INDIA – ADDITIONAL AND EXTRA-ADDITIONAL DUTIES ON IMPORTS FROM THE UNITED STATES
Document: Report of the Panel
Date: 9 June 2008
Document codes: WT/DS360/R
Complainant: U.S.
Respondent: India
Third parties: Australia, Chile, EU, Japan, Vietnam
Dispute stage: Appellate Body
Agreements cited: Art. II:1, III:2, III:4  GATT 1994

INDIA – ADDITIONAL AND EXTRA-ADDITIONAL DUTIES
ON IMPORTS FROM THE UNITED STATES

Report of the Panel

I. INTRODUCTION
1.1 On 6 March 2007, the United States requested c onsultations with the Government of India
pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes ("DSU") and Article XXII of the General Agreement on Tariffs and Trade 1994
("GATT 1994"), with respect to two duties that India applies to imports of certain goods in addition to
its basic customs duty. The request was circulated on 12 March 2007.1
1.2 On 16 March and 21 March 2007, the European Communities and Australia, respectively,
requested to join in the consulta tions requested by the United Stat es. India accepted the European
Communities' request. Consultations were held on 13 April 2007. Those consultations did not
resolve the dispute.
1.3 On 24 May 2007, the United States requested th at the Dispute Settlement Body ("DSB")
establish a panel to examine this matter, pursuant to Article 6 of the DSU, with the standard terms of
reference as set out in Article 7.1 of the DSU. 2 At its meeting of 20 June 2007, the DSB established a
Panel with the following terms of reference:
"To examine, in the light of the relevant provisions of the covered agreements cited
by the United States in document , the matter referred to the DSB by the
United States in that document, and to ma ke such findings as will assist the DSB in
making the recommendations or in giving the rulings provided for in those
agreements."3
1.4 On 3 July 2007, the parties agreed to the following composition of the Panel:
 Chairman: Mr. Luzius Wasescha

 Members: Mr. Mateo Diego-Fernández
 Mr. Bruce McRae
4

1.5 Australia, Chile, the European Communities, Japan and Viet Nam reserved their rights to
participate in the Panel proceedings as third parties.5
1.6 The Panel met with the two parties on 17 and 18 September 2007. It also met with the third
parties on 18 September 2007. The Panel met again with the parties on 13 and 14 November 2007.
1.7 Australia, Chile, the European Communities a nd Japan presented third-party submissions
before the first substantive meeting of the Panel. Australia, the European Communities, Japan and
Viet Nam made oral statements during the first substantive meeting of the Panel.
1.8 The Panel issued its interim report to the par ties on 5 February 2008. The Panel issued its
final report to the parties on 20 March 2008.
1.9 It is noted that on 24 April 2007, the DSB also established a panel on a substantially similar
matter at the request of the European Communities (WT/DS352/4). That panel was composed by the
Director-General before the Panel in this case. Th e same three individuals serve as panelists in both
proceedings. The parties to the two proceedings , i.e., the European Communities, India and the

1 Document WT/DS360/1.
2 Document WT/DS360/5.
3 Document WT/DS360/6, para. 2.
4 Ibid., para. 3.
5 Ibid., para. 4.

United States, agreed to harmonize the timetables for the two proceedings. However, at the request of
the European Communities, the panel in DS352 as of 16 July 2007 suspended its work indefinitely,
subject to the provisions of Article 12.12 of the DSU.
II. FACTUAL ASPECTS
2.1 The present dispute concerns the following measures:
• the AD (the "additional customs duty" as the United States calls it or the "additional duty"
as India calls it) on imports of alcoholic li quor for human consumption (beer, wine and
distilled spirits, collectively "alcoholic beverages"); and

• the "Extra-Additional Duty" ("EAD" as the Un ited States calls it), or "such additional
duty" ("SUAD" as India calls it) on imports such as the agricultural 6 and industrial
products7 identified in Exhibit US-1 and alcoholic beverages.

2.2 Both are measures taken by the Central Governme nt and imposed at the border at the time of
importation. Both measures are imposed in addition to India's basic customs duty (BCD).
2.3 According to India, both measures are taken to counter-balance various internal taxes or
charges.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1 The United States claims that:
the AD is:
• inconsistent with Article II:1(b) of th e GATT 1994 as an ordinary customs duty that
subjects imports of alcoholic beverages to ordinary customs duties in excess of those
set forth in India's WTO Schedule; and

• inconsistent with Article II:1(a) of th e GATT 1994 as an ordinary customs duty that
affords imports of alcoholic beverages from the United States less favourable
treatment than that provided for in India's WTO Schedule; and

the EAD/the SUAD is:

• inconsistent with Article II:1(b) of th e GATT 1994 as an ordinary customs duty that
subjects imports, including alcoholic be verages and agricultural and industrial
products listed in Exhibit US-1, to ordinary customs duties in excess of those set forth
in India's WTO Schedule; and

• inconsistent with Article II:1(a) of th e GATT 1994 as an ordinary customs duty that
affords import from the United States, including alcoholic beverages and the products
listed in Exhibit US-1, less favourable treatment than that provided for in India's
WTO Schedule.
8

6 Exhibit US-1A, Extra-Additional Customs Duty on Agricultural Products.
7 Exhibit US-1B, Extra-Additional Customs Duty on Industrial Products.

3.2 India argues that both measures are charges equiva lent to internal taxes imposed consistently
with Article III:2 of the GATT 1994 in respect of like domestic products and, as such, fall within the
scope of Article II:2(a) of the GATT 1994. India submits that, as measures falling within the scope of
Article II:2, they are not inconsistent with Article II:1(a) or (b) of the GATT 1994.
IV. ARGUMENTS OF THE PARTIES
4.1 This section is based on executive summaries of the parties' submissions and statements and
does not include summaries of the parties' answers to questions posed by the Panel in the context of
the first and second substantive meetings.
A. FIRST WRITTEN SUBMISSION OF THE UNITED STATES
1. Introduction
4.2 India has imposed ordinary customs duties on imports of alcoholic beverages from the United
States that result in ordinary customs duties on these imports as high as 550 per cent. India imposes
these customs duties by levying an "additional cust oms duty" and an "extra-additional customs duty"
in addition to and on top of a "basic customs duty" on imports of alcoholic beverages. India levies
these duties through the following measures: (1) Section 12 of the Customs Act, 1962 ("Customs
Act") requiring the collection of customs duties as specified in the Customs Tariff Act, 1975;
(2) Sections 2 and 3 and the First Schedule of th e Customs Tariff Act, 1975 ("Customs Tariff Act");
(3) Customs notices issued pursuant to Section 25 of the Customs Tariff Act, including Customs
Notification 20/1997 and 11/2005; (4) Customs Notification 32/2003; (5) Customs Notification
19/2006. Imposed in conjunction with the basic customs duty, the additional customs duty and extra-
additional customs duty on alcoholic beverages are each inconsistent with Article II:1(a) and (b) of
the GATT 1994.
4.3 The extra-additional customs duty is also incons istent with Article II:1(a) and (b) of the
GATT 1994 as imposed on a number of imports other th an alcoholic beverages, as imposition of the
extra-additional customs duty on such imports likewi se results in customs duties that exceed those set
forth in India's WTO Schedule. These products in clude certain agricultural products such as milk,
raisins and orange juice, as well as various other products, including those listed in Exhibit US-1.
4.4 The United States respectfully requests that the Panel find that India's measures are
inconsistent with Article II:1(a ) and (b) of the GATT 1994, and that it recommend that India bring
these measures into conformity with its obligations under the GATT 1994.
2. Legal argument
(a) Introduction
4.5 Article II:1(b) of the GATT 1994 requires India to exempt imports from "ordinary customs
duties" or "other duties or charges of any kind imposed on or in connection with ... importation" in
excess of those provided for in its Schedule, and Article II:1(a) of the GATT 1994 requires India to
afford no less favourable treatment to imports than provided for in its Schedule. Together these
provisions serve to "preserve the value of tariff concession negotiated by a Member with its trading
partners, and bound in that Member's schedule" . Both the additional customs duty and extra-
additional customs duty are inconsistent with Article II:1(a) and (b) of the GATT 1994.
4.6 The additional customs duty is imposed in additi on to the basic customs duty already levied
on imports of alcoholic beverages. The additional customs duty is inconsistent with Article II:1(a)
and (b) of the GATT 1994 because the combination of these two duties, as elaborated further below,

results in "ordinary customs duties" on imports of alcoholic beverages that exceed those set forth in
India's Schedule.
4.7 The extra-additional customs duty is imposed in addition to the basic customs duty. The
extra-additional customs duty is inconsistent with Article II:1(a) and (b) of the GATT 1994 because
the combination of these duties resu lts in "ordinary customs duties" on imports that exceed those set
forth in India's Schedule. The United States notes that the extra-additional customs duty has been
applied in addition to, and has been calculated on top of, the additional customs duty. US claims
against the extra-additional customs duty, howev er, do not rely on imposition of the additional
customs duty to demonstrate that the extra-additional customs duty is inconsistent with Article II:1(a)
or (b) of the GATT 1994.
4.8 The US claims against the extra-additional customs duty concern a broader range of products
than the US claims against the additional cust oms duty. Whereas the latter concern alcoholic
beverages, the claims against the extra-additional customs duty concern alcoholic beverages as well as
other products such as those listed in Exhibit US-1.
(b) The Additional Customs Duty on alcoholic beverages is incons istent with Article II:1(b)
and II:1(a) of the GATT 1994
(i) Article II:1(b) of the GATT 1994 – Ordinary Customs Duty or Other Duty or Charge
4.9 The additional customs duty is an ordinary customs duty within the meaning of
Article II:1(b). The WTO Agreement does not define "ordinary customs duty."
4.10 Consistent with the rule of in terpretation of public internationa l law reflected in Article 31 of
the Vienna Convention, the term "ordinary customs duties" must be interpreted in accordance with its
ordinary meaning in context and in light of th e agreement's object and purpose. The ordinary
meaning of the term "customs duty" is a duty imposed on a product upon its importation into the
customs territory of a Member. The term "ordin ary" suggests a customs duty that is "normal,
customary, usual", "belonging to or occurring in regular custom or practice", "of the usual kind, not
singular or exceptional; commonplace, mundane." Thus, an ordinary customs duty is a type of
customs duty that is common and occurring most re gularly. Determination of whether a measure
constitutes an ordinary customs dut y should be based on the structure, design and application of the
measure; the name or stated purpose the Memb er imposing may have ascribed to it is not
determinative.
4.11 By far the most common and regularly occurring types of customs duties in terms of
structure, design and application are ad valorem, specific or a combination thereof, calculated on the
value or quantity respectively of a good at the time of importation. Ordinary customs duties are not
applied on a case-by-case basis or in response to a singular or exceptional event or set of
circumstances. Instead, Members apply ordi nary customs duties as a matter of course upon
importation of a product into its customs territory. Ordinary customs duties in this sense are generally
marked by a greater sense of transparency and predic tability than other types of border measures. It
follows that an "ordinary cust oms duty" is a duty – either ad valorem , specific or a combination
thereof – calculated based on the quantity or value of the good at the time of importation that applies
as a matter of course upon a good's importation.
4.12 With respect to the additional customs duty on alcoholic beverages, it applies (i) at the time of
importation, (ii) exclusively to imports (i.e., not to domestic products), and (iii) as an ad valorem or
specific duty, depending on the CIF value of the import. In this regard, the additional customs duty is
no different than the basic customs duty, whic h likewise applies at the time of importation,
exclusively to imports and as an ad valorem or sp ecific duty. Accordingly, the additional customs

duty appears to be of the kind normally or commonly imposed on imports, and consequently
"ordinary" within the meaning of Article II:1(b) of the GATT 1994.
4.13 The structure of India's customs duty regime further supports this latter point. As explained
in above, Section 12(1) of the Customs Act requi res the collection of cu stoms duties as specified
under any Indian law: "Except as otherwise provided in this Act, or any other law for the time being
in force, duties of customs shall be levied at such rates as may be specified under [the Customs Tariff
Act, 1975 (51 of 1975)], or any other law for the time being in force, on goods imported into, or
exported from India." This language requires the co llection of both the basic customs duty and the
additional customs duty, both of which are specified under the Customs Tariff Act. Further,
Section 25 of the Customs Act provides authority to exempt certain imports from any "dut[y] of
customs" and is the authority used to exempt impor ts from either (or both) the basic customs duty or
additional customs duty. Thus, the structure of In dia's own customs duty regime appears to regard
both the additional customs duty and basic customs duty as ordinary customs duties.
4.14 In this regard, it is relevant to note that Secti on 3(1) of the Customs Tariff Act states that the
additional customs duty is to "hav[e] regard to the excise duty for the time being leviable on like
alcoholic [beverages] produced ...in India". Custom s Tariff Act, Section3(1), Exhibit US-3A. This
statement does not change the appropriateness of characterizing the additional customs duty as an
ordinary customs duty as the purpose or intent a Member attributes to a tax or duty is not
determinative; otherwise a Member could avoid the commitments made in its Schedule simply by its
own characterization of the duty under domestic law.
4.15 For each of these reasons, the additional custom s duty, like the basic custom duty, is an
ordinary customs duty within the meaning of Article II:1(b) of the GATT 1994.
4.16 In any event, the additional customs duty would be inconsistent with Article II:1(b) of the
GATT 1994 even if it were an ODC within the mean ing of the second sentence of that article. ODCs
are defined in relation to ordinary customs duties in that "other duties or ch arges" mean those duties
or charges that are not "ordinary" customs duti es but are nonetheless imposed on or in connection a
product's importation. With respect to the additional customs duty, the second sentence of
Article II:1(b) of the GATT 1994 would ensure that India may not avoid its tariff commitments
simply by imposing a duty or other charge on the im portation of alcoholic beverages that may not be
characterized as an "ordinary" customs duty but no netheless results in other duties or charges that
exceed those set out in its Schedule. In this dis pute, determining whether the additional customs duty
is either an ordinary customs duty or ODC within the meaning of Article II:1(b) of the GATT 1994,
however, is not determinative of the outcome of this dispute, as in either case, the additional customs
duty would exceed the rates set out in India's Schedule, as discussed below.
(ii) Article II:1(b) of the GATT 1994 – in excess of
4.17 The additional customs duty subjects imports of alcoholic beverages to ordinary customs
duties "in excess of" those provided for in India's Sche dule. Part 1 of India's Schedule sets forth the
following bound rates of duty on beer, wine and dis tilled sprits as 150 per cent ad valorem. India's
Schedule does not identify any other duties or charges applicable to alcoholic beverages.
4.18 India applies a 100 per cent basic customs duty on beer and, prior to July 3, 2007, also a
100 per cent basic customs duty on wine. On July 3, 2007, the basic customs duty on wine increased
to 150 per cent. (The US claims concern measures India imposed at the time of the Panel's
establishment on 20 June 2007 and, accordingly, are not based on any effect the 3 July 2007 customs
notification may have had on the collection of the additional customs duty on alcoholic beverages.)
With respect to distilled spirits, India applies a basic customs duty equal to its 150 per cent WTO
bound rate.

4.19 Section 3(1) of the Customs Tariff Act requir es the imposition of the additional customs duty
on imports and Customs Notification 32/2003 set outs the rates of additional customs duty on imports
of alcoholic beverages. Section 3(2) of the Cu stoms Tariff Act requires that the additional customs
duty be calculated on the value of the import inclusiv e of the basic customs duty owed. As a result,
the additional customs duty required under those measu res results not only in ordinary customs duties
that exceed India's WTO bound rates for beer, wine and distilled spirits, but exceeds them by as much
as 400 percentage points:

Value

BC

AD
(% or
USD)

BC
Owed
(USD)

AD
Owed
(USD)

Total
Duties
(USD)

Effective
Rate of
AD

Effective
Rate of
Duty

WTO
Bound
Rate
Beer
and
Wine

41 100% 40* 41.00 40 81.00 97.6% 197.6% 150%
100 100% 20% 100.00 40 140.00 40% 140.0% 150%
26 100% 37* 25.00 37 62.00 148% 248.0% 150%
37 100% 50% 37.00 37 74.00 100% 200.0% 150%
1 100% 75% 1.00 1.5 2.50 150% 250% 150%
Spirits
41 150% 53.2* 61.50 53.2 114.70 129.8% 279.8% 150%
86 150% 25% 129.00 53.75 182.75 62.5% 212.5% 150%
20 150% 53.2* 30.00 53.2 83.20 266% 416.0% 150%
39 150% 50% 58.50 53.2 111.70 136.4% 286.4% 150%
10 150% 40* 15.00 40 55.00 400% 550.0% 150%
16 150% 100% 24.00 40 64.00 250% 400.0% 150%
1 150% 150% 1.50 3.75 5.25 375% 525.0% 150%
* Numbers are US dollars (USD) per case unless followed by a per cent symbol (%). The table shows
the effective rate of additional customs duty and aggregate duties on wine prior to the July 3, 2007
increase in the basic customs duty rate for wine from 100 to 150 per cent.

4.20 As the above table demonstrates, with respect to beer and wine, all but the lowest rate of
additional customs duty – 20 per cent on imports of wine or beer over 100 USD per case – results in
ordinary customs duties on imports of beer and wine that exceed India's 150 per cent WTO bound
rate. With respect to distilled spirits, the additio nal customs duty at all rates results in ordinary
customs duties that exceed India's WTO bound rates. In fact, since the basic customs duty on distilled
spirits is already equal to Indi a's WTO bound rate, any ordinary cu stoms duty imposed in addition to
the basic customs duty on imports of distilled spirits would exceed India's WTO bound rate.
4.21 Thus, applied in conjunction with the basic cu stoms duty, the additional customs duty results
in ordinary customs duties that far exceed I ndia's WTO bound rates for alcoholic beverages.
Accordingly, the additional customs duty as imposed pursuant to Section 3(1) of the Customs Tariff
Act and Customs Notification 32/2003 is, as such, in consistent with Article II:1(b) as an ordinary
customs duty in excess of those duties specified in India's Schedule.

(iii) Article II:1(a) of the GATT 1994
4.22 Article II:1(a) of the GATT 1994 requires each WTO Member to "accord the commerce of
[other Members] treatment no less favourable than that provided for in" the Member's Schedule. As
explained above, the additional cust oms duty imposed pursuant to Section 3(1) of the Customs Tariff
Act and Customs Notification 32/2003 results in or dinary customs duties on imports of alcoholic
beverages that exceed those set out in India's WT O Schedule. By imposing ordinary customs duties
on imports of alcoholic beverages from the United States in excess of those set forth in India's
Schedule, the additional customs duty accords im ports from the United States less favourable
treatment than provided for in India's Schedule and, as such, is inconsistent with Article II:1(a) of the
GATT 1994.
(c) The Extra-Additional Customs Duty is inconsiste nt with Article II:1(a) and II:1(b) of the
GATT 1994
(i) Article II:1(b) of the GATT 1994 – Ordinary Customs Duty or Other Duty or Charge
4.23 As reviewed above, an "ordinary customs duty" within the meaning of Article II:1(b) of the
GATT 1994 is a duty – either ad valorem, specific or mixed – imposed on a good upon its
importation (and not on domestic pr oducts), and calculated based on th e quantity or value of the good
at the time of importation, while an ODC (other duty or charge) within the meaning of Article II:1(b)
of the GATT 1994 is a duty or charge imposed on the importation of a good other than an ordinary
customs duty.
4.24 The extra-additional customs duty is an ordinary customs duty for many of the same reasons
as the additional customs duty is. First, the extra- additional customs duty applies (i) at the time of
importation, (ii) exclusively to imports, and (iii) as an ad valorem duty on the CIF value of the import.
In this regard, the extra-additional customs duty, lik e the additional customs duty, is no different than
the basic customs duty, and likewise appears to be of the kind normally or commonly imposed on
imports. The extra-additional customs duty is thus "ordinary" within the meaning of Article II:1(b) of
the GATT 1994.
4.25 As with the additional customs duty, the structur e of India's customs duty regime bolsters this
latter point. Section 12(1) of the Customs Act likewise requires the collection of both the basic
customs duty and the extra-additional customs duty and Section 25 of the Customs Act likewise
provides the authority to exempt imports from "any duty of customs" including the basic customs duty
or the extra-additional customs duty. Thus, India' s own customs duty regime appears to regard both
the extra-additional customs duty and the basic customs duty as ordinary customs duties.
4.26 The purpose a Member attributes to a duty or tax is not decisive in determining whether that
duty or tax constitutes an ordinary customs dut y. Thus, Section 3(5)'s statement that the
extra-additional customs duty is to counter-balance sales or other indirect taxes imposed on like
domestic products does not affect whether the extr a-additional customs duty may be regarded as an
ordinary customs duty within the meaning of Article II:1(b) of the GATT 1994.
4.27 For each of these reasons, the extra-additional customs duty, like the basic customs duty and
the additional customs duty, is an ordinary customs duty within the meaning of Article II:1(b) of the
GATT 1994.
4.28 Similarly, even if the extra-additional customs duty were not an ordinary customs duty but
were instead an ODC, it would be in breach of Article II:1(b) of the GATT 1994. As explained
above, ODCs are defined in relation to ordinary customs duties in that "other duties or charges" mean
those duties or charges that are not "ordinary" customs duties but are nonetheless imposed on or in

connection with a product's importation. With r espect to the extra-additional customs duty, the
second sentence of Article II:1(b) of the GATT 1994 w ould ensure that India may not avoid its tariff
commitments simply by imposing a duty or other charge on the importation of alcoholic beverages
that may not meet the technical definition of an "ordinary" customs duty, but nonetheless results in
customs duties or other charges that exceed those set out in India's Schedule. In this dispute, as is the
case with the additional customs duty, determining whether the extra-additional customs duty is either
an ordinary customs duty or ODC within the meaning of Article II:1(b) of the GATT 1994 is not
determinative of the outcome in this dispute as, in either case, the extra-additional customs duty
would exceed the rates set out in India's Schedule, as discussed below.
(ii) Article II:1(b) of the GATT 1994 – in excess of
4.29 The extra-additional customs duty subjects imports of alcoholic beverages as well as other
imports to ordinary customs duties "in excess of" tho se provided for in India's Schedule. In addition
to the basic customs duty and the additional custom s duty, Section 3(5) of the Customs Tariff Act
provides for the imposition of the extra-additional customs duty on imports and Customs Notification
19/2006 requires that the extra-additional customs duty be levied on imports at four per cent ad
valorem. In contrast to Customs Notification 32/2003 setting out the rates of additional customs duty
for alcoholic beverages, Customs Notification 19/2006 is broadly drafted, requiring the collection of
the extra-additional customs duty on "all goods speci fied under the Chapter, heading, sub-heading or
tariff item of the First Schedule to [the Customs Tari ff] Act." Section 3(6) of the Customs Tariff Act
requires that the extra-additional customs duty be calculated on the value of the import inclusive of
the basic customs duty owed and the additional customs duty owed.
4.30 Part of 1 of India's WTO Schedule binds ordi nary customs duties on beer, wine and distilled
sprits (HS Nos. 2203-2206 and 2208) at 150 per ce nt ad valorem and does not identify any other
duties or charges applicable to alcoholic beverages. India's basic customs duty on beer and wine is
100 per cent ad valorem whereas the basic customs duty on distilled spirits is 150 per cent ad valorem.
As noted above, Customs Notification 81/2007 (3 July 2007) raised the applied basic customs duty on
wine to 150 per cent ad valorem on July 3, 2007 . Thus, the extra-additional customs duty would
result in customs duties in excess of India's bound rates on wine as well when imposed in conjunction
with a basic customs duty of 150 per cent, for th e same reasons the extr a-additional customs duty
results in customs duties in excess of India's bound rates for distilled spirits and products listed in
Exhibit US-1. Because India raised the basic custom s duty on wine to 150 pe r cent after the date of
the Panel's establishment, we have not included that argument here.
4.31 Even factoring out the cumulative effect of th e additional customs duty, the extra-additional
customs duty, when imposed in conjunction with the basic customs duty, results in ordinary customs
duties on distilled spirits that exceed those set forth in India's WTO Schedule:
Extra-Additional Customs Duty on Distilled Spirits*
Value

EAD BC BC Owed EAD
Owed
Effective
Rate of
EAD
Total
Duties
Effective
Rate of
Total
Duty
WTO
Bound
Rate
100 4% 150% 150.00 10 10.0% 160.00 160% 150%
* Numbers are US dollars (USD) unless followed by a per cent symbol (%). The table shows the
effective rate of additional customs duty and aggregate duties on wine prior to the July 3, 2007 increase
in the basic customs duty rate for wine from 100 to 150 per cent.

4.32 As noted, Section 3(6) of the Customs Tariff Act requires that the extra-additional customs
duty be calculated on the value of the import inclusiv e of the basic customs duty owed, such that the

effective rate of the extra-additional customs duty on imports of distilled spirits is 10 per cent and the
effective rate of aggregate duties (extra-additional customs duty in conjunction with the basic customs
duty) is 160 per cent, ten percentage points over India's 150 per cent WTO bound rate for wine and
spirits. This would similarly be the case for other values; 100 USD as the value in the above table is
simply illustrative.
4.33 With respect to beer and wine, although imposition of the extra-additional customs duty in
conjunction with the basic customs duty on beer and wine has not exceeded India's WTO bound rates
of "ordinary customs duty", India's Schedule do es not specify any ODCs within the meaning of
Article II:1(b) of the GATT 1994 for beer or wine (o r for distilled spirits). Thus, to the extent the
extra-additional customs duty is an ODC, the extr a-additional customs duty on beer and wine would
exceed the ODCs set out in India's Schedule. In fact, to the extent the extra-additional customs duty is
an ODC, the extra-additional customs duty on beer, wine, spirits and every other product for which
India took commitments in its Schedule would exceed the ODCs set out in India's Schedule, as India
has not scheduled the extra-additional customs duty for any product included in its Schedule,
including those products listed in Exhibit US-1.
4.34 Exhibit US-1 lists a number of agricultural and industrial products. For each product listed,
Exhibit US-1 identifies India's WTO bound rate al ong with the effective ordinary customs duty or
ODC that results from application of the extra-a dditional customs duty in conjunction with the basic
customs duty on that product. The WTO bound rates listed reflect India's Uruguay Round
commitments inclusive of any subsequent modifi cations in accordance with Article XXVIII of the
GATT 1994.
4.35 The applied rates of basic customs duties for products in Exhibit US-1 are at India's WTO
bound rates for those products, and none of the products are indicated in India's Schedule as ones
subject to an ODC. As a result, application of the extra-additional customs duty in conjunction with
the basic customs duty results in ordinary customs duties on those products that exceed those set forth
in India's Schedule. As with alcoholic beverages, the extra-additional customs duty on other products
applies in addition to and is calculated on top of the basic customs duty.
4.36 Exhibit US-1 is an illustrative list; there may be products in addition to those listed in
Exhibit US-1 for which imposition of the extra-add itional customs duty in conjunction with the basic
customs duty results in ordinary customs duties in excess of those set forth in India's Schedule. The
United States has challenged the extra-additional cu stoms duty as such. Accordingly, the US claims
concern the extra-additional customs duty itself and therefore any instance for which application of
the extra-additional customs duty in conjunction w ith the basic customs duty results in ordinary
customs duties in excess of those set forth in India's Schedule.
4.37 As demonstrated above, the extra-additional cu stoms duty, imposed in conjunction with the
basic customs duty, subjects alcoholic beverages as well as other products to ordinary customs duties
in excess of those set forth in India's WTO Schedule. Article II:1(b) of the GATT 1994, however,
requires India to exempt imports from ordinary cust oms duties or ODCs in excess of those set forth in
its Schedule. Accordingly, the extra-additional customs duty as imposed pursuant to Section 3(5) of
the Customs Tariff Act and Customs Notification 19/2006 is, as such, inconsistent with India's
obligations under Article II:1(b) of the GATT 1994.
(iii) Article II:1(a) of the GATT 1994
4.38 As noted above, Article II:1(a) of the GATT 1994 requires each WTO Member to "accord the
commerce of [other Members] treatment no less fav ourable than that provided for in" the Member's
Schedule. Because the extra-additional customs duty results in customs duties on imports of alcoholic
beverages and other products (incl uding those in Exhibit US-1) that exceed those set out in India's

Schedule, it accords imports from the United States less favourable treatment than provided for in
India's Schedule. Consequently, the extra-additiona l customs duty imposed pursuant to Section 3(5)
of the Customs Tariff Act and Customs Notifi cation 19/2006 is, as such, inconsistent with
Article II:1(a) of the GATT 1994.
3. Conclusion
4.39 For the reasons set out above, the United States requests the Panel to find that:
 the additional customs duty is:

• inconsistent with Article II:1(b) of th e GATT 1994 as an ordinary customs duty that
subjects imports of alcoholic beverages to ordinary customs duties in excess of those
set forth in India's WTO Schedule; and

• inconsistent with Article II:1(a) of th e GATT 1994 as an ordinary customs duty that
affords imports of alcoholic beverages from the United States less favourable
treatment than that provided for in India's WTO Schedule; and

 the extra-additional customs duty is:

• inconsistent with Article II:1(b) of th e GATT 1994 as an ordinary customs duty that
subjects imports, including alcoholic beve rages and products listed in Exhibit US-1,
to ordinary customs duties in excess of those set forth in India's WTO Schedule; and

• inconsistent with Article II:1(a) of th e GATT 1994 as an ordinary customs duty that
affords import from the United States, in cluding alcoholic beverages and products
listed in Exhibit US-1, less favourable treatment than that provided for in India's
WTO Schedule.

