the default screen of PO display e.g. c. Click on the icon d. The system will display a pop-up window as shown below e. Enter the PO number which is to be closed in the PO field and click on the “other document” tab or just press ENTER. f. The system will display the relevant PO. g. Click on the Display/Change icon or simply press F7 h. Click on the Delivery tab on the Item details portion. i. The system will display the following screen. Accounting of Purchases Page 195

j. It may be noted that the delivery completion field has become white from grey and is in edit mode. k. Check the delivery completion field by just clicking the delivery completion field. A tick mark appears on the delivery completion field viz. l. Repeat the above step (k) for all the line items appearing in the item overview detail screen by clicking Previous/ Next icon. m. Now save the PO by clicking the Save icon right at the top of the screen. n. However, at times the system may pop up an error message on clicking the Save icon at the bottom of the screen viz. o. In such a scenario click on the icon on the Header section of the PO. p. Type the word “FORCED” in the Collective No. Field q. Now again save the PO by clicking the Save icon. 6.9.2 Work orders under “Release strategy” The simplest way to close the open PO under “Release strategy” in respect of all the open line item for which “Final indicator” has not been set, is as follows: Accounting of Purchases Page 196

a. First get the list of open PO’s up to a cut-off date through t-code YMR176 mentioning Company code, plant code and the delivery date up to which decision has been taken to close the PO as shown in the screen shot below. A check box is also provided at the bottom of the screen for selecting/ deselecting (as per the decision taken) partially executed PO’s. b. After execution of the t-code, list of purchase orders as per the selection criteria set will be displayed. c. Copy the list of PO nos. obtained from the report obtained in (a) above and past the same in the Purchase order field by selecting the multiple selection key and clicking on the clipboard in t-code ME2N as shown below and then click the execute button. Accounting of Purchases Page 197

d. The system will display all the Purchase orders with their relevant line items as shown below. e. Transfer the above report into excel format and copy the first two columns (viz. PO no and line item no) and prepare one separate excel file. Accounting of Purchases Page 198

17255299 10 17255299 20 17255299 30 17255316 10 17255316 20 17255316 30 17255316 40 17255316 50 17255316 60 17255316 70 And so on f. Thereafter save the file as TXT file. g. Now use t-code YMC151N for mass closure of PO’s h. On the YMC151N screen please attach the txt file & press F8. On pressing F8 a pop-up will come indicating the PO being unreleased/ short closed or closed/ re-released. i. The user has to press enter on the pop up for each PO line item till all the PO are closed/ short closed in the text file. In case of error at the end the list of POs’ will be listed for which the closure could not be done. In case all the PO’s are closed then no listing will be displayed on the screen. j. The programme first unreleases the PO, sets delivery completed tick in the PO line items & then resets the release status in the PO to the original status. In case it is an old PO when the release strategy was not there it will simply set the delivery completed tick & save. In some old PO where collective number is not there, system will require an entry in the collective number as it is now a mandatory field the system will on its own type the word FORCED in that field. k. In case of those PO’s which could not be closed through above process (for any reasons what so ever), the list of such PO’s as displayed as per para k above, the same may closed manually through t-code ME28 by first de-releasing the PO, then checking the delivery Accounting of Purchases Page 199

completed indicator checkbox in the delivery tab and the releasing the same and saving the entire activity. l. In order to close all the PO’s across all the functional discipline by a Finance user, authorization object ZMALLPOGGP may be assigned to the user temporarily for this activity with the help from COIS. However, it should be encouraged that PO/WO should be closed by Materials Department/ Functional Department/ Contract Cell. m. Also, while releasing SES for final bill, “Final Entry indicator” tab should be set by SES releasing Authority. 6.10 SAP ACCOUNTING Action to be taken in SAP T Code MM Dashboard (All relevant T code are YMM available under various categories e.g. Purchasing, Master data etc.) ME51N Raising PR ME54 Approval/ Release of PR CN22 PR for material on Capital Account ME41 Creation of RFQ ME47 For entering quotation details in SAP YMR166 Comparative Statement YMJ1ID Chapter ID table ME9F PO Proposal printout ME21N Creating of PO ME28 Approval/release of PO ME23N Display PO MIGO Entry of material received against PO MB51 Viewing GRV MIRO Payment against PO MR8M Cancellation of MIRO F-43 EMD Cheque Receipt Voucher YFU20 BG Entry FB02 BG Modification FB08 BG release YFR205 BG Report Viewing F-48 Initial Advance J1IEX Capturing of Cenvatable amount FB05 LSC Adjustment YF51 & YF51P Preparation of Bank Voucher YFR121 or YF51P Printing of Payment voucher YF88 Cheque forwarding letters Purchase Accounts Section should ensure that all Control/Clearing A/C Code e.g. GRIR/Freight/Insurance/ Inspection/ Customs Clearing etc. related to particular PO/GRV is Accounting of Purchases INDEX Page 200

cleared regularly and no unexplained old items should remain. T.Code F.13 can be used to clear the open items other than Vendor Code. Accounting of Purchases Page 201

CHAPTER 7 : INVENTORIES 7.1 PROVISION OF IND-AS 2 (INVENTORIES) IN BRIEF 7.1.1 Inventories are assets: a. held for sale in the ordinary course of business; b. in the process of production for such sale; or c. in the form of materials or supplies to be consumed in the production process or in the rendering of services. 7.1.2 Net realisable value is the estimated selling price in the ordinary course of business less the 7.1.3 estimated costs of completion and the estimated costs necessary to make the sale. 7.1.4 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an 7.1.5 orderly transaction between market participants at the measurement date. 7.1.6 7.1.7 Net realisable value refers to the net amount that an entity expects to realise from the sale of inventory in the ordinary course of business. Fair value reflects the price at which an orderly transaction to sell the same inventory in the principal (or most advantageous) market for that inventory would take place between market participants at the measurement date. The former is an entity-specific value; the latter is not. Net realisable value for inventories may not equal fair value less costs to sell. Inventories shall be measured at the lower of cost and net realisable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition Disclosure Requirements The financial statements shall disclose the following: a. the accounting policies adopted in measuring inventories, including the cost formula used; b. the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity; c. the carrying amount of inventories carried at fair value less costs to sell; d. the amount of inventories recognised as an expense during the period; e. the amount of any write-down of inventories recognised as an expense in the period; f. the amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories recognised as expense in the period; g. the circumstances or events that led to the reversal of a write-down of inventories; and h. the carrying amount of inventories pledged as security for liabilities. 7.2 TYPES OF INVENTORIES 7.2.1 Raw Material - Goods used as ingredients or component part of a finished product are treated as Raw Materials. Inventories of Raw Materials mainly includes Crude oil. Inventory of any raw materials held at the end of quarter/financial year procured with an intention to sell the same Inventories INDEX Page 184

