WORLD TRADE  
ORGANIZATION  G/ADP/N/1/IND/2/Suppl.4 
G/SCM/N/1/IND/2/Suppl.4 3 November 2006 
 
(06-5303) 
Committee on Anti-Dumping Practices 
Committee on Subsidies and Countervailing Measures Original:   English 
 
 
 
NOTIFICATION OF LAWS AND REGULATIONS UNDER  
ARTICLES 18.5 AND 32.6 OF THE AGREEMENTS  
 
INDIA 
 
Supplement  
  
 The following communication, dated 24 October 2006, is being circulated at the request of 
the Delegation of India. 
 
_______________ 
 
 
 Vide Finance Bill 2006-07. an am endment has been made in In dia's Customs Tariff Act 1975 
in its Section 9A.  This is notified for Members' in formation pursuant to Article 18.5 of the Agreement 
on Implementation of Article VI of the GATT 1994.  
 
 
Amendment of Section 9A  
 
 In section 9A of the Customs Tariff Act, in sub- section (1), in the Explanation, in clause (c), 
in sub clause (i), for the words "meant for consump tion", the words "destined for consumption" shall 
be substituted. G/ADP/N/1/IND/2/Suppl.4 
G/SCM/N/1/IND/2/Suppl.4 Page 2 
 
 
   Vide India's Customs Notification No. 24/206- Customs (N.T.) dated 1 March 2006, some 
changes have been made in India's Customs Tar iff (Identification, Assessment and collection of 
Countervailing Duty on Subsidy Articles and for Determ ination  of Injury) Rules 1995.  In addition, 
some amendment have also been made in India's Customs Tariff Act in Section 9 vide Finance Bill 
2006-07.  These are notified for Members information pursuant to Article 32.6 of the Subsidies and 
Countervailing Measures Agreement.  
 
Amendment of Section 9  
  
 In Section 9 of the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Act)  (a) in sub-section (1), in the Expl anation, in clause (a) for the wo rds "within the territory of the 
exporting or producing country", the words "in the exporting or producing country or 
territory" shall be substituted; 
 (b) after sub-section (7), the following s ub-section shall be inserted, namely: 
  "(7A)  Unless otherwise provided, the provisions of the Customs Act 1962 and the rules and 
regulations made thereunder, rela ting to the date for determina tion of rate of duty, non-levy, 
short-levy, refunds, interest appeals, offences and penalties shall, as far as may be, apply in 
relation to duties leviable under that Act". 
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 G/SCM/N/1/IND/2/Suppl.4  Page 3 
 
 
  1 March 2006 
 
Notification No. 24/2006 (N.T.) 
 
Customs Tariff (Identification, assessment and collection of countervailing duty on 
subsidies articles and for determination injury) Amendment Rules 2006 
   G.S.R. 123(E) - In exercise of the powers c onferred by sub-section (2) of section 9 of the 
Customs Tariff Act, 1975 (51 of 1975), the Central G overnment hereby makes the following rules to 
amend the Customs Tariff (Identification, asse ssment and collection of countervailing duty on 
subsidies articles and for determination injury) Rules 1995, namely:-   1.  Short title and commencement (1) The Rule may be called Customs Tariff (Identification, 
assessment and collection of countervailing duty on subsidies articles and for determination injury) 
Amendment ) Rules 2006.   (2)  They shall come into force on the date of their publication in the Official Gazette.  
 2.  In the said Customs Tariff (Identification, assessment and collection of  countervailing duty on 
subsidies articles and for determination injury) Rul es 1995,(herein after referred to as the rules),  
 in rule 11, in sub-rule (1),-   (a)  for clause (a), the clause shall be substitu ted, "(a) relates to export performance including 
those illustrated in Annexure III to these rules, or";  
 (b) the proviso shall be omitted.   3.  In the said rules, for rule 12, the follo wing rule shall be substituted, namely;-  
 
"12. Calculation of the amount of the countervailable subsidy  
 (1)  For the purposes of these rules, the amount of countervailable subsidies, shall be calculated in 
terms of the benefit conferred on the recipient whic h is found to exist during the investigation period 
for subsidization  
 
(2)  As regards the calculation of benefit to th e recipient, the following factors shall apply, 
namely:-   (a)  government provision of equity capital shall not  be considered to confer a benefit, unless the 
investment can be regarded as inconsistent with  the usual investment practice (including for 
the provision of risk capital) of private investors in the territory of the country of origin or 
export;  
 (b)  a loan by a government shall not be consider ed to confer a benefit, unless there is a difference 
between the amount that the firm receiving the loan pays on the government loan and the 
amount that the firm would pay for a comparable commercial loan which the firm could 
actually obtain from the market and in that ev ent the benefit shall be the difference between 
these two amounts;  
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  (c)  a loan guarantee by a government shall not be considered to confer a benefit, unless there is a 
difference between the amount that the firm  receiving the guarantee pays on a loan 
guaranteed by the government and the amount that the firm would pay for a comparable commercial loan in the absence of the government  guarantee and in such case the benefit shall 
be the difference between these two amounts,  adjusted for any differences in fees;  
 (d)  the provision of goods or services or purchase of goods by a government shall not be 
considered to confer a benefit, unless th e provision is made for less than adequate 
remuneration or the purchase is made for more than adequate remuneration; whereas, the 
adequacy of remuneration shall be determined in relation to prevailing market conditions for 
the product or service in question in the country  of provision or purchase (including price, 
quality, availability, marketability, transportation and other conditions of purchase or sale).  
 (3)  The amount of the countervailable subsidies shall be determined per unit of the subsidized 
product exported to India and while establishing this  amount the following elements may be deducted 
from the total subsidy:   (a)  any application fee, or other costs necessarily incurred in order to qualify for, or to obtain, the 
subsidy;  
 