4.40 Accordingly, the United States also request s that the Panel recommend, pursuant to
Article 19.1 of the DSU, that India bring its measures into conformity with the covered agreements
B. F
IRST WRITTEN SUBMISSION OF INDIA
1. Introduction
4.41 The present dispute concerns the imposition of certain duties on imports of alcoholic liquor
for human consumption ("alcoholic beverages") on which India imposes levies in the form of
"additional duties" ("AD"); as well as a number of other agricultural 9 and industrial products 10 ,
including alcoholic beverages (collectively the "identified products") on which India imposes duties
in the form of "such additional duties as would count er balance taxes such as Sales Tax, Value Added
Tax, local tax or any other charges" ("SUAD").
2. Factual background
4.42 India refutes the contentions made by the Un ited States in its first written submission on the
following factual grounds:

9 Exhibit US-1A, Extra-Additional Customs Duty on Agricultural Products.
10 Exhibit US-1B, Extra-Additional Customs Duty on Industrial Products.

(a) Mischaracterization of Indian duties as OCD and ODC
4.43 The AD and the SUAD, which are levied to offset different kinds of internal taxes, have been
wrongly characterized by the United States as being "ordinary customs duties" ("OCD") or in the
alternative as "other duties and charges" (" ODC") as understood under Article II:1(b) of the
GATT 1994. Based on this mischaracterization, the US has alleged that India is exceeding the
commitments contained in its Schedules. Both the AD and the SUAD are duties levied in lieu of
internal taxes – the AD on alcoholic beverages is imposed in lieu of state excise duties and the SUAD
on the identified products is imposed to counte r-balance sales tax, VAT and other local taxes or
charges, which are levied on like domestic produc ts. These duties are distinct from the basic customs
duty ("BCD") imposed by the Government of India which is the only duty imposed by India as an
OCD.
(b) Misinterpretation of the statutory basis for Indian duties
4.44 The United States has failed to distinguish between the duties levied under the Indian
Customs Act, 1962 ("Customs Act") and those under the Customs Tariff Act, 1975 ("CTA"). The AD
on alcoholic beverages is levied under Section 3( 1) of the CTA whereas the SUAD on the identified
products is levied under Section 3(5) of the CTA. On the other hand, the BCD is authorized by
Section 12 of the Customs Act. The US has iden tified the provisions of the Customs Act and the
Customs Tariff Act as the measures in the present disput e that are collectively responsible for the levy
of the BCD, the AD and the SUAD. In doing so, the US has failed to make the intrinsic distinction
between the types of duties and the statutory provisions responsible for their imposition.
(c) Failure to distinguish between mandatory and discretionary provisions of Indian law
4.45 The United States has challenged the identified I ndian statutory provisions "as such" without
accounting for the fundamental distinction between those statutory provisions which authorize the
imposition of a duty, and those which actually result in its levy. In doing so, it has blurred the
distinction between the empowering provisions of Section 3 of the CTA which give the Central
Government the discretion to impose the AD on al coholic beverages and the SUAD on the identified
products, and the relevant Customs Notifications – which are a form of delegated legislation that
ultimately determine that the AD on alcoholic beve rages and the SUAD on the identified products be
levied at a specific rate, if at all.
(d) Failure to acknowledge the valid removal of the AD on alcoholic beverages
4.46 The United States has failed to acknowledge that the AD on alcoholic beverages levied by
Customs Notification No. 32/2003, dated March 1, 2003 ("CN 32/2003"), stands duly and validly
removed through a subsequent Customs Notif ication No. 82/2007, dated July 3, 2007
("CN 82/2007"). In doing so, the US has mounted a challenge on a measure which has ceased to have
any effect, on account of a subsequent amendmen t to the measure despite having included "any
amendments, related measures, or implementing measures" in its description of the challenged
measures. Without prejudice to India's stand that the earlier measure was also in conformity with
India's WTO obligations, the Panel would be well with in its rights to take into account the subsequent
removal of the AD on alcoholic beverages which was introduced after the Terms of Reference of the
Panel were fixed.
3. Legal challenge
4.47 In addition to the factual grounds listed above, the United States has not succeeded in framing
a sustainable legal challenge upon the compatibility of the identified Indian duties with provisions of
the GATT for the following reasons:

(a) Incorrect challenge of measures "as such"
4.48 The United States has identified Section 12 of the Customs Act and Section 3 of the CTA as
two offending measures in the present dispute, an d in doing so, it has effectively challenged the
empowering provisions in the two legislations as su ch, independently from the application of that
legislation (through the identified Customs Notif ications) in specific instances. The threshold
consideration in determining when a legislation as su ch – rather than a specific application of that
legislation – is inconsistent with a Contracti ng Party's obligations under the GATT is based on
whether the legislation is mandatory as distinguished from discretionary.11 The distinction between
mandatory and discretionary legislation turns on wh ether there is relevant discretion vested in the
executive branch of the Government. 12 It is clear that neither Section 3(1) nor Section 3(5) of the
CTA, enjoin upon the Central Government to necess arily levy the AD on alcoholic beverages or the
SUAD on the identified products. Thus they cannot be said to be mandating actions inconsistent with
the GATT Agreement. The two statutes on the other hand, empower the Central Government with the
discretion to charge such duties, fix the rates at whic h they will be levied, and to issue Customs
Notifications to give effect to such decisions.
(b) Neither the AD nor the SUAD is inconsistent with Article II:1(a) and (b) of the GATT 1994
4.49 The AD on alcoholic beverages is levied under Section 3(1) of the CTA and is a charge
expressed in ad valorem terms that is equivalent to the internal state excise duty leviable on like
domestic products. The SUAD on the identified products is an ad valorem duty that is levied under
Section 3(5) of the CTA with the sole objective of offsetting the incidence of certain internal taxes
that are directly levied on domestic like products, i.e. sales tax, value added tax (VAT) and other local
taxes and charges. The nature, intent and design of the AD on alcoholic beverages and the SUAD on
the identified products is solely to offset the incidence of certain internal taxes levied on like domestic
products and these duties are validly imposed in acco rdance with Article II:2(a) of the GATT 1994.
Neither the AD on alcoholic beverages nor the SUAD on the identified products is an OCD or an
ODC as understood under Article II:1 of the GATT 1994 for the following reasons:
(i) The AD and the SUAD are not OCDs
4.50 The term OCD used in Article II:1(b) has been described by a WTO Panel as being a duty
"of the usual kind, not singular or exceptional; commonplace, mundane". 13 A duty may be imposed on
imports at the border and expressed in ad valore m terms but it is not necessary that each and every
duty that is calculated on the basis of the value a nd/or volume of imports is necessarily an "ordinary
customs duty".14 Both the AD and the SUAD are expressed in ad valorem terms but that does not
necessarily make them OCDs. In stead, the purpose and design of the AD on alcoholic beverages and
the SUAD on the identified products is solely to offset the incidence of certain internal taxes, i.e. in
the case of the AD, state excise duties that are levi ed only on alcoholic beverages manufactured in
India, and the SUAD – certain sales tax, value a dded tax (VAT) and other lo cal taxes and charges.
Both such duties are charges impo sed in accordance with Article II:2(a) and are distinct from the
OCD envisaged under Article II:1(b). This distinc tion has been acknowledged by the Appellate Body
in Chile – Price Band System where it held that:
"Article II:2 of the GATT 1994 sets out exam ples of measures that do not qualify as
either "ordinary customs duties" or "other duties or charges". These measures include
charges equivalent to internal taxes, an ti-dumping and countervailing duties, and fees

11 Appellate Body Report, US – 1916 Act, paras. 88-91.
12 Ibid, para. 100
13 Panel Report, Chile – Price Band System, para. 7.51.
14 Appellate Body Report, Chile – Price Band System, para. 274.

or other charges commensurate with the co st of services rendered. They too may be
based on the value and/or volume of imports, and yet Article II:2 distinguishes them
from "ordinary customs duties" by providing that "[n]othing in [Article II] shall
prevent any Member from imposing" them "at any time on the importation of any
product".15
4.51 As noted earlier, the Indian statutory provisions that authorize the levy of the AD on alcoholic
beverages (Section 3(1) of the CTA) and the SUAD on the identified products (Section 3(5) of the
CTA) are clearly distinct from the provisions that authorize the levy of the BCD (Section 12 of the
Customs Act). The BCD is the only duty imposed on importation into India by way of an OCD as
understood under Article II:1 of the GATT 1994. The AD and the SUAD are on the other hand, duties
that are intended to be in the nature of a levy impos ed at the border to offset various internal taxes in
accordance with Article II:2(a) of the GATT 1994.
(ii) Failure to discharge burden of proof
4.52 The United States has failed to adequately d escribe the grounds on which either the AD on
alcoholic beverages or the SUAD on the identifie d products would qualify as an "other duty of
charge" which was imposed inconsistently with In dia's Schedules. In doing so, the US has failed to
adequately make out a legal argument and has not discharged its burden of proof.16
(iii) The AD and the SUAD are not ODCs
4.53 Notwithstanding the US failure to discharge its burden of proof, neither the AD on alcoholic
beverages nor the SUAD on the identified products sa tisfy the Article II:1(b) second sentence test for
determining whether a levy is an "other duty or charge". The AD on alc oholic beverages and the
SUAD on the identified products are imposed at the time of import but are not imposed on, or in
connection with importation; instead, they are impo sed in lieu of state excise duties and sales tax,
VAT, other taxes and charges respectively. Furthe r, while both duties are expressed in ad valorem
terms, the Appellate Body in Chile – Price Band System has held that this does not, make them "other
duties and charges" under the second sentence of Article II:1(b).17 The AD on alcoholic beverages and
the SUAD on the identified products are both "cha rges equivalent to internal taxes imposed
consistently with the provisions of Article III:2" and India is perm itted to impose such charges under
Article II:2 of the GATT 1994, but they do not amount to an ODC.18
(iv) The AD and the SUAD are not "in excess of" the rates in India's Schedules
4.54 As noted above, neither the AD nor the SUAD ar e OCDs or ODCs that are required to be
listed in India's Schedules and are not therefore to be included for determining whether India's duties
are "in excess of" those provided in its Schedules. The only charge that India levies by way of an
OCD, is the basic customs duty under Section 12 of the Customs Act which is in conformity with the
commitments contained in its Schedules. As noted earlier, the AD and the SUAD are distinct from the
basic customs duty and are imposed with the specifi c purpose of off-setting certain internal taxes and
charges. The AD and the SUAD are imposed in ac cordance with Article II:2(a) of the GATT 1994
and are not "in excess of" India's Scheduled commitments.

15 Appellate Body Report, Chile – Price Band System, para. 276.
16 The United States notes that, as a general rule, "t he burden of proof rests upon the party, whether
complaining or defending, who asserts the affirmative of a particular claim or defence". Appellate Body Report,
US – Wool Shirts and Blouses, p. 14.
17 Appellate Body Report, Chile – Price Band System, para. 275.
18 Ibid, para. 276.

(v) The AD and the SUAD are not inconsistent with Article II:1(a) of the GATT 1994
4.55 As noted above, neither the AD nor the SUAD are OCDs or ODCs as defined under
Article II:1(b), and are consequently not required to be listed as part of India's Schedules. Instead, the
AD on alcoholic beverages and the SUAD on the identif ied products are charges levied at the border
in lieu of internal taxes and in accordance with Sec tion II:2(a) of the GATT. India has "preserved the
value of tariff concessions" listed in its Schedules and its "ordinary customs duty" applied on the
importation of certain alcoholic beverages and other identified industrial and agricultural products are
well within the limits prescribed in its Schedules.
(c) The AD and the SUAD are equivalent to internal taxes under Article II:2(a) of the
GATT 1994
4.56 WTO Members are permitted by Article II:2(a) to levy certain charges at the border,
notwithstanding the restrictions contained in Article II:1(a) and (b), provided that such charges are: (a)
"equivalent" to an "internal tax"; (b) imposed in a ma nner that is consistent with Article III:2; and (c)
in respect of a "like domestic product". The AD on alcoholic beverages and the SUAD on the
identified products are such charges which are le vied in accordance with Article II:2(a) of the
GATT 1994.
19 The SUAD on the identified products is equivalent to the sales tax, value added tax,
local tax and other taxes or charges leviable on th e sale or purchase or transportation of like goods
in India, when imported into India and it imposes the same fiscal burden on imported products as on
like domestic products. The SUAD on the identified products was introduced to "counter-balance"
internal taxes and charges at a rate not exceeding 4 per cent and is equivalent to the:
• Value Added Tax (VAT) imposed by state governments on the intra-state sale of
domestic products, from which imported like pr oducts at the time of importation are
exempt20, and/or

• the Central Sales Tax (CST) imposed by the Central Government on the inter-state
sale of domestic products, from which impor ted like products at the time of
importation are exempt21;

• and/or other local taxes and charges on th e sale, purchase and transport of domestic
products.

4.57 The Indian system of tax administration has been carefully calibrated in a manner such that if
certain specified domestic products are exempt from any or all of these abovementioned internal
taxes, then the imported like products are al so exempt from the payment of the SUAD.
22 This
effectively ensures that the SUAD on imported products is at all times equivalent to the internal taxes
charged by way of VAT, CST or other taxes and charg es. Furthermore, to ensure complete parity and
an equality of taxation for imported and like dom estic products, the methodology for calculation of
the SUAD on the identified products is similar to the methodology used to calculate the state VAT
and is in accordance with accepted international practices. The internal taxes that the SUAD is
intended to counter-balance are described below:

19 Since the rate at which the AD on alcoholic be verages was charged has been effectively removed
through CN 82/2007, arguments in support of its eq uivalence with the state excise duties which it was
introduced to counter – balance, are not being offered at this stage, without prejudice to India's rights offer such
details at a later stage.
20 Article 286 of the Constitution precludes the state government from imposing taxes of sale on
imports.
21 Section 6(1) of the Central Sales Tax Act, 1956 authorizes the imposition of CST only on the inter –
state sale of products, and not on products imported from outside the country.
22 Notification No. 20/2006 – Cus., dated 1 March 2006.

(i) The SUAD is equivalent to the Sales Tax/Value Added Tax (collectively referred to as "VAT")
4.58 The VAT is imposed by state governments under their respective state VAT statutes on
domestic products and not on the importation of li ke products from outside India since they are
precluded by the Constitution of India from levying VAT on the import of goods. 23 Since domestic
manufacturers have to bear the incidence of VAT , which is not equally imposed on the import of
products into India, the Central Government has so ught to counter-balance the incidence of the VAT
(and CST and other taxes and charges) by imposi ng the SUAD. Appropriate tax credit and exemption
mechanisms ensure that if certain domestic products are exempt from the payment of VAT, then the
like imported products are also correspondingly exempted from the payment of the SUAD . Similarly,
products that are charged at a nominal rate of 1 per cent under the relevant state VAT legislations, are
charged SUAD for imported like products at a corresponding rate of 1 per cent ad valorem. 24
Therefore, the SUAD is designed to be equivalent to the state VAT.
(ii) SUAD is equivalent to the Central Sales Tax (CST)
4.59 The CST is levied only on the inter-state m ovement of domestically manufactured products
by the Central Government under the Ce ntral Sales Tax Act, 1956 ("CST Act"). 25 Since domestic
manufacturers have to bear the incidence of CST (o n inter-state sales) which are not equally imposed
on imported products, the Central Government has sought to counter-balance the incidence of these
taxes by imposing a 4 per cent SUAD. The rate at which the CST is charged on a product is
determined in accordance with the laws of the stat e from where the movement originates i.e. the rate
of CST will be equivale nt to the prescribed rate of sales ta x/VAT of the state of origination.
Therefore, the rate at which CST is levied on inte r-state sales is inter-connected with the VAT rates
listed above and CST is levied at a basi c rate of 4 per cent on certain products
26 and a standard rate of
12.5 per cent on all other products, unless the prod uct is jewellery and gold (in which case it is
charged a nominal CST of 1 per cent) or if the pr oduct is exempted altogether from the payment of
VAT. Accordingly in order to counter-balance the incidence of CST, the SUAD on imported products
is levied at nil rate or at the rate of 1 per cent, or 4 per cent to ensure that imported products are not
taxed in excess of Indian like pr oducts. Appropriate tax credit and ex emption mechanisms ensure that
domestic goods that are exempt from the payment of VAT in the state from where it originates are
also exempt from the payment of CST. Simulta neously, their like imported products are also
exempted from the payment of the SUAD when they are imported into India.
27 Similarly, products
such as gold, jewellery, etc. that are eligible to be charged at the nominal rate of 1 per cent CST, then
their like imported products are correspondingly su bject to the SUAD at the (reduced) rate of 1 per
cent ad valorem.28 Therefore, the SUAD on the identified pr oducts is designed not to exceed the CST
and be equivalent to the CST.
(iii) The SUAD is equivalent to other local taxes and charges
4.60 In addition to the local taxes enumerated above, each state government is empowered by the
Constitution of India to collect a variety of local levies on goods and the raw materials used in their
manufacture, such as transport fees, various type of surcharges, cess etc. The cumulative effect of all
state-level internal taxes imposed only on domestic products, from the raw material stage to its

23 Article 286 of the Constitution precludes the state government from imposing taxes of sale on
imports.
24 Introduced by Notification No. 20/2006 – Cus., dated 1 March 2006.
25 Section 5(1) of the Central Sales Tax
26 In some limited instances, the CS T chargeable has recently been re duced to 3 per cent as of the 1
April, 2007, i.e. in the case of inter- state sale of goods by a dealer to anot her registered dealer. (Section 8 (1) of
the Central Sales Tax, 1956).
27 Notification No. 20/2006 – Cus., dated 1 March 2006.
28 Ibid.

finished state, have to be counter-balanced on imported like products. The SUAD was introduced with
the objective of off-setting such internal taxes which may vary in nomenclature, quantum and
character from state-to-state and the SUAD has b een levied at the lowest rate possible to
counterbalance these state levies that are not imposed on like imported products.
(iv) The AD and SUAD are imposed consistently with Article III:2 of the GATT 1994
4.61 The AD on alcoholic beverages and the SUAD on the identified products are both imposed on
the import of goods at the customs border, and are equivalent to and not "in excess of" the taxes and
charges imposed upon like domestic goods. The structure, design and implementation of the AD on
alcoholic beverages and the SUAD on the identified products clearly indicates that they are duties that
are intended to counter-balance internal taxes and to ensure the equality of taxation between domestic
and imported like products and not to afford protection to the domestic industry.
29
• The SUAD is imposed on "like products" : The products identified in the present
dispute are certain alcoholic beverages and other identified industrial and agricultural
products, listed by the United States These alcoholic beverages and the identified
products are imported into India on the b asis of the Harmonized System (HS) of
nomenclature used to describe them at the customs border and the SUAD is levied in
accordance with this nomenclature. As noted earlier, the imported products are
treated as being alike their domestic counter parts and therefore, exemptions granted
to domestic products from local taxes and char ges will also result in an exemption for
like imported products. In other words, for the purposes of the imposition (and
exemption) of the SUAD, the Government of India treats products identified by the
US, as being treated like their domestically manufactured counterparts.

• The SUAD does not tax imported pro ducts "in excess of" domestic products: The
SUAD is a charge imposed at the border that is equivalent to the VAT, CST or other
local charges and duties paid by like do mestic products and the imposition of the
SUAD equalizes the tax burden imposed on the imported product with its like
domestic product.30 Since domestic taxes and charges (VAT and CST) are levied at a
minimum rate of 4 per cent, which is equivalent to the 4 per cent SUAD imposed on
imported like products, the tax burden on an imported product on account of SUAD
cannot be said to be in excess of the ta x burden on like domestic products. Further,
under Indian law, the benefit of an exemption or reduction from a local tax such as
VAT or CST results in a parallel exempti on or reduction from the payment of the
SUAD for like imported products, thus ensuri ng an overall equality of tax burdens on
imported and like domestic products. 31. Further, the methodology for the calculation
of the SUAD is in accordance with internati onal best practices and is designed in a
manner such that the SUAD and the domestic VAT which, amongst other things it
seeks to counter-balance, are both levied uniformly on the value of the product,
inclusive of duties and taxes as applicable. This ensures complete parity and equality
of taxation for imported and like domestic products.

29 Since the rate at which the AD on alcoholic be verages was charged has been effectively removed
through CN 82/2007, arguments in support of its eq uivalence with the state excise duties which it was
introduced to counter – balance, are not being offered at this stage, without prejudice to India's rights offer such
details at a later stage.
30 Although the SUAD results in the imposition of an equivalent tax burden on imported and like
domestic products it is possible that, without prejudice to its earlier contentions, the overall burden of taxation
on imported products as a result of the SUAD may be marginally "in excess of" the tax on like domestic
products which is below the "de minimis" level permissible under GATT Ad Article III, paragraph 3.
31 Customs Notification No. 20/2006 – Custs., dated 1 March, 2006.

• Directly competitive or substitutable products: As noted above, the SUAD is imposed
on the identified imported products at the border on the basis of their HSN
classification to counter-balance internal taxes on like domestic products, including
those identified by the US in its complaint. Therefore, by definition the SUAD is also
imposed on products that are "directly competitive or substitutable".

• The SUAD is not charged "so as to affo rd protection" to the domestic industry: The
purpose of imposing the SUAD as manifested in its design and intent 32 on the
identified products is to counter-balance certain local taxes and charges suffered by
like domestic products and not to afford any measure of protection to the domestic
industry. The SUAD is designed to impose a minimum rate of tax on imports to
counterbalance the tax burden borne by like domestic products by way of sales tax,
VAT and other internal taxes and charges a nd does not result in dissimilar taxation of
any magnitude between imported products and domestic products
33 . The SUAD
mechanism is calibrated with the internal tax mechanism su ch that the benefit of any
exemption or concessional rate made availa ble to the domestic industry is equally
extended to imports and has not been applied in a manner so as to afford protection to
the domestic industry.

(d) The SUAD is consistent with Article III:2 of the GATT 1994
(i) The US has failed to discharge its burden of proof
4.62 The US has argued in the alternative that th e AD and the SUAD are inconsistent with
Article III:2 of the GATT 1994 as they exceed those taxes that are applied to like domestic products
or directly competitive or substitutable domestic pr oducts. However, the US has failed to provide any
basis for advancing such an argument and thus has failed to discharge its burden of proof.
34
(ii) Notwithstanding the US failure to discharge its burden of proof
4.63 As a complaining party in the dispute, the S UAD is imposed consistently with the provisions
of Article III:2 of the GATT 1994 as noted above.
4. Conclusion
4.64 For the above reasons, the India requests the Pa nel to dismiss all the claims brought by the
United States in this dispute.
C. ORAL STATEMENT OF THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF THE
PANEL
4.65 This dispute concerns two customs duties th at India imposes on imports from the United
States, including on beer, wine and distilled spirits . These duties are the additional customs duty (AD)
and the extra-additional customs duty (EAD). The AD and the EAD constitute ordinary customs
duties, and India applies them at rates that exce ed the bound rates to which it committed in its WTO
Schedule. As a consequence, the AD and the EAD are each inconsistent with India's obligations
under Article II:1(a) and II:1(b) of the GATT 1994.

32 Appellate Body Report, Chile – Alcoholic Beverages, paras. 71-72.
33 Appellate Body Report, Canada – Periodicals, p. 32.
34 The United States notes that, as a general rule, "t he burden of proof rests upon the party, whether
complaining or defending, who asserts the affirmative of a particular claim or defence". US – Wool Shirts and
Blouses, p. 14.

4.66 India contends that the AD and the EAD are in tended to offset or counterbalance internal
taxes applied to like domestic products and as such are not ordinary customs duties subject to
Article II:1(a) or II:1(b). India contends they are "charges equivalent to an internal tax" within the
meaning of Article II:2(a) of the GATT 1994. However, there is no evidence that either duty is in fact
equal to, or offsets, internal taxes applied to like domestic products.
1. Ordinary Customs Duties
4.67 Article II:1(b) of the GATT 1994 obligates each Member to exempt imports from ordinary
customs duties in excess of the bound ra tes set out in that Member's WTO Schedule. India's view of
why the AD and the EAD do not constitute ordinary customs duties boils down to three reasons. One,
India does not intend the AD or the EAD to be an ordinary customs duty. Two, the "nature and
purpose" of the AD and the EAD are "extra-ordinary" . Three, the AD and the EAD are distinct from
India's basic customs duty and, therefore, cannot be ordinary customs duties. None of these reasons
demonstrates that the AD or the EAD is not an ordinary customs duty.
4.68 With respect to India's first and second reason, when faced with issues of this sort, the
Appellate Body has not based a determination of whether a measure constitutes an ordinary customs
duty on the name, stated purpose or intention of the measure, but instead on an examination of the
structure, design and effect of the measure at issue. Thus, India's singular focus on the intention or
purpose it ascribes to the AD and EAD is misguided.
4.69 Examination of the structure, design and effect of the AD and the EAD reveals that both are
ordinary customs duties. Both are structured and d esigned to, and in fact do, apply (i) at the time of
importation, (ii) exclusively to imports, and (iii) as an ad valorem or specific duty. The rate of AD
varies depending on the CIF value of the product, and the rate of EAD is a flat four per cent. The AD
and the EAD also each apply as a matter of course upon a good's importation, and their application
does not depend on any outside factors. In each of these respects, the AD and the EAD are in
structure and effect very much like India's basic customs duty.
4.70 As to India's third reason, there is simply no basis in the WTO Agreement for India's
proposition that a Member may impose only one cust oms duty properly categorized as an "ordinary
customs duty" and that any other customs duty that the Member might impose is simply something
other than an ordinary customs duty. The fact that the AD and the EAD may be "distinct" from
India's basic customs duty does not mean the AD and the EAD are not ordinary customs duties.
Moreover, India's contentions that the AD and EAD are entirely distinct from the basic customs duty
are incorrect. In fact, all three duties are impo sed pursuant to the same provision under India's
customs laws – that is, Section 12(1) of the Customs Act – and may be exempted with respect to
certain products pursuant to the same provision under I ndia's customs laws – that is, Section 25(1) of
the Customs Act. The fact that each duty is furthe r elaborated under separate sections or sub-sections
of the Customs Tariff Act does not make them "entirely distinct".
4.71 In any event, even if the AD and the EAD were not considered ordinary customs duties, they
would nonetheless fall under Article II:1(b) of th e GATT 1994 because Article II:1(b) also prohibits
"other duties or charges" that are not set out in th e Member's Schedule. An "other duty or charge" is
defined in relation to an ordinary customs duty, in that the term "other duties or charges" means those
duties or charges that are not "ordinary" cust oms duties but are nonetheless imposed on, or in
connection with, a product's importation. The AD and the EAD are customs duties applied on
products on their importation. As such, if the AD or the EAD are not considered "ordinary customs
duties", either would nonetheless constitute an "o ther duty or charge" within the meaning of
Article II:1(b) of the GATT 1994.