`as such' should not be treated as Raw Material but should be treated as a part of finished products - Stock in trade. 7.2.2 Finished Products–Inventories of finished products include all products which are produced/ manufactured by the company and are held for sale in the normal course of business, like MS, HSD, ATF, Lubes, Bitumen, FO, LPG, Petrochemicals etc. 7.2.3 Stock in Trade–These are the products which are not manufactured/ produced by the company and are purchased from outside for sale to customers. All the finished products like MS, HSD, ATF, Lubes, Natural Gas etc. which are not self-produced and are purchased from outside are categorised as Stock in trade. 7.2.4 Stock in Process – Stock which is in the process of manufacturing/ production is categorised as Stock in process. 7.2.5 Stores, Spares etc. – All the stores and spares which do not qualify for capitalisation as per the materiality limit fixed for capitalisation are classified as inventories under this category. For detailed principles on capitalisation of stores, spares kindly refer to chapter on Accounting for Fixed Assets. 7.2.6 Barrels and Tins–All the inventories of Barrels and Tins are classified here. 7.2.7 All the inventories except Stock in process and barrels and tins are further classified as in hand and in transit. 7.2.8 Closing Stock/ inventories consists of the following: a. Inventories lying in Storage Tanks b. Inventories lying in Internal Pipelines c. Stock lying in Other Containers (Barrels/Tins, etc.) d. Tank Wagons / Tank Lorries filled but not dispatched e. Stock lying with Third Parties Inventory classification and valuation scenarios are analysed during 2018-19 and broad principles along with its application to various types of inventories are enclosed as Annexure – 7.1. 7.3 ACCOUNTING POLICY ON VALUATION OF INVENTORIES 7.3.1 Raw Materials & Stock-in-Process 7.3.1.1 Raw materials including crude oil are valued at cost determined on weighted average basis or net realizable value, whichever is lower. 7.3.1.2 Stock in Process is valued at raw material cost plus conversion costs as applicable or net realizable value, whichever is lower. 7.3.1.3 Crude oil in Transit is valued at cost or net realizable value, whichever is lower. 7.3.2 Finished Products and Stock-in-Trade INDEX Inventories Page 185

7.3.2.1 3.2.1 Finished products and stock in trade, other than lubricants, are valued at cost determined on ‘First in First Out’ basis or net realizable value, whichever is lower. Cost of Finished Products produced is determined based on raw material cost and processing cost. 7.3.2.2 3.2.2 Lubricants are valued at cost on weighted average basis or net realizable value, whichever is lower. Cost of lubricants internally produced is determined based on cost of inputs and processing cost. 7.3.2.3 3.2.3 Imported products in transit are valued at cost or net realisable value whichever is lower. 7.3.3 Stores and Spares 7.3.3.1 3.3.1 Stores and Spares (including Barrels & Tins) are valued at weighted average cost. Specific provision is made in respect of identified obsolete stores & spares and chemicals for likely diminution in value. Further, an adhoc provision @ 5% is also made on the balance stores and spares (excluding barrels, tins, stores in transit, chemicals/catalysts, crude oil, rights and own products) towards likely diminution in the value. 7.3.3.2 3.3.2 Stores & Spares in transit are valued at cost. 7.3.3.3 3.3.3 Spent Catalysts are valued at lower of the weighted average cost or Net realizable Value. 7.4 VALUATION OF INVENTORIES 7.4.1 The accounting manual related to Valuation of Crude Oil at Refinery Division is provided below: 7.4.1.1 Crude oil is classified under following broad categories. Crude oil shall be accounted for and valued based on this broad categorisation and the further breakup of LS & HS crude need not be maintained. a. Onshore – SG b. Onshore – NG c. Onshore – Assam d. Onshore – Mangala e. Duliajan-HWC f. Digboi-HWC g. Kharsang-HWC h. Kharsang-LWC i. Offshore – BH (Including Panna Mukta) j. Offshore – Ravva (Including KG basin) k. Imported – LS (Low Sulphur) l. Imported – HS (High Sulphur) 7.4.1.2 Crude oil inventory in transit, SMPL, PHBPL and OIL pipeline (Barauni-Bongaigaon) shall be accounted for in the books of Refinery HO and any adjustments required to be carried out in the value of the same shall be carried out at Refinery HO. Inventories INDEX Page 186

7.4.1.3 The stock in the refinery tanks shall be booked in the books of respective refineries. In addition to that, the stock of MPCPL shall be booked in the books of Panipat Refinery as the same is entirely a dedicated pipeline to Panipat. 7.4.1.4 Crude oil inventory valuation is to be done as per Ind AS-2, which involves comparison of Actual cost and Net realisable value considering Replacement cost. The broad methodology is summarized as below: a. Where net realisable value (of products to be generated out of the crude in stock) is more than the weighted average cost of crude oil, valuation to be done at actual cost. b. If the net realisable value is less than the weighted average cost of crude oil, replacement cost will be the best reliable estimate of NRV and valuation to be done on the following basis: • If the replacement cost of crude oil is more than the weighted average cost of crude oil, valuation to be done on the actual cost. • If the replacement cost of crude oil is less than the weighted average cost of crude oil, valuation to be done on the Replacement cost. 7.4.1.5 The methodology to be followed for working out actual crude oil cost, realizable value and replacement cost of crude oil is given below: a. Actual crude oil cost: The actual landed cost of crude oil inventory (including Crude oil in- transit) shall be worked out on Weighted Average Price (WAP) basis, which shall be applied for each broad category of crude separately. The total cost of each category of crude oil, thus arrived at shall be divided by its quantity to arrive at the average cost per MT of crude oil. For the purpose of valuation of crude oil in-transit, • Freight element for voyage charter consignments, will be considered only if the liability in respect of the same has arisen as on the Balance Sheet Date. • Freight element for time charter consignments, is to be limited to the extent of liability that has already arisen as on the Balance Sheet Date. • Customs duty and disport charges are not to be considered. However, in case of FOB loading, Custom duty is required to be provided if the ship has already arrived at the port or bill of entry has been filed on or before balance sheet date. b. Realisable Value: - Total Realisable value of Crude oil inventory shall be equal to the realisable value of products likely to be produced out of the same adjusted for cost of other inputs (RLNG, Reformate etc). The product yield of the Crude oil Stock shall be taken as per ILP product yield for next month at NRV applicable for first seven days of the next month. Inventories Page 187

