Manual-formatted

Invoice verification by Finance (MIRO) Process steps FI entry Remarks Case I Dr Clearing A/c The provisional liability is cleared and the credit is No variation in invoice value Cr Vendor's A/c transferred to the vendor’s account. and Value as per PO The variation in the provisional liability and the Case II Dr Inventories actual invoice value is booked to Purchases and Crude Oil batch still in Dr Clearing A/c inventory value is corrected. The delivery point is inventories at the Delivery Cr Vendor's A/c the High Seas in case of Offshore/imported Crude Point Dr Purchases Oil and refinery in case of onshore Crude Invoice Value > PO Value Cr Purchases offset The variation in the provisional liability and the Case III Cr Inventories actual invoice value is booked to Purchases and Crude Oil batch still in Dr Clearing A/c inventory value is corrected on pro rata basis. inventories at the Delivery Cr Vendor's A/c Point Cr Purchases The variation in the provisional liability and the Invoice Value < PO Value Dr Purchases actual invoice value is booked to Purchases and offset since the inventory is not held in stock, it is Case IV Dr Inventories charged to Price difference account. This case Crude Oil batch partly in Dr Price Difference arises where Crude Oil has moved to subsequent inventories at Delivery Point Dr Clearing A/c Plants in case of Offshore/imported Crude Oil and Invoice Value > PO Value Cr Vendor's A/c has been issued in case of onshore Crude. Dr Purchases Case V Cr Purchases Crude Oil batch partly in offset inventories at Delivery Point Cr Inventories Invoice Value < PO Value Cr Price Difference Dr Clearing A/c Case VI Cr Vendor's A/c Crude Oil batch has moved Cr Purchases completely from Delivery Dr Purchases Point offset Invoice Value > PO Value Dr Price Difference Dr Clearing A/c Case VII Cr Vendor's A/c Crude Oil batch has moved Dr Purchases completely from Delivery Cr Purchases Point offset Invoice Value < PO Value Cr Price Difference Dr Clearing A/c Cr Vendor's A/c Cr Purchases Dr Purchases offset Crude Oil / Product Accounting Page 374

Process steps FI entry Remarks Payment to the vendors Dr Vendors' A/c In case the payment falls due before the invoice is Cr Bank A/c received, then the payment is made on account or as advance payment initially and advance is adjusted subsequently after doing MIRO. 15.6.2 Onshore Process steps FI entry Remarks Contract Creation, PO No Entry is passed The PO is created with notional qty. and creation & amendments Estimated Crude price. GR at refinery Dr Inventories at refineriesThis entry is passed based on the Estimated Cr GR/ IR clearing price mentioned in the PO condition. Dr Purchases Cr Purchase offset MIRO at Refineries HO Dr/Cr Inventories Dr/Cr Price Difference A/c Cr Vendor's A/c Dr Clearing A/c Dr/Cr Purchases Cr/Dr Purchases offset Payment to the vendors Dr Vendors' A/c Cr Bank A/c 15.6.3 The material module in SAP is operated on real-time basis, with direct entries in Inventory and consumption and does operate by the formula “Consumption = Opening Stock + Purchases - Closing Stock”. In other words, in SAP the stock and the consumption accounts are updated on a regular basis, unlike the earlier system where all the raw material receipts are accounted through purchases and the consumption was a derived figure based on the opening and closing stock. As a result of this, receipts are directly posted in stock and the issue from the refinery tanks to the processing units is accounted as consumption and there is no relevance for the purchases account. 15.6.4 However, for accounting and reporting purposes, the raw material purchases amount and its element-wise breakup are required. In order to meet this requirement a small modification has been made in the system by creating dummy entries in separate purchases account for each individual cost elements and posting the sum total of the same in an offset account at the time of GR/ loading confirmation. 15.6.5 The raw material is transferred through various plant codes and the respective company codes, before the same is being consumed at the Refinery. The company code where the entries are posted depends on the individual plants which are involved in each transaction. Whenever a transaction involves only one or more plants assigned to the same company code, the entire entry including any provisional liability is posted in the company code to which the plant(s) have been assigned. Crude Oil / Product Accounting Page 375

15.6.6 When an entry involves two plants from different company codes, then: 15.6.7 Only the stock outflow entry is posted in the company code to which the issuing plant is assigned, and the difference is debited an inter-company clearing code. 15.6.8 The balance portion of the JV entry including any additional liability is posted in the company code to which the receiving plan has been assigned and the difference is credit to the intercompany clearing code 15.7 ANNUAL/ QUARTERLY CLOSING ACTIVITIES 15.7.1 Priced Stores Ledger Priced Stores Ledger (PSL), for each category of crude oil maintained in SAP, is prepared outside the system, based on the quantity postings in SAP (adjusted for any rectifications/ reversals) and the actual crude oil cost. This is necessitated due to following reasons: i) The pricing conditions in the POs/ STOs are provisional in many cases and by the time elements are finalised, crude oil would have been received atleast in the Shore tank/PL system, if not at the refinery. Hence the difference between Provisional and final values are posted in Price Difference accounts. Allocation of price difference amount correctly to inventories at relevant locations and consumption based on weighted average method is not supported by SAP. Hence, the same is done manually. ii) Lot of re-batching and adjustment entries are posted in SAP which do not have any impact on the actual cost of crude oil. iii) There is a time-lag between the actual receipt of crude oil and the finalisation of the quantity based on the different factors like density, temperature etc. iv) The crude oil entries are posted by various locations with various posting dates at the same time. Hence the chronology of the transactions is not properly reflected in SAP. This PSL is a ledger like statement starting with the stock as on the beginning of the relevant period, followed by daily receipts, daily issues, daily closing stock and ends with the closing stock as on the end of the relevant period. This PSL is prepared using the same methodology followed by SAP for valuation of Crude oil transactions and is prepared for each plant location. The quantity details are obtained by correcting the data from SAP for the above said factors. The daily receipts are valued based on the actual cost elements and the issues are valued based on the derived MAP. The daily receipts are accounted for prior to the daily issues so as to ensure a uniform system. Wherever stocks which are not identified for a single specific refinery, the same is accounted for in Refinery HO and PSL for the same is prepared by HO, e.g. Stock in transit and the Linefill stock. The stocks which are identified for specific refineries (MPCPL stock) as well as refinery tank stocks are accounted in the books of respective refinery and the PSL for the same is prepared by the refinery. The refineries prepare PSL based on the quantity and value details provided by HO in respect of material issued from the common locations. The PSL for onshore crude oil directly delivered at the refineries is prepared by the units based on the Purchases amount against the respective monthly crude oil supplies. The difference between the total cost to be debited based on the manual PSL and the amount automatically debited by the system at the time of actual posting of the transactions Crude Oil / Product Accounting INDEX Page 376

is transferred to the units. Units after receiving the debit note from RHQ reconcile its crude receipt and post the PSL difference in GL A/C 5291500055 in order to bring parity between SAP value of consumption and value calculated as per PSL. Before the preparation of the PSL the following activities are completed so as to enable the ascertainment of the actual cost for each of the consignment: a. Quantity Reconciliation: The monthly receipts at the shore tanks, movement of crude oil into the PL system, the receipt at the refinery and the stock at the various locations are reconciled at the end of the quarter. The first activity is to ensure that the refineries and the PL locations have posted all the crude oil transactions with the appropriate dates. b. The entries for self-consumption of Crude Oil by PL system are posted on a monthly basis by the PL. The entries for the interface adjustment between the various crude oils, the loss/ gain in the PL system and the ocean loss are posted on quarterly basis. Before the quantity details are downloaded it is ensured that final balance qty in the various locations matches with the reconciliation statement. c. Invoice Verification: As stated earlier, the capturing of final cost of the consignment and the crystallisation of the liability in the system is done by the process of invoice verification. The invoice verification (MIRO) for the cost elements is done by the finance team of the location from where the respective payments are being effected. The MIRO for Bunker and other costs incurred by Marketing Division are done by refinery finance based on the advices received from Marketing Division. Before going to the next stage in the preparation of the PSL, it is ensured that the cost elements are final (to the extent possible) so as to achieve the correct results. By verifying the individual clearing codes, with reference to the PO/STOs it can be identified whether the invoice verification has been completed for all the cost elements. d. Purchases account: As stated earlier, the information on individual cost elements of each consignment is captured in SAP through a scheme of dummy entries in the purchase accounts. A Detailed tanker statement containing the element wise purchase cost of each consignment is prepared by Refinery HO based on the purchase information available in SAP through t-code YVR428. This Tanker list is bifurcated into three parts based on the Port location. This is done for the following reasons: • Receipts at Vadinar: The stock at high seas plant and SMPL are accounted in the books of Ref HO. The PSL for SMPL location is prepared by Ref HO. Therefore, the cost elements included in the tanker statement at HO for receipts at Vadinar include Customs Duty, Port charges etc in addition to the CIF value. • Receipts at Mundra: The stock at high seas is in Ref HO books whereas the stock in MPCPL is in the books of Panipat Refinery. Therefore, the cost elements included in the tanker statement at HO for receipts at Mundra is the CIF value only. The Customs Duty Fixed and variable port charges etc are accounted for by Panipat refinery in its PSL. • Receipts at Haldia/Paradip: The stock at high seas and line fill stock is in Ref HO books. Purchase cost included in the tankers statement at HO for receipts at PHBPL is the CIF value plus Custom duty, Fixed and variable Port charges etc. The Customs Duty, Port Crude Oil / Product Accounting Page 377

charges etc for direct receipt at Paradip refinery are accounted by Paradip refinery in its PSL. e. Customs Claim/ Surrender: The Customs duty payment at the time of crude oil receipt is based on the provisional declaration to customs which in turn is based on the provisional estimates of FOB, freight and other details provided by the Shipping department. The customs duty liability is re-calculated based on the actual cost figures of the consignments and any additional liability or claim with regard to the provisional duty paid is accounted for. This revision is carried out based on the purchases details compiled from the information in SAP as mentioned above. f. Upon receipt of the final invoices, the Bill of Entry is filed along-with all the relevant document for the assessment by the Customs Authorities. At this stage any additional duty, if any, is paid and the claim, if any, is lodged with the authorities based on the invoice figures and the applicable exchange rates. The claim/ surrender earlier posted in the books of account are again revised. And finally at the time of completion of the assessment by the Customs Authorities, again the necessary adjustments if any, in the claim or surrender amount is carried out. The cost of the consignment is revised suitably. This activity is carried out by the location which accounts for the customs duty on the consignment at the first instance i.e. Ref HO for Vadinar/PHBPL/Paradip refinery receipts and Panipat refinery for Mundra. g. Advance License Benefit: This benefit is extended by the Government of India, under which a license is issued for import of specified quantity of crude oil without payment of customs duty in lieu of the Products Exported. This benefit is to accrue to the location from which the exported product was produced. Hence, at the first instance the customs duty on the consignment on which the same has been availed is accounted for in full, as if the applicable duty has been paid. Thereafter a specific credit advice is issued to the unit, which had produced the exported products, so as to ensure that the entire benefit and losses on exports are accounted by the same unit. h. Duty Drawback Under drawback inputs, capital goods & services are initially purchased on payment of duty. Refund of duty/ tax is taken after export of the goods. Here again ratio of input/output is fixed. The same is either all India industry rate which is announced every after budget or otherwise brand rate is fixed. Directorate of Drawback monitor the drawback claims. Drawback refunds are claimed from customs after export on the submission of proof of export. Duty drawback is claimed on export of finished products to Nepal. The duty draw back rate for various product is claimed on custom duty and NCCD paid on crude oil. The same is calculated on the basis of custom duty and NCCD paid on quantity of crude oil needed for production of exported finished product. Refinery is responsible for fixation of Brand Rates for various finished product. After obtaining Brand Rate order from Excise Department hands over the order to Marketing for claiming Duty drawback from their exporting locations. i. Discount: The under-recoveries on the sensitive petroleum products, the prices of which are controlled by the GOI, is shared by the Government, Upstream Oil companies and the Refining & Marketing companies. As per the current sharing mechanism, the Upstream companies are to extend a discount on the crude oil and products supplied by Crude Oil / Product Accounting Page 378