(b)  export taxes, duties or other charges levied on the export of the product to India specifically 
intended to offset the subsidy and in cases wher e an interested party claims a deduction, he 
must prove that the claim is justified.  
 (4)  Where the subsidy is not granted by re ference to the quantities manufactured, produced, 
exported or transported, the amount  of countervailable subsidy shall be determined by allocating the 
value of the total subsidy, as appropriate, over the le vel of production, sales or exports of the products 
concerned during the investigation period for subsidization.   (5)  Where the subsidy can be linked to the acqui sition or future acquis ition of fixed assets, the 
amount of the countervailable subsidy shall be calcu lated by spreading the subsidy across a period 
which reflects the normal depreciation of such asset s in the industry concerned and the amount so 
calculated which is attributable to the investiga tion period, including that which derives from fixed 
assets acquired before this period, shall be allocated as described in sub-rule (4) and, where the assets 
are non-depreciating, the subsidy shall be valued as  an interest-free loan, and be treated in accordance 
with clause (b) of sub-rule 2 (b) above.  
 
(6)  Where a subsidy cannot be linked to the acqui sition of fixed assets, the amount of the benefit 
received during the investigation period shall in princi ple be attributed to this period, and allocated as 
described in sub-rule (4), unless special circumstances justify its attribution over a different period.  
 (7)  The designated authority while calculating the amount of subsidy in countervailing duty 
investigation shall take into account, inter-alia, the guidelines laid down in Annexure IV to these 
rules.";   4.  In the said rules, after Annexure II, the following Annexures shall be added, namely:-   
 
"ANNEXURE III 
 
PART- 1 
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  ILLUSTRATIVE LIST OF EXPORT SUBSIDIES 
 
(a)  The provision by governments of direct subsidies to a firm or an industry contingent upon 
export performance.  
 
(b)  Currency retention schemes or any simila r practices which involve a bonus on exports.  
 (c)  Internal transport and freight charges on export shipments, provided or mandated by 
governments, on terms more favourable than for domestic shipments.  
 
(d)  The provision by governments or their agencies either directly or indirectly through 
government-mandated schemes, of imported or domestic products or services for use in the 
production of exported go ods, on terms or conditions more favourable than for provision of 
like or directly competitive products or services for use in the production of goods for 
domestic consumption, if (in the case of pr oducts) such terms or conditions are more 
favourable than those commercially available on world markets to their exporters.  
  Explanation: The term "commercially available" means that the choice between domestic and 
imported products is unrestricted and depe nds only on commercia l considerations.  
 
(e)  The full or partial exemption remission, or de ferral specifically related to exports, of direct 
taxes or social welfare charges paid or paya ble by industrial or commercial enterprises.  
  Explanation: For the purpose of this paragraph:   
 (i)  the term "direct taxes" shall mean taxe s on wages, profits, interests, rents, royalties, 
and all other forms of income, and taxe s on the ownership of real property;  
  (ii)  the term "import charges" shall mean tariffs, duties, and other fiscal charges not 
elsewhere enumerated in this note that are levied on imports;  
 
 (iii)  the term "indirect taxes" shall mean sales, excise, turnover, value added, franchise, 
stamp, transfer, inventory and equipment ta xes, border taxes and all taxes other than 
direct taxes and import charges;  
  (iv) "Prior-stage" indirect taxes are those levied on goods or services used directly or 
indirectly in making the product;  
  (v) "Cumulative" indirect taxes are multi-st age taxes levied where there is no mechanism 
for subsequent crediting of the tax if the goods or services subject to tax at one stage of production are used in a succeeding stage of production;  
 
 (vi)  "Remission" of taxes includes the refund or rebate of taxes;  
  (vii)  "Remission or drawback" includes the fu ll or partial exemption or deferral of import 
charges.  
 
(f)  The allowance of special deductions directly related to exports or export performance, over 
and above those granted in respect to productio n for domestic consumption, in the calculation 
of the base on which direct taxes are charged.  
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  (g)  The exemption or remission, in respect  of the production and distribution of exported 
products, of indirect taxes in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.  
 