2. AD and EAD exceed WTO-bound rates
4.72 Because the AD and the EAD are ordinary customs duties, or in the alternative other duties or
charges, within the meaning of Article II:1(b) of the GATT 1994, India is obligated not to impose
them in excess of the WTO-bound rates set out in it s WTO Schedule. India has failed to meet that
obligation. Starting with the AD, as detailed in pa ragraph 50 of the US submission, imposition of the
AD on top of India's basic customs duty results in ordinary customs duties on imports of beer, wine
and distilled spirits (collectively, "alcoholic beverages") that range from approximately 200 to 550 per
cent. India's WTO Schedule specifies a bound rate of 150 per cent for alcoholic beverages. The AD,
thus, results in ordinary custom duties that ar e between 48 to 400 percentage points over India's
WTO-bound rates. And, were the AD to be consider ed an other duty or charge, it would result in
"other duties or charges" that exceed those set out in India's Sc hedule as India's Schedule does not
specify any other duties or charges for any product.
4.73 Turning to the EAD, Exhibit US-1 details th e imported products – in addition to distilled
spirits – for which the EAD applies and for which its imposition results in ordinary customs duties in
excess of India's WTO-bound rates. Exhibit US-1 is illustrative in that imposition of the EAD on any
imported product for which India's basic customs duty is already at – or very near – India's WTO-
bound rate results in a breach of India's WTO-bound rates. As with the AD, were the EAD to be
considered an "other duty or charge", it would also exceed those set out in India's Schedule, as it does
not specify any other duties or charges for any product.
4.74 India does not dispute the fact that the AD and the EAD each result in customs duties in
excess of the bound rates set forth in India's Schedul e. Instead, India simply reiterates its contention
that the AD and the EAD are not ordinary customs duties. However, for the reasons the United
States has presented, the AD and the EAD are properly considered ordinary customs duties, or in the
alternative other duties or charges. And, b ecause India imposes each of the AD and the EAD in
excess of the ordinary customs duties, or other duti es or charges, set forth in its WTO Schedule, each
is inconsistent with Article II:1(b) and, as a consequence, also Article II:1(a) of the GATT 1994.
3. Article II:2(a) of the GATT 1994 – general
4.75 Article II:2(a) consists of two elements, each of which must be met for a charge on the
importation of a product to fall within the meaning of that provision. First, the charge must be
"equivalent to an internal tax" imposed in respect of like domestic products. Second, the charge must
be imposed in a manner consistent with Article III:2 of the GATT 1994 in respect of like domestic
products. That is, the charge applied to imported products must not exceed the internal taxes on like
domestic products to which they are asserted to be equivalent. The first element appears to focus on
the qualitative aspects of the measure, whereas the latter appears to focus on its quantitative aspects.
4.76 India has not shown that the AD or the EAD meet s either element. As a result, the Panel
should reject India's contention that the AD and th e EAD may be justified under Article II:2(a).
India, as the party asserting that the AD and the E AD are justified under Article II:2(a), bears the
burden of substantiating that assertion and has failed to do so.
4. Article II:2(a) of the GATT 1994 – EAD
4.77 India asserts the EAD is "equal to" or "offset" three categories of internal taxes: (i) state-level
value-added taxes or VATs; (ii) a Central Sales Ta x; and (iii) unspecified "other local taxes and
charges". India cites language in its Customs Ta riff Act that the Central Government may impose a
duty on imports "as would counter-balance" certain internal taxes on domestic products. While
India's Customs Tariff Act may indeed state that, In dia fails to present, any evidence, however, that

the EAD is equivalent to either the state-level VAT s – which can vary from state to state for the same
product – or the Central Sales Tax.
4.78 India's explanation of the "principle applied by the Government of India in imposting" the
EAD is equally uncompelling. The stated purpose or intention of the EAD is not determinative of
whether it constitutes an ordinary customs duty or some other type of duty or charge. Instead, it is
important to examine the structure, design and eff ect of the EAD. And, nothing in terms of the
structure, design or effect of the EAD appears equivalent to the state-level VATs or the Central Sales
Tax. First, as India explains the state-level VATs apply "broadly under ... four different rates of tax":
zero, 1, 4, and 12.5 per cent. Second, while stat e-level VATs may broadly break down into these four
rates, there is no requirement that each of the 28 in dividual Indian states apply the same rate to the
same domestic products. Thus, one state may apply a VAT of four per cent on a particular product,
whereas another state may apply no VAT on that same product. The same two points are true for the
Central Sales Tax as well may similarly vary from product to product and from state to state. In
contrast, the EAD is set at a flat four per cent rate; it does not vary from product to product nor does it
vary based on the state in to which it is imported. In fact, th e Customs Tariff Act appears to expressly
prohibit that, as the proviso to Section 3(5) states that where the internal taxes at issue are "leviable at
different rates" the statute means to authorize imposition of a duty at a level so as to offset the
"highest such tax".
4.79 India's explanations of how it "calibrates" th e EAD to ensure that products exempt from the
state-level VATs, and in turn the Central Sales Ta x, are inapposite. The US claims concern imports
for which India imposes the EAD, not products that are exempt from the EAD. Finally, in terms of
the unnamed "other local taxes and charges", India provides no details on any such other local taxes
or charges.
4.80 With respect to the second element – imposed in a manner consistent with Article III:2 of the
GATT 1994 – India asserts that the EAD is "equal to" the state-level VATs or the Central Sales Tax
imposed on domestic products "fro m which imported like products at the time of importation are
exempt". However, both the state-level VATs and the Central Sales Tax apply to imported products.
It is difficult to understand how the EAD offsets ta xes that already apply to imported products or how
it results in duties on imported products that are "e qual to" those applied to like domestic products,
when imported products are subject to the EAD in addition to the same state-level VATs and the
Central Sales Tax that apply to like domestic products. Like domestic products are not subject to the
EAD and thus are subject to taxes that are less th an those applied to imported products. The EAD is
therefore not a charge imposed in manner consistent with Article III:2 of the GATT 1994.
4.81 The EAD results in charges on imported products "in excess" of those on like domestic
products, even if it leads to such excess taxation in ju st one Indian state. The fact remains that some
imported products are treated less favourably th an their domestic like products, and that is
inconsistent with Article III:2.
4.82 A final point on the EAD to note is that, for purposes of responding to India's arguments
today the United States has assumed that the imported products on the one hand – both alcoholic
beverages and the products listed in Exhibit US-1 – and the domestic products subject to the internal
taxes at issue on the other, are – as India contends – "like" within the meaning of Article III:2 of the
GATT 1994. The United States has assumed the same for the same purposes with respect to the AD.
5. Article II:2(a) of the GATT 1994 – AD
4.83 In terms of whether the AD is "equivalent to an internal tax" or imposed in a manner
consistent with Article III:2 of the GATT 1994, Indi a provides very little in support of its assertions.
India cites language in its Customs Tariff Act that directs the imposition of a duty on imports "equal

to the excise duty" for the time being leviable on dom estic alcoholic beverages in the different Indian
states and asserts that the nature, intent and design of the AD is to offset state excises taxes. Yet,
India does not identify any such state excise duties much less explain how the AD is "equivalent" to
such unidentified state excise taxes or imposed in a manner consistent with Article III of the
GATT 1994.
4.84 Thus, with respect to both the AD and the EAD India has failed to rebut the US prima facie
case that both the AD and the EAD are ordinary custom s duties within the meaning of Article II:1(b)
of the GATT 1994 and that India applies these duties to imports in excess of its WTO-bound rates.
6. Terms of reference
4.85 After the DSB established this Panel with sta ndard terms of reference, India's Central
Government issued Customs Notification 82-2007 which "exempts" alcoholic beverages from the
rates of AD specified in Customs Notification 32/200 3. Customs Notification 82-2007 is not within
this Panel's terms of reference, a nd the Panel should not undertake to examine it in the course of this
dispute.
4.86 First, it is not clear as a factual matter that Customs Notification 82-2007 eliminates the AD.
For example, Customs Notification 82-2007 states th at it "effectively overrides" Customs Notification
32-2003. India does not assert that Customs Notification 32-2003 has been revoked.
4.87 Second, even if India has eliminated the AD, Customs Notification 82-2007 is not within this
Panel's terms of reference because it is not referenc ed in the US request fo r establishment. To the
extent Customs Notification 82-2007 has an impact on the AD would be a matter for the compliance
stage of this dispute.
4.88 Third, the United States shares the Appellate Body 's concern that if a panel takes into account
measures introduced after the date of establishment, this creates a "moving target". The United States
would be particularly concerned if Customs Notifi cation 82-2007 had the effect of shielding the AD
from scrutiny. For example, in the event that, af ter conclusion of these proceedings, India's Central
Government exercised what it characterized its "c omplete discretion" to impose (or re-impose) the
AD or the Indian states introduce measures similar to the AD, as India's submission suggests is their
intent.
7. AD – M/D
4.89 The United States disagrees with India's interpreta tion of the AD, in particular of its reading
of the statutory words "shall be liable" to sugg est imposition of the AD rests completely at the
discretion of the Central Government. The United States notes that non-enforcement of a mandatory
measure – which in the US view the AD is – does not save the measure from being subject to
challenge under the DSU. In any ev ent, to the extent the Panel were to find the relevant statutory
provisions did not mandate imposition of the AD, In dia freely admits Customs Notification 32-2003
does. Customs Notification 32-2003 is clearly a measu re within the Panel's terms of reference, and
changes made with respect to the AD subsequent to the Panel's establishment should not be taken into
account. Therefore, the Panel need not undertake an examination of the mandatory-discretionary
principle that India invites in its written submission.
8. Concluding remarks
4.90 For the reasons presented in its written submissi on and reviewed and elaborated in its oral
statement and responses to questions, the United States has firmly established its prima facie case that

the AD and the EAD are inconsistent with India's obligations under Article II:1(a) and (b) of the
GATT 1994. India has failed to rebut this case.
4.91 Rather than present a point by point analysis, the United States focuses its closing remarks on
a few key points that go to the heart of why the Pa nel should rejects India's attempts to defend the AD
and the EAD under Article II:2(a) .
4.92 First, India has not contested that the AD or EA D result in duties or charges that exceed its
WTO-bound rates. Thus, if the Panel finds that the AD is an ordinary customs duty, or in the
alternative an other duty or charge, then it should on the basis of the US prima facie case find that the
AD results in a breach of India's tariff bindings and is , therefore, inconsistent with Article II:1(a) and
(b). The same is true with respect to the EAD.
4.93 Second, with respect to its arguments under Article II:2(a), India has not provided any
evidence that either the AD or the EAD is "equa l to" or offsets internal taxes imposed on like
products. Reliance on the stated or intended purpose of the duties is insufficient to establish that such
duties are not imposed in excess of taxes or char ges on like domestic products. The United States is
struck by how – throughout India's written submission and oral statement – India refers to the AD or
the EAD as being "designed to" or "intended to" offset certain internal taxes, or that the "nature, intent
and design" of the AD or the EAD is to offset such taxes, but has yet to make a showing or provide an
accounting of how the AD and the EAD are in fact "e qual to" or not levied in excess of taxes on like
domestic products. And as a result, India has failed to provide evidence in support of its contention
that either the AD or the EAD is applied in a manner consistent with Article III:2 of the GATT 1994.
4.94 Third, India's identification of state-level VATs and the Central Sales Tax as two of the
internal charges that the EAD is in tended to offset is simply not credible. Those taxes already apply
to imported products, and the EAD's application to imported products only results in imported
products being subject to the EAD in addition to th e state-level VATs and Central Sales Tax that the
EAD allegedly offsets.
4.95 Fourth, the United States is troubled that at this stage in the Panel proceeding, India has
identified none of the internal taxes the AD allege dly offsets, and with the exception of the state
VATs and the Central Sales Tax, India has identifie d none of the internal taxes the EAD allegedly
offsets. The United States has requested India on a number of occasions, including in course of
consultations and prior to initiating this dispute and in India's recent Trade Policy Review, to identify
such taxes and provide an accounting of how they are "equal to" to or offset the AD and EAD
respectively. On each occasion, India has failed to meet that request. The United States hopes that
India will keep its commitment to the Panel in th is meeting to identify these taxes that the duties
allegedly offset.
4.96 The United States stresses that providing such an accounting is critical. Without it, India
cannot sustain its arguments under Article II:2(a), a nd in turn cannot support its defence of the AD
and the EAD under Article II:1(a) or (b). But, more broadly, the United States is concerned that if
Article II:2(a) does not demand such an accounting, that this creates enormous potential for Members
to undermine the value of their tariff commitments . The United States recalls the Appellate Body's
discussion in Argentina – Textiles and Apparel that together Article II:1(a) and (b) serve "to preserve
the value of tariff concessions negotiated by Member s with its trading partners, and bound in that
Member's schedule". An interpretation of Article II:2(a) that would permit the stated or intended
purpose of a charge to demonstrate that the charge meets the requirements of Article II:2(a), would
make it all too easy for Members to undermine th e value of those concessions: Members could
simply ensure that the stated purpose of a duty is to offset internal taxes on like domestic products
and, then, be free to impose that duty at any leve l, regardless of whether that level exceeds its WTO-
bound rates.

4.97 That is in essence what India is requesting this Panel to do with respect to the AD and the
EAD – that is, to accept the stated or intended pur poses of the AD and the EAD alone as proof that
the duties meet the required elements of Article II:2( a). The United States urges the Panel not to heed
India's request in this regard and to demand an accounting that the AD and the EAD do not exceed the
internal taxes on like domestic products to which they are allegedly equivalent if India is to sustain its
Article II:2(a) contentions.
D. ORAL STATEMENT OF INDIA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL
1. Factual issues
4.98 The United States has challenged the impositi on of "additional duty" ("AD") on alcoholic
beverages and the "such additional duties as would counter balance the sales tax, value added tax,
local tax or any other charges leviable on lik e domestic products" ("SUAD") on the identified
products by India. It has based its challenge on what it calls "the most basic of WTO claims" – a
breach of the bound rates of customs duty set forth in a Member's Schedule to the GATT. In doing so,
the United States has misunderst ood the character, purpose, structure and design of the AD on
alcoholic beverages and the SUAD on the identifie d products as being an OCD or ODC. This basic
misconception is on account of its failure to understa nd the Indian tax system – pertaining to customs
and off-setting duties, including the exemption and refund mechanisms for taxes imposed on imported
products.
(a) Mischaracterization of AD and SUAD as OCD and ODC
4.99 There is a clear demarcation under Indian la w between an ordinary (referred to as a basic
customs duty or "BCD") and the AD and the SUAD. The BCD is the only duty imposed on imports
which is in the nature of an "ordinary customs du ties" ("OCD") as understood under Article II:1(b) of
the GATT 1994 and are accordingly bound to the levels prescribed in India's Schedules. India does
not levy "other duties and charges" ("ODC") as understood under Article II:1(b) of the GATT 1994 on
alcoholic beverages or the identified products. The BCD is distinct from the AD and the SUAD,
which are both levied on imported products in lieu of different internal tax es. The United States has
incorrectly equated the BCD with the AD on alcoholic beverages and the SUAD on the identified
products. As a result, it has mischaracterized thr ee fundamentally different duties as being OCD or
alternatively ODC, which are collectively in excess of India's bound rates in the Schedule.
(b) Misinterpretation of the statutory basis for Indian duties
4.100 The United States has misinterpreted the duties levied under the Customs Act and those under
the Customs Tariff Act. The BCD is levied under Section 12 of the Customs Act, whereas the AD and
the SUAD are imposed to counterbalance certain in ternal taxes and charges and are levied under
Section 3(1) and 3(5) of the CTA respectively. The US has identified the provisions of the Customs
Act and the Customs Tariff Act interchangeably as be ing the measures in the present dispute that are
collectively responsible for the levy of the BCD , the AD and the SUAD. In doing so, the US has
failed to make the intrinsic distinction between the types of duties and the statutory provisions
responsible for their imposition. The US has also misinterpreted the cross-reference provisions
contained in the CTA and the Customs Act to mean that both statutes essentially administer the same
duties that are in the nature of OCDs or ODCs.
4.101 The statutory provisions and the interpretation by Indian courts make it very clear that the
nature and character of the BCD, the AD on al coholic beverages and the SUAD on "identified
products" are fundamentally distinct. Therefore the AD and the SUAD shall neither be confused with
the BCD imposed under Section 12 of the Customs Act nor be interpreted as being an OCD or an
ODC as understood by Article II:1(b) of the GATT 1994.

(c) Distinction between mandatory and discretionary provisions of Indian law
4.102 The US has also failed to appreciate the diffe rence between those statutory provisions, which
authorize the imposition of a duty, namely Sections 3(1) and 3(5) of the CTA and those that actually
result in its levy, i.e. the relevant Customs Notifi cation. The provisions of Section 3 of the CTA give
the Central Government the discretion to impose the AD on alcoholic beverages and the SUAD on the
identified products respectively. The Customs Notifi cations in contrast, are a form of delegated
legislation through which the Central Government determines the specific rate at which the AD on
alcoholic beverages and the SUAD on the identified pr oducts is to be levied. The Statute lays down
that the duties cannot exceed the highest rate. It does not mean that the Central Government is obliged
to impose the duties at the highest rate.
(d) Failure to acknowledge the valid removal of the AD on alcoholic beverages-
4.103 The United States has also failed to take into account recent amendments made to Indian law,
which have an immediate bearing on this dispute. The Government of India decided to exempt the AD
on alcoholic beverages levied by Customs No tification No. 32/2003, dated March 1, 2003
("CN 32/2003"), through a subsequent Customs Notification No. 82/2007, dated July 3, 2007
("CN 82/2007"). The CN 82/2007 effectively overri des the rates of AD imposed by its predecessor
CN 32/2003 thereby ensuring that imported alc oholic beverages are no longer charged the AD.
Consequently, the US present challenge is partially based on a measure which has ceased to have any
effect.
2. Legal challenge
(a) Neither the AD nor the SUAD is inconsistent with Article II:1(a) and (b) of the GATT 1994
4.104 The US has characterized the AD on alcoholic beverages and the SUAD on the identified
products as being an OCD or in the alternative as an ODC. As explained earlier, the AD on alcoholic
beverages and the SUAD on the identified products are distinct duties and are not to be confused for
being OCDs or ODCs as understood under Article II: 1(b) of the GATT 1994. The AD is equivalent to
the internal state excise duty leviable on like domestic products whereas the SUAD is equivalent to
certain internal taxes that are levied on like domest ic products, i.e. sales tax, value added tax (VAT)
and other local taxes and charges. The structure, intent and design of the AD on alcoholic beverages
and the SUAD on the identified products is solely to counterbalance the incide nce of certain internal
taxes levied on like domestic products and these duties are validly imposed in accordance with
Article II:2(a) of the GATT 1994.
(i) Ordinary Customs Duty
4.105 The United States has failed to demonstrate that either the AD on alcoholic beverages or the
SUAD on the identified products are OCDs. While it is true that both duties are imposed on imports at
the border and are expressed in ad valorem terms, the Appellate Body in Chile – Price Band System
has in the past held that this does not mean that such duties are "ordinary customs duties".
35 The basic
purpose of the AD on alcoholic beverages and the SUAD on the identified products is to counter-
balance certain internal taxes and the Appellate Body in Chile – Price Band System has confirmed
that such duties do not qualify as OCDs envisaged under Article II:1(b) of the GATT 1994.

35 Appellate Body Report, Chile – Price Band System, paras. 271-272 and 274.

(ii) Other Duties and Charges (ODC)
4.106 The United States has raised an argument in the alternative that the AD on alcoholic
beverages and the SUAD on the identified products may qualify as an "other duty or charge" without
providing any reasons or basis for its contention. In doing so, the US has failed to discharge its burden
of proof.
36 India's AD on alcoholic beverages or the S UAD on the identified products are not in the
nature of an ODC as understood by the second sente nce test imposed in Article II:1(b). The AD on
alcoholic beverages and the SUAD on the identifie d products as discussed earlier are imposed to
counter balance certain internal taxes on like dom estic products and the mere fact that they are
expressed in ad valorem terms does not make them "other duties and charges" under the second
sentence of Article II:1(b).37
4.107 It is clear that neither the AD nor the SUAD fulfil the requirements for an OCD or ODC as
understood under Article II:1(b) of the GATT 1994 a nd consequently, the question of whether they
are "in excess of" the committed rates in India's Schedules does not arise.
(b) The AD and the SUAD are equivalent to internal taxes under Article II:2(a) of the
GATT 1994
4.108 India levies the AD on alcoholic beverages and the SUAD on the identified products in
accordance with the provisions of Article II:2(a) of the GATT 1994 which permits WTO Members to
levy certain charges at the border, provided that such charges are: (a) "equivalent" to an "internal tax";
(b) imposed in a manner that is consistent with Ar ticle III:2; and (c) in respect of a "like domestic
product". Since the AD on alcoholic beverages is no longer being charged, no detailed arguments in
support of its equivalence with the state excise du ties are being presented at this juncture, without
prejudice to India's rights to offer such details at a later stage.
4.109 The SUAD on the identified products was desi gned to counter-balance the incidence of
certain internal taxes from which imported like products at the time of importation are exempt, i.e. the
Value Added Tax (VAT) imposed by state governments on the i ntra-state sale of domestic products;
and/or the Central Sales Tax (CST) imposed by the Central Government on the inter-state sale of
domestic products; and/or other local taxes and charges on the sale, purchase and transport of
domestic products. India ensures at all times that imported products are not taxed in excess of
domestic products and makes pr ovisions to exempt imported products from the SUAD if
corresponding like domestic products are exempt from any or all of these internal taxes. 38
Furthermore, to ensure the equality of taxa tion for imported and like domestic products, the
methodology for calculation of the SUAD on the iden tified products is similar to the methodology
used to calculate the state VAT and is in accordance with accepted international practices.
(c) The AD and the SUAD are imposed consistently with Article III:2 of the GATT 1994
4.110 The structure, design and implementation of the AD on alcoholic beverages and the SUAD on
the identified products clearly indicates that they are duties that are intended to counter-balance
internal taxes and to ensure the equality of taxa tion between domestic and im ported like products and
not to afford protection to the domestic industry. Since the rate at which the AD on alcoholic
beverages was charged has been effectively removed through CN 82/2007, arguments in support of its

36 The United States notes that, as a general rule, "t he burden of proof rests upon the party, whether
complaining or defending, who asserts the affirmative of a particular claim or defence". Appellate Body Report,
US – Wool Shirts and Blouses, p. 14.
37 Appellate Body Report, Chile – Price Band System, para. 275.
38 Notification No. 20/2006 – Cus., dated 1 March 2006.

equivalence with the state excise duties which it was introduced to counter-balance, are not being
offered at this stage, without prejudice to India's rights to offer such details at a later stage.
4.111 Additionally, the SUAD does not tax importe d products "in excess of" domestic products
since it is equivalent to the internal taxes and charges paid by like domestic products. The imposition
of the SUAD merely equalizes the tax burden imposed on the imported product with its like domestic
product. Since domestic taxes and charges (VAT and CST) are levied at a minimum rate of 4 per cent,
which is equivalent to the 4 per cent SUAD impos ed on imported like products, the tax burden on an
imported product on account of SUAD cannot be sai d to be in excess of the tax burden on like
domestic products. Further, under Indian law, the be nefit of an exemption or reduction from a local
tax such as VAT or CST results in a parallel exemption or reduction from the payment of the SUAD
for like imported products. Further, a refund scheme has been recently introduced through Customs
Notification No. 102/2007 – Customs where goods once imported, are subsequently sold by the
importer in India to a consumer, the importer is entitled to claim a full refund of the SUAD paid by
him at the time of the importation, subject to the condition that on re-sale appropriate sales tax or
VAT is paid and no credit is taken of the SUAD. This ensures an overall equality of tax burdens on
imported and like domestic products since the Indian system of tax administration has been carefully
calibrated such that where VAT on domestic products is 1 per cent, SUAD is levied at 1 per cent;
where the levy is nil, SUAD is nil; where the VAT rate is 4 per cent SUAD is 4 per cent and even
where VAT is 12.5 per cent, SUAD is levied at 4 per cent. Finally, the methodology for the
calculation of the SUAD is in accord ance with international practice a nd is designed to ensure parity
and equality of taxation for imported and like domestic products.
(d) The SUAD is consistent with Article III:2 of the GATT 1994
4.112 The US has raised an argument in the alterna tive that the AD and the SUAD are inconsistent
with Article III:2 of the GATT 1994. Such a contenti on changes the nature of the US challenge since
the US has characterized the AD on alcoholic beve rages and the SUAD on the identified products as
being duties under Article II of the GATT 1994 and not as internal taxes and charges under Article III.
It is incumbent upon the United States to explain the basis for its contention and by not doing so, the
US has failed to discharge its burden of proof.
(e) Incorrect challenge of measures
4.113 The US has incorrectly challenged the empowering provisions in the Customs Act and the
CTA, as opposed to the mandatory Customs Notifications, which ultimately levy the respective duty.
4.114 The WTO Panel and Appellate Body have in the p ast held that the threshold consideration in
determining when a legislation as such – rather than a specific application of that legislation – is
inconsistent with a Contracting Party's oblig ations under the GATT is based on whether the
legislation is mandatory as distinguished from discretionary.39 The distinction between mandatory
and discretionary legislation rests on whether there is relevant discretion vested in the executive
branch of the Government. 40 In the present dispute, it is clear that neither Section 3(1) nor
Section 3(5) of the CTA, enjoin upon the Central Government to necessarily levy the AD on alcoholic
beverages or the SUAD on the identified products. T hus they cannot be said to be mandating actions
inconsistent with the GATT Agreement. The two statutes on the other hand, empower the Central
Government with the discretion to charge such duties, fix the rates at which they will be levied, and to
issue Customs Notifications to give effect to such decisions.