them to the Oil companies. Refineries Division receives a discount on the Indigenous crude oil procured from ONGC & OIL and this benefit is passed over to Marketing Division through the TOP bills as marketing division bears the under-recoveries. The discount received from ONGC on Bombay High Crude oil supplies is treated like any other cost element and is incorporated in the tanker statement as negative figure, thereby reducing the total cost of the consignment. As stated earlier the discount on the crude oil is treated like the other crude oil cost elements. The discount received on the indigenous onshore crude allocated to Gujarat, BGR, Digboi and Guwahati refineries based on amounts of discount received on each type of the crude namely Discount on North & South Gujarat to Gujarat Refinery and Discount on Assam Crude to Guwahati, Digboi and BGR Refinery. The discount is incorporated as negative figure against each receipt in the PSL prepared by the refinery unit and it is distributed evenly on all the receipts during the quarter based on the quantity. 15.7.2 COT Allocation The Pipeline Division transports crude oil from the port locations to the inland refineries. Pipeline cost is included by the refinery in the respective PSLs after eliminating margin element based on information furnished by Pipeline Division for stock valuation. 15.7.3 Ocean & Pipeline Loss a. The loading confirmations at the high seas are based on the Bill of lading quantity in respect of imported crude oil and Panna Mukta and the Custody transfer quantity for BH crude. After the completion of the shore receipt transactions in the High Seas Plant, the balances remaining in each of the batches in the High seas represents the Ocean Loss with respect to the respective tankers. Pipeline loss is bifurcated into normal and abnormal in reconciliation statement given by the Pipelines. 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. Whole 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. b. After completion of all the transactions in the Pipeline system for the quarter the same is reconciled with the manual pipeline reconciliation prepared at the end of each quarter. The stocks at the end of each quarter in SAP and that as per the statement vary due to interface adjustment between the various crude categories during the quarter and also due to the Pipeline Loss/gain. The necessary interface entries are posted and the loss/ gain is charged off so as to ensure that the closing stock in SAP (YVR 423 or MB5B) matches with the stock as per the reconciliation statement. Crude Oil / Product Accounting Page 379

c. Both Ocean loss and pipeline loss are charged off to consumption in refineries books. The losses are transferred by HO to the refinery units on the basis of the actual refinery receipts of the respective crude grades. 15.7.4 Imported Crude oil Freight & COT for NE Refineries: Due to the shortage of crude oil in Northern Eastern region (NE), Imported crude oil is taken to the NE refineries from outside the region. The additional transportation cost over normal Assam Crude pipeline charges are being shared by all the NE refineries based on the augmented throughput. The crude oil from outside the region is taken only to BGR refinery due to pipeline connectivity. The additional cost comprises of ocean freight, port charges, pipeline loss, inventory carrying cost, Demurrage, marine insurance and the IOC & OIL pipeline transportation cost and terminalling charges. IOC bears the additional cost on the basis of the combined throughput at Guwahati, BGR and Digboi refineries. Out of the total amount allocated to the units the share in the amount of IOC pipeline freight included in the additional cost is depicted as COT by Guwahati, BGR and Digboi refineries. This is included as an additional cost element of PSL. 15.7.5 Demurrage Demurrage is treated as a penalty incurred due to delay in the discharge of crude oil and hence it is not included in the crude oil cost or the operating cost. It is charged off in the Profit and Loss Account and is not considered for the purpose of stock valuation. The Customs Duty on demurrage is also treated at par with the demurrage. The total demurrage for the period is allocated to the refineries units based on the coast and category of the crude oil on which the same has been incurred and the actual refinery receipts of the respective category of crude oil during the relevant period. This allocation is done on a quarterly basis. 15.7.6 Exchange Fluctuation According to Accounting Policy, the cost of raw material is accounted for based on the exchange rate as on the transaction date and the difference between the exchange rate on transaction date and the date on which the payment has been actually effected is treated as Exchange Fluctuation Gain/ Loss. This is treated as a finance cost and is charged off in the Profit and Loss account and is not considered for the purposes of stock valuation. The Exchange Fluctuation on imported crude oil is allocated to all the units based on the imported crude oil receipts during the quarter and on Panna Mukta, same is allocated to refineries based on Panna mukta crude oil receipts during the quarter. In case of Rajasthan/small PSCs crude oil, exchange fluctuation is allocated to respective refineries based on Rajasthan/small PSCs crude oil receipts. 15.7.7 Valuation of Crude Oil Stock: Refer chapter 7 for Valuation of Crude Oil Stock. Crude Oil / Product Accounting Page 380

15.8 ACCOUNTING OF FINISHED PRODUCTS 15.8.1 RECEIPT OF FINISHED PRODUCTS 15.8.1.1 Internal products The product is received from different process units on continuous basis in different tanks. Everyday 0700 hrs dips are posted in SAP and MIGO documents for completed operations are prepared in SAP based on the outturns. 15.8.1.2 External products In certain cases, finished products are procured from outside or from other Refinery Unit for blending or for consumption. In order to account the transactions in SAP, PO/STO is prepared in SAP by receiving Unit and all transactions in SAP for receipt of products in SAP is followed. In case of transfer of GST Product, proper Tax code based on ITC available to receiving location is to be maintained in STO. Such supplies may be received on duty paid basis and all Excise / GST formalities are complied with for availing CENVAT / ITC credit etc. For availing ITC Credit SAP T-Code YMIROST (for interstate stock transfer) or YMIROST1 (for Intrastate stock transfer) is to be run after accounting for receipt of material. The section is maintaining a proper record of all quantity received. Accounting Entry for movement of product from one refinery location to other is carried out through contra GL codes, which get knocked off at RHQ level. The Excise duty of the corresponding product value is also transferred through separate GL code 5304005000. The receiving location debit cenvat receivable account to the extent cenvat / ITC claimable by refinery and the balance amount is debited to input cost. For the purpose of stock valuation, profit % of the sending Refinery is used to eliminate margin from the cost of input in order to value the closing stock at cost. The Dispatching unit shall forward the hard copy of invoice to receiving location by 4th of next month. 15.8.2 DISPATCH OF PRODUCTS The Marketing Division is responsible for handling the distribution of all finished products. Dispatch operations are taken up against loading advice from the Marketing Division. The dispatch from Refinery to Marketing is posted from Refinery Plant code to logical storage location of Marketing Plant. MS, HSD and ATF are the products (categorized as Non-GST Products which are not covered in GST and duty liability is discharged under Excise. All other products like SKO, LPG, Naphtha, FO, LDO, Bitumen, Coke etc. are covered under GST (categorized as GST Product). 15.8.2.1 Dispatch of Products through Tank Wagons Based on the decisions of Supply Plan Meetings, a monthly program for dispatches is worked out for various products- Programs for pipeline dispatches is made in consultation with the Pipeline Office. Products are made available by the Refinery according to this program subject to marginal adjustments as and when necessary. Indenting of the tank wagons from the Railways is the responsibility of the Marketing Division. As and when the wagons are placed, the Marketing Division gives a loading advice Crude Oil / Product Accounting INDEX Page 381

to the OM & S Section. The loading advice contains the tank wagon numbers, the height in centimeters upto which the product is to be filled up, the volume at natural temperature for the given height, name of the product, name of the party and destination. On receipt of the loading advice, the loading operations are taken up by the OM & S Section. After the loading is completed and the dips and temperature are taken by the Refinery operators, a representative from the Marketing Division checks all the dips after which the wagons are sealed. For items like raw petroleum coke, calcined petroleum coke, LPG, Bitumen etc. quantity determination is done on weight basis. After the dip or the weight, gate passes are issued for the products to move out. Before wagon is dispatched out of Refinery/ marketing gate, Railway Receipt (RR) is prepared by Railways. This contains wagon no., Product description, sender, receiver, Qty, Freight charges etc. This becomes primary document for lodging of claim on railway for non-receipt/ damage of products during transit. The gate pass/ Invoice is a basic document for recording the dispatch transactions. All dispatches are supported by gate passes and invoices. The gate pass from the OM & S Section contains the particulars of product, dips, temperature, and volume at natural temperature, tank number, density and the volume conversion factors for each tank wagon/tank lorry. Gate passes are forwarded to SAP data entry cell of OM&S / Oil Accounting Section for volume conversion at 15°C and in MT. T code YV26/YV175 is available in SAP to generate Dispatch report. 15.8.2.2 Dispatch of Products through TTL/Tank Wagon Wherever the dispatch of products by Tank Lorries/Tank Wagon is controlled by Marketing Division, the products are transferred from mother tank to marketing tank. A separate out- turn statement is prepared for each receipt transaction on the basis of dip measurements taken jointly by Marketing/Refinery representatives. Dispatch in TTL to customers is determined on the basis of mass flow meter. In case dispatch of product is taken directly from refinery tanks, quantity is determined based on outturn. 15.8.2.3 Dispatch of Products through Pipelines Dispatches through pipelines are arranged in accordance with the pre-determined cycle for pipelines operation. The quantity of pipeline despatches is determined on tank discharge system. Tank Discharge quantity is determined either by preparing Issue outturn (YM71) for respective tank or by measuring the discharge quantity through MFM. MFM dispatch summary shows the quantity discharged in all four unit i.e Nat KL, 15 Dec KL, 29.5 Deg KL & MT. The discharge quantity measured through MFM is entered in SAP by T-code YM86. In case of continuous pipeline dispatch during month end, Quantity discharged upto cut-off time of month is measured i.e pipeline quantity discharged upto 0700 hours on 1st of Month should be accounted as product dispatch during current month. For the excise requirements, separate pipeline out-turn statements are prepared for each tank discharge operation. Such out-turn statements are verified at the Pipelines Office. The pipeline out-turn statement also contains particulars of cycle number and batch number Separate STO are prepared for every product in SAP using transaction code ME21N for Marketing Plant. Batch wise and Marketing Location wise pipeline distribution are received Crude Oil / Product Accounting Page 382

from pipeline division as per outturn quantity. Batches are created as per pipeline distribution in SAP through transaction code MSC1N. Batch is changed from EXCSBONDFG to the Batch required by pipeline through transaction code MB1B in Refinery Tanks. Stock is transferred from Refinery tanks to Marketing location in the batch provided by pipelines division through transaction code VL10D. Excise Invoice is prepared using transaction code VF01 for stock transferred to marketing location. Assessable Value is taken from the transaction code YV104 or V/LD. With the help of transaction code MIGO, Product is received in the books of marketing location on the basis of delivery document created through transaction code VL10D. Billing to Marketing is done thru T code VF04/VF01 SAP transactions involved in receipt and dispatch of products • Daily Reconciliation of dispatch quantities of OM&S: YV26 / YV65 report for Refinery plant and YV26 report for Marketing plant to which product is delivered from Refinery. • Preparation of PO / STO (ME21N), wherever the Marketing is yet to start creating PO since every transaction in SAP carries a unique batch number unlike the prevalent system, the batch has to be created in the system first for the Material/ Plant/ Sloc combination before transaction takes place thru T-code MSC1N.The batch is 10 digit alpha numeric code in which first digit gives the Refinery name, Second digit gives whether it is Refinery or MKG, 3rd digit gives the product grade, 4th to 7th digit gives the batch number and last three digits are last three numbers of the destination plant code. For example, GR2H001622; it means product is from Guwahati Refinery BS II HSD Batch 001 meant for Betkuchi (9622). Separate STO is created for GST Products and Non-GST Product. • Re-branding transaction (MIGO), wherever necessary • Delivery of quantity (VL10D) • Preparation of outturns to determine the quantity of receipt from production (YM71) and posting of the same using t-code, MIGO) • Billing (VF01/VF04) • Entering day ending dips (YMU 133) • Process of Loss Gain Report (YM 117) • Posting of Loss Gain (YM 117) after checking its accuracy • Ensuring YM101 and MB5B stock is matched. • Daily tank dips (running dips if operation is not completed and gross dip if operation is completed) at 0700 hrs is entered by Refinery Users in SAP through T-code YMU 133. The MIGO transactions are also to be done where operation is completed. The SAP system will not allow the posting if the book stock (MB5B and YM101) stock is not matched for the preceding 7th day. • In case product is not transferred to marketing, its assessable value is to be maintained through code VK11. • SAP T-Code YVU287 is made by COIS for bulk posting of Receipt, Dispatch and updation of Dip. Before use of T-Code Tank and product mapping etc is to be ensured Crude Oil / Product Accounting Page 383