(h)  The exemption, remission or deferral of pr ior-stage cumulative indirect taxes on goods or 
services used in the production of exported produc ts in excess of the exemption, remission or 
deferral of like prior-stage cumulative indirect taxes on goods or services used in the production of like products when sold for dome stic consumption; provided, however, that 
prior-stage cumulative indirect taxes may be exempted, remitted or deferred on exported 
products even when not exempted, remitted or deferred on like products when sold for 
domestic consumption, if the prior-stage cumula tive indirect taxes are levied on inputs that 
are consumed in the production of the exporte d product (making normal allowance for waste) 
and the item shall be interpreted in accordan ce with the guidelines on consumption of inputs 
in the production process contained in Part - 2 of this Annexure. This paragraph does not 
apply to value-added tax system s and border-tax adjustment in lieu thereof; the problem of 
the excessive remission of value-added taxes is  exclusively covered by paragraph (g).  
 (i)  The remission or drawback of import charg es in excess of those levied on imported inputs 
that are consumed in the production of the exported product (making normal allowance for 
waste); provided, however, that in particular  cases a firm may use a quantity of home market 
inputs equal to, and having the same quality and characteristics as, the imported inputs as a 
substitute for them in order to benefit from th is provision if the import and the corresponding 
export operations both occur within a reasonable time period, not to exceed two years and the 
item shall be interpreted in accordance with the guidelines on consumption of inputs in the 
production process contained in Part-2 of this Annexure and the guidelines in the 
determination of substitution drawback systems as export subsidies contained in Part-3 of this 
Annexure.  
 (j)  The provision by governments (or special in stitutions controlled by governments) of export 
credit guarantee or insurance programmes, of  insurance or guarantee programmes against 
increases in the cost of exported products or of exchange risk programmes, at premium rates 
which are inadequate to cover the long-term operating costs and losses of the programmes.  
 (k)  The grant by governments (or special instituti ons controlled by or acting under the authority 
of governments) of export credits at rates below those which they actually have to pay for the 
funds so employed (or would have to pay if th ey borrowed on international capital markets in 
order to obtain funds of the same maturity and other credit terms and denominated in the 
same currency as the export credit), or the payment by them of all or part of the costs incurred 
by exporters or financial institutions in obtaining  credits, in so far as th ey are used to secure a 
material advantage in the field of export credit term s.  Provided, that if a country is a party to 
an international undertaking on official export cred its to which at least twelve original World 
Trade organization Members are parties as of  1 January 1979 (or a successor undertaking 
which has been adopted by those original Memb ers), or if in practice a country applies the 
interest rates provisions of the relevant undert aking, an export credit practice which is in 
conformity with those provisions shall not be considered an export subsidy prohibited by these rules.  
 
(l)  Any other charge on the public account constitu ting an export subsidy in the sense of Article 
XVI of GATT 1994.  
 
PART-2 
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  GUIDELINES ON CONSUMPTION OF INPUTS IN THE PRODUCTION PROCESS 
 
I 
 
1.  Indirect tax rebate schemes can allow for exemption, remission or deferral of prior-stage 
cumulative indirect taxes levied on inputs that ar e consumed in the production of the exported product 
(making normal allowance for waste). Similarly, drawback schemes can allow for the remission or 
drawback of import charges levied on inputs that are consumed in the production of the exported product (making normal allowance for waste).  
 
2.  The Illustrative List of Export Subsidies in Part 1 of Annexure III of these rules makes reference to the term "inputs that are consumed  in the production of the exported product" in 
paragraphs (h) and (i). Pursuant to  paragraph (h), indirect tax reba te schemes can constitute an export 
subsidy to the extent that they result in exempti on, remission or deferral of prior-stage cumulative 
indirect taxes in excess of the amount of such taxes actually levied on inputs that are consumed in the 
production of the exported product. Pursuant to paragraph (i), drawback schemes can constitute an 
export subsidy to the extent that they result in a remission or drawback of import charges in excess of 
those actually levied on inputs that are consumed in the production of the exported product.  Both 
paragraphs stipulate that normal allowance for wast e must be made in findings regarding consumption  
of inputs in the production of the exported product.  
 
II 
 1.  Inputs consumed in the production process are inputs physically incorporated, energy, fuels 
and oil used in the production process and catalysts wh ich are consumed in the course of their use to 
obtain the exported product.  In examining whether inputs are consumed in the production of the 
exported product, as part of a count ervailing duty investigation pursuant to these rules, the designated 
authority should proceed on th e following basis, namely:-  
 (1)  Where it is alleged that an indirect tax rebate scheme, or a drawback scheme, conveys a 
subsidy by reason of over-rebate or excess drawback  of indirect taxes or import charges on inputs 
consumed in the production of the exported product,  the designated authority should first determine 
whether the government of the exporting country has in place and applies a system or procedure to 
confirm which inputs are consumed in the productio n of the exported product and in what amounts. 
Where such a system or procedure is determined to  be applied, the designated authority should then 
examine the system or procedure to see whether it is reasonable, effective for the purpose intended, 
and based on generally accepted commercial practi ces in the country of export.  The designated 
authority may it necessary if he considers carry out certain practical tests in order to verify information or to satisfy themselves that the syst em or procedure is being effectively applied.  
 (2)  Where there is no such system or procedure, where it is not reasonable, or where it is instituted and considered reasonable but is found not to  be applied or not to be applied effectively, a 
further examination by the exporting country based  on the actual inputs involved would need to be 
carried out in the context of determining whethe r an excess payment occurred.  If the designated 
authority considers it necessary, a further examina tion would be carried out in accordance with sub-
paragraph 1 above.   
2.  The designated authority should treat inputs as physically incorporated if such inputs are used 
in the production process and are physically present in  the product exported.  An input need not be 
present in the final product in the same form  in which it entered the production process.  
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  3.  In determining the amount of a particular i nput that is consumed in the production of the 
exported product, a "normal allowance for waste"  should be taken into account, and such waste 
should be treated as consumed in the production of th e exported product.  The te rm "waste" refers to 
that portion of a given input which does not serve an independent function in the production process, 
is not consumed in the production of the exported product (for reasons such as inefficiencies) and is 
not recovered, used or sold by the same manufacturer.   4.  The designated authority's determination of  whether the claimed allowance for waste is 
"normal" should take into account the production pr ocess, the average experience of the industry in 
the country of export, and other technical factors,  as appropriate.  The designated authority should 
bear in mind that an important question is whet her the authorities in the exporting country have 
reasonably calculated the amount of waste, when such  an amount is intended to be included in the tax 
or duty rebate or remission.   
PART-3 
 