The NRV of products for closing stock valuation shall be considered for next month for which the ILP is considered. The actual RTP sent for Transfer of Product billing shall not be considered for this purpose. Average realisable value shall be calculated by dividing the total expected realisation from likely production of products as per ILP during the relevant period by the crude throughput of the same period. Discounts, freight under recoveries, export loss, excise duty benefit (for north east refineries) should not be considered while calculating realisable value of products, as these elements are already adjusted in the NRV. Operating cost (for straight run products) per MT based on BE for the next period should be reduced from the realisation per MT. c. Replacement Cost of crude oil: The replacement cost of crude (including crude oil in-transit) is also to be worked out for each grade of crude as adopted in actual cost workings. Replacement cost is worked out based on the prevailing quoted prices, premium/discount during 1st to 07th day of the following month for each loading of crude oil (i.e. for each B/L) during previous two months from closing date. Other cost elements such as Freight, Insurance, and Other port charges are considered as per actual of respective crude loading. Based on grade wise landed cost calculated above, average crude cost for each type of crude received/in transit (i.e. HS, LS & BH etc) is calculated separately for each coast. Other unit specific elements of cost i.e. COT, and pipeline loss as per actual shall be added to Replacement landed cost of crude at coast for assessing AS-2 impact at refineries. 7.4.1.6 Cost of Crude Oil as per WAP a. The various cost elements (incl FOB, freight, insurance, landing charges, custom duty, port charges etc) are estimated and incorporated in the Purchase orders/STOs created in SAP for the tankers. The crude oil stocks in SAP system are valued based on these estimates. Thereafter a Priced Stores Ledger (PSL) shall be drawn in line with the WAP methodology adapted by SAP with the final values. A crude PSL shall be prepared for SMPL, MPCPL, PHBPL (incl OIL PL). Based on the same refinery specific PSL shall also be prepared considering additional unit specific cost. b. The custom duty on crude oil is to be taken in the PSL, net of advance license benefit, if any. Further the custom duty on Demurrage and Ocean Loss is to be treated at par with Demurrage / Ocean Loss as the case may be. The customs duty amounts shall be reworked based on the final values and Customs claims/ surrender against crude oil received will be computed based on the information provided by Port offices. The debits/credits against the same will be incorporated in the PSL prepared for stocks in crude pipelines. c. All the elements of cost not covered in the PSL for stocks in crude pipelines shall be allocated separately. The necessary adjustments for Pipeline Insurance, Pipeline loss etc. shall be carried out to arrive at the actual cost of raw material inventory and monthly consumption figures. Inventories Page 188

d. Upstream Discount in respect of offshore crude oils, if any, shall also be incorporated in the PSL. In case of upstream discount on onshore crude oils, the same shall be incorporated in units PSL. e. Ocean and Pipeline loss should be considered for valuation of inventory. Ocean loss shall be calculated and incorporated in PSL for crude pipelines and Pipeline loss should be included it as PSL item. Units to include Normal pipeline loss as PSL item and charge off abnormal pipeline loss to the P&L in GL code 5291200060. The abnormal losses are not included in the value of Stock of Raw Material, Intermediate Stock or finished goods stock. Ocean loss will be treated as normal loss for accounting purposes and will be inventorised as per the practice of the industry. However, loss due to extraneous reasons e.g. leakages, fire etc will be treated as abnormal loss and will not be inventorised. Pipeline loss due to pilferages/leakages will be treated as abnormal loss and rest of the quantity of pipeline loss will be treated as normal loss and will be inventorised. f. Valuation of crude oil at the refinery, which is transported through pipeline, should include Cost of Transportation (COT) for such movement after eliminating PL margin. g. Demurrage is booked as part of operating cost and not as crude cost. Hence demurrage will not be considered for computation of actual cost of crude oil and is charged off to operating cost of the current period including the Demurrage on crude oil in-transit. 7.4.2 Raw Material (Marketing Division) As per accounting policy, raw material is to be valued at cost or net realisable value whichever is lower. Some specific points to be considered in relation to valuation of raw material are as under: a. Since GST on Base Oils and Additives is adjustable against payment of finished lubes, GST should not be considered for the purpose of valuation of closing stock. b. Inventories of Base Oils and Additives should be valued at Weighted Average Cost. For this purpose, weighted average cost should represent the cost of opening stock plus purchases made the quarter/financial year. c. Stock in process, i.e. base oils and additives lying in the kettle(s) of the blending plants which are under process at the end of the quarter/financial year should be valued at cost applicable to respective grades of raw materials plus conversion cost as applicable. d. Imported raw materials remaining in transit at the end of quarter/financial year should be valued at import cost and reflected in the books of accounts as in-transit. For the purpose of calculation of cost, market rate of exchange on the BL date should be adopted. The variation in exchange rate between BL date & quarter/annual end date should be booked as exchange fluctuation. e. Contaminated base oils lying as Slopes should be valued at lowest Base Oil rate. Inventory of contaminated additives should be valued at nil rates since the same cannot be reclaimed and used for production. Simultaneous actions should be initiated to obtain the approval of the competent authority for writing off the value of contaminated additives. 7.4.3 Finished Products and Stock in Trade Inventories Page 189