39 Appellate Body Report, US – 1916 Act, paras. 88-91.
40 Ibid, para. 100.

4.115 Therefore, the US challenge has to be confined to the relevant Customs Notifications through
which the AD on alcoholic beverages and the SUAD on the identified products have been levied and
not to the empowering statutory provisions of the Customs Act and the CTA.
E. SECOND WRITTEN SUBMISSION OF THE UNITED STATES
1. Introduction
4.116 India's additional customs duty (AD) and ex tra-additional customs duty (EAD) on imports
from the United States are inconsistent with Article II:1(a) and (b) of the General Agreement on
Tariffs and Trade 1994 (GATT 1994). The AD and the EAD are both ordinary customs duties, and
by imposing them, India is exceeding the rat es specified in its Schedule to the GATT 1994
(WTO-bound rates).
2. The AD and EAD are each inconsistent with Article II:1(b) of the GATT 1994
4.117 Article II:1(b) of the GATT 1994 prohibits a Me mber from levying "ordinary customs duties"
or "other duties or charges imposed on or in conn ection with importation" (ODCs) in excess of the
rates established in the Member's Schedule. The term "ordinary customs duty" means a duty applied
as a matter of course on the importation of a good into the customs territory of a Member at the time
of importation that is either ad valorem, specific, or a combination ther eof. An "ordinary" customs
duty is a duty that is "normal, customary or usual".
4.118 Ordinary customs duties are subject to the firs t sentence of Article II:1(b) of the GATT 1994,
which prohibits such duties in excess of WTO-bound rates. ODCs in contrast are subject to the
second sentence of Article II:1(b), which prohibits ODCs at any rate if not specified in the relevant
Member's Schedule. Thus, the consequence of a du ty being considered an ODC is that a Member
may not impose it at any rate if that Member has not inscribed in it its Schedule, even if it would not
result in duties that exceed the Member's WTO-bo und rate. Were the duty to be considered an
ordinary customs duty, however, the Member could impose it up to its WTO-bound rate.
4.119 The AD and EAD are both "ordinary customs duties" within the meaning of Article II:1(b) of
the GATT 1994. The AD is an "ordinary customs duty" because it applies: (i) at the time of
importation (and, in this connection, it must be paid by the importer before the good may clear
customs); (ii) as a matter of course upon a good's importation (and, in this connection, it applies
generally on the importation of alcoholic beverages into India and the event for which liability ensues
is importation); and (iii) as a combination of ad valorem and specific duties.
4.120 The EAD is likewise an "ordinary customs dut y" because it applies: (i) at the time of
importation (and, in this connection, it must be paid by the importer before the good may clear
customs); (ii) as a matter of course upon a good's importation (and, in this connection, it applies
generally on the importation of products into India and the event for which liability ensues is
importation); and (iii) as an ad valorem duty.
4.121 In this regard the AD and the EAD are no differe nt than India's basic customs duty (BCD).
India has already conceded that the BCD is ordinary customs duty within the meaning of
Article II:1(b) of the GATT 1994. Like the AD and the EAD, the BCD applies: (i) at the time of
importation; (ii) as a matter of course upon a good 's importation; and (iii) as a combination of ad
valorem and specific duties. In addition to these si milarities, there are a number of additional
similarities which are reviewed in the US first written submission, oral statement and responses to the
Panel's questions.

4.122 India, however, contends the AD and the EAD are "fundamentally distinct" from the BCD,
and, on that basis, that the AD and the EAD are not ordinary customs duties. The principle distinction
India draws between the BCD and the AD and the EAD is that the latter are intended to offset internal
taxes imposed on like domestic products. However, whether the AD and the EAD constitute ordinary
customs duties must be based on an examination of their structure, design and effect; the stated
purpose or intent of the duties does not determine whether either is or is not an ordinary customs duty.
The situation in the GATT Panel, EEC – Parts and Components , is analogous to the present dispute.
The EEC – Parts and Components Panel rejected the notion that the stated purpose of the anti-
circumvention duty under domestic law provided suffi cient basis to characterize the measure as an
internal tax rather than a customs duty.
4.123 An interpretation of Article II:1(b) of the GATT 1994 that would permit the stated purpose or
intent of a measure to determine whether it fell within the scope of that Article would permit
Members to avoid or manipulate WTO commitments si mply by attributing a particular purpose to a
measure (regardless of what the measure in fact does) or by calling a measure by one name versus
another. In this dispute, India may attribute a different purpose to the BCD on the one hand and the
AD and EAD on the other, but all three constitute "ordinary customs duties" and neither the AD nor
the EAD offset or counterbalance internal taxes on like domestic products.
4.124 India's focus on the "distinctions" between the BCD and the AD and the EAD suggests that
in its view a Member may only impose one duty that may properly be characterized as an "ordinary
customs duty" under Article II:1(b) of the GATT 1994. However, nothing in the text of
Article II:1(b) of the GATT 1994 suggests Members are limited to a single "ordinary customs duty"
and, in fact, the text refers to "ordinary customs duties". Use of the plural "duties" suggests that
Article II:1(b) of the GATT 1994 prohibits "ordinary customs duties" on the importation of products –
whether resulting from the application of one or more individual duties – in excess of those specified
in the relevant Member's Schedule.
4.125 Even if the AD or the EAD were not an "ord inary customs duty", each would constitute an
"other duty or charge" (ODC) within the meani ng of Article II:1(b) of the GATT 1994. The AD and
the EAD would each necessarily constitute an ODC if it were not an ordinary customs duty. This is
because the word "other" as used in Article II:1(b) of the GATT 1994 means duties or charges that are
not ordinary customs duties that are applied on or in connection with importation. If the AD and EAD
are not an ordinary customs duty, then they must necessarily be something other than an ordinary
custom duty. The AD and the EAD apply at th e time of importation and as a consequence of
importation. Moreover, in asserting that the AD and the EAD are charges equivalent to an internal tax
within the meaning of Article II:2(a) of the GATT 1994, India has implicitly characterized both as
charges "imposed on importation" since the chapeau to Article II:2 of the GATT 1994 makes clear
that it concerns measures "imposed on importation".
4.126 The AD when imposed with India's BCD results in ordinary customs duties on imports of
alcoholic beverages in excess of India's WTO-bound rate by amounts ranging from 48-400 percentage
points. With respect to the EAD when imposed with India's BCD it results in ordinary customs duties
on imports in excess of India's WTO-bound rate. The EAD also results in ordinary customs duties on
imports in excess of WTO-bound rates in any situat ion where the BCD is already at or very near
India's WTO-bound rate. Were either the AD or th e EAD to be considered an ODC, it would exceed
the ODCs specified in India's Schedule as India's Schedule does not specify any ODCs for alcoholic
beverages or any other product.
4.127 India has not contested the US prima facie case that the AD and the EAD each result in duties
on imports in excess of those specified in India's Sc hedule. Therefore, if the Panel finds the AD and
the EAD are ordinary customs duties or ODCs w ithin the meaning of Article II:1(b) of the
GATT 1994 it should also find on the basis of the US prima facie case that the AD and the EAD

exceed India's WTO-bound rates. The AD and the EAD are therefore each as such inconsistent with
Article II:1(b) of the GATT 1994.
4.128 Because the AD and the EAD are each inconsiste nt with Article II:1(b) of the GATT 1994,
they are also each inconsistent with Article II:1( a) of the GATT 1994. By imposing ordinary customs
duties on imports of alcoholic beverages from the US in excess of those set forth in India's Schedule,
the AD accords imports from the Un ited States less favourable treatment than provided for in India's
Schedule and, as such, is inconsistent with Ar ticle II:1(a) of the GATT 1994. Because the EAD
results in customs duties on imports that exceed t hose set out in India's Schedule, it accords imports
from the United States less favourable treatment than provided for in India's Schedule.
3. Neither the AD nor the EAD are charges within the meaning of Article II:2(a) of the
GATT 1994
4.129 India asserts that the AD and the EAD are charg es imposed in accordance with Article II:2(a)
of the GATT 1994 and describes Article II:2(a) as comprising three elements: "Article II:2(a) ...
permits WTO Members to levy certain charges at the border, provided that such charges are (a)
'equivalent' to an 'internal tax'; (b) imposed in a manne r that is consistent with Article III:2; and (c) in
respect of a 'like domestic product'". These are the same elements the United States identified in its
oral statement at the first Panel meeting.
4.130 With respect to the first element, a charge "e quivalent to an internal tax" means a charge
imposed on the importation of a product that is "equa l in force, amount, or value" and corresponds or
is "virtually identical especially in effect or f unction" to an internal tax imposed on like domestic
products. India appears to focus on only one aspect of "equivalence", the amount of the charge in
relation to the internal tax. While the amount of the respective liability is certainly a factor, the
ordinary meaning of the word "equivalent" does not appear to prejudge the aspects of two measures
that might be examined to determine whether they correspond or are virtually identical. Accordingly,
the analysis should review the structure, design and effect of the two measures.
4.131 The United States assumes that India's assertion that the imports subject to the AD and the
EAD and the domestic products subject to various internal taxes (to which the AD and the EAD are
allegedly equivalent) are "like" is correct. A ccordingly, for the AD and the EAD to be imposed
consistently with Article III:2 of the GATT 1994, the AD and the EAD must be applied in a manner
consistent with the first sentence which concerns " like" products and requires that internal taxes on
imported products not be "in excess" of internal taxes on like domestic products by any amount. The
requirement applies to each import in respect of each like domestic product. The AD and the EAD
result in charges on imported products in excess of those on like domestic products if it leads to
excess taxation in even one Indian state.
4.132 India asserts that the AD is equivalent to state excise duties imposed on like domestic
products. India admits that the AD "could in some cases, have been less than the excise duty being
charged on like domestic products in some States, a nd in other cases equal to or perhaps slightly in
excess of the excise duty being charged in some other States".
4.133 On the basis of this admission alone the Pane l may find that the AD is not imposed in
accordance with Article II:2(a) of the GATT 1994. Any amount by which a tax on imports is in
excess of that tax on like domestic products results in a breach of Article III:2 of the GATT 1994, and,
in relation to like domestic products, less taxation of some imports does not remove the breach
resulting from excess taxation other imports. Although India's admission alone provides sufficient
reason to reject its assertion under Article II:2(a) of the GATT 1994, there are other grounds as well.

4.134 First, the AD is an ordinary customs duty and, therefore, it is not a charge equivalent to an
internal tax within the meaning of Article II:2(a) of the GATT 1994. Second, even if the AD were not
considered an ordinary customs duty but an other duty or charge on importation, India has presented
no evidence that it is "equivalent" to an any inte rnal tax on like domestic alcoholic beverages or
imposed consistently with Article III:2 of the GA TT 1994. To accept the stated or intended purpose
of the AD as proof that it is "equivalent" to state excise taxes without factual evidence to support that
assertion would lead to the result that Members coul d very easily undermine the value of their tariff
concessions by simply asserting that duties in ex cess of WTO-bound rates are intended to offset
internal taxes (regardless whether they actually do).
4.135 Third, the United States recalls that explanator y note to Section 3(1). The plain reading of
this explanatory note is that where the like domestic product is subject to various tax rates, the "excise
duty for the time being leviable on a like Article if produced or manufactured in India" means the
highest rate of excise duty imposed. Because the rate of excise duty on like domestic alcoholic
beverages varies from state to state, this means that with respect to alcoholic beverages Section 3(1)
provides that imports of alcoholic be verage shall be liable to an add itional duty that is equal to the
highest rate of excise duty imposed by any of the Indi an states. Accordingly, Section 3(1) read with
the explanatory note subjects imports of alcoholic be verages to rates of AD that exceed the rate of
excise duties on like domestic alcoholic beverages in at least some Indian states and, therefore, the
AD is not imposed consistently with Article III:2 of the GATT 1994.
4.136 The United States further notes the evidence referred to in the EC's third party submission
that the taxation resulting from the AD on imports "exceeds by a large margin the taxation resulting
from taxes denominated 'excise duty' in the legislation of most Indian States".
4.137 In sum, the AD not a charge equivalent to an internal tax (state excise duties) and, as India
even concedes, is imposed on imports in excess of state excise duties on like domestic alcoholic
beverages. Therefore, the AD is not a charge equiva lent to an internal tax imposed consistently with
Article III:2 of the GATT 1994.
4.138 India also seeks to justify the EAD by asser ting that it is imposed in accordance with
Article II:2(a) of the GATT 1994 and identifies st ate level VATs and the CST in addition to unnamed
other local duties and charges as the internal taxes to which EAD is allegedly equivalent.
4.139 As an initial matter, India also acknowledg es that the EAD may in some instances be
"marginally 'in excess'" of the tax on like domestic products. India argues that this "marginal" amount
in excess would be "below the 'de minimis' level permissible" under the Ad Note to Article III of the
GATT 1994. However, the relevant inquiry with r espect to the EAD concerns the first sentence to
Article III of the GATT 1994 (to which the Ad Note does not apply) because the EAD and internal
taxes to which the EAD is allegedly equivalent con cern "like" products. There is no "permissible" de
minimis level of excess taxation permitted under the fi rst sentence of Article III:2 of the GATT 1994.
Therefore, India has disproved its own assertions that the EAD is imposed consistently with
Article III of the GATT 1994. In any event, there is ample reason to reject India's assertions that the
EAD is justified under Article II:2(a) of the GATT 1994.
4.140 Foremost, the EAD is not "a charge equivalent to an internal tax" b ecause it is an "ordinary
customs duty". It therefore cannot be a charge equivale nt to an internal tax. In addition, with respect
to its assertions that the EAD is equivalent to ot her local taxes and charges, India has not identified
any such other local taxes or charges. As a c onsequence, India cannot sustain its assertion that the
EAD is "equivalent" to other local taxes or charges on like domestic products.
4.141 Starting with the state level VATs, these internal taxes imposed by the various Indian states
are not, in terms of their structure, design or effect, "equivalent" to the EAD. First, according to India

the state level VATs are set generally at four different rates whereas the EAD is set at a single rate of
four per cent for all products.
4.142 Second, while the state level VATs may generally breakdown into these four rates, there is no
requirement that the individual states apply the same rate to the same domestic products. Thus, one
state may apply a VAT of four or 12.5 per cent on a particular product, whereas another state may
apply no VAT on that same product whereas the EAD prescribes for all products, and on the
importation of a product into any state, a rate of four per cent.
4.143 Third, the state level VATs operate by crediting against the VAT owed on a product's
transfer, the VAT paid on the product's previous transfers. By contrast, there is no mechanism for
crediting against the EAD owed on a product, taxes or charges paid on the product's previous
transfers. Nor is there a mech anism for crediting the EAD paid on product against the VAT owed on
the product's subsequent transfers in India.
4.144 The CST is not equivalent to the EAD for similar reasons. Like the VAT, the CST is imposed
at various rates and may vary from state to state and from product to product whereas the EAD
prescribes a flat four per cent rate that does not vary from product to product or based on the recipient
or the state into which the product is imported.
4.145 Further, with respect to both the VAT and the CST, the amount of EAD owed on imports as
compared to the amount of VAT or CST owed on li ke domestic products is no t equivalent, since it
does not correspond and is not virtually identical to the VAT or CST respectively on like domestic
products.
4.146 Finally, the United States reiterates that the st ated purpose of the EAD is not sufficient to
support India's assertion that it is a charge equivalent to an internal tax.
4.147 India has also conceded two critical points th at demonstrate that the EAD is not imposed
consistently with Article III:2 of the GATT 1994: (i) the state level VATs and the CST apply to
imported products sold within India; and (ii) the EA D is not eligible as a credit against the state level
VATs or CST owed on that sale. This means that imported products are subject to the EAD as well as
the state level VATs and CST with no offsetting cr edit against either for the EAD paid. As a
consequence, and since domestic products are not s ubject to the EAD, imported products are subject
to charges in excess of those on like domestic products and therefore the EAD is not imposed
consistently with Article III:2 of the GATT 1994.
4.148 India's assertions that it has "calibrated" the EAD with the state level VATs and CST to
ensure "equality of taxation" for imported goods is simply incorrect. India may contend that imports
are exempt from the EAD (or subject to a 1 per cent rate) when like domestic products are exempt
from the state level VATs and CST (or subject to a 1 per cent VAT or CST). However, this does not
address the point raised in the preceding paragraph that imported products are subject to the EAD –
regardless of the rate at which it is imposed – in addition to the state level VATs and the CST when
domestic products are only subject to the latter.
4.149 Moreover, the explanatory note to Section 3(5) appears to indicate that the rate of EAD may
not vary on the same product based on the applicable VAT or CST rate. The plain reading of this
explanatory note means that where the like domestic product is subject to various tax rates, the "sales
tax, value added tax, local tax or any other charg es for the time being leviable on a like Article on its
sale, purchase or transportation in India" means th e highest rate of such tax or charge imposed.
Section 3(5) calls for a single rate of EAD for e ach product. As a consequence, where the like
domestic product is subject to various rates of st ate level VAT or CST, the EAD on imports will
necessarily exceed the rate of state level VAT or CST on at least some like domestic products.

4.150 India's assertions that it has "calibrated" th e EAD with the state level VATs and CST also
wrongly suggests that the rate of EAD on the one hand and the rates of state level VATs and the CST
on the other are the same. They are not.
4.151 India also suggest that the EAD is calibrate d to the CST and VAT because the EAD paid on
an input for a finished product may be credited against the central excise tax (abbreviated
"CENVAT") owed on the finished product. Taxes owed under the central excise tax, however, would
not appear relevant to the question of whether th e EAD results in charges on imports in excess of
those imposed by the state level VATs or CST on like domestic products. And, India has
acknowledged there is no mechanism for crediting th e EAD paid against the state level VAT or CST
owed.
4.152 In sum, the EAD is not a charge equivalent to an internal tax (state level VATs, the CST, or
unnamed other local taxes or charges) and, as India even concedes, it is imposed on imports in excess
of internal taxes on like domestic product. Theref ore, the EAD is not a charge equivalent to an
internal tax imposed consistently with Article III:2 of the GATT 1994.
4. Terms of reference
4.153 India has invited this Panel to make findings with respect to two Customs Notifications issued
after the date of this Panel's establishment on June 20, 2007. The Panel should not accept India's
invitation because these measures are not within the Panel's terms of reference.
4.154 As an initial matter, it is not clear that eith er customs notification accomplishes what India
contends it does. First, contrary to India's assertions, Customs Notification 82/2007 does not appear
to "effectively remove" or "effectively override" the AD. Section 3(1) is mandatory, providing that
imports "shall . . . be liable" to the AD, and rema ins in force. In addition, as India acknowledges,
Customs Notification 32/2003 also "'remains in force' in as much as it contemplates an AD on
alcoholic liquor".
4.155 Second, Customs Notification 102/2007 raises a nu mber of questions as to its effect on the
EAD. In addition, Customs Notification 19/2006, requiring imposition of the EAD, remains in force.
4.156 In any event, neither of these measures are w ithin this Panel's terms of reference and,
accordingly the Panel, may not take their effect on the AD and EAD into account in making findings
on the latter. In this regard, the US request for th e establishment of a panel in this dispute forms the
basis of this Panel's terms of reference. The US panel request does not include Customs Notification
82/2007 or Customs Notification 10 2/2007 as neither of these measures existed at the time. This
Panel's term of reference were fixed on the date of its establishment, June 20, 2007. Accordingly, this
Panel's terms of reference are limited to those measures existing on the date of establishment and cited
in the US panel request. Because Customs Notif ication 82/2007 and Customs Notification 102/2007
are not cited in the US panel request, and did not even exist on the date of establishment, they are
outside this Panel's terms of reference and the Panel, therefore, may not make findings with respect to
them.
4.157 India contends that Customs Notification 82/ 2007 "effectively removes the AD on alcoholic
liquor imposed by [Customs Notification] 32/2003" and that as a result imports of alcoholic beverages
are "not liable to an additional duty within the meani ng of Section 3(1) of the [Customs Tariff Act]".
If this is true, it would not seem tenable for India to also argue that Customs Notification 82/2007
does not "change the essence" of Customs Notifica tion 32/2003. A measure effectively removing
liability for another measure would seem to necessarily change the essence of the latter measure.

4.158 In Chile – Price Band System , the Appellate Body found that "if the terms of reference in a
dispute are broad enough to include amendments to a measure – as they are in this case – and if it is
necessary to consider an amendment in order to secu re a positive solution to the dispute – as it is here
– then it is appropriate to consider the measure as amended in coming to a decision in a dispute". The
parameters the Appellate Body described in Chile – Price Band System do not exist with respect to
this dispute. Considering Customs Notificati on 82/2007 (or Customs Notification 102/2007) would
be contrary to the objective of secu ring a positive solution in this dispute. The United States notes
that the Appellate Body in Chile – Price Band System prefaced its finding quoted above by stating
that it did not mean to condone amending measures during proceedings to shield a measure from
scrutiny and that the complaining party should not have to adjust its pleadings to deal with a measure
as a "moving target". That concern is particularly acute in this dispute.
4.159 First, the "amendments" at issue are customs notifications that India contends "effectively
remove" the AD and "effectively addresses the issue of double taxation" of the EAD. India has
already acknowledged that its Central Government can, at its discretion, withdraw Customs
Notification 82/2007 and reinstate Customs Notificat ion 32/2003. The United States understands this
same discretion to exist with r espect to Customs Notification 102/2007. India has also acknowledged
that it contemplates that "subsequent to the removal of the AD", the Indian states will impose
measures similar to the AD. And, the United States further notes that Section 3(1) of the Customs
Tariff Act mandates imposition of the AD. It is also unclear, as noted above, whether Customs
Notification 102/2007 in fact resolves the issue of "double taxation" of imports. Accordingly, there is
a very real possibility that after conclusion of these proceedings, Customs Notification 82/2007 or
Customs Notification 102/2007 may be withdrawn, that the Indian states may introduce measures
similar to the AD, or that Customs Notification 102/2007 may not in fact eliminate charges on imports
in excess of those on like domestic products. The Unite d States offers that consideration of these
notifications in relation to AD and EAD would not contribute to securing a positive solution in this
dispute given the uncertainty today as to what the measures accomplish or how long they will remain
in effect and that possibility that the AD may be reimposed.
4.160 Second, as explained above, it is not clear the effect either Customs Notification 82/2007 or
Customs Notification 102/2007 have on the measures in di spute. Were they to have the effect India
contends, this could demand an adjustment in the US arguments in this dispute. Given the limited
time the United States has had to review and unde rstand either measure, and the India's Central
Government's asserted "complete discretion" to i ssue customs notifications, this appears to be a
"moving target" situation. The extent to whic h either Customs Notification 82/2007 or Customs
Notification 102/2007 has an effect on the AD or EAD would be a matter for the compliance stage of
this dispute, as India itself noted in its arguments in India – Autos.
5. The AD and EAD are mandatory, not discretionary
4.161 India asserts that Section 3 of the Customs Ta riff Act and Section 12 of the Customs Act are
not mandatory and as a consequence that they "may not be characterized as 'measures' subject to
challenge by the United States". The Panel should reject India's argument.
4.162 First, Section 3(1) and 3(5) of the Customs Tariff Act and Section 12 of the Customs Act are
mandatory. Section 3(1) of the Customs Tariff Act and Section 12 of the Customs Act require both
imposition of the AD and its imposition at the "highest rate". Section 3(5) of the Customs Tariff Act
requires that if the EAD is imposed it shall be levied at the "highest rate". Sections 3(2), 3(6) and 3(7)
of the Customs Tariff Act are also mandatory, requi ring that the AD and EAD shall be calculated on
top of and in addition to the BCD.
4.163
 Second, on account of these requirements, Secti on 12 of the Customs Act and Section 3(1),
3(2) and 3(7) of the Customs Tariff Act when im posed together with the BCD mandate a breach of

Article II:1(a) and (b) of the GATT 1994 with respect to the AD. None of these measures provide the
Central Government the discretion to act in a manne r consistent with Article II:1(a) or (b) of the
GATT 1994. Although Customs Notification 32/2003 specifies the rate of AD on alcoholic
beverages, the statutory provisions mandating its imposition result in a breach regardless of the rate of
AD specified in a customs notification. Becau se India already imposes the BCD on imports of
alcoholic beverages at its WTO- bound rate, imposition of the AD at any rate in addition to the BCD
results in ordinary customs duties in excess of India's WTO-bound rate.
4.164 If the AD were considered an ODC, Section 12 of the Customs Act and Section 3(1), 3(2) and
3(7) of the Customs Tariff Act would likewise necessarily breach of Article II:1(b) of the GATT 1994
because India does not specify any ODCs in its Schedule. These statutory provisions also mean that
the AD is not justified under Article II:2(a) of the GATT 1994 because, as explained above, the AD is
not "equivalent" to an internal charge and these provisions require that, where internal taxes are
imposed on like domestic products at different rates, the rate of AD on imports shall be the highest of
those rates. Therefore, Section 12 of the Customs Act and Section 3(1), 3(2) and 3(7) of the Customs
Tariff Act also necessarily result in charges on imports that are not equivalent to any internal charge
and are in excess of internal taxes on like domestic products.
4.165 Section 12 of the Customs Act and Section 3(5), 3(6) and 3(7) of the Customs Tariff Act also
mean that the EAD is not justified under Artic le II:2(a) of the GATT 1994 because, as explained
above, the EAD is not "equivalent" to any internal charges and these provisions require that, where
internal taxes are imposed on like domestic products at different rat es, the rate of EAD on imports
shall be the highest of those rates. Therefore, if the EAD is imposed, Section 12 of the Customs Act
and Section 3(5), 3(6) and 3(7) of the Customs Tari ff Act necessarily result in charges on imports that
are not equivalent to any internal charge and are in excess of internal taxes on like domestic products.
4.166 The United States suggests, however, that the Pane l need not engage in elaborate analysis of
whether Section 12 of the Customs Act or Sections 3(1) and 3(5) of the Customs Tariff Act are
mandatory verses discretionary as the US claims concern the AD comprising a number of provisions
of Indian law (including Section 3(1) of the Customs Act and Customs Notification 32/2003) that
when imposed together with the BCD result in ordi nary customs duties on alcoholic beverages that
exceed India's WTO-bound rate in breach of Article II: 1(a) and (b) of the GATT 1994. Similarly, the
US claims with respect to the EAD concern the EAD comprising a number of provisions of Indian
law (including Section 3(5) and Customs Notificati on 19/2006) when imposed together with the BCD
result in ordinary customs duties on imports th at exceed India's WTO-bound rate in breach of
Article II:1(a) and (b) of the GATT 1994. With respect to both the AD and the EAD, the provisions of
Indian law comprising them, when applied together with the BCD, mandate a breach of Article II:1(a)
and (b) of the GATT 1994. India itself acknowledges that the AD and the EAD are mandatory in so
far as Customs Notification 32/2003 and 19/2006 specify the rates at which imports shall be liable to
the AD and the EAD respectively.
6. Conclusion
4.167 The United States requests the Panel to find that: (1) the AD is: (a) inconsistent with
Article II:1(b) of the GATT 1994 as an ordinary customs duty that subjects imports of alcoholic
beverages to ordinary customs duties in excess of those set forth in India's WTO Schedule; and (b)
inconsistent with Article II:1(a) of the GATT 1994 as an ordinary customs duty that affords imports
of alcoholic beverages from the United States less favour able treatment than that provided for in
India's WTO Schedule; and (2) the EAD: (a) inconsis tent with Article II:1(b) of the GATT 1994 as an
ordinary customs duty that subjects imports, includ ing alcoholic beverages and products listed in
Exhibit US-1, to ordinary customs duties in excess of those set forth in India's WTO Schedule; and (b)
inconsistent with Article II:1(a ) of the GATT 1994 as an ordinary customs duty that affords import
from the United States, including alcoholic bevera ges and products listed in Exhibit US-1, less

favourable treatment than that provided for in I ndia's WTO Schedule. Accordingly, the United States
also respectfully requests that the Panel recommend, pursuant to Article 19.1 of the DSU, that India
bring its measures into conformity with the covered agreements.
F. SECOND WRITTEN SUBMISSION OF INDIA
4.168 In its first written submission and subsequent responses to the Panel's questions, India has
explained in detail that the AD and the SUAD are not "ordinary customs duties" (OCD) or "other
duties and charges" (ODC) as understood by Article II:1(b) of the GATT 1994 and are instead,
charges equivalent to internal taxes imposed in accordance with Article II:2(a) of the GATT 1994.
India stands by the arguments on this issue put forward by it earlier but sees no reason to repeat them
in this submission. Instead, India will focus on f our key issues, which form the basis of the US
misunderstanding in the course of these proceedings: the first issue pertains to equivalence between
the AD, SUAD and the internal taxes that they are intended to counterbalance; the second issue
pertains to the AD on alcoholic beverages and the Pa nel's Terms of Reference; the third issue pertains
to the distinction between mandatory and discreti onary measures; and the fourth issue is the US
failure to discharge its burden of proof in making out a prima facie case.
1. SUAD is equivalent to the VAT, CST and other taxes and charges
4.169 The US has claimed that the SUAD on the iden tified products does not meet the requirements
of Article II:2(a) of the GATT 1994. The reasons for the US assertion seems to be on account of: (a)
India's failure to provide any evidence – either "showing or providing accounting" of how the SUAD
is equal to internal taxes; and (b) an analysis of the structure, design and effect of the SUAD, which
the US believes is not equivalent to that of the in ternal taxes and charges that the SUAD is aimed at
counter-balancing.41
(a) The SUAD is quantitatively equivalent to VAT, CST and other internal taxes and charges
4.170 India has previously highlighted that: (i) the SUAD is levied at 4 per cent which represents
the minimum state VAT or CST imposed, and wherever the VAT or CTS is lower than 4 per cent
(that is charged at 1 per cent or is exempt) then the SUAD is correspondingly levied at the lower rate;
(ii) any general exemptions provided for under the state VAT or CST legislations have been built into
a corresponding exemption for imported like produc ts from the SUAD; and (iii) if the imported
product is subject to further VAT and/or CST and other local taxes and charges when it enters the
Indian market, the importer is eligible to either claim a refund 42 or obtain a credit for the SUAD paid
to ensure that the goods are not taxed again.
4.171 In this manner, the Indian tax system is calib rated to ensure equivalence between internal
taxes and charges imposed on domestic products a nd the SUAD imposed on imported products. India
is providing detailed accounting to further explain how it ensures that the SUAD imposed on imported
products is equivalent to the VAT and/or CST or other taxes and charges imposed on like domestic
products.
4.172 In order to determine this "equivalence" be tween the SUAD and the internal taxes it is
intended to counterbalance, a comparison of the ne t tax burden on imported and domestic products in
each type of sale transaction is required. There are br oadly three types of sales transactions: the first
being when a product is imported into India for di rect consumption; the second being where a product
is imported into India for further manufacture; and the third being where a product is imported into
India for the purpose of further re-sale. An analysis of the taxes payable in each of these three types of