GUIDELINES IN THE DETERMINATION OF SUBSTITUTION 
DRAWBACK SYSTEMS AS EXPORT SUBSIDIES 
 
I 
 
 Drawback systems can allow for the refund or  drawback of import charges on inputs which 
are consumed in the production process of another product and where the expor t of this latter product 
contains domestic inputs having the same quality and characteristics as those substituted for the 
imported inputs.  Pursuant to para graph (i) of the Illustrative List of Export Subsidies in Part-1 of 
Annexure III substitution drawback systems can constitute  an export subsidy to the extent that they 
result in an excess drawback of the import charg es levied initially on the imported inputs for which 
drawback is being claimed.   
II 
 
1.  In examining any substitution drawback syst em as part of a countervailing duty investigation 
pursuant to these rules, the designated authority sh ould proceed on the following basis, namely:-  
 (i)  Paragraph (i) of the Illustrative List of E xport Subsidies of Part-1 of Annexure III stipulates 
that home market inputs may be substituted fo r imported inputs in the production of a product 
for export provided such inputs are equal in quantity to, and have the same quality and 
characteristics as, the imported inputs being s ubstituted.  The existence of a verification 
system or procedure is important because it enables the government of the exporting country 
to ensure and demonstrate that the quantity of  inputs for which drawback is claimed does not 
exceed the quantity of similar products exported,  in whatever form, and that there is not 
drawback of import charges in excess of tho se originally levied on the imported inputs in 
question.  
 (ii)  Where it is alleged that a substitution draw back system conveys a subsidy, the designated 
authority should first proceed to determine whether the government of the exporting country has in place and applies a verification system or procedure.  Where such a system or 
procedure is determined to be applied, the designated authority should then examine the 
verification procedures to see whether they are reasonable, effective for the purpose intended, 
and based on generally accepted commercial practices in the country of export.  To the extent 
that the procedures are determined to meet this  test and are effectively applied, no subsidy 
should be presumed to exist.  The designated authority may, if he considers necessary, carry  G/ADP/N/1/IND/2/Suppl.4 
 G/SCM/N/1/IND/2/Suppl.4  Page 9 
 
 
  out certain practical tests in order to verify information or to satisfy themselves that the 
verification procedures are being effectively applied.  
 (iii)  Where there are no verification procedures, where they are not reasonable, or where such 
procedures are instituted and considered reasonabl e but are found not to be actually applied or 
not applied effectively, there may be a subsid y. In such cases a further examination by the 
exporting country based on the actual transactions involved would need to be carried out to 
determine whether an excess payment occurred.  If the investigating authorities deemed it 
necessary, a further examination would be carried out in accordance with sub-paragraph (ii) 
of Part 3 of this Annexure.  
 (iv)  The existence of a substitution drawback  provision under which exporters are allowed to 
select particular import shipments on which dr awback is claimed should not of itself be 
considered to convey a subsidy.  
 
(v)  An excess drawback of import charges in the sense of paragraph (i) would be deemed to exist 
where governments paid interest on any monies refunded under their drawback schemes, to 
the extent of the interest actually paid or payable.  
 
ANNEXURE IV 
 
GUIDELINES FOR THE CALCULATION OF THE AMOUNT OF SUBSIDY IN 
COUNTERVAILING DUTY INVESTIGATIONS 
 A.  CALCULATION OF SUBSIDY PER UNIT/AD VALOREM  
 
 The calculation of the benefit shall reflect th e amount of subsidy found to exist during the 
investigation period and not simply the face value of the amount at the time it is transferred to the recipient or foregone by the government.  Thus, the face value of the amount of the subsidy should be 
transformed into the value prevailing during the in vestigation period through the application of the 
normal commercial interest rate. 
 
 The objective of the calculation should be to arrive at the amount of subsidy per unit of production during the investigation period.  In the case of consumer products, such as television sets, 
the appropriate unit would be each individual item.  If bulk products, such as fertilizers or chemicals, 
are involved, it would be appropriate to calculate th e subsidy, that is to say, per tonne, or other 
appropriate unit of measurement.  The per unit subsid y can be converted into an ad valorem rate by 
expressing the per unit subsidy as a percentage of expor t price.  This may be used to establish whether 
the subsidy amount is de minimis, since this is expressed ad valorem (1% for imports from developed 
countries; 2 % for developing countries). In certain circumstances, it may also be considered to be 
appropriate to express the countervailin g duty on an ad valorem basis.  
 