The valuation of closing stock / stock in trade is to be done at cost or net realisable value whichever is lower. For determining the cost, the cost as defined in the Accounting Policies should be reckoned. The realisable value should represent the net amount realisable under the pricing mechanism. Based on the above, valuation of the closing / stock in trade at the end of the quarter/financial year should be done as follows: 7.4.3.1 The accounting manual related to Valuation of Finished Products at Refinery Division is provided below: Finished products are divided in two categories i.e. • Straight run products – Petroleum products produced from Crude Oil as major input • Specialty products – Product for which input is other petroleum Product. Cost of Finished products internally produced is determined on crude cost reckoned on weighted average basis and processing cost. The quantities of finished products for valuation are taken in Selling unit. The method of computing cost of production and the realisable value in the two categories is discussed below. Straight run Products While computing the cost of straight run products, the production of specialty products and fuel consumed in specialty unit shall be converted into equivalent feed of straight run products. The production of straight run finished products including equivalent feed & fuel of specialty products shall be valued at Refinery Transfer Prices of the month minus the profit element. For knocking off the profit, average profit during the month to which the product pertains shall be considered. This average profit shall be calculated as follows: A. Total realizable value of Production during the month Multiply the quantity of each product produced during the month by its weighted average RTP as per Transfer of Products billing for the month. Additional realisation for excise duty concession is also considered in case of North East refineries. Discounts, Freight under/over recoveries for out-of-zone movement of products, under recoveries on supplies made to specific customers, Hedging gain/Loss related to products cracks, export losses, etc. is adjusted from the realization of the particular product. B. Total Crude Cost & Intermediate stock cost differential Cost of crude processed on Weighted average basis (net of advance license benefit, if any) and Intermediate stock cost differential. C. Other Input Cost Other Input cost like Natural Gas, Inter Unit Streams etc. are also to be considered as Input Cost D. Total operating Cost (Derived by applying per MT cost for the period to the total throughput of the month, excluding the operating cost attributable to the specialty products and abnormal and non- cost items.) Inventories Page 190

E. Profit (A-(B+C+D)) F. %Age of profit to realizable value (E/A*100) a. If the stock of a product as on 31st March is more than the production in March; the excess of stock over production of March is identified with the production of preceding month/s on FIFO basis. After identifying the stock with specific month’s production, profit %age for each of the concerned preceding month/s is also be worked out in the above manner and applied to the part of the stock identified with the concerned month’s production. The total cost of production of the stocks of 31st March is then divided by the total quantity of the concerned product to arrive at the weighted average cost of production. b. Interest on projects charged to revenue, income of fuel consumed for projects capitalised, Corporate Office expenses, any extra ordinary item and the item in the nature of deferred revenue included in operating cost and demurrage is ignored while calculating operating cost for the purpose of valuation of closing stock. c. Operating cost is divided between fixed and variable. Fixed Cost is allocated on the basis of installed or actual throughput, whichever is higher. Variable cost is allocated on actual throughput. For this purpose, chemicals and consumables, power & fuel, overtime is considered as variable cost and all other operating cost are considered as fixed cost. d. The cost of each product is computed by reducing the average realisation of each product as computed above, by the margin percentage as computed above. The cost of product, so computed, is compared with the net realisable value which is explained later. The cost of production is worked out for all grades of product i.e. MS-Euro-IV, MS Euro-VI etc. e. For the finished products received from other units lying in stock, the actual cost is taken at debit note value minus profit %age of sending refinery plus freight and other costs. Finished products transferred from one unit to another, in transit as on the date of balance sheet is accounted for by the receiving unit. If any finished product stock received from other Unit is not meant for sale/ despatch to marketing; then it is considered as intermediate stock instead of finished product. f. Provision for Excise duty liability is made in respect of stock of Non-GST finished products (MS, HSD & ATF) as on the balance sheet date. Closing stock of finished products is identified with the actual dispatches (01st to 07th of the following month) to determine the liability of excise duty. For stock remaining, which is not dispatched as on the cut-off date, liability is provided at the full rate of duty on assessable value at the refinery end as on the cut-off date. Specialty Products: After the cost of straight run products is worked out, the cost of specialty products is worked out taking the cost of straight run products as feed cost. The processing cost of specialty units is also taken as per actual. Further cost of straight run products used as fuel in specialty products, is added to feed cost to determine the cost of specialty products. The operating cost of these specialty units is worked out separately. The methodology as adopted in case of Straight Run products is applied for valuation of specialty products also i.e. the cost of specialty units is divided into fixed and variable cost and fixed cost to be allocated based on capacity or actual utilisation whichever is higher. Inventories Page 191

Specific Costs Wherever specific input is used for the production / upgradation of a product, the cost of such specific input shall be reduced from total input cost of the month as well as realisable value of the particular product while computing the monthly profit percentage for stock valuation. Thereafter, the cost of such input shall be added separately to the cost of the product. For Example, Reformate received from other refineries wherever used for production of MS alone, shall be added to specific products. Before giving this treatment to a particular input the exclusive usage of the input for a particular product shall be established by the units in consultation with the Refinery technical dept. Realisable Value The NRV of all products based on sales realisation up to 07th of the next month considering adjustment for Discounts, freight under recoveries, export loss (if any) and North East Relief (in case of North east refineries), is to be adopted without any adjustments. NRV is computed in SU and so for converting them into MT last month’s conversion factor based on dispatches should be used. 7.4.3.2 Profit Elimination by Marketing Division For the purpose of profit elimination, the cost of production is intimated to Marketing Division at the time of quarterly closing. To enable Marketing Division to follow FIFO system for finished goods in line with refineries division, the cost of production of finished goods for all the three months of the quarter needs to be worked out. Each month’s despatches for the quarter to Marketing Division needs to be linked to the month or Opening Stock in which it was produced on FIFO basis. For this purpose, the closing stock lying at the refinery is first assumed to be out of the latest month’s production. If stock is more than the production in the last month then such excess is assumed to be out of the immediately preceding month & so on. Similarly, dispatches to marketing in the last month of the quarter is assumed to be out of last month’s production to the extent of excess of production in last month over refinery stock. Balance dispatches of last month is assumed to be out of immediately preceding month’s production minus refinery stock linked to that month’s production. In this way dispatches for all the months of the quarter have to be linked to the month of production/ opening stock at the beginning of the quarter. 7.4.3.3 Exclusions from Operating Cost The details of administrative overheads to be excluded for the purpose of valuation of closing stock are given below: • Expenditure relating to following departments/ Cost centers: - Construction period/ Project related expenses - Holiday Homes - SMC Guest House - Township expenses – pertaining to other division only. Inventories Page 192