41 US oral statement at the first meeting of the Panel, paras. 18-24.
42 Customs Notification No. 102/2007 – Customs dated 14.09.2007.

transaction, reveals that in no transaction is the tax burden on imported products in excess of that
borne by like domestic products. In the first type of transaction, the domestic consumer bears a net tax
burden, which is either equal to or higher than the 4 per cent tax cost borne by the importer. In the
second type of transaction, the net incidence of taxa tion for an importer manufacturer is nil as he is
entitled to a CENVAT credit for the SUAD paid. And fina lly, in the third type of transaction too, the
total incidence of tax borne by the importer-trader in a transaction of this type is nil since he is entitled
to a full refund for the SUAD paid. In other words, the existing system of credit and refunds ensures
that imported products are not double taxed or taxed in excess of domestic like products.
4.173 It is clear from the above analysis that the SUAD imposed on each of the Identified Products
shall not result in an incidence of taxation for im ported products, which exceeds that for like domestic
products. The explanation offered above will apply equally to alcoholic products as well, and thus
even with respect to alcoholic be verages, a comparison of the total tax burden will reveal that the tax
burden imposed on imported products is not in excess of the burden imposed on like domestic
products.
(b) The structure, design and effect of the SUAD
4.174 The United States observes "nothing in terms of th e structure, design, or effect of the SUAD
appears equivalent to the state level VAT or the CST".
43 Its observation seems to be based on three
reasons: (i) VAT and CST are broadly levied at four different rates, which may differ from product to
product and from state to state, whereas the SUAD is levied at a flat rate of 4 per cent; (ii) the
mechanism for providing exemptions from the SUAD h as shortcomings and is unable to ensure parity
of taxation for imported and like domestic goods; and (iii) India has not provided any details of the
"other taxes and charges" or substantiated that the SUAD is equivalent to such other taxes and
charges.
4.175 Different rates of VAT and CST: VAT is imposed by state governments under their
respective state VAT statutes. While it is possible th at there exist different VAT rates in different
States for the same product, the lowest VAT rate in every state is 4 per cent, unless the product is
exempted from VAT altogether, or is a product such as gold, in which case the state VAT is 1 per cent
in every State. The SUAD has acco rdingly been pegged to the lowest possible VAT rate on any
product as applied in each Indian State.
4.176 Further, the Central Government has made an e ffort to ensure that the VAT rates on products
are to the extent possible, harmonized across States. Each Indian state has implemented its own VAT
statute based on the recommendations of the "E mpowered Committee" and the rates of VAT are
largely the same in all the States.
4.177 The difference in the VAT rates is also true of the rate at which CST is levied and the net tax
burden imposed on account of CST is 4 per cent at the very minimum (other than registered dealers).
Thus, as was the case with the VAT, it is equally possi ble that there exist different CST rates for the
same product, but the SUAD is equivalent to the lowest rate of CST (other than registered dealers for
whom a full refund is available on re-sale).
4.178 And finally, India has been able to establish an equivalence of the net tax burden imposed on
imported and domestic like products. As elaborat ed in its responses to the Panel's questions,
equivalence as contemplated under Article II:2(a) must be determined with reference to the overall
fiscal burden placed on imported and domestic like products. The SUAD is imposed at a single rate of
4 per cent because amongst other things, it is difficu lt to foretell which state the imported product will
eventually be sold in and consequently, the applicab le rate of taxation on the product in that State.

43 US oral statement at the first meeting of the Panel, para. 19.

Since the SUAD on imported products is pegged to the lowest rate of VAT/CST imposed on like
domestic products, the fiscal burden on an importe d product cannot exceed that of a like domestic
product.
4.179 Exemption mechanisms for the SUAD: The United States has pointed out that the "exemption
mechanisms for the SUAD" have shortcomings and are unable to ensure parity without identifying
what these shortcomings are.44 India would like to reiterate that the SUAD is carefully calibrated with
the VAT/CST rates and wherever the domestic goods are exempt from payment of state VAT even
the like imported products are exempt from SUAD. Similarly if a reduced rate of VAT is applicable to
domestic goods then the SUAD on the like imported products is also levied at the reduced rate.45 Thus
India has ensured equivalence of fiscal burden on both domestic and like imported products.
4.180 Other taxes and charges: The other taxes and ch arges that India has consistently referred to,
includes local and municipal taxes and charges whic h vary from state to state and from product to
product. These taxes and charges are imposed on the sale, purchase or transportation of a domestically
manufactured product (or the inputs used to manufact ure such products) in a manner such that the
price of the domestic product is loaded with such ta xes, for which no credit or refund is available to a
local manufacturer or dealer. On the other hand, such local taxes and charges are not imposed on
imported like products. The objective of the SUAD is in part, to counterbalance the incidence of such
local taxes and charges as well, which is not borne by imported like products. These local taxes and
charges could take the form of a "Mandi Tax" 46, a "Turnover Tax" 47, a "Marketing Committee Fee" 48
etc.
4.181 Notwithstanding these local taxes and charges, the equivalence required by Article II:2(a)
with reference to the SUAD and the VAT and th e CST is clearly established and SUAD being pegged
at the lowest rate of VAT/CST i.e. 4 per cent cannot result in an excessive fiscal burden for imported
products. Any local taxes and charges that the SUAD is in part intended to counterbalance will only
add to the fiscal burden for domestic products and not to similar imported products and as such, their
identification would not have a bearing on the outcome of this dispute.
(c) The SUAD is applied in a manner consistent with Article III:2 of the GATT 1994
4.182 The United States asserts that India has neglected to inform the Panel that both the state level
VAT and the CST apply to imported products 49 thereby resulting in taxes on imported products "in
excess" of like domestic products and thus not fu lfilling the condition under Article III:2. India has
consistently informed the Panel that the SUAD is intended to counterbalan ce the state VAT and CST
and to the extent that an imported product is ch arged the SUAD as well as the state VAT and CST, it
shall be entitled either to a refund to the extent of the SUAD so paid or claim a credit for the full
amount of SUAD thereby ensuring that no imported product can be ultimately subjected to both the
SUAD and the CST/VAT.

44 US oral statement at the first meeting of the Panel, para. 20.
45 Customs Notification No. 20/2006 – Custs., dated March 1, 2006 (CN 20/2006)
46 Mandi Tax is levied in the State of Bihar (8 per cent), Orissa (1 per cent – 2 per cent), Rajasthan (1.6
per cent) and a "Mandi Samiti Tax" is levied by the State of Uttar Pradesh (1 per cent for leather products and
different rates for others).
47 Turnover tax is levied in the State of Maharashtr a (1 per cent) and the City Corporation of Chennai
(Rs.1000/ – half yearly).
48 A Marketing Committee Fee is levied by the State of West Bengal (1 per cent).
49 US oral statement at the first meeting of the Panel, para. 22.

2. AD is equal to the excise duty
4.183 The United States claims that the AD is not equi valent to an internal tax or imposed in a
manner consistent with Article III:2 of th e GATT 1994, as required by Article II:2(a). 50 The AD
charged on all imported products is equivalent to the excise dutie s charged on like domestic products.
The equivalence is ensured for alcoholic bevera ges and all other imports other than alcoholic
beverages in a different manner.
4.184 For all products other than alcoholic beverages, the AD is equivalent to the central excise
duties imposed on like domestic products on account of three basic reasons: Firstly, Section 3(1) of
the CTA requires that AD shall be "equal to th e excise duty for the time being leviable on a like
article"; Secondly, the AD is charged with reference to and is equal to the rates of central excise duty
charged on like domestic products under the Centra l Excise Tariff Act, 1985; Thirdly, excise duties
are levied exclusively on the manufacture of do mestic products and not on imported goods and
therefore the AD is imposed on imports in lieu of su ch excise duties. Therefore, the validity of the
Additional Duties imposed under Section 3(1) of the CTA per se cannot be challenged.
4.185 In the case of alcoholic beverages, each of India's States and Union Territories are empowered
to levy their own excise duties. Consequently, the Additional Duty could not be fixed with reference
to any one single rate of excise duty and the Central Government decided in its discretion to adopt a
method of imposing the Additional Duty through a process of averaging, and arrived at an
approximation of the excise duty rates paid by differe nt States on alcoholic liquor. This rate could in
some cases, be less than the excise duty being char ged on like domestic products in some States, and
in other cases be different from the excise duty bei ng charged in some other States. However, the
Central Government tried to ensure that to the extent possible, the rate was a reasonable
approximation of the net fiscal burden imposed on li ke domestic products on account of the excise
duty payable.
4.186 Therefore the AD imposed under Section 3(1) of the CTA on all imported goods into India is
per se equivalent to the excise duties charged on like domestic products and is entirely compatible
with the provisions of Article II:2(a) of the GA TT 1994. Alcoholic beverages on the other hand, are
the only product, on which the AD is fixed with reference to the state excise duties through
CN 32/2003 and has been subsequently exempted through CN 82/2007.
3. AD is validly removed
4.187 The United States contends first, that CN 82/2007 is not within the Panel's Terms of
Reference and it is unclear as a factual matter wh ether it constitutes a revocation of the measure.
Additionally, it submits that the analysis CN 82/200 7 will create a moving target and will "shield" the
AD from the Panel's scrutiny.
51
4.188 As noted in India's first written submission, CN 82/2007 is within the Panel's terms of
reference since it is "an amendment that does not change the essence of the identified measure" and a
panel has the authority to examine a legal instrument enacted after the establishment of the Panel that
amends a measure identified in the panel request. 52 Further, it seems that th e United States had itself
requested that such subsequent am endments be included within the Panel's Terms of Reference when

50 US oral statement at the first meeting of the Panel, para. 25.
51 US oral statement at the first meeting of the Panel, paras 27-31.
52 Appellate Body Report, Chile – Price Band System, para. 144.

it included within its Request for the Establishment of the Panel. 53 Therefore, the Panel is well within
its rights to take into account CN 82/2007.
4.189 Whether CN 82/2007 results in the revocation of the AD on alcoholic beverages as imposed
through CN 32/2003 must be a matter of fact which is to be determined with reference to its ultimate
effect. If CN 82/2007 has resulted in the complete withdrawal of the AD on alcoholic beverages as of
that date, the allegedly offending measure CN 32/20 03 must be said to stand validly revoked. The
Arbitrator in Argentina – Hides and Leather (Article 21.3) has held that a Member may use any
appropriate means to achieve effective compliance with its WTO obligations – including the complete
withdrawal of the offending measure, its partial modification or correction of the offending portion. 54
In the present dispute, India has chosen to remove the AD on alcohol ic beverages through
CN 82/2003 and the imports of alcoholic beverages are no longer liable to pay any AD. There are no
residuary or "lingering effect" of the AD on alcoholic beverages and therefore the instrument used to
remove the AD is not relevant.55
4.190 The United States seems to contend that th e mere possibility that a measure although
effectively removed at the time, may subsequently be re-introduced must mean that it has not been
validly revoked. The Panel may assume that Member s will perform their treaty obligations in good
faith and would not re-introduce the removed measure. 56 India has effectively and in good faith
removed the AD on alcoholic beverages through CN 82/2007 with immediate effect and should be
treated as such.
4.191 And finally, the US contention that CN 82/20 07 will constitute a "moving target" designed to
shield the AD from scrutiny is without merit. CN 82/2007 is a validly enacted piece of delegated
legislation. The Appellate Body in Chile – Price Band System did not condone the practice of
amending measures during dispute settlement pr oceedings or setting "moving targets", but
nevertheless acknowledged that if the terms of refe rence in a dispute are broad enough to include
amendments to a measure it would be necessary to c onsider them to secure a positive solution of the
dispute.57
4. The distinction between mandatory vs. discretionary
4.192 The United States has contended that the effect of Section 3(1) of the CTA is mandatory and
that even if it were not so, the measure is not saved from a challenge under the DSU. 58 The United
States concludes that in either situation, India's averments on this issue are irrelevant, since even if the
relevant statutory provision does not mandate the imposition of AD on al coholic beverages,
CN 32/2003 does. The US arguments on this issue appear to be contradictory. On the one hand it
makes an "as such" challenge59 and on the other it points out that the distinction between measures "as
such" and "as applied" is "largely irrelevant" 60. In another apparent contradiction, the United States
frames its challenge of the AD "as such" 61, but examines the WTO compatibility of the AD "as
applied" to alcoholic beverages.62

53 , Request for the
Establishment of a Panel by the United States, WT/DS360/5, 25 May 2007.
54 Award of the Abitrator, Argentina – Hides and Leather (Article 21.3), paras. 40-41.
56 Panel Report, Argentina – Textiles and Apparel, para. 6.14.
57 Appellate Body Report, Chile – Price Band System, para. 144.
58 US oral statement at the first meeting of the Panel, para. 34.
59 Question 16, para. 3 in the US response to Panel's questions.
60 US oral statement at the first meeting of the Panel, para. 34.
61 Question 16, para. 3 in the US response to Panel's questions.

4.193 India has highlighted the discretionary nature of Sections 3(1) of the CTA in order to point
out that the statutory provision does not manda te a WTO inconsistency and therefore any
investigation must be limited to the provisions of the relevant Customs Notification. This distinction
has been observed in previous Panel and Appellate Body decisions where it has been viewed as being
a "threshold consideration".63
4.194 India has consistently maintained that the rate at which the AD is imposed is specified by the
Central Government through relevant Customs Notifications. The AD on alcoholic beverages was
earlier imposed by CN 32/2003 and subsequently rem oved through CN 82/2007. To that extent, India
submits that any analysis of the WTO compatibility of the AD on alcoholic beverages may be limited
to an examination of the provisions of CN 32/20 03, which is an identified measure in the present
dispute. In other words, in order to determine th e WTO compatibility of the measures in question, the
Panel may look into the rate at which the AD is levi ed and not whether India has the authority to levy
the AD itself. Further, any examination of CN 32/2003 would be incomplete without considering
CN 82/2007, which removes the AD on alcoholic beverages.
5. The United States has failed to make out a prima facie case
4.195 The United States alleges that both the AD on alcoholic beverages as well as the SUAD on
the identified products are OCDs or ODCs and are c ontrary to India's obligations contained in
Article II:1(a) and (b) of the GATT 1994. In ma king its claims, the United States has failed to
demonstrate that the AD or the SUAD are indeed ta xes that qualify as an OCD or an ODC and has
instead sought to discharge its burden of proof by arguing that India has not adequately demonstrated
that the AD or the SUAD is not an OCD or OD C. In doing so, the United States has failed to
discharge its burden of proof as the complaining party to make out a prima facie case.64
(a) Definition of an OCD as applied to the AD and the SUAD
4.196 The definition of the term OCD may not be cons trued in its negative and Appellate Body has
itself noted, that "it is not necessary that each and ev ery duty that is calculated on the basis of the
value and/or volume of imports is ne cessarily an "ordinary customs duty". 65 Therefore, the United
States must establish in the affirmative that the AD and the SUAD are OCD. In order to make such an
affirmative claim, the United Stat es as the complaining party in this dispute must look beyond the
mere point at which the duty is levied and the ma nner in which the duty is expressed, since neither of
them will necessarily mean or indicate that the duty is an OCD. In addition, the United States must
substantiate in the affirmative that the "structu re, design and effect" of the AD and the SUAD make it
an OCD.66 The United States has failed to take into acc ount any such relevant factors in framing its
claim, and has instead observed that India has failed to demonstrate that the AD or the SUAD is not
an OCD.67
(b) Definition of an ODC as applied to the AD and the SUAD
4.197 The United States has at no stage substantia ted how the AD or the SUAD qualify as an ODC
or explained how the AD or the SUAD could inter-c hangeably belong to two fundamentally different
categories of import duties defined by Article II:1( b) of the GATT 1994 and has effectively blurred
the distinction between an OCD and ODC. Such an interpretation is contrary to the text of

63 Appellate Body Report, US – 1916 Act, paras. 88-91.
64 The United States notes that, as a general rule, "t he burden of proof rests upon the party, whether
complaining or defending, who asserts the affirmative of a particular claim or defence". Appellate Body Report,
US – Wool Shirts and Blouse, p. 14.
65 Appellate Body Report, Chile – Price Band System, paras. 271-272 and 274.
66 Panel Report, Chile – Price Band System (Article 21.5 – Argentina), para. 189.
67 US oral statement at the first meeting of the Panel, para. 6.

Article II:1(b) of the GATT 1994 and past interpre tation of the OCD and ODC as being two distinct
charges by previous WTO Panels.68
4.198 Therefore, with respect to both its fundament al claims, the United States has failed to
discharge its burden of proof in making out a prim a facie case that the AD and the SUAD are either
OCD or ODC as defined under Article II:1(b) of the GATT 1994. The Panel may not make a finding
on the validity of India's defence without having first established the fact that the United States has
duly discharged its burden of establishing its claim.
G. ORAL STATEMENT OF THE UNITED STATES AT THE SECOND SUBSTANTIVE MEETING OF THE
PANEL
1. Opening statement
4.199 The United States has established a prima facie case that India's AD and EAD are inconsistent
with Article II:1(a) and (b) of the GATT 1994. I ndia has not rebutted the US prima facie case. Nor
has India sustained its own assertions that the AD and the EAD may be justified under Article II:2(a)
of the GATT 1994. The US prima facie case and India's failure to rebut that case, or to sustain its
assertions under Article II:2(a) of the GATT 1994, ar e detailed in the US written submissions and
prior statements. As such, the US remarks focus on selected points th at bear emphasizing in light of
India's second written submission.
(a) Point 1
4.200 The AD and the EAD are ordinary customs duties. The United States has established a prima
facie case that the AD and the EAD are ordinary customs duties. The United States has demonstrated
that the AD is an ordinary customs duty because it applies: as a combination of ad valorem and
specific duties, at the time of importation, and as a matter of course upon a product's importation.
Importation of alcoholic beverages is the event for which liability for the AD ensues, and the AD
applies at the prescribed rate on each importation of alcoholic beverages. These features make the
AD a "usual," "common" and "ordinary" kind of "customs duty." And in this regard, the AD is
"usual," "common" and "ordinary" in the same way as India's basic customs duty is. That is, each
feature of the AD that makes it an ordinary custom s duty is shared by India's basic custom duty (or
BCD) – a duty India concedes is an ordinary customs duty.
4.201 The similarities reviewed in the US prior submissions between the AD on the one hand and
the BCD on the other disprove India's contentions that the AD and the BCD are "entirely distinct" and
instead indicate that the AD is structured an d designed in much the same way as the BCD, and
likewise is an ordinary customs duty.
4.202 The United States has also demonstrated that th e EAD is an ordinary customs duty because it
applies: as an ad valorem duty, at the time of importation, and as a matter of course upon a product's
importation. The EAD applies at the prescribed rate on each importation of products, unless
separately exempt, and importation of a product is the event for which liabilit y for the EAD ensues.
These features make the EAD a "usual," "common" or "ordinary" kind of "customs duty." And in this
regard, the EAD is "usual," "common" and "ordin ary" in the same way as India's basic customs duty
is. The EAD and the BCD also bear a number of sim ilarities that disprove India's contentions that the
EAD and the BCD are "entirely distinct," and indi cate instead that the EAD, like the BCD, is an
ordinary customs duty.

68 Panel Report, Dominican Republic – Import and Sale of Cigarettes, para. 7.113.

4.203 India has not rebutted the prima facie case estab lished by the United States. In particular,
India has not identified any feature of the AD or th e EAD that is not "ordinary" in relation to the
BCD, which India concedes is an ordinary customs duty. India's only arguments in support of its
contentions that the AD and EAD are not ordina ry customs duties are that the AD and EAD are
governed by distinct legal provisions and that the AD and the EAD are intended to be charges
equivalent to an internal tax. With respect to India's first argument, the collection of the AD, EAD,
and BCD are authorized under the same constitutiona l provision, required to be collected under the
same section of the Customs Act (Section 12), and pr ivy to exemptions under the same section of the
Customs Act (Section 25). With respect to India's second argument, a Member could simply ascribe a
particular purpose or name to a duty, or categorize it under a particular provision of domestic law, and
avoid its commitments with respect to ordinary cust oms duties. This is why it is critical to focus on
the structure, design and effect of a measure.
4.204 In the context of this dispute, simply im posing the AD and the EAD under separate sections
of the Customs Tariff Act, as compared to the BCD , or ascribing a particular policy objective to the
AD or EAD cannot change the fact that all three duties – on account of their structure, design and
effect – are ordinary customs duties.
(b) Point 2
4.205 And in the end, even if the AD and the EAD were not ordinary customs duties, they would
nonetheless breach Article II:1(b) of the GATT 1994, because if not ordinary customs duties, the AD
or the EAD would necessarily constitute an "other duty or charge imposed on or in connection with
importation." First, it is not disputed that either the AD or the EAD constitute a "duty" or "charge" on
products. Second, both are imposed on or in connec tion with importation. The AD and the EAD are
imposed on or in connection with importation because they are imposed at the time of importation and
as a consequence of importation. Contrary to India's assertions th e phrase "on or in connection with
importation" does not concern the policy objectiv e associated with the duty; it concerns the
relationship between the duty and importation. Mo reover, India implicitly concedes the AD and the
EAD are "imposed on importation." Indeed, India could not advance a defence under Article II:2(a)
of the GATT 1994 otherwise since that Article concerns charges "imposed on importation."
(c) Point 3
4.206 In its second written submission, India explains th at the AD is not "virtually identical" to the
state excise duties but instead an "approximation" of those duties arrived at "through a process of
averaging," and that in some cases the AD could be "in excess of the excise duty being charged in
some states" on like domestic alcoholic beverages. Ev en if India's explanation were true – which the
United States cannot ascertain because India has submitted no evidence in support of it – the
explanation would not mean the AD is " per se equivalent" to state excises taxes nor that it is "entirely
compatible with the provisions of Article II:2(a)." In fact, India's explanation disproves its own
defence. Under Article III:2 any amount of excess ch arges on imports is "too much" and imports are
entitled to treatment no less favourable than th e most-favoured domestic products. A charge on
imports equal to the average of the various rates of internal taxes imposed on like domestic products
will necessarily result in charges on imports in excess of internal taxes on some like domestic
products.
(d) Point 4
4.207 Turning to the three scenarios India describes as demonstrating the "quantitative equivalence"
of the EAD, none of these scenarios demonstrate that the EAD is "quantitatively equivalent" to the
state-level VATs or the CST that it allegedly off sets. Nor do these scenarios demonstrate that the
EAD ensures that charges on imports do not exceed the state-level VATs or the CST on like domestic

products. With respect to the first scenario India describes, a domestic product sold by a registered
dealer in one state to a registered dealer in another state is subject to a CST rate of 3 per cent; whereas
like imports are subject to an EAD rate of 4 per cent. Moreover, imports are subject to the 4 per cent
EAD even in cases where the like domestic product is subject to a zero rate by virtue of a state
deviating from the Empowered Committee suggested ra te. With respect to the second scenario India
describes, whether India's CENVAT subjects imports to charges in excess of those on like domestic
products does not address the issue of whether the EAD subjects imports to charges that exceed the
charges imposed by the state-level VATs and the CST.
4.208 India's third scenario relies solely on a measure that is not within this Panel's terms of
reference – Customs Notification 102/2007 – to support its contention that the EAD does not result in
charges on imports in excess of those on like domestic products. Examination of the EAD comprising
the measures within this Panel's terms of reference show s that imported products are subject to the
EAD in addition to the state-level VATs and CST, whereas like domestic products are only subject to
the state-level VATs and CST.
(e) Point 5
4.209 None of India's points support the conclusion that the EAD is equivalent to the state-level
VATs or CST. In fact a number of them suggest the contrary: (a) the state-level VATs and CST vary
from product to product and from state to state and, with respect to the CST, from one purchaser to
another, when the EAD is imposed at a flat 4 per cent rate for all imports; (b) the EAD is not set at the
"lowest VAT rate" or corresponding lowest CST rate si nce the lowest VAT or CST rate is zero and in
transactions between registered dealers the CST rate is 3 per cent; (c) imports are not necessarily
exempt from the EAD when like domestic products are exempt from a state-level VAT or the CST
since states may exempt products from the VAT ra te suggested by the Empowered Committee, and
there is no mechanism to adjust the EAD correspondingly when states exercise such discretion.
4.210 India provides no evidence that the other local tax es or charges to which it refers exist, much
less any evidence that the EAD resu lts in charges on imports that do not exceed such taxes or charges
– e.g., that such taxes or charges do not apply in addition to the EAD.
(f) Point 6
4.211 Customs Notification 82/2007 and Customs Notificat ion 102/2007 are not within this Panel's
terms of reference, and India's attempts to justify the AD or the EAD on account of either
notification's effect on the AD or the EAD should be rejected accordingly.
4.212 India offers little new in support of its contenti on that Customs Notification 82/2007 is within
the Panel's terms of reference and, in terms of Customs Notification 102/2007, does not even assert
that it is within the Panel's terms of reference. India misreads the US panel request's reference to
"amendments, related measures, or implementing m easures", which is a reference to any amendments
or measures in existence at the time of the US pa nel request. There is no official compilation or
searchable database of India's applied customs rates, and ascertaining the official applied customs rate
for any particular product requires knowing whether th e rate set out in the First Schedule to India's
Customs Tariff Act has been modified. The Pane l will appreciate that with such a system, it may
become apparent during the course of the dispute th at a relevant citation to one of the measures
identified, in existence at the time of the panel request, was overlooked (though that does not appear
to be the case here). But, the panel request's reference to "amendment s, related measures or
implementing measures" did not extend to measures not even in existence at the time.
4.213 Whether the United States, in India's view, has had sufficient time or not to review Customs
Notification 82/2007 does not bring that measure within the Panel's terms of reference. And, India

only introduced Customs Notification 102/2007 during the last Panel meeting. In the time the United
States has had to analyze Customs Notification 82/2007, it appears that (1) it does not revoke or
rescind Customs Notification 32/2003, (2) that Cust oms Notification 32/2003 remains in force; and
(3) that the statutory provision mandating imposition of the AD, and at the highest excise duty rate of
any Indian state, remains in place.
4.214 What Customs Notification 102/2007 accomplishes, or does not accomplish, is unclear. The
refund mechanism it appears to establish subjects e ligibility for a refund to a number of conditions
and procedures that appear – based on initial reports from US industry – to undermine the value of
any applicable refund. Furthermore, domestic pr oducts do not have to go through the additional step
of requesting a refund, so it is not established that imported products are being treated no less
favourably than like domestic products. Moreover, Customs Notification 102/2007 would only
appear to address India's "second scenario"; it woul d not appear to address India's "first scenario"
where imported products are consumed by the importer.
4.215 India's contention in this regard that "a Me mber may use any appropriate means to achieve
effective compliance" is simply inapposite. Th e appropriate means to achieve compliance and
whether such compliance is effective would be a matter for the compliance stage of this dispute.
4.216 India has yet to explain how taking into account Customs Notification 82/2007 (or Customs
Notification 102/2007 for that matter) "is necessary ... in order to secure a positive solution to the
dispute." Doing so would not contribute to securing a positive solution in this dispute, and, instead
would put the United States in the position of having to deal with the AD (or the EAD) as a "moving
target." These issues are particularly acute in this dispute given the uncertainty today as to either
customs notifications' effect on the AD and the E AD respectively, and the ease with which either
customs notification may be rescinded or otherwise re moved. India has also indicated that collection
of the AD may resume at either the central or state level.
4.217 India contends that Customs Notification 102/2007 does not change the essence of Customs
Notification 19/2006 and again refers to the US pane l request's reference to "any amendments, related
measures or implementing measures." The latter has al ready been addressed in this statement. With
respect to the former, if Customs Notificati on 102/2007 does what India contends, it appears
fundamentally to change the essence of the EAD. That is, according to India, prior to Customs
Notification 102/2007 imports subsequently sold within India were subject to the EAD in addition to
the state-level VATs and CST, whereas with Customs Notification 102/2007 in place, such imports
are no longer liable for the EAD, provided certain conditions are met. A measure that allegedly
removes liability for another measure would seem to necessarily change the essence of the latter
measure. In this regard, the United States points out that the facts in Chile – Price Band System differ
significantly from the facts in this dispute.
(g) Point 7
4.218 The AD and the EAD are each "as such" inconsis tent with Article II:1(a) and (b) of the
GATT 1994. The AD comprises a number of measures that apply cumulatively and when imposed
with the basic customs duty, result in ordinary cu stoms duties on alcoholic beverages that exceed
India's WTO-bound rate. Each of these measures ma ndates the actions it describes, for the reasons
the United States clearly sets out in the US second written submission.
4.219 And in any event, even if any of the cite d statutory provisions had been discretionary,
Customs Notification 32/2003, as India acknowledges, is not. Customs Notification 32/2003
mandates the collection of the AD at specified rates, and collection of the AD at those rates result in
ordinary customs duties on imports of alcoholic beverages in excess of India's WTO-bound rates.