B.  CALCULATION OF CERTAIN TYPES OF SUBSIDY  
 (a)  Grants 
 
  In the case of a grant (or equivalent) where none  of the money is repaid, the value of the 
subsidy should be the amount of the grant corrected  for any differences between the point in time of 
its receipt and the investigation period, i.e. the pe riod in which the production or sales are allocated.  
Therefore, if the grant is expensed during the investigation period, (that is, its amount is entirely allocated to production or sales during this period), the interest that would have accrued during that G/ADP/N/1/IND/2/Suppl.4 
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  period should normally be added.  If however, the gr ant is allocated over a longer period than the 
investigation period, the interest may be  added as described in section C (a)(ii). 
  Any lump sum of revenue transferred or fo regone (e.g. income tax or duty exemption, 
rebates, money saved from preferential provision  of goods and services or gained from excessive 
prices for the purchase of goods) should be cons idered as being equivalent to a grant.  
 (i)  Direct transfer of funds   
 The amount of subsidy should be the amount re ceived by the company concerned (a subsidy 
to cover operating losses would fall into this category).   (ii)  Tax exemptions   
 The amount of subsidy should be the amount of  tax that would have been payable by the 
recipient company at the standard applicable  tax rate during the investigation period.  
 (iii)  Tax reductions    The amount of subsidy should be the differen ce between the amount of tax actually paid by 
the recipient company during the investigation period  and the amount that would have been paid at 
the normal rate of tax.   (The same method should be applied to all ot her exemptions and reduction of obligation, e.g. 
import duties, social security contributions, redundancy payments)  
 
(iv)  Accelerated depreciation    Accelerated depreciation of assets under a government agreed programme should be considered as a tax reduction.  The amount of s ubsidy should be the difference between the amount of 
tax that would have been paid during the inves tigation period under the normal depreciation schedule 
for the assets concerned, and the amount actually paid  under accelerated depreciation.  To the extent 
that the accelerated depreciation results in a tax saving for the company concerned during the 
investigation period, there is a benefit.   (v)  Interest rate subsidies  
 
 In the case of an interest rate subsidy, the am ount of subsidy should be the amount of interest 
saved by the recipient company dur ing the investigation period.  
 (b)  Loans 
 
 
(1)  Basic methodology  
 (i)  In the case of a loan from the government (where repayment does take place) the subsidy 
should be the difference between the amount of interest paid on the government loan and the 
interest normally payable on a comparable comme rcial loan during the investigation period.  
 
(ii)  A comparable commercial loan would normally  be a loan of a similar amount with a similar 
repayment period obtainable by the recipient from a representative bank operating on the domestic market.  
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  (iii)  In this regard, the commercial interest rate  should preferably be established on the basis of the 
rate actually paid by the company concerned on comparable loans from banks.  If this is not 
possible, the investigation should consider the in terest paid on comparable loans to companies 
in a similar financial situation in the same sector of the economy, or, if information on such 
loans is not available, to any comparable lo an made to companies in a similar financial 
situation in any sector of the economy.  
 (iv)  If there are no comparable commercial lending practices on the domestic market of the 
exporting country, the interest rate on a commercia l loan may be estimated with reference to 
indicators of the economic situation prevailing at the time, (notably the inflation rate) and the 
situation of the company concerned.  
 (v)  If all or part of a loan is forgiven or de faulted on, the amount not re-paid should be treated as 
a grant depending on whether there was a guarantee.  
 
(2)  Specific cases   (i)  It should be noted that tax deferrals, or th e deferral of any other financial obligation, should 
be considered as interest-free loans and the amount of subsidy calculated as above. 
 
(ii)  In the case of reimbursable grants, these shoul d also be considered as interest free loans until 
they are reimbursed.  If they are not reimbur sed, in whole or in part, they should be 
considered as grants rather than interest-free loans from the date on which non-reimbursement 
is established.  From this date, the normal gran t methodology should apply.  In particular, if 
the grant is to be allocated over time, such allocation would start on the established date of 
non-reimbursement.  The amount of subsidy shoul d be the amount of the grant, minus any 
repayments.  
 (iii)  The same approach would apply to contingent- liability loans.  To the extent that such loans 
are given at a preferential rate of interest, the subsidy should be calculated as in paragraph (i).  
However, if it were to be determined that the loan would not be repaid, it should be treated as 
a grant from the date on which non-repayment was established.  The amount of subsidy 
should be the amount of the loan, less any repayments.  
 (c)  Loan guarantees 
 