- Operating Cost related to Product dispatch facilities (Establishment, Repairs & Maintenance, Depreciation & other expenses, if any. - Debit for self-generated REC (Renewable Energy Certificate) from Other Units /Divisions. However, REC (Renewable Energy Certificate) purchased from outside and debited to units is to be considered for Inventory Valuation. • Income/ Expenditure relating to the following Heads: Sl Income / Expenditure Head Legacy No. Account Code 1 Income from Finance Leases N.13 2 Interest Income including Other Non-operating Income 3 Profit on sale/disposal of assets Note 24 4 Unclaimed liabilities written back 5 Prov. for doubtful debts, claims written back N.5 6 Recovery towards Inventory carrying cost 7 Provision for Contingencies written back N.6 8 Reversal of Impairment Loss 9 Donation N.7 10 Audit fee N.17 11 Entertainment expenditure N.7.1 12 Advertisement and Publicity 13 Demurrage and Wharfage N.18 14 Exchange Fluctuation profit/loss O1.4 15 Commodity Hedging Losses (Net) 16 Provision for Diminution in Investment O1.5.1, 17 Loss/(gain) on Derivatives O1.5.2, 18 Gain/Loss on Financial instruments classified as FVTPL O1.5.3, 19 Net Gain/Loss on de-recognition of financial assets at amortised cost O1.5.4, 20 Amortisation of FC Monetary Item Translation O1.5.5 21 Inventory Carrying Cost 5292500020, 5292500030, 5281525880 O2.07 5270210100, 5270210200, 5270210300, 5270210400 O1.14 O1.27 O1.16 O1.31 O1.33 O1.34 O1.28 O1.21 Inventories Page 193

22 Expenses on CSR Activities O2.08 23 Certification fee 5292600160 24 Guest House expenses 5294910030 25 Crop Compensation for Right of Way 5293300000 26 Bad debts, advances, claims written off O1.11 27 Loss on assets sold, lost, written off O1.12, 28 Provision for doubtful debts, advances, claims, etc. O1.12.1 O1.15 29 Impairment Losses PL.2.4.2 30 Interest expenditure Note 28 31 Revenue Grants (only if it is not directly related to production. E.g. In N.15 case of EPCG Benefit, depreciation of assets should be included in cost whereas amortisation of grant should not be included since the condition is related to export of goods and not related to production of goods.) 32 Bank Charges O1.10. In addition to the above, applicable principles for consideration of some specific expenditure/ income for the purpose of inventory valuation are enclosed as Annexure – 7.2. 7.4.3.4 PNCP Finished Stock Valuation Like Straight run products, Inventory of PNC is to be valued on FIFO basis at lower of Cost or Net Realizable value. Panipat Naphtha Cracker has the following process units:- • Naphtha Cracker and Associated Units (NCU+AU) • Butadiene Extraction Unit (BDEU) • Benzene Extraction Unit (BEU) • Mono Ethylene Glycol Unit (MEG) • High density Poly Ethylene Unit (HDPE) • Linear Low Density Poly Ethylene (LLDPE)/ High Density Poly Ethylene (HDPE) Unit (SWING) • Polypropylene Unit (PP) • Butene-1 Unit The major input and outputs of each process unit is tabulated below: Units Major Input Output Naphtha Self-Generated Joint Products Cracker and Naphtha Ethylene Hydrogen Inventories Page 194

Units Major Input Output Associated FCC C3 Units Processed further in MEG/HDPE/LLDPE/Butene-1 Propylene Processed further in Poly Propylene Unit Raw C4 mix Processed further in Butadiene Unit Return Stream to Refinery after hydrogenation. Raw Py Gas Processed in PGHU Fuel Oil Butadiene Generated in NCU Finished Product Extraction Raw C4 mix Butadiene Unit (BDEU) C4 Raffinate sold to Customers C4 Raffinate recycled in C4 hydrogenation unit of NCU complex Benzene Generated in NCU Finished Product Extraction Raw Py Gas Benzene Unit (BEU) Recycle streams i.e. C7-C8 which is further used for blending in MS at PR MEG Generated in NCU Recycle streams i.e. C6 which is further used in HDPE Ethylene Heaters in Naphtha Cracker Unit and also used Purchased for blending in MS at PR Oxygen Finished Products Generated in NCU MEG Ethylene DEG Hydrogen TEG Purchased/Self- Crude glycol. (start-up product) Generated Butene-1 Finished Product HDPE By Product Extruder Waste Wax Waste Powder Sweep Waste Hexane Swing Unit Generated in NCU Finished Product Ethylene LLDPE/ HDPE Hydrogen By Product Purchased/Self- Machine Waste/ Sweeps Generated Grease Butene-1 Inventories Page 195

Units Major Input Output Poly Generated in NCU Finished Product Propylene Propylene Poly Propylene Pellets Unit Hydrogen By Product Ethylene Machine Waste/ sweeps Butene-1 Unit Others Blow down Powder Propylene from Mathura Finished Product Generated in NCU Butene-1 Ethylene By Product Purge Gas a. Cost: For arriving at the cost of products produced in PNC, cost of each process unit e.g. NCU, PP, HDPE, SWING etc. is accumulated separately on monthly basis and that accumulated cost / Joint cost is allocated to product/s of each unit on the basis of their realisable value. Joint Cost / cost of each unit include material / feed cost, operating cost and utilities cost calculated on the basis of following methodology: Material Cost: Material cost is the cost of materials directly used to manufacture product/s less realisable value of by-products etc. Material cost includes: • Raw Materials purchased: - Landed cost of that material. • Straight run products from other refineries / division: - cost of production plus freight incurred and other cost if any. • Cost of self-generated products (other products generated in other unit of PNC) used as input- cost of production. Less: • Credit for by products at realisable value/derived realisable value. b. Operating Cost: Operating cost as defined for straight run products is collected cost centre wise and accumulated for each process unit, utilities, administrative and plant overheads. Thereafter, total cost collected under plant overhead is allocated to each process & utility cost centres in the ratio of their Direct Cost. Here, direct cost means operating cost as collected cost centre wise plus direct fuel minus depreciation. Similarly, total cost collected under Administrative Overheads is allocated to Process & Utility Cost Centres in their establishment cost ratio. The operating cost ascertained as above for each process unit is further bifurcated into fixed and variable cost. Fixed cost is to be allocated based on installed capacity or actual capacity utilisation whichever is higher. In case of NCU, the capacity utilization will be determined based on Naphtha processing capacity or actual naphtha processed whichever is higher. In case of Inventories Page 196