15.8.3 Daily posting of Loss / Gain (YM117) The Loss / Gain for each tank for each day is to be accounted in SAP. Loss or Gain for the Tank is the difference between Book Stock and Physical Stock. Closing Book Stock of tank = Opening Book Stock of Tank + Receipt for the day for the Tank - Dispatch for the day for Tank. The Physical Stock of the Tank is maintained by entering Dip, Density and Temperature in SAP T-code YMU133. The report showing physical stock of each tank is obtained from T-code YM101. In case of abnormal Loss / Gain, Transaction of the day is scrutinized and analyzed. YM101 < MB5B (Book Loss / Gain (Physical Stock) > Stock (Y-X) Loss – 5 KL X say 10 KL Y say 15 KL (X-Y) Gain – 2 KL X say 15 KL Y say 13 KL 15.9 EXCISE / GST PROCEDURE AND ACCOUNTING On introduction of GST w.e.f 01/07/2017, all products like SKO, LPG, Naphtha, FO, LDO, Bitumen, Coke etc. are covered under GST (categorized as GST Product) except MS, HSD and ATF are the products (categorized as Non-GST Products) which are not covered in GST and duty liability is discharged under Excise. 15.9.1 Excise Procedure a. Petroleum products (MS, HSD & ATF) come under the category of Excisable goods under the Central Excise and Sales Tax Act, 1944. It is mandatory for the refinery to comply with all the excise formalities prescribed under the rules. b. The refinery is required to obtain license in form L-4 for manufacturing excisable goods before start of manufacture. License is required separately for each tariff item. Whenever new product is introduced, the same is declared to Excise along with production facilities and storage facilities, processing method, raw material and other inputs required, finished product specifications, intermediate products etc. c. The Central Excise Department has prescribed the following type of procedures for levy and collections of excise duty keeping in view the needs of different industrial sectors: • Physical control over the manufacturing/processing unit. • Self-removal procedure. d. Petroleum products are covered under self-removal procedure. Under this scheme, the assessee is free to clear the goods from the factory or receive them into the factory without the physical supervision or verification by Central Excise authorities. Under this procedure the manufacturer is required to pay duty voluntarily on the excisable goods manufactured by him on their clearance from the factory or in certain cases on their captive consumption where the usage is for other than manufacturing purposes. Crude Oil / Product Accounting INDEX Page 384

However, it may be ensured that all the available benefits under the notifications issued from time to time by the CBEC/ Govt. are availed. e. Samples may be taken by the Excise Department for testing with a view to ascertain that the products dispatched correspond to the prescribed specifications. Samples are taken in quadruplicate and are sealed jointly by the Excise Department and the Licensee- One sample is sent to the laboratory of the Excise Department and two samples are retained by the Excise Department (one with Superintendent and another with Assistant Collector) and one sample is retained with Licensee- If the Licensee does not feel satisfied with the results of the first test, he can seek a re-test within prescribed period on payment of requisite fee at the Central Revenue Control Laboratory at Delhi. After the test reports are received and accepted, the provisional assessments made earlier are formally finalized. Where the test result reveals that the product belongs to a classification different than the original, differential duty demands will be raised by the Excise Department. f. For storage of non-duty paid finished products, tanks are declared as bonded tanks and got approved by Excise Authorities. These tanks are deemed to be warehouse licensed under the Excise Rules. g. Sometimes, we may not be aware as to the end use of the clearances and consequent duty liability. In such cases, as per the board circular Refinery should apply to the Jurisdictional Divisional AC/DC for giving permission to clear the products under provisional assessment basis, the accounting of which is submitted as per the terms and conditions of the permission and final assessment got done. For such clearances under provisional assessment, the accounting in the prescribed format is be submitted for final assessment. The accounting is prepared by Mktg division and is submitted by Refinery to Excise Department. h. All demands for recovering excise duty have necessarily to be preceded by a show cause notice. In case Excise Department considers that proper duty has not been paid or duty has been paid short, show cause notice is issued or any other action is started by Excise authorities to recover the short levy. Similarly, claims for refund of duty paid in excess have to be lodged within the prescribed time limit from the date of payment so that it is not time-barred. i. If the assessee is aggrieved against an order passed by the Excise Officer below the rank of Commissioner, he can file appeal to Appellate Commissioner. While appeal against the order of Commissioner (Adjudication) or Commissioner (Appeals) lies with the CESTAT. However, appeal is filed within the prescribed time limits. Similarly, the appeal against the order of CESTAT can be filed with High Court and Supreme Court. 15.9.2 GST Procedure The GST payment and compliance of GST regulations are carried out at the location where GST registration is done. Marketing Division has obtained the GST registration in the State Office of each State. Accordingly discharge of GST liability will be carried out by respective State Offices. As GST Registration is not with Refinery, Refinery will have no role in compliance of GST procedure for dispatch of product. Crude Oil / Product Accounting Page 385

15.9.3 Excise Accounting 15.9.3.1 Daily Stock Account- RG On the basis of out-turns, the proper records for daily stock accounting (RG) is maintained indicating the particulars regarding description of goods, opening balance, quantity produced, inventory of goods, quantity removed, assessable value, the amount of duty payable and particulars regarding amount of duty actually paid. The first and last page of each such register is duly authenticated by the authorized signatory. All such records are to be preserved for the prescribed period which as per present excise rules is the period of five years immediately after the financial year to which such records pertain. The RG is available in SAP through t code YV 134. 15.9.3.2 Dispatches/ issues a. Invoicing As per Excise Rules, all clearances/dispatches from Refinery is supported by invoices. Issues for own use should also be supported by invoices and appropriate duty paid. It may be reiterated that issues for further processing are not treated as clearance for excise invoice and duty payment purposes. The movement of intermediate products/ streams within the refinery is exempted. All exports are supported by Invoice and ARE I. However, in case of export to Nepal, goods are moved under Nepal Invoice under bond. b. As per Central Excise Rules, the invoice shall be serially numbered and shall contain • Registration number. • Address of the concerned Central Excise Division. • Name of the consignee. • Description & Classification. • Time & Date of removal. • Mode of transport & Vehicle registration number. • Rate of duty and Duty payable. • Quantity & Value of goods. c. Bonded/ Nil Rate/ Concessional Rate Dispatches • After the withdrawal of warehousing provisions w.e.f 06.09.04, the dispatches for export only are allowed to be cleared under bond. Such dispatches are moved under ARE3A against a valid CT- 2/CT3/PAC/Annexure I etc. ARE3A forms are prepared in SAP automatically through t-code YVU 223 for each consignment of clearances under bond and for CT3. The application is prepared in five copies. The first three copies are dispatched to the consignee through Mktg division who completes the re- warehousing certificate on the application form itself. After the receipt of certificate, the re- warehoused original copy is forwarded by the consignee to the destination excise authority who in turn forwards it to the excise authority at the dispatch point. The duplicate is dispatched to the consignor. The third copy is retained by the consignee for his record. The 4th copy is forwarded by the consignor to the excise Crude Oil / Product Accounting Page 386

authority and the 5th copy is retained as office copy by the consignor. Necessary entry in SAP is done for re- warehoused quantity also. • According to the excise rules, the re-warehousing certificates (ARE3) is supposed to be received by the consignor within prescribed time limit which is presently 90 days from the date of dispatch. If the re- warehousing certificate is not received within the prescribed time limit, the consignor is liable to pay duty on the entire consignment. If the re- warehousing certificate is received after 90 days, claim for refund of the duty so paid is lodged with the excise authorities within the permissible time limits with complete documents including ARE3 as per excise rules. • It is the duty of the section to keep close watch on the re-warehousing certificates and follow up the same with Marketing Division in cases of delay. If the Marketing Division advises that any ARE3 is likely to be delayed due to some specific reasons, a request in writing is made to the Commissioner of Central Excise for extension of time limit beyond 90 days. • In cases where re-warehousing quantity is short of the quantity cleared under bond, the duty is paid on the excess quantity of transit loss suo-moto. 15.9.3.3 Outturns Dispatch Quantity is measured by preparing Tank outturn or through MFM. Out-turns are prepared for each product separately for each tank. The following points are to be kept in view while generating the out-turns: • All dip memo particulars are entered in SAP while feeding the out-turn data. The dip and temperature are provided by OM&S while Density is provided by the Laboratory. The outturns provide the quantities in all the four UoM(Unit of Measurement) in addition to barrels. • The calculation is done by opening and closing dip separately. • In case of floating roof tanks, volume displaced by the floating roof is deducted from the volume at 15°C by volume weight conversion factor. • Quantities in MT is calculated in SAP by multiplying the volume at 15°C by volume weight conversion factor. • The aforesaid operations are carried out for opening as well as closing dips. The difference between the two figures indicate the quantity of net oil. • The out-turn statement is prepared by one person and is thoroughly checked by another person. The receipt outturns are prepared in SAP through T-code YM 71 by differential dips method. In case of MFM dispatch, MFM dispatch summary shows the quantity discharged in all four unit i.e Nat KL, 15 Dec KL, 29.5 Deg KL & MT. The discharge quantity measured through MFM is entered in SAP by T-code YM86. The dispatch outturns are posted by taking quantity from YV 26 report. 15.9.4 Payment of Excise Duty • Duty on goods removed from the factory or the warehouse during a month shall be paid by 6th day of the following month (e-payment) and by 5th day of the following month in other cases. In case of March clearances, the duty is paid on the 31st March Crude Oil / Product Accounting Page 387

15.9.5 itself. In case of default in payment of duty, Interest chargeable @ 18% on daily basis. If the 6th happens to be holiday, duty payment is made on the next working day as allowed under Section 10 of the General Clauses Act 1897. • Note: Electronic payment of Central Excise is mandatory for the assesses who had paid Central Excise duty of Rs.1 lakh or more in the previous financial year. • The duty is paid for clearances made during the month. • The additional Excise duty for differential duty for Further Stock transfer, upward rebranding of MS, HSD & ATF etc should be advised by Marketing and same should be incorporated into duty payment for the month. • In case of ATF supplied under SFIS Scheme, Excise duty will be determined in the invoice but same is to be reduced from total duty shown in SAP. Excise Return & GST Return Electronic filing of Central Excise returns is mandatory for the assesses who had paid Central Excise duty of Rs.10 lakh or more in the previous financial year. EXCISE AND SERVICE TAX Time limit Frequency Example Monthly S. Form of Description 10th of Following Annually Return for April 2017 is to be No Return Month Annually filed up to 10th May 2017 1 ER-1 Monthly return Monthly Return for the year 2016-17 Annually by 30th is to be filed up to 30.11.2017 2 ER-4 Annual Financial Nov of Annually 3 ER-5 succeeding year Return for 2016-17 is to be 4 ER-6 Information Annually by 30th filed up to 30.04.2017 April for the 5 ER-7 Statement current year Return for April 2013 is to be 10th of filed up to 10th May 2013 Information Following Month Return for 2012-13 is to be relating to principal filed up to 30.04.2013 Annually by 30th inputs April for the previous year Monthly return of receipt and consumption of each principal Input Annual Installed capacity statement Important Notifications Notification No. Purpose Notification No. 67/95-CE Exemption to all capital goods/ specified inputs manufactured in the dated 16.3.95 factory and used captively (barring MS, HSD) will get exemption from the whole of duty of excise. Notification No. 29/2002- 50% concession from the total duty of excise to the 4 Refineries (Digboi, CE dated 13.05.02 Guwahati, Bongaigaon & Numaligarh). Notification No. 108/95 Goods intended to be used by UN/ project approved by WB/ ADB/ Govt. dated 28.08.95 of India for exemption of total duty of excise Crude Oil / Product Accounting Page 388