4.220 India contends the United States has set out an "as applied" claim with respect to the AD
because it has "examined the WTO compatibility of the AD ‘as applied' to alcoholic beverages." Any
reading of the US panel request, responses to th e Panel's questions and first and second written
submissions, makes quite clear that the United Stat es is challenging the AD "as such," but only as it
pertains to alcoholic beverages. The statutory provisions and customs notifications comprising the
AD on their face mandate a breach of India's WTO-bound rate for alcoholic beverages.
4.221 With respect to the EAD, it is also mandatory. While Section 3(5) provides that the Central
Government may levy the EAD, Customs Notifi cation 19/2006 mandates its collection. Moreover,
Section 3(5) requires that if imposed the EAD shall be at the highest rate of internal taxes imposed on
like domestic products up to a maximum of four per cent.
(h) Conclusion
4.222 The AD and the EAD are each ordinary customs duties that India imposes on imports in
excess of WTO-bound rates. Neither duty is charge e quivalent to an internal tax that is imposed
consistently with Article III:2 of the GATT 1994. Consistent with this Pa nel's terms of reference
under DSU Article 7.1, the United States requests the Panel to find that the AD and EAD are
inconsistent with Article II:1(a) and (b) of the GA TT 1994, and consistent with DSU Article 19.1, to
recommend that India bring these measures into conformity with the GATT 1994.
2. Concluding remarks
4.223 The United States has established a prima faci e case that the AD and the EAD are each
ordinary customs duties that India imposes in excess of its WTO-bound rate and are therefore
inconsistent with Article II:1(a) and (b) of the GATT 1994.
4.224 India instead asserts that the AD and the EAD are charges under GATT Article II:2(a) that are
equivalent to internal taxes and imposed consistently with GATT Article III:2.
4.225 The United States has demonstrated that neither the AD nor the EAD is in fact equivalent to
an internal tax nor imposed consistently with GATT Article III:2. The United States has provided
reasons in our written submissions and oral statement yesterday. In this statement, the United States
would like to focus on two points that merit specific mention in light of the discussions over the last
two days.
4.226 First, India argues that the AD and the EAD are imposed as a consequence of domestic
products being charged an excise duty.
4.227 That is factually incorrect. As the United States has pointed out, imports may be liable for the
EAD even in instances where like domestic products are not subject to the relevant internal tax or are
exempted from the relevant internal tax, for exam ple, where a state has exercised its discretion to
deviate from the VAT rated suggested by the Em powered Committee. As noted in the US second
submission, states may deviate by imposing no rate when the Empowered Committee has suggested a
4 per cent rate.
4.228 With respect to the AD, India has not even id entified the state excise duties to which the AD
on alcoholic beverages is equivalent, much less th at the AD is imposed on imports as a consequence
of state excise duties being levied on like domestic products.
4.229 India's contention is simply a repackaging of its earlier arguments that the stated purpose of
the AD and EAD is sufficient to qualify those duties as in fact equivalent to an internal tax. As the

United States has mentioned, the Panel should look at the structure, design, and effect of a duty and
not its stated purpose.
4.230 Second, India asserts that the Central Government's authority to issue exemptions to the AD
means that Section 3(1) itself does not mandate im position of the AD nor imposition of the AD at the
highest rate. This is incorrect. In fact, that Section 25 of the Customs Act and Section 3(8) of the
Customs Tariff Act provide the Central Government authority to exempt products only proves that
Section 3(1) requires the AD’s imposition and that those provisions are only exceptions to that rule -
that is, that an AD shall be imposed.
4.231 The United States is struck by India's asserti ons in its second submission and statement
yesterday that:
• through Customs Notifications 82/2007 and 102/2007, India has "removed" the
possibility that the AD and the EAD subject imports to charges in excess of those
imposed on like domestic products (para. 4.1) and;

• with those notifications in place, Indi a has ensured conformity with its WTO
obligations.

4.232 The first point the United States would make is that Customs Notifications 82/2007 and
102/2007 are not within the Panel’s terms of reference, and their effect on the AD or EAD should not
be taken into account in making findings on the AD or EAD as those measures are described in the
US panel request, and which form the basis of the Panel's terms of reference.
4.233 And the United States has explained that Cu stoms Notification 82 does not "withdraw" the
AD, and we do not believe that Customs Notification 102 provides a refund mechanism that – as India
asserts – ensures imports are not subject to charges in excess of those on like domestic products. We
have explained these points in our second written submission and yesterday’s statement.
4.234 Today, the United States would like to draw attention to two additional points.
4.235 First, India's request that the Panel take Customs Notification 82 and 102 into account seeks
to convert this panel proceeding over the confor mity of the AD and the EAD with India's WTO
obligations into a compliance proceeding under Article 21.5 of the DSU.
4.236 A panel, however, cannot properly judge whether one measure taken to bring another measure
into conformity with a Member's WTO obligations in fact accomplishes that until it first makes a
finding that the initial measure is WTO-inconsistent.
4.237 That is why in this dispute, even if Cust oms Notification 82 and 102 accomplish everything
India claims they do, and we have explained that they do not, the Panel could not make a finding on
the effect of those Customs Notifications without first making a finding on the AD and the EAD as set
out in the US panel request, which forms the basis of the Panel's terms of reference. Whether India's
actions subsequent to the Panel's establishment ha ve brought it into conformity with India’s WTO
obligations is a matter for another stage of this proceeding.
4.238 Second, as the United States has noted, India's invitation for the Panel to take Customs
Notification 82 and 102 into account in making findings on the AD and the EAD as set out in the
Panel's terms of reference renders this dispute a "moving target". India could take yet another
measure later in this proceeding, or the Indian states could impose new charges to replace the AD.

4.239 The Panel's findings in this dispute will contribut e to a positive solution. First, it will provide
a benchmark by which India and the United States may judge whether Customs Notification 82 or 102
or any other measure may bring the AD or the EAD into conformity with India's WTO obligations, in
the event of a compliance proceeding under Article 21.5. The Panel's findings on the AD and EAD as
described in the US panel request will also provide clarity to India as it considers whether an exercise
of what it has characterized as its complete discretion to resume collection of the AD complies with
its WTO obligations. It will also guide the Indian states as they considering impose duties in lieu of
the AD – as India suggests they may do – in assessi ng whether such duties comply with India's WTO
obligations.
H. ORAL STATEMENT OF INDIA AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL
4.240 India in its oral submissions at the second substa ntive meetings with the parties has refrained
from repeating the submissions made by it earlie r in the proceedings and has instead limited its
submissions to clarifying the key misconceptions in the US submissions before the Panel and
explaining the issues raised by the US in its second written submissions.
1. OCD/ODC or charge equivalent to internal taxes?
4.241 The United States has alleged that India levies Additional Duty (AD) under Section 3(1) of
the Customs Tariff Act (CTA) and such other Additional Duties (SUAD) under Section 3(5) of the
CTA in excess of its bound rates. The United States' allegation is based on an erroneous
characterization of the AD and the SUAD as "ordin ary customs duty" (OCD) or "other duties and
charges" (ODC) under Article II: 1 of the GATT 1994.
4.242 Based on this premise the United States has furt her misinterpreted the statutory basis for the
duties and has argued that the structure, design and e ffect of the AD and the SUAD are such that they
are nothing but "basic customs duties" (BCD). Howe ver in doing so, the United States has ignored
the judicial interpretation, the purpose of the levy, the methodology of calculation, and the actual
imposition and co-relation of the AD and the SUAD with the internal taxes that they are intended to
counter-balance. These factors clearly establish that these latter duties are distinct from each other,
meant to serve separate purpose and have distinct effect and thereby can not be treated as BCD.
4.243 The United States argues that the stated polic y purpose or intent of a measure does not
determine whether a duty is an OCD or an ODC and should therefore be disregarded. India offers an
explanation of the purpose behind its duties to s upport its averments on the structure, design and
effect of the duties and submits that the Panel is not precluded from considering the policy purpose of
the duties while determining whether AD and the SUAD are OCDs/ODCs.
69
4.244 The United States in the alternative argues that the AD and the SUAD are ODCs. It contends
that since the AD and the SUAD are applied at th e time of importation and as a "consequence of
importation"70 they must automatically qualify as an ODC if they are not characterized as OCD. India
submits that even though the two duties are imposed at the time of importation, they are not levied as
a "consequence of importation"; instead the liability arises as a consequence of the levy of internal
duties and charges on the like domestic products. Since both the AD and the SUAD are imposed in
lieu of internal taxes and charges, they are permitted under Article II: 2(a) of the GATT 1994.

69 Previous WTO Panels have considered the stat ed purpose of a measur e while characterizing a
measure under the WTO law. See Panel Report, US – Offset Act (Byrd Amendment), para. 7.41
70 US second written submission, para 19 where the US seems to define "at the time of importation" as
"the event for which liability for a duty ensues".

2. The AD and the SUAD are equivalent to internal taxes
4.245 India has consistently maintained that bot h the AD and the SUAD are equivalent to the
internal charges that they are intended to offset, and are imposed in accordance with Article III: 2 of
the GATT 1994. With the revocation of the AD on al coholic beverages through CN 82/2007 and the
introduction of the full refund mechanism for th e SUAD paid through CN 102/2007 the possibility
that imported products are taxed in excess of dom estic like products on account of the AD or the
SUAD has been removed.71
(a) AD is equal to the excise duty
4.246 India has made every effort to demonstrate that the AD imposed under Section 3(1) of the
CTA is equivalent to the excise duty imposed on like domestic products. For all products other than
alcoholic beverages the AD is charged at the same rates as the central excise duty on the like domestic
products.72 For alcoholic beverages on the other hand, the AD was intended to offset the multiple
levels of State excise duty imposed on them 73 and since it could not be identical to any one single rate
of State excise duty, it was imposed at a rate arrived at by reasonable approximation of the excise duty
rates payable in different States.
4.247 The United States argues that the relevant por tion of India's CTA mandates the imposition of
the AD the highest rate where there are multiple rate s of domestic excise duty. India has shown that
Section 3(1) of the CTA does not necessarily mandate the imposition of AD at the highest rate; the
Central Government retains the discretion to either exempt a product from the levy or impose the duty
at a reduced rate. For instance, when the AD on alcoholic beverages was in effect prior to 3 July 2007
it was lower than the corresponding excise rates in several states.
4.248 However in view of the concerns raised by its trading partners that this method of arriving at
the rate of AD had resulted in some inconsis tencies in the way it was implemented through
CN 32/2003, India decided to remove it through CN 82/2007. The United States argues that
CN 82/2007 does not result in complete removal of the AD and moreover since the customs
notification was brought in after the constitution of th e Panel, it shall not be considered. India submits
that the CN 82/2007, by exempting the goods from the levy of duty imposed under CN 32/2003 as a
matter of fact results in complete removal of the AD on alcoholic beverages. India also submits that
the Panel may consider CN 82/2007 as being within its Terms of Reference and such a consideration
would effectively bring about a resolution of the dispute.
(b) SUAD is equivalent to the VAT, CST and other taxes and charges
4.249 Contrary to the US submission , the SUAD is equivalent to the VAT, CST and other taxes and
charges (internal taxes & charges) and has been imposed in accordan ce with Article II: 2(a) of the
GATT 1994. The structure of the SUAD is calibrated with the internal taxes and charges levied on
domestic products so that it does not result in a heavier tax burden on imported like products. There
are generally four rates of a VAT/CST levy in India: "nil", 1 per cent, 4 per cent and 12.5 per cent.

71 The United States has relied on India "admissions" that there may be some limited instances in which
the AD on alcoholic beverages (Para 33 of US seco nd written submission) and the SUAD on the Identified
Products (Para 44 of US second written submission) could be "in excess" without considering that the
revocation of the AD on alcoholic beverages and the introduction of the refund mechanism for the SUAD have
resulted in the removal of any possible situation of excessive taxation. This is contrary to the very objective for
which the Panel was constituted, i.e. achieving a satisfactory settlement of the matter.
72 The rates of AD as per Section 3(1) of the CTA are equal to rates of central excise provided in First
Schedule to the Central Excise Tariff Act.
73 Under the Constitution pf India, excise duty on alcoholic beverages can be imposed only by the
Sates.

Correspondingly the SUAD is levied either at "nil" rate or at the rate of 1 per cent or 4 per cent. For
all products where the VAT/CST is charged at 12.5 per cent above, the SUAD remains 4 per cent. In
addition, the system of refunds ensures that in no situations the importe d products are charged a
SUAD in excess of the like domestic product.74
4.250 Secondly, the comparison of the net tax burd en on imported and domestic like products in
each type of sale transaction shows that the two are mathematically equivalent in each type of
transaction of sale, i.e. when a product is imported into India (a) for direct consumption; (b) for
further manufacture; and (c) for the purpose of furthe r re-sale. An analysis of the taxes payable in
each of these three types of transaction, reveals th at in no transaction is the tax burden on imported
products in excess of that borne by domestic lik e products. In addition, the credit and refund
mechanism as introduced through CN 102/207 ensur es that no imported products can be subjected to
both the SUAD and the CST/VAT. The mechanism for re fund is clear, simple and transparent and the
US apprehensions on the efficacy of the refund mechanism are completely misplaced.
4.251 In addition to being "equivalen t" to internal taxes, the SUAD and the AD are applied in a
manner consistent with Article III: 2 of the GATT 1994 since neither result in the taxation of imported
products "in excess" of domestic like products.
(c) The AD and the SUAD are applied in a manne r consistent with Article III:2 of the
GATT 1994
4.252 In addition to being "equivalen t" to internal taxes, the SUAD and the AD are applied in a
manner consistent with Article III:2 of the GATT 1994 since neither result in the taxation of imported
products "in excess of" domestic like products. 75 Article III:2 of the GATT 1994 requires a
comparison of the "actual tax burden" im posed on imported and domestic like products 76 and as of
date, India's taxation system is calibrated to ensu re that the burden of taxation on imported products
does not exceed the burden placed on domestic like products in any transaction of sale.
3. Terms of reference
4.253 The United States contends that CN 82/2007 and 102/2007 are not within the Panel's Terms
of References since they were introduced after th e Panel's establishment and the analysis of these
measures will create a moving target and will "shield" the AD from the Panel's scrutiny. It is
submitted that the Panel is well within its manda te to look into CN 82/2007 and CN 102/2007 even
though they were introduced after the establishment of the Panel since: (a) a panel has the authority to
examine a legal instrument enacted after the est ablishment of the Panel that amends a measure
identified in the Panel request
77; and (b) the United States had itself requested that "any amendments,
related measures, or implementing measures" 78 be included within the Pa nel's Terms of Reference.
The two notifications issued after the constitution of the Panel were not in tended to create a moving

74 For example, where the CST is paid at 3 per cent (i n the case of sale from one registered dealer to
another) the importers can claim a refund of the exce ss SUAD paid as per the mechanism introduced through
CN 102/2007
75 The United States submissions commenting on Footnote 51 of India's First Written Submission
pertaining to the permissible "de minimis" level (US second written submission, para 32 and footnote 44), is no
longer relevant since the revocation of the AD on alcoholic beverages through CN 82/2007 and the introduction
of the refund mechanism for the SUAD through CN 102/2007 have effectively removed any possibility that the
AD or the SUAD imposed on imported products are "in excess of" internal taxes. India is therefore not
addressing this issue in any further detail.
76 Panel Report, Argentina – Hides and Leather, para. 11.183 to 11.185.
77 Appellate Body Report, Chile – Price Band System, para. 144
78 , Request for the
Establishment of a Panel by the United States, WT/DS360/5, 25 May, 2007.

target, but to address the concerns raised by India's trading partners. Also, the notifications in question
do not "change the essence" of the measures in ques tion and the mechanism for the levy of AD and
SUAD on imports continues to subsist.
4. The distinction between mandatory vs. discretionary
4.254 The United States seems to suggest that the di stinction between mandatory and discretionary
measures is not relevant to its claims. 79 India however and has consistently highlighted the
discretionary nature of Section 3(1) and 3(5) of the CTA in order to point out that the statutory
provisions do not mandate a WTO inconsistency and th e Panel's investigation, if any, may be limited
to the Customs Notifications. This distinction be tween mandatory and discretionary provisions has
been observed in previous Panel and Appellate bod y decisions where it has been viewed as being a
"threshold consideration".
5. The United States has failed to make out a prima facie case
4.255 Throughout these proceedings, the United States h as failed to demonstrate that the AD or the
SUAD are taxes that qualify as an OCD or an ODC as defined in the second sentence of
Article II:1(b) of the GATT 1994. Instead, it has s ought to discharge its burden of proof by arguing
that India has not adequately demonstrated that the AD or th e SUAD is not an OCD. In order to make
an affirmative claim that the AD and the SUAD are OCDs, the United States must look beyond the
mere point at which the duty is levied and the ma nner in which the duty is expressed, since neither of
them will necessarily mean or indicate that the duty is an OCD. In addition, the United States must
substantiate in the affirmative that the "structu re, design and effect" of the AD and the SUAD make it
an OCD.
80 The United States has failed to take into acc ount any such relevant factors in framing its
claim, and has instead observed that India has fail ed to demonstrate that the AD or the SUAD is not
an OCD.81
6. Conclusion
4.256 In conclusion India would like to emphasize that both the levies under the CTA – AD and
SUAD are legitimately imposed to offset domestic taxes imposed on like domestic goods in India and
such a levy is permissible under Article II.(2)(a) of the GATT 1994. India has demonstrated at length
how neither duty can be misconstrued as being either an OCD or and ODC and that the rates of the
duties are implemented through customs notifications. The statutory provisions of the CTA are purely
discretionary and do not in themselves mandate a WT O inconsistency and are consequently not to be
treated as measures in the present dispute. India has always complied with its international obligations
and the enactment of CN 82/2007 an d 102/2007 to address concerns rai sed by its trading partners is
indicative of this fact India wishes to unequivoca lly and emphatically reiterate its commitment to
abide by its WTO commitments.
V. ARGUMENTS OF THE THIRD PARTIES
A. AUSTRALIA
1. Introduction
5.1 Australia reserves its position in relation to an y issue not addressed in its written submission
or oral statement.

80 Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 189.
81 US oral statement at the first meeting of the Panel, para. 6.

2. Removal of the additional duties
5.2 The Panel is not precluded from making findings on measures which are properly within its
terms of reference, even where those measures ha ve ceased to exist. However, a panel need only
consider those claims which must be addressed to resolve the matter at issue in the dispute.

5.3 If the Panel considers that India's additional duty (AD) on alcoholic beverages has indeed
been withdrawn and has "ceased to exist", it should ne vertheless consider whether, in the particular
circumstances of this dispute, it is necessary to make findings on the AD in order to resolve the
dispute.
3. Consistency of the AD and "such additional duties" as would counterbalance taxes such
as Sales Tax, Value-Added Tax, local tax or any other charges ("SUAD") with
Article II:1 of the GATT 1994
5.4 A threshold issue is whether (as claimed by the United States) the AD and the SUAD are
"ordinary customs duties'" (OCDs) or "other dutie s and charges'"(ODCs) within the meaning of
Article II:1(b) of the GATT 1994 or whether (as claimed by India) the AD and SUAD instead fall into
a separate category of duties permitted under Article II:2(a).
5.5 There is no definition of either "ordinary customs duty" or "other duty or charge" in the
GATT. In addition to considering the ordinary meaning of the terms, the Appellate Body has
suggested that determination of whether a measure constitutes an OCD or ODC should be based on
the structure, design and application of the specific measure in question. The name or stated purpose
the Member imposing the measure ascribes to it is not determinative. Australia agrees with India that
Article II:2 of the GATT 1994 measures may be based on value or volume and still be distinct from
OCDs and ODCs within the meaning of Article II:1(b) of the GATT 1994. Australia therefore submits
that further consideration by the Panel of the me asures' overall design, application and structure is
necessary in order to decide whether the AD and SUAD fall within the scope of Article II:1(b) or
alternatively Article II:2(a).
5.6 In the event that the Panel accepts India's argum ent that its measures are properly within the
terms of Article II:2 of the GATT 1994, it follows that they are neither OCDs or ODCs and therefore
would be exempt from bound commitments.
4. Article II:2 of the GATT 1994
5.7 Article II:2(a) of the GATT 1994 permits Members to impose duties in excess of their bound
commitments where necessary to counterbalance internal taxes from which imported products are
exempt, provided that such charges on imports are "equivalent" to the internal taxes in question.
5.8 Article II:2(a) of the GATT 1994 requires that, in order to be categorised as "equivalent" to
internal taxes within the meaning of that provi sion, measures must also be applied in a manner
consistent with Article III:2 of the GATT 1994. The United States clai ms in the alternative that the
Indian measures are inconsistent with this requirement.
5.9 On the face of India's legislation, including Section 3(1) and Section 3(5) of the Customs
Tariff Act, the AD and SUAD could be charges "equiva lent" to internal taxes and within the scope of
Article II:2(a). In Australia's view, however, this question remains an open one, to be answered by
further consideration of the measures' overall design, application and structure. In particular, if
imported products are being taxed u pon their arrival in an Indian st ate on the same basis as locally
produced products, they cannot also be subject to AD and SUAD imposed at the border.

5.10 In addition, the application of India's meas ures may result in some imported products
incurring charges "in excess of" those imposed on some like domestic products (counter to the
requirements of Article III:2 of the GATT 1994). Th e "Explanation" to sub-section 3(1) of India's
Customs Tariff Act (under which AD is applied to al coholic beverages) expressly states that where
excise duty is leviable at different rates, AD shall be calculated at the highest (excise) duty. Similarly,
the "Explanation" to sub-section 3(5) of India's Customs Tariff Act expressly states that where
internal taxes are leviable at different rates, SUAD will be fixed at the highest rate. On its face, the
legislation under which the AD and SUAD are imposed mandates charges in excess of internal taxes
and charges on like domestic products, at least in some parts of the territory of India.
5. Mandatory vs. discretionary legislation and "as such" claims
5.11 It is clear that legislation having general application may be challenged "as such". The
Appellate Body has identified the importance of this facet of the dispute settlement system in
protecting "not only existing trade but also the secu rity and predictability ne eded to conduct future
trade".
5.12 However, Australia disagrees with India's a pplication of a mandatory and discretionary
distinction in determining whether measu res are challengeable "as such". In US – Corrosion
Resistant Steel Sunset Review , the Appellate Body found that "the import of the
'mandatory/discretionary distinction' may vary from case to case"; cautioned against "the application
of this distinction in a mechanistic fashion" ; and stated that there is no reason why "in principle, non-
mandatory measures cannot be challenged 'as such'". The Appellate Body concluded that whether a
challenged measure is mandatory is not a preliminary jurisdictional matter but is "relevant, if at all,
only as part of the Panel's assessment of whether the measure is, as such, inconsistent with particular
obligations".
5.13 Australia therefore submits that a mandatory/discr etionary distinction is not determinative of
whether a Panel has jurisdiction to consider the re levant measures. Further, the Appellate Body has
left open the possibility that discretionary legisla tion could be found to be inconsistent with WTO
obligations.
B. CHILE
5.14 Chile would like to thank the Panel for the oppor tunity to present its views in this dispute
between the United States and India concerning the application by India of additional and extra-
additional duties on certain imports from the United States.
5.15 Chile reserved its rights as a third party in this di spute in order to safeguard the interests of its
alcoholic beverages industry, chiefly its wine indus try. In view of the increasing importance of the
Indian market for Chile's wine and spirits expor ts, it is important that the recommendations and
rulings of the Panel provide legal certainty with respect to the treatment granted by the Indian
authorities to imports of such products.
1. The measures in force prior to 3 July 2007 and amendments thereto
5.16 On the basis of what the two parties themselves claimed in their respective submissions, Chile
considers that the Panel should begin by ruling on whether or not the Indian measures in force prior to
3 July 2007 violate its obligations under Article II of the GATT 1994.
5.17 Regarding India's new measure of 3 July 2007 withdrawing the additional duty on alcoholic
beverages, the United States contends that this measur e is outside the Panel's terms of reference, since
it should only be examined at the implementation stag e, where applicable. India, on the other hand,

argues that the Panel is competent to rule on this i ssue, in that the new measure is an amendment that
does not alter the essence of the measure identified in the request for a panel, as confirmed by the
Appellate Body in Chile – Price Band System.
5.18 In this connection, Chile would like to stress what it has already stated, namely that the Panel
should, as an initial matter, rule on the Indian m easures before the recent amendment, considering the
actual requests of the parties in that respect, afte r which it will need to decide on the subsequent
measure amending them, and the conformity of that measure with India's international obligations.
Here, Chile agrees with the United States, and reaffirm the need for the Panel to rule definitively on
the consistency of the said measures.
5.19 Without prejudice to the Panel's ruling, neither India nor any other WTO Member is under
any obligation to keep its measures suspended or un changed pending the future ruling of the Dispute
Settlement Body – a Member may revise its measur es at any time, and adjust them as it sees fit,
provided they are consistent with its obligations under the WTO Agreements. Thus, such measures
cannot remain outside the scrutiny of a panel. A ru ling in this respect, and in particular in this
dispute, would contribute to the certainty that Ch ile hopes to obtain with respect to access to the
Indian market for its products.
2. India's arguments with respect to Article II of the GATT 1994
5.20 India maintains that the extra-additional dut ies fall into the categories described in
Article II:2(b) of the GATT 1994 82 , and are not therefore inconsistent with Article II:1 of that
Agreement. To substantiate its claim, India refers to reports of the Appellate Body, in particular Chile
– Price Band System. Chile would like to make two remarks in that respect.
5.21 Firstly, India argues 83 that duties that are imposed at the time of import may be expressed in
ad valorem or specific terms, but that this does not ma ke them "other duties and charges" under the
second sentence of Article II:1(b) of the GATT 1994. India's reference to paragraph 275 of the
Report of the Appellate Body in Chile – Price Band System is inappropriate, since that paragraph
merely states that the fact that "other duties or charges" take the form of an ad valorem or a specific
duty does not make them "ordinary customs duties", which may also be ad valorem or specific. It
should be recalled that in that case, what was being discussed was the application of Article II:1 of the
GATT 1994, and not Article II:2 as in this case.
5.22 Secondly, the final point in the preceding paragraph is particularly important to the analysis of
India's second argument, namely that Article II:2 of the GATT 1994 authorizes the application of
charges equivalent to internal taxes, and that are im posed at the time of import. Chile submits that in
paragraph 276 of the above-mentioned report, the Appellate Body is referring to the situation
regulated by Article II:2 for referential and illustra tive purposes or as an example, but that this does
not mean that the report is actually ruling on Article II:2.
3. Conclusion
5.23 In Chile's view, the Panel should rule in such a way as to reinforce one of the fundamental
pillars of the GATT 1994, i.e. the principle of market access as reflected in the commitments specified
in a Member's Schedule of Commitments.