 
(i)  In general, a loan guarantee, by eliminating to  some extent the risk of default by the borrower 
to the lender, will normally enable a firm to borrow more cheaply than would otherwise be 
the case.  If the government provides the guarantee,  the fact that loans are obtained at a lower 
interest rate than would otherwise be the case does not mean there is a subsidy, provided that 
the guarantee is financed on a commercial basi s, since the financing of such a viable 
guarantee by the company would be assumed to off set any benefit of a preferential interest 
rate.  
 (ii)  In this situation, it is considered that there is no benefit to the recipient if the fee which it pays 
to the guarantee programme is sufficient to enab le the programme to operate on a commercial 
basis, i.e. to cover all its costs and to earn a r easonable profit margin.  In such a situation, it is 
presumed that the fee covers the risk element involved in obtaining a lower interest rate.  If 
the guarantee programme is viable during th e investigation period as a whole and the 
recipient has paid the appropriate fee, there is no financial contribution from the government 
and therefore no subsidy, even if the recipient involved were to default on its loans during the 
period.  G/ADP/N/1/IND/2/Suppl.4 
G/SCM/N/1/IND/2/Suppl.4 Page 12 
 
 
   
 If the scheme is not viable, the benefit to th e recipient should be the difference between the 
fees actually paid and the fees which should have been paid to make the programme viable, or 
the difference between the amount the firm pays  on the guaranteed loan and the amount that it 
would pay for a comparable commercial loan in the absence of the government guarantee, 
whichever is the lower.  
 (iii)  In the case of ad hoc guarantees (i.e. not pa rt of a programme), it should first be ascertained 
whether the fees paid correspond to those charged to othe r companies in a similar position 
which benefit from viable loan guarantee progr ammes.  If so, there would normally be no 
subsidy; if not, the method explai ned in (ii) above would apply. 
 (iv)  If no fees are paid by the recipient, the am ount of subsidy should be the difference between 
the amount the firm pays on the guaranteed loan and the amount that it would pay for a 
comparable commercial loan in the ab sence of the government guarantee.  
 (v)  The same calculation principles would apply to  credit guarantees, i.e., where the recipient is 
guaranteed against credit defaults by its customers.  
 (d)  Provision of goods and services by the government
  
 
Principle   (i)  The amount of subsidy as regards the pr ovision of goods or services by the government 
should be the difference between the price paid by firms for the goods or service, and 
adequate remuneration for the product or service in relation to prevailing market conditions, if 
the price paid to the government is less than this amount. 
  Adequate remuneration should normally be determined in the light of prevailing market 
conditions on the domestic market of the expor ting country, and the calculation of the subsidy 
amount must reflect only that part of the purchases of goods or services which are used 
directly in the production or sale of the like product during the investigation period. 
 Comparison with private suppliers   (ii)  As a first step, it must be established whether the same goods or services involved are 
provided both by the government and by private operators.  If this is the case, the price 
charged by the government body would normally constitute a benefit to the extent that it is below the lowest price available from one of the private operators to the company involved 
for a comparable purchase.  The amount of s ubsidy should be the difference between these 
two prices.  If the company involved has not made comparable purchases from private 
operators, details should be obtained of the pri ce paid by comparable companies in the same 
sector of the economy or, if such data is not available, in the economy as a whole and the 
amount of subsidy should be calculated as above.  
 Government monopoly suppliers   
(iii)  If, however, the government is the monopoly supplier of the goods or services involved, they 
are considered to be provided for less than adequate remuneration if certain enterprises or 
sectors benefit from preferential prices.  The amount of subsidy s hould be the difference 
between the preferential price and the normal price. 
  G/ADP/N/1/IND/2/Suppl.4 
 G/SCM/N/1/IND/2/Suppl.4  Page 13 
 
 
   If the goods and services in question are widely used in the economy, a subsidy will only be 
specific or conferred on a limited number of persons if there is evidence of preferential pricing to a particular firm or sector.  It may be that per unit prices charged vary according to neutral and objective criteria, for example larg e consumers pay less per unit than small ones, 
as sometimes happens in the provision of gas and el ectricity.  In such situations, the fact that 
certain enterprises benefit from more favourable prices than others would not mean that the 
provision in this case was necessarily made for le ss than adequate remuneration, provided that 
the pricing structure in question was gene rally applied throughout the whole economy, 
without any preferential prices being given to specific sectors or firms.  The amount of 
subsidy should in principle be the differen ce between the preferential price and the normal 
price charged to an equivalent company, according to the normal structure.  
 (iv)  However, if the normal price is insufficient to cover the supplier's average total costs plus a 
reasonable profit margin (based on sector aver ages), the amount of subsidy should be the 
difference between the preferential price and th e price which would be required to cover the 
above costs and profit.  
 (v)  If the government is the monopoly supplier of the goods or services with a specific use, e.g. 
television tubes, the question of preferential pric ing does not arise, and the amount of subsidy 
should be the difference between the price paid by the firm involved and the price required to 
cover the supplier's costs and profit margin.  
 (e)  Purchase of goods by government 
 