GST Return of Description Time limit Frequency 10th of next month Monthly S. Form Details of outwards supplies of goods or No Return services 15th of next month Monthly 1 GSTR-1 Details of inward supplies of goods or services 20th of next month Monthly 2 GSTR-2 Monthly return 20th of next month Monthly Monthly return for July 2017 to March 13th of next month Monthly 3 GSTR-3 2018 4 GSTR-3B ISD distribution 5 GSTR-6 15.9.6 Losses There are percentages prescribed under excise rules for condoning storage/handling losses, and the transit losses. The condonation of loss is granted in each case on merits. 15.9.7 Checking of Duty Payments Since invoices for clearances are made by Marketing Division, the role of refinery in payment of excise duty is secondary. At the end of the month, YV217 / YV 175 report in company code of Marketing, a summary report, of clearances made under bond, duty paid clearances, nil rate clearances are run. Similarly, YV 179N report which is a sales report is run in company code of Marketing. Also YV 26 report which is a delivery report is run in company code of marketing. In Refinery company code YV 65 / YV26 Report which is dispatches to Marketing is run. It is the responsibility of Oil Accounts Section to ensure that quantities in all four reports are matching. If the quantities are not matching, it is analyzed and suitable action is taken. 15.9.8 Other information At the time of filing ER 1, Oil Accounts has to give details of clearances under Bond, Clearances at nil rate under various notifications in different certificates party-wise and certificate wise. For this, YVR 212 report in Marketing Company code is run and details are compiled. Monthly Data is sent to TS and Production Accounts Section. At the end of the month, Oil accounts prepares productions dispatch summary which shows the opening stock, closing stock, dispatches and production. Here, production is balancing figure. This report is available in SAP in T-code YVR 282. In quarterly and annual Balance Sheet, the role of oil accounting section is limited. Oil account section has to match the excise duty debited to Marketing with excise duty charged in the books and has to provide the excise duty liability on closing stock for Non-GST Product only, which is cleared in subsequent period. For creating liability, actual day wise clearances Crude Oil / Product Accounting Page 389

are considered till the cutoff date through YV217 / YV 175 report. No duty liability is provided for GST Product. 15.9.9 Material Balance and Production Statistics a. Stock check has been implemented for Crude Oil and finished goods in Units. Units are allowed to post the transactions with 7 days backlog only. The authorization for removing this check is with COIS only. If any transaction previous to this is date is to be posted; then Unit Finance Head has to write to ED (F) RHQ with reasons for delayed posting and necessity of removing stock check for temporary period say one hour or two hours. After removal of stock check and posting of entries. Units are required to intimate RHQ for restoring the stock check. b. At the time of preparation of Monthly Material Balance Quantity, Transfer of products quantities to Marketing is reconciled with Marketing and confirmed. c. Units are to ensure that there is no variation between SAP Stock Vs Book Stock on any day during the month. Units should also ensure that closing stock at month end appearing in SAP is matching with monthly material balance not only in quantity but also in bifurcation of stock into Intermediate and Finished Goods. Further, whenever there is change in dip which was reported earlier, the revised dip should be accepted after analyzing the reasons for change. d. The statistical requirements at each refinery are varying depending upon the complexity of operations involved. The various statistical needs are assessed at the initial stages jointly by the Production Department and Finance Department and a suitable system of record keeping is to be prescribed. Care is to be taken to minimize paperwork and avoid duplication. e. The basic requirements for statistics in a Refinery relate to the day-to-day accounting of production, dispatches, stocks and losses/gains. For raw materials and finished products, these statistics are normally available from the various excise records. The excise rules do not prescribe for any detailed accounting of inter mediate products though the same is necessary for ascertaining the day-to-day production figures. f. The Section also prepares a monthly material balance for all products giving production, transfers and dispatch details after accounting for the storage losses/gains. The form of material balance is prescribed at the unit level. 15.9.10 TOP BILLING 15.9.10.1 Post GST, Refinery to Marketing billing is to be carried out by creating Invoices for each delivery posted by Refinery Plant to logical Plant of Marketing Division. 15.9.10.2 Adjustments for Under-recoveries/ Over-recoveries a. MIS is exchanged for Under-recoveries/ Over-recoveries which is advised by Marketing Division on a monthly/ quarterly basis. This is mainly on account of: • RTP differential • Freight Under-recovery • Export Loss Crude Oil / Product Accounting Page 390

• CST Under-recovery • Discounts to customers. b. RTP Differential Occurs mainly due to out of zone movements of Products. The despatching Refinery bears the difference of the RTPs of despatching Refinery and RTP of the Normal Supply point. Out of Zone movements mainly occur whenever there is a shortage of the products at normal supply point (either due to Shut down or otherwise). Normal supply point is that refinery location which is responsible to feed the particular area of that region. c. Freight Under-recoveries Occurs mainly due to out of zone movements. The despatching Refinery bears the difference of the Actual Rail Freight and the Notional Rail Freight (recovered from the customer) for despatching the goods to the out of zone locations. d. Export Loss Export Loss is the difference between the Net Export realization and the RTP. It also includes the other expenses incidental to Exports like Freight upto the port, Stock Loss in Transit, Wharfage, Demurrage, Tanker cost etc. e. Discount to Customers Customers are being offered discounts by Marketing Division. The discount varies from customer to customer and product to product. Refinery division bears the amount of discount as agreed upon, given over and above the Marketing Margins. 15.10 BUSINESS VERTICAL The concept of Business Vertical was created in GST era. Under Business Vertical, a separate registration is obtained for part of plant which is separately identifiable and produces only GST Products. In case of Gujarat Refinery, LAB unit consisting of Pecol, Detal and PEP Unit is identified as Separate Business Vertical which produces LAB Products. Similarly in case of Panipat Refinery, PXPTA & PNC is registered as separate Business Vertical. Business Vertical will be mapped in SAP with separate Plant code and Cost Centres under Refinery Company Code with separate Business Area assigned. All GST compliance like registration, Return filing and other compliance of GST regulations are required to be carried out for Business vertical. 15.10.1 Stream Sharing with Business Vertical All Stream Sharing between Refinery and Business Vertical is required to be invoiced by preparing STO, Posting delivery by VL10D, Creation of Invoice by VF01 and taking delivery in MIGO. Stream which are sent to Business Vertical from Refinery are billed by Refinery. Stream which are sent to Refinery from Business Vertical are billed by Business Vertical. The invoice will be with GST liability arising in the plant code raising Invoices. Crude Oil / Product Accounting INDEX Page 391

15B. PRODUCT ACCOUNTING INC. RAW MATERIAL FOR LUBES AT MARKETING 15.11 LOSS/GAIN AND REBRANDING OF PRODUCTS 15.11.1 Product loss/gain represent the quantity of losses/gains recorded due to temperature variations and handling of the products at the storage points. 15.11.2 Under the existing Marketing Operation, product loss/gain is determined and accounted for in the following categories: • Transit loss/gain due to temperature variations in movement of products by: - Coastal tankers and barges - Pipelines - Tank wagons/tank trucks • Handling and operational losses at the storage points 15.11.3 Booking of losses in stock records. 15.11.3.1 It should be ensured that the quantity of product loss/gain is determined as per the quantities reflected in the stock records as reported by the storage points. 15.11.3.2 Any abnormal loss/gain in a particular product/location should be reviewed and reasons established for correct accounting/control. 15.11.3.3 Quantities of product loss/gain as recorded in our stock records should be reconciled with the functional departments who are monitoring/controlling losses. 15.11.3.4 Since all stock records are maintained at natural temperature or at metric tons ( selling unit), the quantity of all losses/gains should be determined at natural temperature or at metric tons as the case may be. In respect of losses/gains in the Pipelines operations where the quantities are reconciled with the Pipelines Division at 15 Deg. C. The pipeline reconciliation statement depicting pumping /receipts, opening & closing line fill & loss/gain at natural temperature. & 15 C should be jointly signed. 15.11.3.5 In respect of coastal/tank barge movements also, the quantity of losses/gains should be determined at natural temperature for the purpose of accounting in the books of account. The coastal loss/gain should be reconciled with functional department. 15.11.3.6 Quantity of claimable losses as reported in the stock records should be reconciled with the claims booked in the books of accounts. Any differences should be thoroughly analysed and action taken to reconcile the quantities. 15.11.3.7 Quantity of stock loss/gain will be derived for the difference between dispatch quantity. Crude Oil / Product Accounting INDEX Page 392

15.11.3.8 Quantity of LPG used for purging the new cylinders should be considered as a part of own use and should not be included as a part of stock loss. 15.11.3.9 Claimable losses in case of movement by tank Truck will be the Retail selling price of the supply location as per the pricing which will charged as a penalty as per the transport tender contract and for Railways it will be should be valued at the ceiling selling price if the formal claims have been preferred on the carriers (viz. railways/transporters). . In respect of claimable losses for which claims are not booked in the accounts due to policy decision or otherwise, the value of such losses should be separately identified and absorbed as a loss with the approval of the competent authority. However, such losses should not be included as a part of normal stock loss. 15.11.3.10 Value of the temperature variation gains should be separately worked out and should not be adjusted against the normal stock loss. 15.11.3.11 The ocean loss on imports quantity should be determined as the difference between the B/L quantity and the actual receipted quantity. 15.11.3.12 Any loss beyond the norms should be analysed and reported to the functional department for monitoring and control. The import loss/gain should be reconciled with functional department. 15.11.4 Cost adjustment in respect of rebranding of products: 15.11.4.1 It should be ensured that cost adjustments (product wise) are made in respect of rebranding of products under the purchase account. 15.11.4.2 Cost of product which is rebranded (Out) should be credited with the cost applicable to the product which is coming in as a rebranded product, i.e. if ATF is downgraded to SKO, the cost of ATF should be credited by the amount equivalent to the cost of SKO and corresponding debit should be given to f SKO. 15.11.4.3 It should be ensured that quantities of the products rebranded should be contra as out and in the stock records. . 15.11.4.4 Complete details of the under recovery arising out of the rebranding should be reviewed and analysed and put up for obtaining the approval of the competent authority. 15.12 CLAIMS 15.12.1 All claims should be booked in the Accounts based on the existing Accounting Policies. 15.12.2 Claims recoverable should be classified under the following heads:- INDEX • Secured Considered Good Crude Oil / Product Accounting Page 393

• Unsecured Considered Good • Unsecured Considered Doubtful a. For determining the certainty of realisation of a claim, following major factors may be kept in view: • Contractual terms and conditions with the party. • Constitution of the party, i.e. Government/Semi-Government/Private, etc. • Past experience in realisation of such claims. b. For the purpose of ascertaining the certainty of realisation, detailed exercise should be carried out with the concerned functional departments at the end of each quarter/financial year. c. Classification between Secured and Unsecured Claims should be done based on the security available with the Corporation. In respect of claims classified as 'Doubtful of recovery', necessary provision should be made for the same and accounted for in the relevant quarter/financial year. d. Tank Wagons in transit over 2 months and tank trucks in transit over 1 month (other than IOC's own TTs) should be classified as 'Claims' and should not be reflected as a part of Inventories. e. All-our efforts should be made to link the missing Tank Wagons appearing as Claims Recoverable with unlinked Tank Wagons received to ensure that any subsequent receipt of Tank Wagons appearing as Claims Recoverable is adjusted against such Claims. f. It should be ensured to clear the Tank Wagons in transit for more than 2 months, either by linking the same with the railway claims or identifying the whereabouts of these tank wagons like decantation by OMCs/Railways/customers or by any other location other than the original consignee location. It should be ensured that all such tank wagons in transit for more than 2 months for which the regularisation has been done before the finalisation of quarterly/annual accounts are removed from 'in-transit' account and transferred to the appropriate heads of accounts by passing suitable financial entries. It should be ensured that the Railway claims are lodged in respect of all un regularised tank wagons in transit for more than 2 months, within stipulated time limit in order to avoid any case becoming time-barred irrespective of whether any of such tank wagons have been identified and are awaiting regularisation. g. The list of such tank wagons (with full particulars) In-transit for more than two months which are transferred to claims should be provided to functional department to ensure that physical claims are lodged with the authorities within the time frame. A jointly signed statement by Finance and the Functional Department should be made on a quarterly basis. h. Claims lodged on LPG Distributors for shortage of cylinders/PRs/accessories should be accounted under 'Claims' and not under 'Book Debts'. (to check with MA) In case, the Crude Oil / Product Accounting Page 394

amount recoverable from the LPG Distributors pertains to the Claims, Trade dues, Advances, etc., the amount of security deposit should be appropriated to classify the outstanding as Secured in the following order: • Claims in the first instance. • Sundry Debtors over and above the Claims. • Advances, balances left out. i. Claims booked in respect of leakage/shortages of the product should be reconciled with the stock records. j. Railway claims (at cost) should be transferred to the concerned Region as soon as the decantation certificate from Railway is obtained. Recovering Region should ensure to regularise the same immediately on receipt of covering supply order by same sale invoice as Railways. 15.12.3 Valuation of Claims: 15.12.3.1 Normally, the value of claims should be determined with reference to the loss/damages suffered by the Corporation. In this connection, the value of loss suffered should be reckoned with reference to the cost. For the purpose, cost may be the historical cost of the item or the present cost which may be determined by the concerned functional department taking into account the terms and conditions with the party and the legal remedies available to the Corporation under the statute which at times may include the provisions for recovering the claim at penal rates. Based on the above broad principles, following guidelines may be followed for valuation of various claims. 15.12.3.2 In respect of claims lodged on Railways for missing tank wagons, the value of claim should be worked out with reference to the cost i.e. ex-Refinery Price plus duty & freight as at the time of date of RR or despatch of the product for which claim is to be lodged. In respect of shortage/leakage of product transported by the Railways, the value of claims should be reckoned with reference to the cost i.e. ex-Refinery Price plus duty & freight as at the time of date of RR or despatch of the products for which claim is to be lodged. However, it may be noted that the physical lodging of the claim will be at the selling price of the relevant product ruling on the date of RR exclusive of sales tax. 15.12.3.3 Periodical claims statement jointly signed by Operations and Finance should contain apart from other details, the value of claims both at cost and at selling price. 15.12.3.4 The value of freight refund claims on the Railways should be worked out with reference to the over-payments made compared to the ruling tariff rates. 15.12.3.5 The value of other claims on Railways should be worked out with reference to the cost of loss suffered. Crude Oil / Product Accounting Page 395