other Units of PNC, the capacity utilization will be determined based on installed capacity or actual production whichever is higher. The fixed operating cost (net of miscellaneous income) of utilities is to be allocated based on installed or actual capacity utilisation of NCU whichever is higher. c. Utility Cost: Utilities cost includes fuel consumed for generation of utilities and allocated operating cost to utilities cost centre as per Point B above. • Fuel cost for power and steam is allocated to process units in the ratio of their respective actual power and steam consumption numbers. • Operating cost accumulated for utilities cost centres is allocated to power and steam sub heads in the ratio of their operating cost (other than fuel portion) as per Performa- A of last audited cost sheet. • Then operating cost of power and steam sub heads is further allocated to process units in the ratio of their respective actual power and steam consumption numbers. • In case, actual utility consumption of process unit is not available, allocation of utilities can be done based on justified basis say design consumption. Net Realizable Value Net Realizable value of Products is intimated by RHQ/BD based on sales realization up to 7th of next month. PNC Intermediate Stock Valuation: Like Straight run products, PNC inventory is to be valued at lower of Cost or Net Realizable value. Cost: Cost of Intermediate stock of each process unit is calculated at Material/feed cost escalated for 50% internal fuel & loss of respective unit + 50% of conversion cost. Conversion cost Includes operating cost, utilities & external fuel cost of that unit. Stock of Ethylene, Propylene, Raw C4, Py gas and Butene-1 are processed further in other units and therefore should be considered as Intermediate stock. Its cost however is the cost computed in NCU and other units as per methodology adopted for finished products above. Net Realisable Value NRV of intermediate stock is calculated based on the production plan of next month at the rates circulated by HO/BD for each process unit. NRV of ISD is gross realisation per MT of feed / output th’put based on production plant of next month (for each process unit) plus 50% of internal Fuel & loss less 50% of conversion cost. NRV of products like Ethylene/ Propylene/ C4 / Py gas which are processed further is derived / intimated by BD/Marketing. 7.4.4 Identification of receipts on FIFO basis Inventories Page 197

7.4.4.1 Accounting Policy: Currently, the accounting policy in respect of determination of cost of Finished Products (Other than Lubes and greases) for inventory valuation is based on FIFO. 7.4.4.2 Tracking of Receipts: For the purpose of closing stock valuation of finished products (other than Lubes and greases), closing stock held at locations is to be tracked as per FIFO on day to day basis from the last day of the financial year to their source of receipt and the tracking shall be restricted to the extent of closing stock only. 7.4.4.3 Tracking of receipts from Multi-source: While tracking the receipts for product received from multi-source, in case the quantity received on a single particular day is more than the closing stock quantity, then the receipts to be considered on FIFO basis as per GRN number 7.4.4.4 Inventory at Consumer Premises: In respect of inventory held in the premises and storage tanks of consumers, the quantity is to be tracked with reference to the receipt on FIFO basis. The physical inventory in this regard should be certified jointly with the respective customer. Accordingly, all the elements of cost should be reckoned as applicable, with reference to the source of receipt and understanding with customer. 7.4.4.5 Stock held at COCOs: With regard to inventory held at COCOs, it should be ensured that in the annual accounts, the valuation should be considered on the basis of actual inventory. Presently for COCO debit notes are raised for the differential pricing and stock as updated through YVCOCO to be considered as Actual Stock for valuation 7.4.4.6 Stock held in Cross Country Pipelines: In respect of line fill stock held in cross country pipelines, the quantity will be identified based on FIFO wise stock allotted for shadow/logical locations with respect to the locations for which it is meant duly identified through joint reconciliation between Marketing and Pipeline Division. 7.4.5 Cost Components & Computation – The following elements of Cost (i.e) RTP, Duty, Freight and Terminalling charges, taxes and all other elements incurred in bringing the stock to the present location and condition are considered to arrive at the cost of Closing stock. 7.4.5.1 Refinery transfer Price (RTP): RTP as an element of cost has to be reckoned at actual based on the RTP applicable for respective source and settled. Cost Component of Stock Valuation is calculated using backward tracking mechanism. In this process the stock lying with end depot is back tracked to refinery to identify the RTP to be associated with the Stock. For example, if stock is of Leh depot, its cost is back tracked as follows: Leh Jammu Ambala Panipat (RTP) In the above example, stock lying with Leh depot is back tracked to refinery it pertains to i.e. Panipat Refinery. From refinery tracking and date of issue the RTP (Refinery Transfer Price) is identified to evaluate the cost. 7.4.5.2 Duty: Duty component of duty paid closing stock of any location are to be considered based on actual, as attributable to the quantity identified on FIFO basis, as given above. Inventories Page 198

7.4.5.3 Freight: Similarly, the Freight element is worked out for the quantity identified on FIFO basis for each location as given above, based on actual mode of receipt. In respect of coastal receipts, the element of freight shall be considered on the basis of the actual coastal freight. 7.4.5.4 Wharfage and Port Charges: In case the closing stock at port location includes any stock against coastal receipt, the Wharfage and other port charges, if any, incurred on the product so received should also be considered as part of the “cost” for that product for the purpose of working out the cost . 7.4.5.5 All imported stock in transit at the end of quarter/financial year is to be valued at import cost and the applicable customs duty on the cargos which reaches the Indian territorial waters as at the period end. Imported FG in Transit valued at imported Cost at BL Exchange rate. Variation in Exchange rate dealt through Exchange fluctuation A/c. 7.4.5.6 Cost for Product received through Coastal Movement: In case of Product received at coastal locations through tankers, the RTP cost to be considered shall be the Coastal RTP settled for the movement as reduced by the notional coastal freight. Actual freight paid on such coastal movement shall be reckoned as part of freight cost. For e.g. Product has been received at Haldia from Jamnagar through Coastal tanker. For valuing stock at Haldia received as per above, the cost to be reckoned shall be Coastal RTP of Haldia less notional coastal freight from Jamnagar to Haldia as settled to the supplier and the coastal freight element shall be considered at actual coastal freight as transferred by HO. 7.4.5.7 Cost for Unconnected receipts: In case of unconnected receipts being reckoned as part of quantity while tracking the closing stock quantity on FIFO basis, the cost for unconnected receipts shall be considered as received from Normal refinery point to which the location is attached. 7.4.5.8 Cost for Stock in transit: In case of stocks in transit, since the actual source, mode of delivery and the date of delivery is ascertainable with reference to the receiving location, the cost thereon shall be computed based on actuals as per Para 3.2.1 to 3.2.3. Freight for the movement type Road and Pipeline should not be considered in cost and in case of Import tanker not in Indian territorial waters, custom duty should not to be considered. 7.4.5.9 Terminalling Charges: Considering the accounting treatment for booking the Terminalling Charges on “purchases” from Refineries / OMCs / / “hospitality and safe keeping availed” and treated as a part of the product cost, the same should also be reckoned while computing the element of “cost” for the purpose of closing stock valuation. For this purpose, on the basis of source-wise / mode-wise receipts ex-own / OMCs / Stand Alone Refineries as identified on FIFO basis and Terminalling charges debited by them, shall be considered for computing the terminalling charges cost for each location. 7.4.5.10 Taxes: All elements of taxes incidental to purchases as well as on other receipts such as stock transfer, if any, shall form part of the cost for the purpose of closing stock valuation, as attributable to the receipts identified on FIFO basis, as per the actuals subject to set off available, if any. 7.4.5.11 Cost for product sourced from North East Refinery: In case the inventory at any location is attributable to product received from Northeast refineries, the Northeast benefit for Non –GST products which is being settled with respective refineries should be considered as part of cost Inventories Page 199