 (i)  In a situation where private operators purc hase the kind of goods in question as well as the 
government body, the amount of subsidy should be the extent to which the price paid for the 
like product by the government exceeds the high est price offered for a comparable purchase 
of the same goods by the private sector.  
 (ii)  If the company involved has not made comparab le sales to private oper ators, details should be 
obtained of the price paid by private operators to  comparable companies in the same sector of 
the economy, or, if such data is not available,  in the economy as a whole. In such a case, the 
amount of subsidy should be calculated as above.  
 (iii)  If the government has a monopoly for the pur chase of the goods in question, the amount of 
subsidy as regards the purchase of goods by the go vernment should be the extent to which the 
price paid for the goods exceeds adequate rem uneration.  Adequate remuneration in this 
situation is the average costs incurred by the firm selling the product during the investigation 
period, plus a reasonable amount of profit, whic h will have to be determined on a case-to-case 
basis.  
  The amount of subsidy should be the difference between the price paid by the government 
and adequate remunera tion as defined above.  
 (f)  Government provision of equity capital   (i)  Government provision of equity capital s hould not be considered as conferring a benefit, 
unless the investment decision can be regarded as inconsistent with the usual investment 
practice (including for the provision of risk capital) of private investors in the exporting country concerned.  
 G/ADP/N/1/IND/2/Suppl.4 
G/SCM/N/1/IND/2/Suppl.4 Page 14 
 
 
  (ii)  Therefore, the provision of equity capital does not of itself confer a benefit.  The criterion 
should be whether a private investor would ha ve put money into the company in the same 
situation in which the government provided equity.  On the basis of this principle, the matter 
has to be dealt with on a case-to-case basis.  
 
(iii)  If the government buys shares in a company and pays above the normal market price for these 
shares (taking account of any other factors which may have influenced a private investor), the 
amount of subsidy should be the difference between the two prices. 
 
(iv)  As a general rule, in cases where there is no market in freely-traded shares, the government's 
realistic expectation of a return on the price paid  for equity should be considered.  In this 
regard, the existence of an independent stud y demonstrating that the firm involved is a 
reasonable investment should be considered the be st evidence; if this is not present, the onus 
should be on the government to demonstrate on what basis it can justify its expectation of a 
reasonable return on investment.  
 (v)  If there is no market price and the equity inj ection is made as part of an ongoing programme 
of such investments by the government, close atten tion should be paid not just to the analysis 
of the firm in question, but to the overall record  of the programme over the last few years.  If 
the records show that the programme has ea rned a reasonable rate of return for the 
government, there should be a presumption that the government is acting according to the 
usual investment practice of private investors with regard to the case in question.  If the 
programme has not generated a reasonable retu rn, the onus should be put on the government 
to demonstrate on what basis it can justify its expectation of a reasonable return on 
investment.  
 
(vi)  The existence of a subsidy should be determined by the information available to the parties at 
the time the equity injection is made.  Thus, if  an investigation considers an equity injection 
that was made several years before, the fact that the company has performed less well than 
expected should not mean that a subsidy exists , provided that the expectation of a reasonable 
return was justified in the light of the facts know at the time of the provision of equity. 
 
 On the other hand, a subsidy might exists even if a reasonable return has been achieved, if at 
the equity injection the prospect of such a retu rn was so uncertain that no private party would 
have made the investment.  
 
(vii)  In cases where there is no mark et price for the equity and there is a subsidy and a benefit, i.e., 
the government has not acted according to the usua l investment practice of private investors, 
all or part of the equity provided must be considered as a grant. 
  A decision to consider all of the equity a grant should be made only in extreme cases where it 
is determined that the government had no inten tion of receiving any return on its investment 
and was in effect giving a disguised grant to the firm in question. 
  A decision on what portion of the equity to treat as a grant would depend on how near the 
government has come to meeting the private invest or standard.  This de termination should be 
made on a case-to-case basis.  
 
(g)  Forgiveness of government-held debt 
 
  Forgiveness of debt held by government or government-owned banks relieves a company of 
its repayment obligations and should therefore be treat ed as a grant.  If the subs idy is to be allocated,  G/ADP/N/1/IND/2/Suppl.4 
 G/SCM/N/1/IND/2/Suppl.4  Page 15 
 
 
  the allocation period should begin at the time of th e forgiveness of the debt.  The amount of subsidy 
should be the outstanding amount of the debt forgiveness (including any interest accrued).  
 C.  INVESTIGATION PERIOD FOR SUBSI DY - CALCULATION OF EXPENSE VERSUS 
ALLOCATION  
  The amount of subsidy should be established during an investigation period, which should 
normally be the most recent financial year of the beneficiary enterprise.  Although any other period of 
six months prior to initiation may be used, it is prefer able to use the most recent financial year, since 
this will enable all appropriate data to be  verified on the basis of audited accounts.  
  As many subsidies have effects for a number of years, subsidies granted before the investigation period should also be investigated in order to determine what portion of such subsidy is 
attributable to the investigation period.  
 
(i)  If the subsidy is granted on a per unit basis, for example, an export rebate granted per unit of 
product, the per unit calculation normally consists of taking the weighted-a verage value of the 
rebate over the investigation period;  
 (ii)  Other kinds of subsidy are not readily ex pressed on a per unit basis, but involve a global sum 
of money which has to be allocated to each unit of product as appropriate.  Two exercises 
may have to be carried out, in this respect:  
 -  Attribution to the investigation period of a portion of those subsidies granted before the 
investigation period but whose effects extend over a number of years.  
 