15.12.3.6 Claims on statutory bodies like Customs/ Excise/Sales Tax/Port Trust, etc. should be done with reference to the cost of loss suffered. 15.12.3.7 Valuation of claims on account of shortage of LPG Cylinders and PRs should be done as explained below: • Cases which are pending with arbitration/litigation for which outcome is yet to come should be valued at penal rates. • Cases which have already been settled by way of arbitration award/court verdict but cannot be implemented for recovery due to non-availability of assets with the distributors should be valued at tariff rate. • Cases for which claims have been raised for which response is yet to be received from the distributor/transporter should be valued at penal rates. 15.12.3.8 Valuation of claims on Insurance companies should be done with reference to the terms and conditions of the Insurance Policy. 15.12.3.9 Valuation of other claims on suppliers/ contractors, etc. should normally be done with reference to the cost of loss suffered or any other rates as per the terms and conditions agreed upon, as confirmed by the functional departments. 15.12.3.10 Claims recoverable from the foreign parties and outstanding at the end of financial year should be valued at the exchange rates prevailing at the end of financial year. Any loss/gain arising out of this transaction should be adjusted in the Exchange Fluctuation account. 15.13 COMPANY'S USE OF OWN OIL 15.13.1 It should include consumption of petroleum products issued ex-storage points including company owned/operated retail outlets for fueling our Tank Trucks, Refuellers, Cars, jeeps, etc., maintenance of Plant & Machinery and other assets and also for bunkering of vessels chartered or sub-chartered by us. 15.13.2 It should also include the issue of petroleum products for use by other Divisions. 15.13.3 Products supplied for maintenance and as fuels to our own vehicles as well as products supplied to other Divisions for their own use should be valued at cost price which should normally include RTP, duty and freight as applicable for the respective period. 15.13.4 The value of products issued to other Divisions for their own use should be transferred to them at the cost price by crediting 'Own Use' Account and debiting to other Divisions Account. The products issued for our 'Own Consumption' should be debited to Consumption of Stores Account and credited to Company's use of Own Oil Account. 15.13.5 The products issued for bunkering of IOC's chartered vessels should be valued at cost. Products issued for bunkering of vessels chartered by OMCs should be valued at the normal rate as applicable to the transactions between the marketing companies. The bunker Crude Oil / Product Accounting INDEX Page 396

available with tanker owner at the time handing over of the vessel to be billed to vessel owner at the applicable selling price as on date of handing over after adjusting the opening bunker quantity takeover of vessel by IOCL. (To be discussed with MA /taxation.) 15.13.6 Any products consumed for construction of capital projects should not be charged to the consumption Account and should be debited to the capital cost of the project at the cost price. 15.14 RAW MATERIALS 15.14.1 Definition Goods used as ingredients or component part of a finished product are treated as Raw Materials. 15.14.2 Quantity Determination Inventories of Raw Materials includes, Base oil, Additives (including MLO Additives, ethanol, Bio-diesel), Steel Plates for fabrication of Drums/Barrels should be considered as a part of Raw Materials in so far as disclosure in Note 9 in Accounts is concerned. However, for the purpose of Note 9 in Accounts, the inventory of steel plates lying at the end of quarter/financial year meant for other than fabrication of Drums/Barrels should be considered as a part of Stores & Spares and not as a part of raw materials. 15.14.3 Inventory of any raw materials held at the end of quarter/financial year procured with an intention to sell the same `as such' should not be treated as Raw Material but should be treated as a part of finished products. 15.14.4 For Raw Materials purchased during the quarter/financial year for which the payments have not been made, necessary liability should be provided irrespective of the fact whether the bills from the suppliers have been received or not. 15.14.5 In case any Raw Materials have been received and have failed in the laboratory test as per the terms and conditions of the purchase order, due care should be taken to exclude such stocks from IOC's stocks by reducing the same from Purchases. Necessary documentary proof in support of the above should be available for verification. In case any amount is already paid for such items, the same should be reflected as claim on the suppliers. 15.14.6 Raw Materials lying with outside parties at the end of quarter/financial year should be included as a part of physical inventory held by IOC and a confirmation should be received in this regard. Any difference in the quantities confirmed by the outside parties and the book balances should be analysed in detail and adjustments carried out in the books of accounts and the approval of the competent authority should be obtained. 15.14.7 Physical inventory of Raw Materials should be taken at all locations as at the end of each quarter/financial year and reconciliation carried out with the book balances. Crude Oil / Product Accounting INDEX Page 397

15.14.8 Differences, if any, between the physical inventory and book balances should be adjusted at the end of quarter/financial year with the approval of the competent authority 15.14.9 If any stock of raw materials is found to be off specification, the same should be clearly indicated in the inventory statement of the location. 15.14.10In respect of raw materials in transit at the end of quarter/financial year, quantity should be determined as per the despatch documents. 15.14.11In respect of raw materials in transit at the end of quarter/financial year, RRs/LRs or subsequent proof of receipt should be available as a proof for verification. 15.14.12All overdue cases of `in-transit' consignments of raw materials despatched by the outside parties should be analysed in detail for appropriate actions. On analysis, if it is established that such consignments are no longer in transit, the same should be removed from the inventories and accounted for as Claims or reduced from the Purchases as the case may be depending upon the facts of each case. 15.14.13Consignments of raw materials despatched through railway tank wagons on inter- Region/intra-Region/Division basis, which remain in transit for a period of less than 2 months from the date of RR should be treated as `raw materials in hand' by the receiving location. Such consignments if remained in transit for a period of more than 2 months but less than 6 months from the date of RR should not be treated as a part of inventories of raw materials as in all such cases, claims are required to be lodged on the Railways within a period of 6 months from the date of RR and accounted for as `railway claims'. It is, therefore, necessary to ensure that in respect of Tank Wagons which are reported to be in transit, formal claim on the Railways is lodged within a period of 6 months from the date of RR to avoid in all such cases becoming time barred for lodging the claim on the Railways. Similarly, such consignments which are despatched by road (trucks) should be transferred to `claims' if trucks are found to be in transit for a period of more than 1 month from the date of despatch and formal claim lodged on the transporters. However, the above time limits should not be applied to the consignments for which other facts like accidents, burglary, theft, leakage, shortage, etc. are known. All such cases should be dealt with appropriately depending upon the facts of each case. 15.14.14Consignments despatched through coastal tankers ex-our own Divisions/Regions should be treated as stock in hand by the receiving location. However, such consignments despatched through tankers(coastal and imports) by outside parties should continue to be shown as `in- transit' till the same are received subject to any other facts which are known and are to be dealt with appropriately. Crude Oil / Product Accounting Page 398

15.14.15Any base oil/additives lying in the kettle in the Blending Plants which are under process at the end of quarter/financial year should be treated as `stock in process' and not raw materials and disclosed accordingly in accounts Under’ Note 9./26 15.15 VALUATION 15.15.1 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. 15.15.2 Inventories of Base Oils and Additives should be valued at moving Weighted Average Cost For this purpose, weighted average cost should represent the cost of opening stock plus purchases made the quarter/financial year. 15.15.3 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. 15.15.4 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. 15.15.5 Contaminated base oils lying as Slopes should be valued at FO 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. Crude Oil / Product Accounting INDEX Page 399

CHAPTER 16 : EXCISE, VAT & GST 16.1 CENTRAL EXCISE DUTY Central Excise duty is a levy on manufacture or production of goods under the Central Excise Act, 1944 and leviable at the time of removal of excisable goods from the factory. It is a levy by Central Govt. having authority as per Entry 84 of List-I of the Seventh Schedule to the Constitution. Post implementation of Goods & Service Tax (GST) in the country w.e.f. 1st July 2017, Central Excise duty has been subsumed under GST. However, our major petroleum products viz. Motor Spirit (MS), HSD, ATF, Crude Oil and Natural Gas has been kept out from the levy of GST for the time being and will continue to be levied Excise duty. GST would be levied on these products from the date as may be notified by the Government on the recommendation of GST council. 16.2 CENVAT CREDIT RULES, 2017 Except these five petroleum products and alcoholic liquor for human consumption, all other goods have been covered under the GST. Thus, CENVAT Credit Rules, 2004 has been abolished and replaced by new CENVAT Credit Rules, 2017 (CCR, 2017). The newly inserted CCR, 2017, which is effective from 1st July 2017 is only providing CENVAT credit of excise duty paid on these excisable inputs, other than MS and HSD, when used in further manufacturing of any of these goods. 16.3 CUSTOM DUTY Custom duty is levied under the Custom Act, 1962 and Custom Tariff Act, 1975 on import or export of products. Various types of Custom duties are provided in Customs Tariff Act, 1975 from time to time like Basic Custom Duty, CVD, Anti-dumping duty, Cess, IGST. Bill of entry for home clearance is filed for in case of import of product at the respective port. Similarly, for export of product shipping bill/bill of export/airway bill are filed for clearance. 16.4 VAT / CST Value Added Tax (VAT) is a State Govt. levy on sale of goods as per the constitutional authority under Entry 54 of List-II of the Seventh Schedule. Central Sales Tax (CST) is Central Govt. levy on Inter-State sale of goods under the power granted by Entry 92A of List-I of the Seventh Schedule to the Constitution but collected and administered by the respective State Govt. Post implementation of GST, the Value Added Tax (VAT) and Central Sales Tax (CST) has been subsumed under the GST. However, as mentioned above, the excluded petroleum products from GST will continue to be levied VAT & CST on Intra-State & Inter-state sale of goods respectively. VAT Input tax credit (ITC) on local purchases of these goods is governed by the respective VAT laws of the particular state. Excise, VAT & GST INDEX Page 400

16.5 GOODS & SERVICE TAX (GST) GST is a major indirect taxation reform in the country which replaced multiple cascading taxes levied by both the Center and State Govts. up to 30th June 2017. GST implemented w.e.f. 1st July 2017 and applicable to throughout India. However, in the State of Jammu & Kashmir it has been introduced w.e.f. 8th July 2017. The Constitution (One Hundred and First Amendment) Act, paved the way for implementation of GST in the Country by conferring the power to both Central and State Govt. to simultaneously levy the tax on supply of goods and services. GST provisions are administered on the recommendation of GST Council which is a constitutional body consisting of Union and State Finance Ministers. Under the GST, most of goods and services are taxed at rate of 0%, 5%, 12%, 18% and 28%. In addition a Compensation Cess is levied on few items like aerated drinks, luxury cars and tobacco products. 16.5.1 Taxes subsumed GST has replaced following major taxes levied and collected by the Central & State Govt. up to 30th June 2017, except for excluded petroleum product, tobacco and alcohol for human consumption. Customs duty on import or export of goods will continue to remain. Central Taxes:- State Taxes:- Excise duty Sales Tax/ VAT Service Tax Entry Tax/ Octroi/ LBT Additional Customs duty (CVD) Purchase Tax Special Addl. Duty (SAD) Luxury / Entertainment tax Central Sales Tax Taxes on Lottery, Betting and Gambling Central Surcharges and Cesses related to State Surcharges and Cesses related to supply of goods and services supply of goods and services 16.5.2 Levy under GST GST is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. Under the GST, there is paradigm shift with regards to incidence of levy against the earlier taxation regime. Incidence of tax under GST arises on supply of goods and/or services which were earlier levied on manufacture sale or provision of service under the pre-GST taxation structures. The term supply includes sale, transfer, barter, exchange, license, rental, lease or disposal, etc. India has dual GST components, one levied by the Centre (Central GST) and the other levied by the State (State GST) or Union Territory (UTGST) on the same value. The CGST and SGST are to be paid to the accounts of the Centre and the States Govt. respectively. In case of inter-state supply/stock transfer of goods or services, Integrated GST (IGST) will be payable. In case of import of goods, IGST will be imposed in place of CVD [equal to excise duty] and special CVD [4% in lieu of sales tax]. The input tax credit will be available to the importer. Exports and supply to SEZ are considered as Zero rated. As stated above, the major petroleum products viz. Motor Spirit (MS), HSD, ATF, Crude Oil and Natural Gas have been kept out from the levy of GST. Excise, VAT & GST INDEX Page 401