along with RTP and the duty element should be reckoned with reference to 50% of applicable duty as settled with respective refineries. 7.4.5.12 Packing & filling charges Bitumen: Actual cost of Drums & Filling charges to be considered for valuation. 7.4.5.13 Cost for Stock held in Cross Country Pipelines: The elements of cost and duty shall be reckoned as per actual with reference to the source identified as stated under 3.1.6 above. If the stock is held in cross country pipeline of outsiders like MHBPL, the freight element is also to be considered in the cost with corresponding provision for outstanding liability to the party. The other elements of cost in such pipelines shall be based on the actual cost of purchase, considering all applicable elements, with reference to the invoice identified on FIFO basis. In case of freight is payable on delivery basis, liability is not required to be provided for product not delivered & the same shall not be part of inventory valuation. 7.4.5.14 Duty on Branded fuels Non-GST Products: In respect of branded fuels (NON-GST PRODUCT) where specific indents are placed with Refineries, the duty liability should be created in case duty is not discharged at the end of the quarter. The duty so discharged / provided shall form part of cost of branded fuels which are lying at the end of the quarter / year, which are procured against indents. The sales of branded fuels might have taken place either against specific indents or otherwise. It is also to be ensured that necessary differential duty liability is created for all the branded sales during the period for which duty is not discharged. 7.4.5.15 Cost for Imported Product: In case of imported product, import cost and the applicable customs duty shall be considered as the cost. In case, the imported closing stock consists of stock received from more than one imported parcel, the import cost of individual parcel on FIFO basis is to be considered. 7.4.6 Computation of NRV 7.4.6.1 Bifurcation of Inventory for determining NRV: Inventory held at the quarter/year end should be identified based on actual sales/movement during the first seven days of subsequent quarter. a. OMC Sales b. Inland sales to customers other than OMCs c. Stock transfer d. Export Sales and deemed exports such as International Airlines and Bunkers 7.4.6.2 In case actual dispatches in next 7 days is less than inventory as on quarter/year end, then weighted average NRV rate is calculate for dispatches made to the extent of inventory. 7.4.6.3 The net realizable value (NRV) should be considered on the basis of selling price applicable for the respective categories as under : a. OMC sales: OMC Sales including PDS SKO and LPG domestic, should be considered on the basis of the rate applicable for billing to BPC / HPC as the case may be, at respective locations. This should be inclusive of all elements such as basic price, excise duty, Terminalling charges, etc. While calculating NRV for OMC sales, the element of CST for NON GST products (in case of interstate sales to OMCs), which is being absorbed by the selling company and not Inventories Page 200

7.4.7 recovered from the respective OMCs should be reduced from NRV of the respective locations and accordingly, the NRV after reduction of the same, should be considered for closing stock valuation while comparing with the cost. b. Inland sales to customers other than OMCs: • Inland sales to customers other than OMCs, should be on the basis of general selling price inclusive of all elements applicable for that location. In respect of MS and HSD, the same will be considered with reference to the Actual realizable value. • In respect of domestic LPG, uncompensated cost as included in selling price of domestic subsidized price to be reduced from NRV. • The branded fuels at certain places can be stored after mixing of additives. In such cases, the NRV is to be taken as applicable to branded fuels. In majority of the locations, MS / HSD, would have been indented for selling as branded fuel but additives are not added. But duty was paid by the despatching refinery. In such cases, the NRV as applicable to branded fuels is to be reckoned after adjusting the amount included in the price built up towards additive cost, which is presently, Rs.300/- per KL for MS and Rs.120/- per KL for HSD. At some places, normal MS/HSD without procuring against specific indent could have been sold as branded fuel in subsequent month. The NRV for such quantities shall also be determined as applicable to branded MS/HSD after adjusting additive cost of Rs.300/- per KL for MS and Rs.120/- per KL for HSD. • HSD stocks held for sale shall be bifurcated into quantity meant for , Railways, STUs and others. The NRV in respect of Railways and STUs should be arrived at after deducting the discounts as per invoice as applicable during the first seven days of the next quarter. • However, in respect of discounts extended to consumers for all other products such as LDO, FO, ATF, etc. as well as discounts on HSD to other consumers excluding Railways and STUs, discount charged in the invoice to the customers as for the sales invoices for the first 7 days of the subsequent quarter / year, also as per the approvals available shall also be considered while reducing from the NRV. • In case of VAT paid product in some of the state offices, the same to be considered in NRV valuation where the VAT paid product is sold. • In respect of pack LPG, the NRV shall be computed after including the element of filling charges as considered in the price built-up. • In case of imported location where Bulk LPG is sold then the Imported TC charges to be deducted from NRV. c. Stock held for stock transfer: NRV for stock transfer shall be NRV of destination location after adjusting freight from dispatching location to destination location. d. Stock held for exports / deemed export sales: In respect of the stock held at the end of the quarter /year and which has been subsequently treated as export sales during the first seven days of the next month, the NRV in respect of such volume should be considered in line with the export realization. In case no exports are made in next 7 days , export realization of last parcel adjusted by price movements in RTP to be considered for export NRV. Similarly, in respect of inventories identified for deemed export such as ATF International Sales / International Bunker, NRV is to be reckoned on the applicable price for such customers. Intimation of composition of inventory and NRV to Refineries Division: Since the inventory valuation of finished product has to be on uniform basis, both in respect of inventories held by Inventories Page 201