-  Allocation of the subsidy amount attributed to the investigation period per unit of the like 
product. In this case, the appropriate denomina tor for such allocation has to be selected.  
 (a)  Attribution of a subsidy amount to the investigation period 
 
 
(i)  Many types of subsidy, e.g. tax incentives a nd preferential loans are recurring and the effect is 
felt immediately after granting.  Thus, the amount  granted to the beneficiary can be expensed 
in the investigation period.  The expensed amount should normally  be increased by the annual 
commercial interest rate, to reflect the full bene fit to the recipient, on the assumption that the 
beneficiary would have had to borrow the money at  the beginning of the period and repay it at 
the end.  
 (ii)  For non-recurring subsidies, which can be li nked to the acquisition of fixed assets, the total 
value of the subsidy should be spread over th e normal life of the assets.  Therefore the amount 
of subsidy from, for example, a grant (for which it is assumed that it is used by the beneficiary to improve its competitiveness in the long term, and thus to purchase product 
assets of one kind or another), can be spread over the normal period used in the industry 
involved for the depreciation of assets.  This s hould normally be done using the straight-line-
method.  For example, if the normal depreciation period was five years, 20% of the value of the grant should be allocated to the investigation period. 
 
 The approach of allocating over time means that  non-recurring subsidies granted several years 
before the investigation period may still be c ountervailed provided that they still have an 
effect during the investigation period. 
 G/ADP/N/1/IND/2/Suppl.4 
G/SCM/N/1/IND/2/Suppl.4 Page 16 
 
 
   This kind of allocation is equivalent to a series of annual grants , each having en equal 
amount. In order to determine the benefit to th e recipient, the appropriate annual commercial 
interest rate should be added to each grant, to reflect the benefit of not having to borrow the 
money on the open market. In addition, in order to reflect the full benefit to the recipient of 
having a lump sum of money at its disposal from the beginning of the allocation period, the 
amount of subsidy should be increased by the average amount of interest which the recipient would expect to earn on the non-depreciated am ount of total grant over the whole period of 
allocation.  
 
(iii)  As an exception to (ii), non-recurring subs idies which amount to less than 1% ad valorem 
may normally be considered to be expensed, even if they are linked to the purchase of fixed assets.  
 (iv)  In the case of recurring subsidies linked to the acquisition of fixed assets, e.g. import duty 
exemptions on machinery, which date back to before the investigation period, the benefits 
accruing from previous years within the deprecia tion period should be taken into account and 
the appropriate amount attributed to the investigation period.  
 (v)  In addition, recurring subsidies granted in large, concentrated amounts prior to the 
investigation period, may in certain circumstance s be allocated over time if it is determined 
that they are likely to be linked to the purch ase of fixed assets and still confer a benefit during 
the investigation period.  
 (vi)  In the case of subsidies expensed as in paragr aphs (i) and (iii) no subsidies granted before the 
investigation period should be taken into account.  For subsidies allocated over time, as in (ii), 
(iv), and (v), subsidies granted prior to the investigation period must be considered.  
 (b)  Appropriate denominator fo r allocation of subsidy amount 
 
  Once the subsidy amount to be attributed to th e investigation period has been established, the 
per unit amount may be arrived at by allocating it ov er the appropriate denominator, consisting of the 
volume of sales or exports of a product concerned.  
 (i)  As regards export subsidies the appropriate  denominator for allocation should be the export 
volume during the investigation period, since such subsidies benefit only exports;  
 
(ii)  For non-export subsidies the total sales (domes tic plus export) should normally be used as the 
denominator, since such subsidies be nefit both domestic and export sales.  
 (iii)  If the benefit of a subsidy is limited to a particular product, the denominator should reflect 
only sales of that product.  If this is not the case, the denominator should be the recipient's 
total sales.  
 
D.  DEDUCTION FROM AMOUNT OF SUBSIDY   1.  Only the following may be deducted from the amount of subsidy:   
(i)  Any application fee, or other costs necessarily  incurred in order to qualify for, or to obtain, 
the subsidy   
  It is up to the exporter in the country concerned to claim a deduction; in the absence of such a claim accompanied by verifiable proof, no deduction should be granted.  The only fees or costs that  G/ADP/N/1/IND/2/Suppl.4 
 G/SCM/N/1/IND/2/Suppl.4  Page 17 
 
 
  may normally be deducted are those paid directly to  the government in the investigation period.  It 
must be shown that such payment is compulsory in order to receive the subsidy.  Neither the 
payments made to private parties, e.g., lawyers, accountants, incurred in applying for subsidies, nor 
the voluntary contributions the governments, for example donations, are not deductible.  
 
(ii)  Export taxes, duties or other charges levied on the export of a product to India specifically
 
intended to offset the subsidy  
  Such claims for deductions should only be accepted if the charges involved were levied 
during the investigation period, and it is established that they continue to be levied at the time 
when definitive measures are recommended.  
 2.  No other deductions can normally be made from the amount of subsidy. No allowance can be 
made for any tax effects of subsidies or for any ot her economic or time value effect beyond that which 
is specified in this communication."  
 F.No 523/5/2005-Cus(TU)  Note:  The principal Rule were published in theGazette  of India in part I, section 3, sub-section 
(i), vide notification No 1/95-Customs(N.T), da ted the 1st January, 1995 vide G.S.R dated the 
1 January, 1995. 
 
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