16.5.3 Input Tax Credit (ITC) Under the GST there is a system of seamless flow of credit. ITC is eligible when goods or services are used in the course or furtherance of business unless otherwise disallowed or related to exempt supplies. Cross utilization of Input Tax Credit (ITC) between Central GST and the State GST would not be allowed. Though, Integrated GST (IGST) can be utilized for payment IGST, CGST and SGST (as per order prescribed from time to time). Supply of excluded petroleum products are considered as exempt supplies under GST and ITC of GST paid on inward supplies used in or in relation to outward supply of these excluded products is not available. However exports and supplies to SEZ units / developers are considered as Zero-rated supply and ITC would be available even for export of non-GST goods. Considering the fact that GST being an evolving law, the Govt has been announcing various changes in tax rates, procedure, time lines frequently, therefore, it is advised to refer Govt. notifications, orders, circulars and GST circulars and guidelines issued by divisions on all relevant issues from time to time. 16.6 CUSTOMS –AUTHORIZED ECONOMIC OPERATOR (AEO) TIER-2 CERTIFICATION In order to facilitate international trade and ‘Ease of Doing Business in India’ the Govt. of India has taken initiatives of AEO Certification program wherein designated Importers, Exporters and other Economic Operators are entitled for certain benefits and privileges. Accordingly, IOCL obtained AEO T-3 Certificate No. INAAACI1681G3F207 valid upto 27th Oct 2025. Considering that the AEO is an entity-based certification and entity specific single User ID & password is allowed under ICEGATE, it has been decided that Finance Pipeline Head Office (PLHO) shall be undertaking this activity of approval of duty deferment. It will also facilitate effective liaison with the offices of Customs and ICEGATE situated in Delhi /NCR. Modalities /SOP detailing the role of Nodal Officer and the concerned Port location, Administrative Office & Divisions for duty deferment and timely discharge of deferred duty, as circulated to divisions by CO taxation vide IOM dated 31.12.2018, is summarized below: Activity Procedure Action by Availment of Port locations to avail facility of customs duty Port location deferment facility deferment for all Bill of Entry (BoE as per the monitory limit advised from time to time for import of all goods including Crude Oil, Natural Gas, Petroleum products, Plant & Machinery, Chemical, Additives, Catalyst, etc. Filing of BoE by There is no such change in filing of Bill of Entry (BoE) Port location / Port Location by port locations. BoE has to be filed as per existing controlling practice except user has to select “Deferment” office instead of cash payment “Transactional”. INDEX Excise, VAT & GST Page 402

In case there is any issue in availment of duty deferment, the concerned port location to take confirmation for filing of each BoE under cash payment from the concerned divisional headquarter. Request to Nodal After filing of BoE under deferment, Port locations Port location officer to send approval request at the designated e-Mail ID ([email protected]) of Nodal officer under intimation to respective administrative office and divisional headquarter. Responsibility with regards to correctness of Customs duty to be discharged in all respect would rest with the respective port location/ division. Approval by On the basis of request of port location, the Nodal Nodal officer Nodal officer officer will approve the deferment on ICEGATE portal. Nodal officer would not be responsible to verify the Customs duty calculations or correctness of transaction/ documents etc. Payment of duty Payment of applicable Customs duty will be Port location by port location discharged by concerned port location on the due date specified as per Notification no. 134/2016 Port location/ Monitoring over (N.T.) dated 02.11.2016. After successful payment, Administrative timely payment challan details are to be updated in SAP Dashboard Office/ immediately under intimation to Nodal Officer. Divisional Headquarter The concerned Port location, controlling office and divisional headquarter to ensure that payment of all deferred BoE are duly discharged in defined time line as per notification/ procedure prescribed by the authorities from time to time to avoid any adversity on the Corporation including suspension of AEO certification. Customs Duty CO (IS) has developed user friendly Customs Duty Port location/ Dashboard Dashboard for capturing details of BoE, duty Administrative amount, payment thereof and monitoring. Office/ User manual has already been forwarded to Divisional Divisions. Further modifications, if any, may please Headquarter be forwarded for taking up with CO (IS). Excise, VAT & GST Page 403

CHAPTER 17 : COST AUDIT 17.1 COSTING In petroleum industry various products are produced out of single raw material i.e. crude oil and, therefore, the petroleum products are joint products. Products are produced in simpler primary units as well as in complex secondary units. Products are also blended with components obtained by fractionation of the crude oil. The aim of the refiner is to produce more and more light & middle distillates to improve the economics of the refinery. While some of the light & middle distillates are produced requiring lesser processing, many a time bottoms are processed using very complex technologies to produce light/ middle distillates. However, there is a limitation of producing light and middle distillates and some bottom is definitely produced. It is, therefore, difficult to correctly allocate the cost of raw material and the manufacturing cost to each product on the basis of processes involved. In the industry, it is a widely accepted practice to assign process costs to various products on the basis of their relative market value. However, this has very limited significance with reference to managerial decisions as the cost of an individual product is a mere allocation. However, the costing helps in ascertaining the process cost for various process plants as well as the cost of generation of utilities for the purpose of billing the outside parties for supply of power, water etc. and also for economic evaluations. 17.2 LEGAL FRAMEWORK 17.2.1 Section 148 of the Companies Act, 2013, deals with Maintenance of Cost Records and Audit of Cost records. The Companies (Cost Records and Audit) Rules, 2014 came into force on 30th June 2014. These rules were amended on 31st December’ 2014 giving effect to Rule 2, 3, 4, 5, 6, 7 and Form CRA 1 & CRA 3. It was further amended on 12th June’2015 to giving effect on Form CRA 2 & CRA 4. Further amendment was made on 14th July 2016 and may be called the Companies (cost records and audit) Amendment Rules, 2016. 17.2.2 Companies (cost records and audit) Rules, 2014 was further amended on 7th December 17.2.3 2017. FORM CRA-1 and CRA-3 were substituted in the Principal rules and clause (fa) in rule 2 was inserted. These rules may be called the Companies (cost records and audit) Amendment Rules, 2017. The Rules have classified sectors/industries under Regulated and Non-Regulated sectors. The sectors/industries covered under Table A of the Rules are under the Regulated Sector and sectors/industries covered under Table B are under the Non-Regulated Sector. As per Rule 3 of Companies (cost records and audit) Amendment Rules, 2017, Every company, including foreign companies defined in clause (42) of section 2 of the Companies Act 2013, engaged in the production of the goods or providing services, specified in Tables A and B, having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year, shall be required to maintain cost accounting records. Cost Audit INDEX Page 404

17.2.4 As per Rule 4 of Companies (cost records and audit) Amendment Rules, 2017, Every company 17.2.5 specified in Table A of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more. Every company specified in Table B of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more. The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3; and (i) whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or (ii) which is operating from a special economic zone; (iii) which is engaged in generation of electricity for captive consumption through Captive Generating Plant. The principles of maintenance of cost accounting records have been notified in the Rules in CRA-1. The principles are in sync with the cost accounting standards. The Rules are principle based and no formats have been prescribed for maintenance of cost accounting records like pre-2011 industry specific rules. No separate format based records maintenance has been prescribed even for the Regulated Industry and the prescription has left it open for industry to maintain cost accounting records according to its size and nature of business so long as it determines a true and fair view of the cost of production, cost of sales and margin of the products/services. The cost audit report is required to be in conformity with the “cost auditing standards” as referred to in Section 148 of the Companies Act, 2013. 17.3 COST AUDITOR APPOINTMENT The category of companies specified in rule 3 and the thresholds limits laid down in rule 4, shall within one hundred and eighty days of the commencement of every financial year, appoint a cost auditor. Provided that before such appointment is made, the written consent of the cost auditor to such appointment, and a certificate from him or it, as prescribed shall be obtained. Every company which is required to appoint cost auditor shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, through electronic mode, in form CRA-2, along with the fee as specified in Companies (Registration Offices and Fees) Rules, 2014. Cost Audit INDEX Page 405

17.4 COST AUDIT REPORT 17.4.1 The cost statements, including other statements to be annexed to the cost audit report, shall be approved by the Board of Directors before they are signed on behalf of the Board by any of the director authorised by the Board, for submission to the cost auditor to report thereon 17.4.2 Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, in form CRA-3. 17.4.3 Every cost auditor shall forward his duly signed report to the Board of Directors of the company within a period of one hundred and eighty days from the closure of the financial year to which the report relates and the Board of Directors shall consider and examine such report, particularly any reservation or qualification contained therein. 17.4.4 Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report alongwith full information and explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 alongwith fees specified in the Companies (Registration Offices and Fees) Rules, 2014.”. 17.5 GUIDELINES FOR PREPARATION OF COST SHEETS 17.5.1 An integrated system of cost and financial accounting is in place. Expenses and Income are captured cost-center-wise. Grouping of expenses to be done under the various heads of cost centers in four categories, as follows: a. Process Cost Centers These include processing units like Crude Distillation units, Fluidised Catalyst Cracking unit, Hydro cracking unit, Diesel Hydro Desulfurisation unit etc. b. Utility Cost Centers These are the units producing various utilities for use in refinery process like Electricity, steam, compressed air, fresh water etc. c. Plant Overhead The cost centers catering to process/utility cost centers are grouped under Plant Overheads. Examples: Maintenance workshop, laboratory, Oil movement & storage unit. d. Administrative Overhead The cost centers like Finance, Personnel & Administration, Township; School etc. are grouped under this head. Cost Audit INDEX Page 406

All expenses booked directly to a cost centre, should be grouped under the relevant cost centre. However, where the expenses have not been booked cost centre wise e.g. insurance, natural gas etc., the same should be allocated equitably. Hence, total cost should be computed for each cost centre. 17.5.2 Identification of cost centres for LBP/ SCFP/ Drum Plants: a. Lube Blending Plants (LBP) & Small Can Filling Plants (SCFP) are identified as separate cost centres. b. In case of SCFPs where no blending activity is carried out, the cost of such plants is added to the cost of the plant supplying finished product for filling in SCFP. c. Drum plants which are meant for captive consumption are also identified as a separate cost centre. 17.5.3 Material Cost in case of Lube blending/Drum/ Small Can filling plants: • Base Oil: The quantity & value of various grades of base oil procured from own refineries, purchases from OMCs and imports are identified separately for each of the plants. Quantity & value of consumption of base oil is worked out based on the actual input for production. • Additives: Additives of different grades procured from indigenous sources and imports are identified for each of the plants. Quantity & value of consumption of additives is worked out based on the actual input for production. • Packaging materials: Containers of different sizes & packing materials procured from indigenous sources (including procurement from own drum manufacturing plant) are identified and accounted separately for each of the plants. Value & quantity of consumption of the same is based on the filling of finished lubricants in various containers & packages. 17.5.4 Plant Cost: Direct costs such as power & fuel, repairs & maintenance, consumption of stores, salaries & wages and other direct expenses incurred for the plants are identified based on the cost centre of the plant. 17.5.5 Fixed Cost Under-Absorption In case actual throughput is less than the normal capacity (average capacity utilization for last three years), then fixed expenses remain under absorbed to that extent. 17.5.6 Re-appropriation of expenses All expenses under the cost centre “township” should be regrouped under the account head “Salaries and Wages”. Similarly, expenses on “Conveyance Reimbursement” should also be grouped under salaries and wages. Cost Audit Page 407

17.5.7 Allocation of Overheads: Expenses of Plant Overheads are distributed over Process & Utility Cost Centers in the ratio of Direct Cost and those of Administrative overheads are distributed over these Cost Centers in the ratio of their manpower cost. Direct Cost includes all Operating Cost excluding depreciation Plus Fuel. Research & Development Expenses: Per unit cost is calculated on the basis of total expenditure transferred by R&D Division on total production quantity lubricants & greases of Marketing Division. This overhead is absorbed by the plants on the basis of total quantity of production from the plant. Selling & Distribution Overheads: Allocated based on dispatch values. 17.5.8 Utility Cost: Utility cost per unit is calculated using matrices to take care of the inter-consumption of utilities. The quantity of each utility consumed in Plant & Administrative Overhead Cost centres is allocated/ reallocated to Process Cost centres in the ratio of quantity of utility directly consumed by each process cost centre. Utility cost is distributed to Process Cost Centres based on the quantity of each utility consumed by each cost centre. 17.5.9 Allocation of Pipelines Cost: For the purpose of Cost records, each pipeline unit has been considered as cost centre. Separate cost centre for alternate source of energy business i.e. Wind Power & Solar Power has been considered. Total cost of crude and product pipelines (other than non-cost items but including costs booked at Registered Office or other Division on behalf of Pipelines Division) are to be allocated to respective Refinery and Marketing TOP respectively. Income and Cost relating to Wind and Solar Power should be excluded from the Pipelines cost. However, actual cost of generation for captive consumption of wind/solar power in Pipelines should be considered as cost. a. Product Pipeline:- Fixed cost (including depreciation) of product pipelines is allocated to various Marketing TOPs in the ratio of Th’put in MMTKM terms based on higher of installed capacity (alternatively, average of actual delivery during last 3 years may also be taken) or actual delivery for respective section of the pipeline. Fixed cost per MT is calculated by dividing allocated fixed cost with higher of capacity or actual delivery. Any fixed cost which remained unabsorbed as per above will not be allocated. Variable cost of product pipeline is allocated to various Marketing TOPs in the ratio of Th’put in MMTKM terms based on actual delivery for respective section of the pipeline. Variable cost per MT is calculated by dividing allocated variable cost with actual delivery. Fixed and variable cost towards deliver of interface through product pipelines should be allocated to respective refineries only. Cost Audit Page 408