Marketing Division as well as by Refineries Division, refinery NRV to be prepared by Marketing HO for quarterly/annual closing for the first seven days of the following month &shall be intimated to refineries division 7.4.8 Adoption of COST v/s NRV, whichever is lower: Since the finished products are to be valued at cost or Net Realizable value whichever is lower, the same will be worked out and adopted accordingly in respect of each location. The value of NRV for the location for a specific product shall be computed after summing up the value of the NRV for each specific category as referred above. 7.4.9 Unrealized Margin on Closing Stock: Refinery Division shall advise the cost of production (considering pipeline COT at actual as advised by Pipeline Division) of each Refineries for all products to Marketing Division and Business Development. Marketing Division and BD shall rework the cost of production as advised by Refineries Division in lieu of RTP and Cost of Pipeline Transportation as advised by Pipeline Division as applicable to arrive at the final stock valuation at corporate level. The differential value (product-wise) is required to be advised to Registered Office for final posting in the Company Code 0005. 7.4.10 Classification of Closing stock-in-hand vs Stock-in-trade: The stock lying in the depot/terminals/in transit/tanks is required to be classified as Finished Products if the same is lying out of the receipts from Refineries Division / Own production considering the principles of FIFO, otherwise the same needs to be classified as Stock-in-trade. 7.4.11 Valuation of stock in transit from other divisions / regions: 7.4.12 a. Inter-Divisional/Regional/intra-Regional stock in transit should be considered at par with the physical stocks on hand of the receiving location. Only the stocks which have been despatched by the outside parties and are in transit as at the end of the quarter/financial year should be considered as stock in transit. b. Tank wagons (other than those despatched by the outside parties) in transit for less than 2 months should be considered as a part of inventories. In other words, tank wagons in transit for over 2 months should not be considered as a part of inventories and should be reflected under `claims recoverable. c. Similarly, tank trucks in transit for less than one month should be considered as a part of inventories. The tank trucks which are in transit for more than one month should not be considered as a part of inventories and should be reflected under `claims recoverable. d. The valuation of tank wagons in transit for more than two months and tank trucks in transit for more than one month to be reflected under `claims recoverable account' e. Subject to the above, all stocks in transit should be valued at Refinery Price customs/excise duty, transportation cost as enumerated in the earlier paragraphs 3.2.7 applicable for valuation of physical stocks. Transportation cost for stock in in transit for Road and Pipeline movement are not considered for cost valuation since transport cost is payable on receipt of product. f. With regard to transportation cost, it may however be noted that in respect of products which are in transit, destination siding charges are payable by the receiving locations. Hence, the element of destination siding charges should not be considered for the purpose of valuation of stocks in transit. Valuation of Bulk Products Meant for Own Consumption: Bulk Products like HSD, SKO, FO, LDO meant for own consumption at the terminals, LPG Bottling Plants which are meant for Own Inventories Page 202

Consumption shall be valued at cost and accounted as store through FI JV. The principle of cost or NRV whichever is less is not to be applied for Bulk inventory meant for Own consumption. 7.4.13 Lubricants incl. Specialties & Greases a. Basic Price: The actual input cost of base oils and additives (put together) forming part of finished products as determined by Moving average price. For the purpose of working out weighted average cost of finished lubricants, the cost of production for various grades as advised by the Plants for the current quarter/year’s production should be taken along with the opening stock of lubricants available in the Region. Further finished products which are produced and received from other Region Lube plants Quantity and Cost of Production of respective Lube plant should be added for the purpose of calculating weighted average cost. Thus, the weighted average cost arrived at the Lube blending plant derived on the above basis should be applied for closing stock valuation. This calculation of weighted average should be done on cumulative basis on quarter to quarter b. GST Paid: In respect of GST paid Lubricants, GST is taken as input credit by the receiving location/CFA & hence GST should be excluded in the closing stock valuation. In the case of any imported lubricants either at the plant or any other location, CIF value and the applicable customs duty shall be considered as the cost. In case, the imported closing stock consists of stock received from more than one imported parcel, the CIF value of individual parcel on FIFO basis is to be considered. If any location receives lubricants from more than one source, the concerned Region / Lube blending plant should value closing stock based on the weighted average rate applicable to the blending plant from where the product received including the cost of transport from supplying location to receiving location. c. Package Cost: In respect of cost of packages, the barrel cost shall be considered on the basis of all India rates advised by Marketing HO and in respect of small packages i.e. 5 litre/1 litre/ 1/2 litre tins/pouches etc., the same will be considered on the basis of the Region specific weighted average rates. For the purpose of determining region specific rate, each Region should work out its own weighted average cost and value the stocks accordingly. It is to be ensured that the weighted average cost of cartons is also included while valuing the containers available in cartons. In case any of the Regions receive small packs only from other Region and not by direct purchase, the weighted average rate of supplying Region(s) should be adopted by the receiving Region for valuation. Weighted average cost should be worked out by taking opening balance as at 1st April and purchases made during the year. Since GST paid on packing material is claimable under GST Scheme, valuation should be done excluding GST element. d. Blending Fees: In respect of blending cost of Lubricants, the weighted average blending cost shall be computed reckoning the blending cost included in the Opening stock as on the beginning of the financial year, the total operating cost of Lube blending plant based on the capacity or production whichever is higher and the Net blending cost transferred to/from other region / division. Separate rates are considered for Lube, Process Oil (IOC N & H Series Oils) & Grease Grades. Currently for IOC N & H series of Oils blending cost is considered at notional rate of Rs. 200/ KL. e. Transportation Cost: • Transportation cost equivalent to average rate of depot surcharge calculated as actual will be included in the closing stock valuation. For working out the average rate of freight, the total quantum which has been received at various locations of the Region Inventories Page 203