82 India's first written submission, paragraph 52.
83 India's first written submission, paragraph 57.

C. EUROPEAN COMMUNITIES
1. Introduction
5.24 The intervention of the EC in this dispute is about the discriminatory taxation imposed by
India on wine and spirits originating in third co untries, by means of the measures which will be
referred to as the Additional Duty (the "AD") and the Extra-Additional Duty (the "EAD").
2. Review of a measure withdrawn after panel establishment
5.25 The European Communities consider s that a preliminary question that should be resolved is
whether this Panel must assess and, if so, make recommendations on the AD, considering that it has
apparently been withdrawn by India.
5.26 It is the opinion of the European Communities th at the Panel ought to consider the claims
made by the United States on the AD, and thus assess this measure as it existed at the time of the
establishment of the Panel. In fact, if a WTO Memb er could avoid the examination of its measures by
simply withdrawing or suspending those measures, this could result in the paralysis of the Dispute
Settlement system.
5.27 However, as the measure is no longer in force, the European Commun ities believes that the
Panel does not need to make a recommendation on the AD, unless the United States can provide a
reasonable explanation of why it considers that such a recommendation on a withdrawn measure can
be fruitful.
3. Border duty or internal taxes?
5.28 In order to assess the legality, as a matter of WT O law, of the AD and of the EAD it is
necessary, first of all, to determine whether they are import tariffs (customs duties) falling within the
scope of Article II of the GATT 1994 or internal taxes within the meaning of Article III of the
GATT 1994.
5.29 The European Communities observes that these duties are due on importation and as a
condition for importation. They appear to be calcula ted and collected by the Central Indian customs
authorities – pursuant to the basic Indian legisl ation on customs duties – exclusively on imported
products.
5.30 For these reasons, it is the view of the Europ ean Communities that the AD and the EAD must
be regarded as customs duties within the meaning of Article II:1 of the GATT 1994, and not, as India
argues, as border tax adjustments intended to offset various internal taxes. More specifically, these
measures appear to constitute "ordinary customs duti es" within the meaning of Article II:1(b) of the
GATT 1994.
4. Article II:1 of the GATT 1994
5.31 India's tariff schedule specifies as regards wines and spirits a bound rate of ordinary customs
duty of 150 per cent ad valorem. This means that the combination of the basic customs duty and the
AD and/or the EAD will often lead to an imposition of customs duties in excess of that set forth in the
tariff schedule, thereby violating Article II:1 of the GATT 1994.
5.32 However, even if the contested measures were to be regarded as "other duties or charges",
they would still be in breach of the said provision, si nce India's tariff schedule lists no "other duties or
charges" as regards wines and spirits.

5. Articles II:2(a) and III:2 of the GATT 1994
5.33 According to Article II:2(a) of the GATT 1994, WTO Members may impose on the
importation of any product "a charge equivalent to an internal tax imposed consistently with the
provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an
Article from which the imported products has been manufactured or produced in whole or in part".
5.34 India contends that the AD and EAD are in fact internal taxes intended to offset, respectively,
the excise duty and various other taxes (sales tax, VAT and other local taxes) which weigh on
internally produced alcoholic beverages but not on imported ones.
5.35 However, even if one were to follow India' s arguments (quod non), the contested measures
would still violate WTO rules, and in particular Article III:2 of the GATT 1994.
5.36 First of all, the evidence gathered from th e European Communities suggests that the AD
exceeds the taxation resulting from taxes denominated "e xcise duty" in the legisl ation of most Indian
States. Moreover, it appears that imported wines and spirits are not systematically exempted from the
plethora of different sales taxes, value added taxes, and other indirect taxes which the EAD allegedly
offsets.
5.37 In any event, India has not been able to illu strate and explain any mechanism designed to
ensure that, in all cases, the contest ed measures are not applied in excess of the internal taxes they are
supposed to offset. In this regard it should be obser ved that it is undisputed that some of the taxes
allegedly offset by the AD and the EAD vary greatly from one Indian state to another and that in some
States they are not even levied.
6. Conclusions
5.38 In the light of the above considerations, the European Communiti es believes that the
contested measures constitute customs duties, and are thus incompatible with Article II:1 of the
GATT 1994.
5.39 However, even if they were regarded as in ternal taxes, and thus simple border tax
adjustments, they would still be WTO incompatib le. Indeed, India has not proven that under all
circumstances there is a mechanism ensuring th at the AD and the EAD are not in excess of the
plethora of internal taxes, which greatly vary from one Indian state to another, and which are imposed
on alcoholic beverages produced in India.
D. JAPAN
1. Customs duty or internal tax?
5.40 In order to assess the consistency of the SUAD with the GATT, it is necessary, first of all, to
determine whether it is a customs duty within the sc ope of Article II of the GATT 1994 or an internal
tax within the scope of Article III of the GATT 1994.
5.41 In order to be identified as internal tax with in the scope of Article III of the GATT 1994, the
Ad Note to Article III requires a concerned measure to fulfil two conditions; (i) the measure is applied
to both imported products and the like domestic pr oducts, and (ii) is collected at the time of
importation. Whilst Japan does not have any intent to develop its argument on this point nor to take
any particular position, Japan considers that the SUAD could be highly possibl e to violate either
Article III or Article II of the GATT 1994, depending on the characterization of the SUAD as customs
duty or internal tax as discussed below.

2. Article III of the GATT 1994 applies to the SUAD
5.42 India has claimed that the SUAD falls into a separate category of duties described in
Article II:2(a) of the GATT 1994. 84 In addition, India mentioned at the Trade Policy Review held in
June 2007, in response to Japan's question that count ervailing duty (which consists of the AD and the
SUAD) is categorized as internal tax.
5.43 So long as the SUAD is categorized as internal ta x, it needs to be consistent with Article III:2
of the GATT 1994. With regard to the requirement of Article III:2 of the GATT 1994, the Appellate
Body in Canada – Periodicals held that two questions need to be answered to determine whether
there is violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are
like products; and (b) whether the imported produc ts are taxed in excess of the domestic products.
And if the answers to both questions are affirmative, there is a violation of Article III:2, first sentence.
If the answer to one question is negative, there is a need to examine further.
5.44 With regard to the first element, India does not contend, and Japan agrees, on the point that
imported products, on which the SUAD is imposed , and domestic products, on which the concerned
internal taxes are imposed, are like products.85
5.45 With regard to the second element, India insisted that the SUAD does not tax imported
products "in excess of" of domestic like products. 86 Japan finds, however, several uncertainties exist
between the arguments made by India and the articles quoted by India as its legal basis.
5.46 Contrary to the explanation of the India, the SUAD seems not to offset the Sales Tax/Value
Added Tax by state governments (VAT), or the Cent ral Sales Tax by the Central Government (CST),
and/or other local taxes and charges on the sale of domestic products. As India stated exactly,
imported goods are exempted from the imposition of these duties "at the time of importation" 87,
however, once products are imported and put into do mestic marketing channe ls, it is quite unclear
whether these duties are imposed on the "imported" products or not.
5.47 First, States Governments could impose VAT on imported goods after their importation.
Article 286 of the Constitution of India ("the Constitution") provides that "No law of a state shall
impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or
purchase takes place … (b) in the course of the import of the goods into, or export of the goods out of,
the territory of India".
5.48 It is clear that the Constitution does not prohibit state governments to impose VAT on
imported products, but restrict them to impose VAT just on the sale of goods where such sale or
purchase takes place "in the course of the import", or following to India's expression, "on the
importation of goods from foreign countries".
88 In other words, in any re-sale situation, the imported
products could remain subject to domestic VAT a nd importers are unable to claim credits for the
SUAD paid. If that is the case, the SUAD is applie d in addition to, and not in substitute for, the VAT
and imported products are taxed "in excess of" domestic like products.
5.49 Second, the plain reading of the text of the Central Sales Tax Act of 1956 ("CST Act")
indicates that CST is levied on the inter-state movement both of importe d and domestic products.
Section 6(1) of CST Act provides that "[p]rovided that a dealer shall not be liable to pay tax under this

84 India's first written submission, para. 52.
85 India's first written submission, paras. 83-84.
86 Ibid, paras. 85-91.
87 Ibid, para. 67.
88 Ibid, para. 71.

Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a
sale in the course of export of those goods out of the territory of India".
5.50 By quoting Section 6(1) of CST Act, India insists that imported products are exempted from
CST.89 However, Section 6(1) does not provide to exempt imported products from the imposition of
CST, but only goods for exports from India are exempt ed. In addition, Section 5(1) of the CST Act,
another legal basis quoted by India for the justification of the SUAD, just provides the definition for
when a sale or purchase of goods be deemed to take place "in the course of the export of the goods" 90
and not provides any legal justification to show that "CST is levied only on the inter-state movement
of domestically manufactured products".91
5.51 Even proved that imported products are exempted from CST "at the time of importation", as
stated by India92, the SUAD could not counter-balance CST. In the case where an importer imports,
discharges and sells a product within one state in India, the SUAD is imposed on the imported
products at the time of importation. On the contrary, if a manufacturer produces and sells a like
product within the same State, he is not liable for any CST, since the domestic like product is not sold
"in the course of Inter-State trade".
93 In that case, the SUAD is imposed on the imported products "in
excess of" the taxes and charges imposed upon like domestic products.
5.52 Third, the SUAD does not necessarily offset other local taxes and charges, such as transport
fees, various types of surcharges, cess etc. The Constitution prohibits state governments to impose "a
tax on the sale or purchase of goods where such sale or purchase takes place in the course of the
import of the goods".94 State governments could impose other local taxes and charges not on the sale
or purchase of goods, but on other economic activities, su ch as transportations. For example, octroi is
levied by Municipalities on "entry of goods"95 which is out of the restriction of the Constitution.
5.53 As pointed out by India, "the quantum and character of these local taxes and charges may
change from State-to-State". 96 In other words, some local taxes may not be imposed on imported
products, but the others would be on imported products as in th e same manner for domestic like
products. Examining the Argentine minimum specific duty system, the Appellate Body of Argentina
– Textiles and Apparel found that the concerned system is in violation of Article II of the GATT 1994,
for the reason that its structure and design remains the possibility that the ad valorem equivalent of the
customs duty collected would be in excess of the bound ad valorem rate. 97 By analogy, since the
structure and design of the SUAD remains the po ssibility that the SUAD may not offset these local
taxations, the SUAD should be found as the violation of Article III of the GATT 1994.
5.54 In addition to the above, Japan would like to point out there is a factual basis supporting
Japan's legal argument. Japanese industries are facing great difficulties in India because of the SUAD.
According to the industries, internal taxes such as VAT, CST and local tax or charges such as Octroi
are levied on imported goods after customs clearance and therefore SUAD is applied in addition to,
and does not offset, such internal taxes. Japan cannot emphasize enough the point that the India's
theoretical arguments totally contradict actual experience of various Japanese companies.

89 Ibid, para. 67.
90 Article 5(1) of CST Act.
91 India's first written submission, para. 71.
92 Ibid. para. 67.
93 Article 6(1) of CST Act.
94 Article 286 of the Constitution of India.
95 WTO Trade Policy Review Report of India, Reply to Japan's question on Special Additional Duty,
WT/TPR/M/182/Add.1, p.188.
96 India's first written submission, para. 79.
97 Appellate Body Report, Argentina – Textiles and Apparel, paras. 48-54.

5.55 Based on the above stated reasons, Japan requ ests the Panel to examine whether the SUAD
offset VAT, CST, and/or other local taxes charg es or not, and if the S UAD does not counter-balance
these internal duties, to find that the SUAD is im posed on the imported goods "in excess of" the taxes
and charges imposed upon like domestic goods in violation of Article III:2 of the GATT 1994.
3. Alternatively, Article II of the GATT 1994 applies to the SUAD
5.56 Considering the possibility that the SUAD is categorized as customs duties rather than
internal duties, Japan also would like to present its view on its consistency with Article II of the
GATT 1994.
5.57 As pointed out by India, the key provision for the discussion on the consistency of the SUAD
with Article II of the GATT 1994 is Article II:2(a). 98 Following Article II:2(a), if the SUAD is
"imposed consistently with the provisions of pa ragraph 2 of Article III", Article II would not be
applied to the SUAD.
5.58 As discussed above 99, Japan concerns that the SUAD would not offset VAT, CST, and/or
other local taxes charges, and would violate Ar ticle III:2 of the GATT 1994. If that is the case,
Article II of the GATT 1994 will be applied to the SUAD. In other words, the SUAD does not fall
into "a separate category of duties" described in Article II:2(a) of the GATT 1994 and should be
qualified either as "Ordinary Customs Duties (OCDs)" or as "Other Duties or Charges (ODCs)".100
5.59 The Panel in Chile – Price Band System found that OCDs differ from ODCs, which applied
on the basis of factors of an exogenous nature such as fluctuating world prices. 101 Although there
could be some spaces for discussions on the character ization of the SUAD, Japan considers that the
SUAD is inconsistent with Article II of the GATT 1994, regardless of whether it is characterized as
OCDs or as ODCs.
5.60 As claimed by United States, the SUAD is impo sed on the broad range of products including
those products covered by Ministerial Declarati on on Trade in Information Technology Products
(ITA).102 The ITA provides for participants, including India, to "bind and eliminate customs duties
and other duties and charges of any kind, within the meaning of Article II:1(b) of the General
Agreement on Tariffs and Trade 1994" 103 with respect to all the IT products covered by the ITA (ITA
products). In other words, they are to eliminate th e duties, either in the form of OCDs or ODCs, on
ITA products.
5.61 Admittedly the basic tariff rates of India for IT A products are zero and no duties or charges is
described in its Schedule as ODCs. On the other hand, the Customs Tariff Act, 1975 and its related
customs notifications do not exempt ITA products from the SUAD. As a result, importation of ITA
products into India is subject to customs duty i. e. 4 per cent of the assessable value of imported
products. In case that the SUAD, regardless of its characterization either as OCDs or as ODCs, does
not counter-balance VAT, CST and other local duties and is inconsistent with Article III:2 of the

98 Article II:2(a) of the GATT 1994 provides that "a charge equivalent to an internal tax imposed
consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect
of an Article from which the imported product has been manufactured or produced in whole or in part" shall be
exempted from the obligation of Article II of the GATT 1994.
99 Third party submission of Japan, para. 9.17.
100 India's first written submission, para. 52.
101 Panel Report, Chile – Price Band System, paras. 7.51-7.52.
102 Exhibit US-1A of US first written submission.
103 Ministerial Declaration on Trade in Info rmation Technology Products, WT/MIN(96)/16,
13 December 1996, para. 2.

GATT 1994, the imposition of the SUAD on ITA products is inconsistent with Article II of the
GATT 1994.
4. Conclusion
5.62 For the foregoing reasons, Japan concerns that India's SUAD could be highly possibly
inconsistent either with Article II or with Article III:2 of the GATT 1994.
E. VIET NAM
5.63 Viet Nam confirms that it has a systematic inte rest on the interpretation and application of the
GATT, in particular, to the Indian tariff system under the review of this Panel. Viet Nam will focus on
the following three questions, without prejudice to its position on any other one not addressed on this
occasion.104
• Should the Panel have the authority to rule on Additional Duties (AD) which India
claims have been removed in practice;

• The distinction between mandatory and discretionary legislation subject to challenge;
and

• Indian Additional Duties in relation to the provision of Article II:2(a).

1. Withdrawal of additional duties after Panel establishment
5.64 Viet Nam is of the opinion that, although th e Panel is not precluded from considering the
measure, within its terms of reference, as it existe d at the time of the establishment of the Panel, the
ultimate objective of this Panel is to recommend that the Dispute Settlement Body request the
defendant to bring such measure, if and only if inconsistent with the WTO Agreement, into
conformity with its obligations under the GATT 1994. Hence, where the measure in question has
actually ceased to exist, the Panel should consider whether it is worth making findings, in the
particular case of Additional Duties, for the purposes of resolving this current dispute.
2. Challengeable nature of mandatory vs. discretionary legislation
5.65 As indicated by India in its first written s ubmission dated 31 Augus t 2007, the Appellate
Body held in its report on US – 1916 Act that:
"[W]hereas legislation which merely gave the discretion to the executive authority of
a contracting party to act inconsistently with the General Agreement could not be
challenged as such; only the actual applicati on of such legislation inconsistent with
the General Agreement could be subject to challenge."
5.66 It is obvious that those statutes empowering solely the Central Government with the discretion
to charge such duties, fix the rate and to issue Customs Notifications to give effect to the discretionary
power vested in the executive branch, cannot be cons idered mandating actions inconsistent with the
GATT Agreement. Therefore, it would be appropriate to request the Panel to limit its examination to
the identified Customs Notifications that impo se the AD and the SUAD in line with the practice
followed by GATT Panels' and Appellate Body's jurisprudences.

104 Viet Nam's oral statement.

3. Indian additional duties in relation to the provision of Article II:2(a)
5.67 In the view of Viet Nam, it is clear that Article II:2(a) allows Member to impose duties in
excess of their bound commitments if such duties ar e equivalent to internal taxes which are also
applied in a manner consistent with Article III:2 of the GATT 1994: not in excess of those applied to
like domestic products and, moreover, not affo rding protection to domestic production. The
consideration of the respective duties in question in relation to Article II:2(a) should be based on the
findings of the actual mechanism operating such du ties in practice. Given the removal of AD in
reality, the question is how the Panel is going to judge a measure in violation of the GATT Agreement
based just on the descriptive facts from the past, wh ile the objective of the judgment is to put an end
to the measure if found not to be consistent with the GATT Agreement. For the SUAD, with the
duties subject to legal binding of less than or equal to 4 per cent of the assessable price, to counter
balance taxes such as Sales Tax, Value Added Tax, local tax or any other charges as defined under the
Indian Law, it merits revisiting the current jurisprudences on the de minimis level of dissimilarity
taxation or the de minimis level allowed by Notes and Supplementary Provisions to Article III of the
GATT, Ad Article III, paragraph 3 – as noted in foot note 51 of the first written submission of India of
31 August 2007. For the argument that the AD ceased to have an effect in practice and the SUAD is
within the de minimis level of dissimilar taxation, if exact equivalence is challenged, it is not
necessary to consider the criteria of affording pr otection to domestic produc tion under Article III:1 –
second sentence. Therefore, it seems to Viet Nam th at the SUAD, which is in turn the only measure
for this Panel's reflection, should be found consistent with Article II:2(a) of the GATT 1994.
VI. INTERIM REVIEW
6.1 Pursuant to Article 15.3 of the DSU, the fi ndings of the final panel report must include a
discussion of the arguments made by the parties at the interim review stage. This Section of the Panel
Report provides such a discussion. As Article 15.3 ma kes clear, this Section forms part of the Panel's
findings.
A. B
ACKGROUND
6.2 The United States and India separately requested an interim review by the Panel of certain
aspects of the Interim Report issued to the Parties on 5 February 2008. 105 Neither Party requested an
interim review meeting. However, the Parties ma de use of the opportunity to submit further written
comments on each others' requests. 106 On 20 March 2008, the Panel issued its Final Report to the
Parties on a confidential basis.
B. PARTIES' REQUESTS FOR CHANGES TO THE INTERIM REPORT
6.3 Below, the Panel will address the Parties' requests for ch anges to the Interim Report. Unless
otherwise indicated, the references below are to pa ragraph or footnote numbers appearing the in the
Interim Report.
1. Comments by the United States
6.4 As an initial matter, the Panel observes that the United Stat es in its comments has made a
number of incorrect or misleading statements a bout the Panel's interim findings. The Panel has
clarified its findings in response to comments wh ere it found it appropriate to do so, but otherwise
considers that they are sufficiently clear and speak for themselves. Th e fact that the Panel has chosen
not to respond to relevant statements each time obviously does not imply that the Panel agrees with

105 Letters of the Parties of 19 February 2008.
106 Letters of the Parties of 4 March 2008.

these statements. Separately, the Panel notes that India has commented on some, but not all of the US
comments.
6.5 The United States requests that at para. 1.2 the Panel add a sentence to reflect which
Members requested to be joined in the consultations and which Members were accepted. India
opposes the change, noting that the United States was already given an opportunity to comment on
this previously.
6.6 The Panel has made appropriate changes at para. 1.2, even though this type of information is
rarely included in panel reports.
6.7 The United States requests that immediately following para. 1.5 the Panel refer to the panel
established by the DSB in DS352 at the re quest of the European Communities. India opposes the
change, noting that the United States was already given an opportunity to comment on this previously.
6.8 The Panel has added a new para. 1.9.
6.9 The United States requests that at para. 2.1 the Panel modify the second bullet point.
6.10 The Panel has made appropriate changes to para. 2.1.
6.11 The United States requests an addition to para. 7.3 for clarification. India opposes the US
request.
6.12 The Panel has made appropriate changes to the paragraph in question.
6.13 The United States requests the Panel to provide further de tails on its allegation at para. 7.5.
India opposes the US request.
6.14 The Panel has made appropriate changes to the paragraph in question.
6.15 The United States requests additions to para. 7.8, asserting that the paragraph appears
incomplete and could be read to suggest that the applied rates of BCD for imports other than alcoholic
beverages are typically set out in the First Schedule. India opposes the US request, arguing that the
Panel has correctly recorded the factual position.
6.16 The Panel has made appropriate changes to the paragraph in question.
6.17 The United States requests that in the first sentence of para. 7.9 the Panel refer to "any duty
of customs". India opposes the US request.
6.18 The Panel does not find it appropriate to make th e change requested. The paragraph in
question deals with the BCD, as is made clear at para . 7.8, and the relevance of Section 25 to the AD
and the SUAD is discussed later in the findings.
6.19 The United States requests that at para. 7.11 the Panel refer to the relevant statutory basis.
India opposes the US request.
6.20 The Panel has made appropriate changes to the paragraph in question.
6.21 The United States requests additions to the second and last sentence of para. 7.19 in order to
reflect more accurately the US claims. India opposes the US request.

6.22 The Panel has made appropriate changes to the paragraph in question.
6.23 The United States requests that for accuracy and completeness the Panel modify the last
sentence of para. 7.24 and add a new sentence at the end of that paragraph. India opposes the US
request.
6.24 For greater clarity, the Panel has made an addition to the last sentence but does not see a need
to add the proposed additional sentence.
6.25 The United States requests that para. 7.26 refer to India's acknowledgement that Customs
Notification 32/2003 remains in force despite the fact that by virtue of Customs Notification 82/2007
the AD on alcoholic liquor is no longer collected. India opposes the US request.
6.26 The Panel has made an appropriate addition to the paragraph in question.
6.27 The United States requests the Panel to clarify at para. 7.28 that it has challenged the AD on
alcoholic liquor and the SUAD "as such". India opposes the US request.
6.28 The Panel notes that para. 7.28 corresponds almost literally to the language used by the
United States in its own submissions.
107 Nonetheless, the Panel has made appropriate changes to
paras. 7.26 and 7.27.
6.29 The United States requests that the Panel add to the summaries of the US position provided
by the Panel at paras. 7.40, 7.45 and 7.51, to reflect fully the US position. India opposes the US
requests.
6.30 The Panel recalls that the paragraphs in questio n are intended to be summaries of the US
position. It is clear, therefore, that they do not reflect each and every argument and statement made
by the United States. At any rate, the Panel does not consider it appropriate to add the new sentences
suggested by the United States.
6.31 The United States requests that the Panel change, and add to, the summary of the US position
provided by the Panel at para. 7.52, to clarify and reflect fully the US position. India opposes the US
request.
6.32 The Panel has made appropriate changes to clarify the existing summary but does not find it
appropriate to add the new sentence suggested by the United States.
6.33 The United States requests that at para. 7.54 the Panel add a reference to Section 3(1) of the
Customs Tariff Act and clarify that the AD on alcoholic liquor could also be levied at specific rather
than ad valorem rates. India opposes the US request.
6.34 The Panel does not find it necessary, in the specific c ontext of para. 7.54, to refer to Section
3(1). The Panel has made the suggested clarification.
6.35 The United States requests that the Panel add to its summary of the US position at para. 7.81.
India opposes the US request.
6.36 The Panel does not find it appropriate to add the suggested new sentence to its argument
summary. At any rate, the United States has not provided any supporting evidence.

6.37 The United States requests that the Panel change the summary of the US position provided
by the Panel at para. 7.84, to clarify the US position. This request is similar to the request regarding
para. 7.52. India opposes the US request.
6.38 The Panel has made appropriate changes to clarify the summary.
6.39 The United States requests that in the second sentence of para. 7.90 the Panel add "according
to India", to avoid confusion. India opposes the US request.
6.40 The Panel has made appropriate changes to the paragraph in question. For greater
correctness, the Panel also added a clarification at para. 7.91.
6.41 The United States requests that in order to reflect more accurately the US argument, the
Panel modify the fourth and fifth sentences of para. 7.104. India opposes the US request.
6.42 The Panel does not find it appropriate to make th e requested changes at the paragraph in
question. The Panel considers that its summary of the US argument is not misleading and adequately
reflects the US position.
6.43 The United States requests that the Panel add the phrase "as such" a second time in the
second sentence to para. 7.105. India opposes the US request.
6.44 The Panel sees no need to make the requested change.
6.45 The United States requests that the Panel add the phrase "as such" a second time in the
second sentence to para. 7.106. India opposes the US request.
6.46 The Panel sees no need to make the requested change.
6.47 The United States suggests that the Panel move the abbreviation "ODCs" to the end of the
first sentence of para. 7.125. India opposes the US suggestion.
6.48 The Panel does not find it appropriate to make the suggested change.
6.49 The United States requests that at para. 7.145 the Pane l essentially add the US reply to Panel
Question No. 68 in its entirety. India opposes the US request.
6.50 The Panel does not consider that it is warranted to re flect the US reply in full. This said, in
analyzing the US interpretation, the Panel has considered, and kept in mind, the full US reply to Panel
Question No. 68.
6.51 The United States requests that at para. 7.148 the Panel modify footnote 187 by adding a
clarification and an additional sentence at the end. India opposes the US request.
6.52 In view of the US comment, the Panel has found it appropriate to merge footnotes 187 and
188. The Panel finds it unnecessary to add the suggest ed new sentence. At any rate, the US view is
already reflected at para. 7.120.
6.53 The United States requests the Panel to modify para. 7.161 as it allegedly suggests,
incorrectly in the US view, that the United States did not seek to establish that the AD on alcoholic
liquor and the SUAD fall outside the scope of Article II:2(a). The United States also notes that it
collected Exhibits US-23, -27, -28 and -29 relating to State VATs after India had identified the
particular State-level taxes that the SUAD allegedly offset. India opposes the US request.