b. Crude Pipeline:- Fixed cost (including depreciation) of crude pipelines is allocated to various Refineries in the ratio of Th’put in MMTKM terms based on higher of installed capacity (alternatively, average of actual delivery during last 3 years may also be taken) or actual delivery for respective section of the pipeline. Fixed cost per MT is calculated by dividing allocated fixed cost with higher of capacity or actual delivery. Any fixed cost which remained unabsorbed as per above will not be allocated. Variable cost of crude pipeline is allocated to various Refineries in the ratio of Th’put in MMTKM terms based on actual delivery for respective section of the pipeline. Variable cost per MT is calculated by dividing allocated variable cost with actual delivery. Information regarding actual delivery of crude/product, COT Income, Cost computed as above and Margin (COT Income less Cost) should be sent to RHQ and Marketing HO for inclusion in their cost records. 17.5.10 Generation of Solar and Wind Power (other than captive generating plant): Separate cost centres for booking of cost relating to wind and solar power plant are available in SAP. Further Income from sale of wind and solar power are captured in identifiable GL. In new GL, booking of income and cost relating to wind and solar power will be captured in separate profit centre. Technically achievable capacity is to take as normal capacity for cost records of Wind and Solar power. Therefore, Normal capacity = Installed capacity X Technically achievable (in %age) Captive consumption of wind and solar power in Pipelines will be reduced in cost sheet from “Cost of production” at cost to arrive at “Cost of Product Sold”. Accordingly, the difference in amount of captive consumption as per cost records and financial records shall form part of profit reconciliation in cost records. 17.5.11 Production of Gas and Condensate from own E&P block (other than captive generating plant):- Separate cost centres for booking of cost relating to E&P are available in SAP. Further Income from sale of Gas and Condensate are captured in identifiable GL. The cost is booked as per the details given by the operator. Captive consumption of condensate will be reduced in cost sheet from “Cost of production” at cost to arrive at “Cost of Product Sold”. Accordingly, the difference in amount of captive consumption as per cost records and financial records shall form part of profit reconciliation in cost records. 17.5.12 Sale of Power Cost Audit Page 409

a. Where sale of power is not material/ not quantifiable or sale of power to other divisions - In this case income from Sale of power to be adjusted from the cost of process cost centre in the ratio of allocation of power cost. Income should not be reduced from utilities cost as otherwise cost per unit of utility will not be correct. b. Where there is substantial qty of power sold to outsiders e.g. Sale of power to ASEB at Digboi or to BOO contractor at Panipat- While preparing matrices, Income should not be reduced from utilities cost as otherwise cost per unit of utility will not be correct. In this case qty of sale multiplied by the cost of power should be reduced from utilities. Any difference between realization from sale of power and cost of power to be considered as profit reconciliation. 17.5.13 Cost of Hydrogen Cost per MT of hydrogen is computed based on total cost of HGU including natural gas used as feed and hydrogen production. Cost of hydrogen is allocated to the process units in the ratio of quantity consumed. 17.5.14 Working Capital Interest Working Capital Interest allocated to units should also be considered in cost of production and then allocated to all the products in the ratio of their sales realization. 17.5.15 After grouping the expenses to various cost centres and allocation of Plant & Administration overheads to Process/utilities cost centres, a reconciliation statement should be prepared showing the reconciliation between expenses considered in the grouping of the expenses and the expenditure as per Profit Loss Account. 17.5.16 Non-Cost Items: Abnormal Cost/ Loss, finance cost (e.g. Interest for financing of projects/ exchange fluctuation), prior period income/loss and other non-cost items (Annexure – 17.1) are not considered in cost records. 17.5.17 Valuation of Stocks: The value of opening and closing stock of crude Oil, intermediate and finished products is taken at cost as per financial books as follows: Cost of finished goods stock is based on weighted average cost of the last month/s to which the quantity lying in stock pertains on FIFO basis. Cost of intermediate stock is considered at Raw Materials cost plus 50% of the operating cost plus 50% of fuel& loss. Cost of Raw Materials including stock in transit is based on moving weighted average. 17.5.18 Product Costing Cost Audit Page 410

Product wise Cost of Production is computed. Realization from byproducts/ scraps or wastages is reduced from the cost of production of the unit in which it is generated. However, for Refineries all petroleum products are considered as joint products. Total cost of production is divided in two parts a. Specific Cost Expenses/ cost incurred for a particular product are considered specific cost e.g. total cost of DHDT/ DHDS is specific cost for HSD as this unit is meant to produce HSD only. Packing Cost is added to the cost of specific product e.g. Bitumen Packing Cost is specific for Bitumen. b. Joint Costs Joint Cost i.e. total cost of production less specific cost is allocated among all the products in the ratio of their sales realization. Sales realisation refers to the value at which products are transferred to marketing division less under recoveries. 17.5.19 Transfer of products to Petrochemicals Transfer of products from Refinery to Petrochemicals/ Refinery is based on Refinery Transfer Price. However, in case of Petrochemicals where the entire product of one unit is captively consumed, transfer is reckoned at cost e.g. Px to PTA. 17.5.20 Cost Sheet Cost Sheets should be prepared for each Process and Utility Cost Centre. Utility Cost Sheets should indicate the Cost under each expense head, rate per unit of the current year and comparative figures for the previous year. Cost Sheet should also be prepared for each product showing its opening stock, production, dispatch and closing stock (qty, rate and value). Product wise margin is also computed. 17.5.21 Methodology for Valuation of Sales, Inter-unit and Related Party transactions: a. Sales to customers & stock transfers to other locations/ depots/ CFAs from the plant are valued at applicable selling price, net of excise duty & taxes. b. Related party transactions are valued at applicable general selling price for the category of customers & products. c. Discount on Sales: Per unit discount is calculated on the basis of total discount booked by Marketing Division for the total sales of lubricants & greases. This discount rate is applied by the plants for the total quantity of dispatches (sales & stock transfers) from the plant. The difference in sales value as per the financial books vis a vis sales value of dispatches for all the plants, shall be allocated to respective plants in the ratio of value Cost Audit Page 411

of dispatches of lubes & greases for the respective plant to total value of dispatches of all Lube Blending plants/Small can filling plants d. Raw material transferred from IOCL refinery to lube blending plants is being recorded at Refinery transfer price in MD books and difference between Cost of production and RTP is eliminated during consolidation of cost audit with refinery division. 17.5.22 Product - Abridged Cost Statement The cost records referred to in sub-rule (1) of Rule 5 is required to be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities. Hence, it is imperative that the cost accounting records are required to be maintained and cost statements prepared for each and every product/service/activity that the company is engaged in. Abridged Cost Statement for every product identified with the 8-digit CETA Code is required to be provided. For activities/services for which CETA Code is not applicable, the Abridged Cost Statement shall be for each service/activity. 17.5.23 Process for preparation of Consolidated cost audit report: • Refinery Units should send their Cost Audit Reports to RHQ for consolidation • Pipeline & BD division shall forward their Cost Audit Reports to RHQ for consolidation • Lube blending plants/ small can filling plants will forward their Cost Audit Reports to Marketing HO for consolidation and Marketing HO will forward the same to RHQ for the overall consolidation as only one Consolidated Cost Audit Report for the Company as a whole is to be filed with the Govt. 17.5.24 Annexure to Cost Audit Report in prescribed format needs to be approved by the Board. Consolidated Cost Audit Report is prepared considering the observations/ qualification of all Cost Auditors. 17.5.25 Filing of Cost Audit Report - Cost Audit Report are submitted electronically to the Central Govt. in XBRL format after fixing the digital signature of one Director or Company Secretary in Form No. CRA-4 within 30 days from the date of receipt of a copy of the cost audit report. Cost Audit Page 412

NON-COST ITEMS Annexure – 17.1 Income/ Expenditure Head BS node/ SAP GL Code Profit on sale/disposal of assets N.5 Unclaimed liabilities written back N.6 Prov. for doubtful debts, claims written back N.7 Provision for Contingencies written back N.7.1 Profit on Sale of Investments N.3 Provision For Investment Written Back N.8 Provision For Diminution in Trust Written Back N.8.1 Recovery towards Inventory carrying cost N.17 Reversal of Impairment Loss N.18 Commission and Discount Received N.20 Interest Income Note 24 except N.26 Bad debts, advances, claims written off O1.11 Loss on assets sold, lost, written off O1.12, O1.12.1 Exchange Fluctuation profit/loss O1.14 Provision for doubtful debts, advances, claims, etc. O1.15 Provision for Diminution in Investment O1.16 Loss on sale of Investments O1.17 Inventory Carrying Cost O1.21 Provision for Probable Contingencies O1.24 Amortisation of Premium/(Discounts) on Forward Contracts O1.25 Commodity Hedging Losses (Net) O1.27 Amortisation of FC Monetary Item Translation O1.28 Provision for Diminution on Receivable from Trust O1.29 Premium on Option Contracts O1.30 Loss/(gain) on Derivatives O1.31 Gain/ Loss on Financial instruments classified as FVTPL O1.33 Cost Audit INDEX Page 413

Donation O1.4 Propaganda & Publicity Expenses on CSR Activities O2.07 Impairment Losses Crop compensation for right of Way O2.08 Demurrage & wharfage PL.2.4.2 Applicable Net Gain / (Loss) on Foreign Currency Transactions and Translation 5293300000 Interest Expenses 5270210100, 5270210200, 5270210300, 5270210400 O1.14.111 Note 28 except working capital interest Units to consider other Non-Cost Operating Costs specific to units, if any Like AS-2 impact on stock, margin elimination etc., under absorption of overheads, Deferred chemicals & Catalyst cost and Repairs & Maint. etc Cost Audit Page 414

CHAPTER 18 : TRADE RECEIVABLES 18.1 DISCLOSURE REQUIREMENTS As per Schedule III of Companies Act 2013, trade receivables shall be disclosed as follows: • Trade receivables shall be sub-classified as: - Secured, considered good; - Unsecured, considered good; - Unsecured, considered doubtful • Allowance for bad and doubtful debts shall be disclosed under the relevant heads separately. For disclosure purpose trade receivable are to be further classified as Receivables from Related Party and Receivables from Others. 18.2 SECURED Trade Receivables should be classified as Secured only to the extent of financial securities held by us. For this purpose, bank guarantees given by the Debtors should not be considered as security and hence for the purpose of accounting such Debtors should not be considered as `Secured'. 18.3 DOUBTFUL Sundry debtors from whom the recovery / realization of the outstanding amounts is not certain or is open to questions or lacks definite opinion, conviction about collection, amount due from such debtors should be classified as doubtful. In order to determine or assess the certainty of realisation of outstanding Sundry Debtor, no thumb rule or permanent yardstick can be laid down, but following major factors can be kept in view while forming an opinion about certainty of the realization of the debt. • Latest financial position of trade receivable in question. • Contractual terms and conditions of supply of goods and rendering of services and its enforcement under the prevalent laws. • Past experience with trade receivable in question. • Constitution of trade receivable, i.e. Government, Semi-Government or Private. • Trade receivable under liquidation/ referred to NCLT • Age of outstanding, etc. Each of the Trade Receivables outstanding at the end of the quarter/financial year should be thoroughly reviewed by the functional department concerned under whose jurisdiction such outstanding Trade Receivables fall and a fair assessment carried out and opinions formed regarding the ability to realize the outstanding debts. On such a critical review, some of the Trade Receivables may qualify for classifying as doubtful. Details of such Trade Receivables should be separately made out and management's approval needs to be obtained to classify them as doubtful along with broad reasons for considering the same as doubtful. Trade Receivables INDEX Page 415

Classification of a Trade Receivable as 'doubtful' should be without prejudice to the rights of our Corporation to expedite the collection of the amount due from the concerned parties. Therefore, it is imperative that collection action in such cases are intensified and made very vigorous by the functional departments. Position of doubtful Trade Receivables (already classified and/or being classified) should be reviewed and monitored from time to time. Provision for doubtful debts made in the earlier reporting period no longer required (due to liquidation of book debt either by realization, write off or any other reasons) should be separately written back and accounted for under the relevant financial codes and should not be set off against fresh provisions set up during the quarter/financial year. 18.4 IMPAIRMENT LOSS ON TRADE RECEIVABLES In accordance with Ind AS 109, for measurement and recognition of impairment loss on Trade Receivables, the simplified approach of Expected Credit Loss (ECL) model is adopted. The simplified approach does not require to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a Trade Receivables. As a practical expedient, a provision matrix is prepared to determine impairment loss allowance on trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward- looking estimates. At every year end, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed. In case of material change, the ECL allowance rate will be suitably modified. This also includes specific provisions on cases considered doubtful for recovery. On that basis, the provision on trade receivables at the reporting date is estimated. ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss (P&L). Currently, ECL impairment loss is provided at 0.10% on total Trade Receivables excluding doubtful debts on which specific provision has been made. Please refer Chapter-19 on Financial instruments for more details on the impairment requirements. 18.5 CLASSIFICATION For monitoring and control over the dues, IOCL has classified Trade Receivables as per their trade category, i.e. DGS&D, STUs, Powerhouses, etc. Customer Categories PRIVATE-OTHERS STU GOVT-OTHERS FERTILIZER-GOVT EXPORT SALES FERTILIZER-PRIVATE CCA STEEL PLANTS-GOVT ARMY STEEL PLANTS-PVT NAVY POWERHOUSE-GOVT AIRFORCE POWERHOUSE-PVT Trade Receivables INDEX Page 416

AVIATION-GOVT RAILWAYS AVIATION-PVT OMC SHIPPING-GOVT RO/AGENCIES SHIPPING-PVT ONE TIME CUSTOMER LPG-GOVT SUBSIDIARY COMPANIES OF IOCL LPG-PVT JOINT VENTURES OF IOCL 18.6 CONFIRMATION OF BALANCES / JOINT RECONCILIATION WITH CUSTOMERS Confirmation of balances / Joint Reconciliation between IOCL & the customers is a compulsory and perpetual prerequisite to avoid disputes by customers at a later date. • PAD (Statement of account) need to be made available to the customer either in electronic form or physical form at monthly frequency. • Acknowledged PAD statement can be accepted from Dealers / Distributors, channel partners, customers and SKO agents as reconciled balance, if no discrepancies are noted by the parties. In case any discrepancies, Joint reconciliation should be completed and corrective action to be taken if any. State offices to thrust to obtain the confirmation in electronic form. • All customer other than Aviation and Marine customers having outstanding of Rs. 10 lacs (debit/credit) and above at the close of any month during previous 12 months shall be treated as major customer. For all major customers, joint reconciliation should be completed by the state office during the financial year with the help of State functional group. • For all customers other than major customers, reconciliation should be carried out by DO/AO finance person jointly with field force. • Joint Reconciliation of all Aviation and Marine shall have to be effected once in 6 months. • Post reconciliation, all open items to be cleared and corrections carried out in SAP, for which functional department to provide necessary approvals/documents. • Details of payments made by customers - bill wise are required to be made available by the concerned field officer at the time of reconciliation. However, if customer is unable to provide the same, a confirmation from customer to be obtained towards acceptance of appropriation of payments on FIFO basis. • Post Joint reconciliation, a proper reconciliation sheet is drawn up duly signed by Finance officer, Function Department & the authorized representative of customer. 18.7 REFUND OF CUSTOMER BALANCES Refund to the customers can be made only after joint reconciliation as mentioned above. All open items in Joint reconciliation shall be duly accounted before releasing any refund. Refund to Aviation customers shall be made at Regional offices. All other cases refunds shall be made by customer controlling state office. The following procedure to be followed for refund of customer balances Trade Receivables INDEX Page 417

• The customer to make refund request with complete details of supplies and payments of the post reconciliation period to the functional department of respective SO/DO/AO. • On receipt, functional department to verify the SAP balance and resolve differences, if any. • Functional department to certify and forward the request to Finance after ensuring that no pending debit note on account of pending submission of C form, no pending Interest for delayed payment, No pending TDS certificates to be received, No open items in VF04 & VFX3 against the customer requesting refund. • Before releasing the payment, finance department to ensure that there is no debit balance against this customer in any other company code. • In case, if the customer happens to be vendor also, care to be taken that vendor account doesn’t contain any debit balance. • Refund to be made directly by debiting customer account through document type ‘CZ’ In case of Aviation customers making advance payments in USD/Foreign Currency, refund can be made in currency mentioned as per the terms of the agreement with the customer. In case if the agreement is silent, refund shall be made in the USD/Foreign Currency. In case customers making payment in both INR & Foreign Currency, Refunds shall be made in INR and the payment can be made in the currency desired without any implication of exchange fluctuation on purchase of currency to the corporation. 18.8 COMPANIES (ACCEPTANCE OF DEPOSIT) RULES 2014 An advance for supply of goods or services received from customer (other than a company) and not appropriated against sales within 365 days shall be treated as deposit and Companies (Acceptance of Deposit) Rules, 2014 shall apply. Refund is to be made within 15 days from the expiry of 365th day, strictly as per the guidelines issued by divisional HO. Some of the important points are as follows: • These rules shall apply only to non-company category customers. For identification, proper details are to be updated under legal status in customer master along with PAN. • Credit balance arising out of payment made on or after 01.04.2014 only shall be considered for arriving at unmoved balances. • Unmoved credit balances over 6 months upto Rs.500 shall be taken to miscellaneous income by keeping memoranda records. • Credit balances arising out of credit notes, security deposit, SVTV, EMD, etc. would not be considered as deposits • Before processing the refund, State office finance/Functional department shall ensure all the procedure mentioned above under ‘refund of customer balances. Trade Receivables INDEX Page 418

18.9 KNOCKING OFF OF CUSTOMER BALANCES Knocking off facilitates linking of payments with related invoices and generation of resultant open items, which can be correctly categorized for Ageing of trade receivables with bill wise details. • In case of Cash & Carry customer, SAP facilitates knocking off at invoice level itself. • In case of Demand Draft on Delivery (DOD)/Credit RO dealers, respective DO/SO shall knock off the open items periodically. • In case of Credit customers, bill wise payment details are required to be made available from customer. If the customer is unable to provide the same, a confirmation letter to be obtained from customer towards acceptance of appropriation of payments on FIFO basis. Knocking off to be carried out by respective SO/DO as per the details provided by customer. • After knocking off, the resultant short/excess payment if any, to be properly identified invoice wise and details of the same should be made available with finance department. These short/excess payments should be regularized by respective functional department. 18.10 POOLING OF CUSTOMER BALANCES It may happen that customer is controlled by one state office, but the supplies are made in another / multiple state offices. Customer controlling state office shall pool the balances of its customer lying elsewhere. The balances under Scrap customers shall not be pooled. In nutshell, it is to be ensured that balances in a customer account whose account is maintained by more than one State office should be reflected on all India basis by setting off the credit balances, if any, with the debit balances. 18.11 CREDIT BALANCES IN TRADE RECEIVABLES Credit balances lying in Trade Receivables at the end of each reporting period shall be reported under ‘Other liabilities – Advance from customers. After ascertaining credit balances, based on the data provided by State offices, Regional Office shall transfer the credit balances lying in Trade Receivables, Category wise to other liabilities by using dummy customer codes created for this purpose. Inoperative credit balances of all customers, other than those covered under Companies (Acceptance of Deposit) Rules 2014, lying for more than 3 years at the end of each quarter should be scrutinized in detail and considered for transferring to Miscellaneous Income upon the merits of each case. 18.12 AGEING OF CUSTOMER BALANCES Ageing of Trade Receivables is a regular quarter end exercise which is being done based on the data provided by State offices at Regional Office. State offices should calculate age of each and every receivable from customer as upto 90 days, 90 days to 6 months, 6 months to Trade Receivables INDEX Page 419

1 year, 1-3 year and more than 3 years for annual accounts purposes. Ageing is to be carried out strictly based on the open items in customer code after proper knocking off of open items as mentioned above. Further to the above, state offices shall also prepare a detailed ageing sheet as per the format provided for debit balances in all trade receivables, showing whether the outstanding is with credit terms offered to customer or beyond the credit terms. 18.13 OTHER GUIDELINES • Though balances from Non-Fuel Revenue (NFR) customers are for control purpose mapped with Trade Receivables, they should not form part of Trade receivables. At the end of each reporting period, the total balances appearing in the NFR recon GL’s shall be transferred to ‘Other receivables’ by passing a JV. • For central NFR customers, where invoicing is carried out in multiple state offices and receipts in one state office, State offices where debit balances are lying shall knock off the invoices with receipts in other state office on receipt of information from customers. • Interest is to be charged on the interest-bearing credit to all customers. Interest clause for the approved credit period and default period (payment terms) is to be incorporated in MOU/Agreement with customer. • Debit notes for interest shall be raised by debiting customer code and crediting Interest Income GL. However, as per the schedule III, interest accrued on trade receivables shall not form part of Trade receivables and hence shall be classified as ‘Other Financial assets. • Regional offices based on the information received from state offices shall at each reporting period pass a consolidated JV by transferring in Interest receivable from Customers to other financial assets and reverse the same in the next posting period. • Amount receivable from foreign parties and included as a part of trade receivables in foreign currency shall be revalued at the exchange rates applicable at the end of the reporting period. Any loss/gain arising out of such revaluation should be adjusted in the Profit & Loss Account. • In case amount receivable from such foreign parties included in Trade Receivables is classified as doubtful, no revaluation should be done based on the exchange rate prevailing at the end of the financial year. In other words, value of such Debtors should be retained at a level when the same was classified as doubtful. • All unlinked debits/credits should be scrutinized and linked with the relevant customer’s account and adjustments carried out accordingly. • Amount receivable from the parties for whom certain works have been carried out on the basis of `deposits paid' should not be accounted as trade receivables and should be accounted as `advance recoverable'. However, credit balances under the deposit account of such parties should be accounted under “Other liabilities” • In SAP, revenue from sale of goods is recognized on preparation of sales invoice. As per IND AS 115, revenue should be recognized when the goods are delivered/accepted by the dealer. Hence, sales excluding taxes to the extent of goods Trade Receivables INDEX Page 420

delivered subsequent to the reporting date shall be reversed by passing reversible JV debiting sales GL and crediting customer code. For this purpose, instead of crediting customer wise, a dummy code can be used and JV passed in total. Trade Receivables Page 421

CHAPTER 19 : FINANCIAL INSTRUMENTS 19.1 BACKGROUND Ind-AS prescribes different set of rules for financial and non-financial items. While all important subject areas of non-financial items are having separate set of standards e.g. Ind- AS-16 for PPE, Ind-AS-2 for inventories, there is only one standard on recognition (plus two standards on presentation and disclosure requirements ) for all financial items weather it is an investment or trade receivable or trade payable. These standards prescribe various accounting requirements like classification, recognition, measurement, de-recognition, presentation and disclosure for all type of financial assets and liabilities. This Chapter deals with the following- • Definition of Financial assets and financial liabilities • Classification of financial assets and financial liabilities • Initial measurement of financial assets and financial liabilities • Subsequent measurement of financial assets and financial liabilities • Impairment of financial assets • De-recognition of financial assets and financial liabilities • Financial Guarantees • Derivatives (including Embedded Derivatives) • Presentation and disclosures 19.2 REFERENCES TO AUTHORITATIVE LITERATURE • Indian Accounting Standards issued by the Central government in consultation with National Advisory Committee on Accounting Standards (‘NACAS’) - Ind AS-109 Financial instruments - Ind AS -107 Financial instruments disclosures - Ind AS 32 Financial instruments presentation - Ind AS 113 Fair Value Measurement • Ind AS Compliant Schedule III to Companies Act 2013 and Guidance note 19.3 ACCOUNTING FOR FINANCIAL INSTRUMENTS UNDER IND AS 19.3.1 Definitions A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party. A financial asset is any asset that is: INDEX • Cash; • An equity instrument of another entity; Financial Instruments Page 422

• A contractual right: - To receive cash or another financial asset from another entity; or - To exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or • A contract that will or may be settled in the entity's own equity instruments and is: - A non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments; or - a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. A financial liability is any liability that is: • A contractual obligation: - To deliver cash or another financial asset to another entity; or - To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or • A contract that will or may be settled in the entity's own equity instruments and is: - A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments; or - a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Examples of equity instruments are equity shares, preference shares (if certain criteria are met), Warrants, Written call options to issue fixed number of equity shares for a fixed price etc. IOCL specific examples of financial instruments are as follows: • Cash and cash equivalents • Trade receivables • Trade payables • Investment in equity shares (other than subsidiaries, associates and joint ventures) • Investment in non-convertible redeemable preference shares issued by CPCL (subsidiary) • Investment in Government securities (GOI special bonds) • Investment in compulsorily convertible debentures issued by IOLPL (JV) • Investment in mutual funds • Security deposits received • Security deposits paid • Derivative instruments including commodity derivatives • Borrowings Financial Instruments Page 423