6.54 The Panel has made appropriate changes to para. 7.161 in response to the US comments.
Regarding the US assertion that it was able to colle ct information on State-level VAT only after India
had identified this type of tax as being one of those the SUAD is applied to offset, we recall that CN
19/2006 and Section 3(5) explicitly re fer to "value added tax". We ha ve already explained that this
reference cannot reasonably be read to include th e so-called Central VAT. In addition, the Panel
notes that the findings already address the US argument that the AD on alcoholic liquor and the
SUAD do not identify internal taxes to which they are equivalent.
6.55 The United States requests that the Panel delete foot note 207 which is attached to para.
7.162. Further, the United States requests that the Panel add a new sen tence to para. 7.162 to reflect
the US position more accurately. India opposes the US request.
6.56 In response to the United States' request, the Panel has deleted elements of footnote 207. The
Panel did not find it appropriate to add a new sente nce to para. 7.162, but has added an appropriate
sentence to para. 7.160. Additionally, in response to this US comment, it might be useful to point out
that this Panel's approach is consistent with that of the Article III:2 panel in Argentina – Hides and
Leather. Footnote 229 of the Interim Report addresses in what way that case presented relevant
similarities to this case. The panel in that case di d not require Argentina initially to make a prima
facie case that RG 2784 was "equivalent in nature" to RG 3543. Rather, in that case the European
Communities failed to persuade the panel that RG 2784 was not "equivalent in nature" and the panel
proceeded on the basis of the European Commun ities' alternative claim. See Panel Report, Argentina
– Hides and Leather, paras. 11.146 – 11.154.
6.57 The United States requests that the Panel add a new sen tence to para. 7.164 to better reflect
what the United States has argued. India opposes the US request.
6.58 The Panel does not find it appropriate to add the suggested sentence to the paragraph in
question. The Panel also notes that it has added a new sentence to para. 7.160.
6.59 The United States requests that the Panel add an iden tical new sentence at the end of both
paras. 7.175 and 7.200.
6.60 The Panel does not find it appropriate to make the suggested additions. In any event, para.
7.174 already reflects the relevant US point.
6.61 The United States comments upon para. 7.215, requesting that the Panel offer specifically
suggested new findings of fact which would, in the US view, allow for an evaluation, in the
alternative, of India's contention that the AD on alcoholic liquor and the SUAD are imposed
consistently with Article III:2 and th e US rebuttal to that contention. India opposes the US request,
considering it unwarranted and unsupported by any legal obligation.
6.62 The Panel declines the US request. In the circum stances of the present case, the Panel does
not consider it appropriate to make the suggested new and abstract findings of fact. 108 To begin with,
the United States has not explained why and how the specific findings it is seeking would in fact be
sufficient. Even if they were, some of the s uggested findings appear to concern issues which the
findings section of the Interim Report already touch es upon. Other suggested findings concern issues
upon which the Parties have expressed contrary views. As a result, the Panel would need to provide
additional analysis to support any new factual finding s, and the Parties would have no opportunity to
seek a review of that additional analysis and/or of the new factual findings reached by the Panel.

108 The Panel notes, however, that some of the information the United States requests the Panel to add
is already contained in the findings section of the Interim Report.

6.63 The United States requests that the Panel make a small clarification at para. 7.218 and add a
new sentence at the end. India opposes the US request.
6.64 The Panel has made the requested clarification, but does not consider it appropriate to add the
new suggested sentence.
6.65 The United States requests that the Panel add new sentences to its summary of the US
position at para. 7.224. India opposes the US request.
6.66 The Panel does not find it appropriate to add the suggested new sentences at para. 7.224. At
any rate, the point is already noted at para. 7.201.
6.67 The United States requests that the Panel add new sentences to its summary of the US
position at para. 7.226. India opposes the US request.
6.68 The Panel does not find it appropriate to add the suggested new sentences at para. 7.226. The
Panel notes that the point concerning the stated purpose is already noted at para. 7.220. Nevertheless,
the Panel has added a new footnote to para. 7.226 and made requested editorial changes.
6.69 The United States requests that the Panel add new sentences to its summary of the US
position at para. 7.227. India opposes the US request.
6.70 The Panel does not find it appropriate to add the s uggested new sentences. Nevertheless, the
Panel has made an appropriate change at the paragraph in question.
6.71 The United States requests that the Panel clarify para. 7.238.
6.72 The Panel has made appropriate changes to para. 7.238.
6.73 The United States requests that at para. 7.247 the Panel revise its analysis of whether the AD
on alcoholic liquor may be levied only if excise du ty is leviable on like domestic products. The
United States considers that the current analysis is not supported by the evidence before the Panel.
The United States further argues that there is inform ation other than that relied upon by the Panel to
support the conclusion that the AD on alcoholic liquor is applied as a matter of course on importation.
India opposes the US request, arguing that the analysis is supported by evidence before the Panel.
6.74 The Panel does not find it appropriate to revise the analysis in question. The United States
asserts that the Panel relies upon statements by India which do not concern the AD on alcoholic liquor
but the AD on other products. As an initial matter , it should be recalled, in response to the US
assertion concerning "reliance", that the Panel "notes" the relevant statements of India and then states
that these statements appear to be consistent w ith CN 32/2003 and the proviso to Section 3(1).
Furthermore, at para. 3.5 of India's second oral st atement and para. 5 of In dia's comments on the US
reply to Panel Question No. 43 India is referring to the "AD". Since the United States is challenging
the AD on alcoholic liquor and not the AD on othe r products, the Panel finds unconvincing the US
interpretation of India's statements. It is highl y implausible that India would seek to rebut US
arguments concerning the AD on alcoholic liquor by making counter-arguments that exclusively
concern the AD on other products. Consistently with the fact that India referred to the "AD" without
qualification, the Panel thinks that in the specific context of the aforementioned paragraphs India is
referring to the AD in general, because in relation to the point it has made at the relevant paragraphs
there is no difference, in India's view, betw een the AD on alcoholic liquor and the AD on other
products. In this connection, the Panel has already addressed the relevance of India's reference to the
Supreme Court decision in Hyderabad Industries Ltd. However, in the light of the US comments, the
Panel found it appropriate to clarify its discussion of the Supreme Court decision at para. 7.247 as

well as at para. 7.280. The Panel also found it appr opriate, in view of the US comments, further to
clarify the introductory sentence of para. 7.247. A dditionally, in response to US comments, the Panel
has made more explicit, at para. 7.247, other elements supporting the Panel's conclusion. On the other
hand, the Panel does not find it appropriate to accede to the US requests that it delete the references to
India's statements or to indicate that they concern products other than alcoholic liquor.
6.75 The United States alleges that there are key differences in terms of text and operation between
the AD on alcoholic liquor as compared to the AD on other products. According to the United States,
while there appears to be a built-in mechanism for India to ensure th at the AD on products other than
alcoholic liquor is "equal to" the rate of central excise duty on like domestic products and levied only
in instances where like domestic products are subject to the central excise duty, there is no mechanism
ensuring that the AD on alcoholic liquor "has regard to" to the rate of State excise duty on a like
domestic products and is levied only in instances where the like domestic product is subject to State
excise duty. The Panel is not persuaded by this argument. The fact that the rate of the AD on
alcoholic liquor is specified "havin g regard to" the State excise duty for the time being leviable on a
like State-manufactured alcoholic liquor neither de monstrates nor logically implies that the AD on
alcoholic liquor may be levied even where no excise duty is leviable on a like domestically
manufactured alcoholic liquor. The issue of the conditions under which th e AD may be levied on
alcoholic liquor or other products and the issue of th e rate at which it may be levied, once the relevant
conditions are satisfied, are separate, sequential issues. In relation to the former issue, as indicated at
para. 7.247, both the opening paragraph of Section 3(1) and the proviso refer to "the excise duty for
the time being leviable". Similarly, the fact that there may not be a mechanism in place which
"ensures" that India's Central Government could not , in fact, impose the AD on alcoholic liquor even
where no State excise duty is leviable on like domestically manufactured alcoholic liquor obviously
does not imply that the Central Government would have the right, as a matter of Indian law, to impose
the AD on alcoholic liquor in such situations.
6.76 The United States requests that at para. 7.248 the Pane l make consequential changes based
upon the US comments on para. 7.247. India opposes the US request, arguing that the paragraph
reflects a correct interpretation of Indian law.
6.77 The Panel does not find it appropriate to make changes at para. 7.248. This is in view of the
Panel's response to the US comments on para. 7.247.
6.78 The United States requests that the Panel add new sentences to para. 7.252. India opposes
the US request.
6.79 The Panel does not consider it appropriate to a dd the sentences suggested by the United
States. Nevertheless, the Panel has added new sente nces at the end of para. 7.252 in response to the
US request.
6.80 The United States requests that between para. 7.251 and para. 7.252 the Panel add a new
paragraph to set the context for the Panel's discussi on of Sections 12 and 25 of the Customs Act.
India opposes the US request.
6.81 The Panel does not find it necessary to add the suggested paragraph to set the context. At any
rate, the relevant paragraph appears to duplicate what is already contained at paras. 7.252 and
following.
6.82 The United States requests that the Panel delete the re ference in para. 7.253 to the United
States since, in its view, the paragraph misstates the US position. India opposes the US request,
saying that the United States seems to be distancing itself from the position taken during the course of
the proceedings.

6.83 The Panel does not find it appropriate to make the suggested change. The Panel does not
consider that it has misstated the US position sin ce the paragraph in question reflects a US argument
set out at para. 45 of the US first written submission. Nevertheless, the Panel has made a small
editorial change. In view of the change made to para. 7.252, the Panel has also made a consequential
change at the beginning of para. 7. 253. Furthermore, the Panel noticed an omission by oversight in
the footnote to para. 7.253, which has been corrected.
6.84 The United States requests that at para. 7.263 the Panel clarify the reference to the US reply
to Panel Question No. 19. The Unite d States also requests that the Panel modify the last footnote of
the paragraph. India opposes the US request.
6.85 The Panel has made appropriate changes at para. 7.263 and in the footnote in question.
6.86 The United States requests that the Panel at para. 7. 277 complement its reference to the
purpose a Member attributes to a measure. India opposes the US request.
6.87 The Panel does not consider it appropriate, in the sp ecific context of para. 7.277, to refer to
the characterization of a duty under domestic law. In fact, neither did the United States when making
the relevant point in its first written submission, at footnote 71. At footnote 71 the United States
refers to avoiding commitments, not through attribut ion of an appropriate purpose, but rather through
a Member's own characterization of a duty under its domestic law. However, the relevant US
argument relates to the purpose of the AD on alcoholic liquor and not its characterization under Indian
law. Nonetheless, the Panel has made a clarification in the paragraph in question.
6.88 The United States requests that the Panel modify para. 7.278 as it is allegedly based on the
assumption that the proviso to Section 3(1) merely authorizes the Central Government to levy the AD
on alcoholic liquor. India opposes the US request.
6.89 The Panel has made an appropriate change to the paragraph in question.
6.90 The United States requests that at para. 7.281 the Pane l make consequential changes based
upon the changes requested by the United States at paras. 7.247 and 7.248. India opposes the US
request.
6.91 Since the Panel has not substantively revised its analysis at para. 7.247, the Panel does not
find it appropriate to modify para. 7.281.
6.92 The United States offers a comment on para. 7.284. Based upon that comment, the United
States requests changes to paras. 7.285 and 7.287. The United States requests the Panel to reflect that,
in the US view, States have the power to impose duties and taxes on alcoholic liquor other than excise
duties. India opposes the US request.
6.93 The Panel begins with the US comment on para. 7.284. The first point to be made in
response is that it is clear from context that the Panel uses the term "duties of excise", or "excise
duties", to refer to those at issue in CN 32/2003 and the proviso to Section 3(1). Furthermore, since
the United States now comments on an aspect of Indian constitutional law to which the Parties had not
paid much attention before, the Panel has found it appropriate to address this aspect in two new
paragraphs added immediately after para. 7.286. The Panel has also made consequential changes at
paras. 7.286 and 7.287. In additio n, for consistency, the Panel has made small adjustments at paras.
7.288 (in view of para. 7.290) and 7.287 (in view of para. 7.292). The latter change resulted in a
parallel change to para. 7.381 (in view of para. 7.387). The Panel has also made an appropriate
change to para. 7.285 and a conse quential change to para. 7.284. Furthermore, having made changes
to this section of the findings dealing with the AD on alcoholic liquor, the Panel found it appropriate

to make corresponding changes to the parallel secti on dealing with the SUAD. Such changes have
been made at paras. 7.378 and 7.387.
6.94 The United States requests that the Panel modify para. 7.288 in accordance with the
modifications it has requested in relation to paras. 7.247 and 7.248. India opposes the US request.
6.95 The Panel does not agree with how the United States has characterized the contents of para.
7.287, but has nonetheless made a small change for clarification.
6.96 The United States requests that the Panel clarify or e liminate the reference to "corresponding
taxes or charges" at paras. 7.290 and 7.292. India opposes the US request.
6.97 The Panel has removed the reference in question at paras. 7.288, 7.290 and 7.292 and added a
new footnote to para. 7.290. The Panel has made parallel changes in the section dealing with the
SUAD, at paras. 7.382, 7.385 and 7.387.
6.98 The United States comments on paras. 7.296 and 7.297, requesting that the Panel offer
specifically suggested new findings of fact which would, in the US view, allow for an evaluation, in
the alternative, of the United St ates' contention that the AD on alc oholic liquor results in ordinary
customs duties or ODCs in excess of those set out in India's Schedule of Concessions. India opposes
the US request, arguing it would be "futile" for the Pane l to continue with the analysis of facts after
having found that the United States had not establis hed that the AD on alcoholic constituted an
ordinary customs duty.
6.99 The Panel declines the US request. In the circum stances of the present case, the Panel does
not consider it appropriate to make the specifically suggested new findings of fact.109 The Panel notes
the fact that the requested new findings of fact re late to claims based upon WTO provisions the Panel
has determined are not applicable as well as the late stage in the proceedings.
6.100 The United States requests that at para. 7.300 the Panel make a clarification to its summary
of the US position and add a new sentence. India opposes the US request.
6.101 The Panel has added the requested clarification, but does not find it appropriate to add the
suggested new sentence.
6.102 The United States requests that the Panel add new sentences to its summary of the US
position at para. 7.306. India opposes the US request.
6.103 The Panel does not find it appropriate to add the suggested new sentences at para. 7.306. At
any rate, the point is already noted at para. 7.201.
6.104 The United States requests that the Panel add several additional sentences to its summary of
the US position at para. 7.308. India opposes the US request.
6.105 The Panel has added to its summary of the US position at para. 7.308, as appropriate.
6.106 The United States requests that at para. 7.314 the Pa nel add an additional sentence to its
summary of the US position. India opposes the US request.

109 The Panel notes that some of the information the United States requests the Panel to add is already
contained in the findings section of the Interim Report.

6.107 The Panel does not find it appropriate to add the suggested sentence at para. 7.314. The point
concerns replies by India to Panel questions.
6.108 The United States requests that between paras. 7.314 and 7.315 the Panel add a new
paragraph to its summary of the US position. India opposes the US request.
6.109 The Panel does not find it appropriate to add the suggested new paragraph after para. 7.314.
The Panel refers to Section C.2 where it has stat ed that it sees no need to examine whether the
relevant statutory provisions are mandatory.
6.110 The United States requests that at para. 7.324 the Panel add a new sentence to its summary of
India's position. India opposes the US request if not appropriately supplemented.
6.111 The Panel does not find it appropriate to add the suggested new sentence at para. 7.324. The
relevant point is already reflected at para. 7.364.
6.112 The United States requests that at para. 7.325 the Pane l make a clarification and add a new
sentence to its summary of India's position. India opposes the US request if not appropriately
supplemented.
6.113 The Panel has made the requested clarification at para. 7.325, but does not find it appropriate
to add the suggested new sentence. The relevant point is already reflected at para. 7.364.
6.114 The United States requests that at para. 7.334 the Pane l revise its analysis of whether the
SUAD may be levied only if relevant internal ta xes are leviable on a like domestic product. The
United States further argues that there is inform ation other than that relied upon by the Panel to
support the conclusion that the SUAD is applied as a matter of course on importation. India opposes
the US request, arguing that the United States has not accurately reflected the position.
6.115 The Panel does not find it appropriate to revise the conclusion of the analysis in question. In
response to the US assertion that the Panel's references to para. 3.5 of India's second oral statement
and para. 5 of India's comments on the US reply to Panel Question No. 43 are in error, because they
allegedly do not refer to the SUAD, the Panel notes th at at the paragraphs in question India is clearly
referring to the "AD" and the "SUAD". The fact that the last sentences of these paragraphs talk about
the "AD" only is linked to the fact that the attach ed footnotes refer to the Supreme Court decision in
Hyderabad Industries Ltd. which dealt with the "AD". The Unite d States further asserts that there are
situations where the SUAD is imposed on imports when State VAT or the CST is not imposed on like
domestic products. The Panel notes in this respect th at the Panel at para. 7.334 refers to "relevant
internal taxes" and not merely to State VAT or the CST. Furthermore, footnote 351 indicates that it
may be sufficient for one State to levy relevant intern al taxes. As an additio nal matter, the references
provided by the United States (US second written subm ission, para. 58; US second oral statement,
para. 13) concern hypothetical examples involving a rate of State VAT, or CST, of nil (or "zero").
The United States has not provided any evidence that the SUAD was actually imposed in a situation
where no State VAT or CST was imposed on the like domestic product. As the Panel has already
indicated, there is no evidence on the record that as of the date of establishment of the Panel any State
has nil-rated one or more products included in the list of "goods of local importance". Nor has the
United States offered evidence of a product not on that list, but nil-rated by any State and not subject
to CN 20/2006. Finally, the United States assumes that for purposes of Indian law a nil (or "zero")
rate of State VAT or CST would mean that no State VAT or CST is "leviable". There is, however, no
evidence on the record to support such a conclusion. Indeed, to us, a nil rate rather suggests that the
relevant tax is leviable though no tax would be collected because th e rate for the time being is nil. It
is perhaps arguable that in the case of products outside the VAT system, like tobacco products, no
State VAT is leviable, but India has said that in resp ect of such products a State sales tax is leviable.

Notwithstanding the foregoing, the Panel has made changes at para. 7.334 which correspond to those
it has made in response to US comments on para. 7.247.
6.116 The United States requests that at para. 7.335 the Pane l make consequential changes based
upon the US comments on para. 7.334. India opposes the US request.
6.117 The Panel does not find it appropriate to make changes at para. 7.335. This is in view of the
Panel's response to the US comments on para. 7.334.
6.118 The United States requests that between paras. 7.337 and 7.338 the Panel add a new
paragraph to set the context for the Panel's discu ssion of Section 25 and Section 12 of the Customs
Act. India opposes the US request, unless India's position is also presented.
6.119 The Panel does not find it necessary to add the suggested new paragraph to set the context.
At any rate, the relevant paragraph appears to duplic ate what is already contained at paras. 7.338 and
following.
6.120 The United States requests that the Panel add new sen tences to para. 7.338. The United
States further requests that the Panel delete the reference in the penultimate sentence to the United
States since, in its view, the paragraph misstates the US position. India opposes the US request,
unless India's position is also presented.
6.121 The Panel does not consider it appropriate to a dd the sentences suggested by the United
States. Nevertheless, the Panel has added new sente nces at the end of para. 7.338 in response to the
US request. Furthermore, the Panel does not consid er that it has misstated the US position since the
paragraph in question reflects a US argument set out at para. 45 of the US first written submission.
Nevertheless, the Panel has made small editorial changes.
6.122 The United States requests that at para. 7.347 the Panel clarify the reference to the US reply
to Panel Question No. 19. India opposes the US request.
6.123 The Panel has made appropriate changes at para. 7.347.
6.124 The United States requests that at para. 7.350 the Pane l modify the fifth and sixth sentences
and that at para. 7.351 the Panel modify the second sentence. India opposes the US request, unless it
is appropriately supplemented.
6.125 The Panel does not find it appropriate to make the suggested modifications. At any rate, the
relevant point is already made elsewhere in the findings.
6.126 The United States requests that at para. 7.357 the Panel modify the reference to India's term
"pegged". India opposes the US request.
6.127 The Panel has made appropriate changes at para. 7.357. A consequential change has been
made to the penultimate footnote as well as at para. 7.360.
6.128 The United States requests that in footnote 391 to para. 7.358 the Panel add a new sentence
immediately preceding the penultimate sentence. India opposes the US request.
6.129 The Panel does not find it appropriate to add th e suggested sentence to footnote 391.
Nevertheless, the Panel has made an appropriate clar ification in the last sentence of the footnote in
question and added a new sentence at the end of the footnote.

6.130 The United States requests that at para. 7.361 the Panel add several new sentences. India
opposes the US request.
6.131 The Panel does not find it appropriate to add the suggested additional text at para. 7.361. At
any rate, the basic point is already covered in the same paragraph. Nevertheless, the Panel has made a
clarification in the last sentence.
6.132 The United States requests that at para. 7.363 the Panel add additional points to reflect fully
the record. India opposes the US request.
6.133 The Panel does not find it appropriate to add the sugg ested points at para. 7.363. The Panel
notes that one of the points is already reflected at para. 7.364.
6.134 The United States requests that at para. 7.364 the Panel add two additional points. India
opposes the US request.
6.135 The Panel does not find it appropriate to add the two points suggested by the United States.
At any rate, para. 7.367 already addresses the relevant issue. The Panel has made editorial changes at
para. 7.367.
6.136 The United States requests that at para. 7.365 the Panel add two additional points. India
opposes the US request.
6.137 The Panel does not find it appropriate to add the two points suggested by the United States.
Indeed, it is unclear what these points would add to the existing paragraph.
6.138 The United States requests that the Panel modify para. 7.368 to reflect the US assertion that
there are, in fact, situations where the SUAD is imposed on imported products when relevant internal
taxes are not leviable on the like domestic products. India opposes the US request.
6.139 The Panel does not find it appropriate to change the paragraph in question. At any rate, as
para. 7.368 itself states, the issue is already further addressed elsewhere, including at para. 7.383.
6.140 The United States requests that at para. 7.370 the Panel complement its reference to the
purpose of a duty in the second sentence. India opposes the US request.
6.141 The Panel does not find it appropriate, in the specific context of para. 7.370, to add the
suggested text relating to the characterization of a duty under domestic law to the second sentence. In
fact, the United States itself dispensed with the text it now requests to be added when it made the
relevant point in its first written submission, at footnote 82.
6.142 The United States requests that at paras. 7.378, 7.380 and 7.381 the Panel clarify the
situation to which the Panel's findings refer. India opposes the US requests.
6.143 The Panel does not see a need to clarify the paragra phs in question. At any rate, relevant
discussion is already contained in previous paragraphs, including paras. 7.364 and 7.365.
6.144 The United States requests that at para. 7.382 the Panel clarify the reference to "equivalent
transactions". India opposes the US request.
6.145 The Panel does not see a need to clarify the paragraph in question. At any rate, the concept is
already discussed at para. 7.364.

6.146 The United States comments upon paras. 7.391 and 7.392, requesting that the Panel offer
specifically suggested new findings of fact which would, in the US view, allow for an evaluation, in
the alternative, of the United St ates' contention that the SUAD results in ordinary customs duties or
ODCs in excess of those set out in India's Schedule of Concessions. India opposes the US request,
arguing that further factual findings are unnecessary in the light of the Panel's findings.
6.147 The Panel declines the US request. In the circum stances of the present case, the Panel does
not consider it appropriate to make the specifically suggested new findings of fact.110 The Panel notes
the fact that the requested new findings of fact re late to claims based upon WTO provisions the Panel
has determined are not applicable as well as the late stage in the proceedings.
6.148 The United States requests, finally, that the Panel correct three clerical errors.
6.149 The Panel has made appropriate changes.
2. Comments by India
6.150 India requests that at para. 8.2 the Panel delete the fourth sentence and the remainder of that
paragraph. India asserts that the relevant sentences, which contain concluding remarks, appear not to
be in conformity with Article 19.2 of the DSU, in th at they allegedly diminish the rights of India, or
add to its obligations. India further asserts that the concluding remarks appear to be at variance with
the Panel's conclusion at para. 8.1 and give scope for misinterpretation of that conclusion. India also
alleges that the concluding remarks might be interpreted to suggest that India would not implement its
obligations in good faith or to circumscribe India's policy choices in implementing its WTO
obligations. The United States opposes India's request, saying the concluding remarks clarify the
6.151 The Panel fails to see how its concluding remarks coul d be said to diminish India's rights, or
to add to its obligations, or how they could be said to circumscribe the policy choices of India in
respect of implementation of India's WTO obligations . Nor does the Panel agree that the concluding
remarks are liable to result in the Panel's conclusi ons being misinterpreted. Nonetheless, in response
to India's comments, the Panel has made appropriate changes to the paragraph in question, including
by adding a new footnote and deleting the last three sentences.
C. OTHER CHANGES TO THE INTERIM REPORT
6.152 The Panel has made a number of other changes which were not specifically requested by the
Parties. These changes were made to eliminate typographical errors or to edit the Report.
VII. FINDINGS
7.1 The Panel will begin its assessment of the matter before it by providing a brief description of
the measures at issue, followed by an overview of the claims and arguments of the Parties.
A. MEASURES AT ISSUE
7.2 These proceedings concern two different types of duties imposed by India at the border on
certain products entering its customs territory. These duties are levied in add ition to India's so-called
basic customs duty.

110 The Panel notes that some of the information the United States requests the Panel to add is already
contained in the findings section of the Interim Report.

1. General
7.3 India's Central Government imposes several typ es of border charges ("duties"), including: the
basic customs duty (hereinafter the "BCD"); the a dditional duty (hereinafter the "AD"), which its
statutory basis states is related to the excise duty for the time being leviable on like domestic products
in India; as well as "such additional duties as woul d counter-balance the sales tax, value added tax,
local tax or any other charges" (hereinafter the "SUAD") for the time being leviable on a like
domestic product in India.
7.4 India has indicated that there are no recorded "o ther duties or charges", within the meaning of
Article II:1(b) of the GATT 1994 in India's Schedule of Concessions, which are applicable to any of
the products subject to the measures at issue in these proceedings.111
7.5 The measures being challenged in this case are the AD and the SUAD 112, respectively. The
United States alleges that the AD, when imposed in conjunction with the BCD, results in a breach of
India's obligations under Article II:1(a) and (b ) of the GATT 1994 because it results in ordinary
customs duties or other duties or charges imposed on or in connection with importation that exceed
those set out in India's Schedule of Concessions The United States similarly alleges that the SUAD,
when imposed in conjunction with the BCD, results in a breach of India's obligations under Article
II:1(a) and (b) of the GATT 1994 because it results in ordinary customs duties or other duties or
charges imposed on or in connection with importation that exceed those set out in India's Schedule of
Concessions.113 Accordingly, there follows a brief descr iption of the BCD, the AD and the SUAD as
well as the provisions of Indian law identified by the United States as those through which India
levies these duties.
2. The Basic Customs Duty ("BCD")
7.6 The authority to levy the basic customs duty is provided in Section 12 of India's Customs Act
of 1962. It states:
"Dutiable Goods. (1) Except as otherwise provided in this Act, or any other law for
the time being in force, duties of customs shall be levied at such rates as may be
specified under [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the
time being in force, on goods imported into, or exported from India."
7.7 Regarding the rates at which the BCD is to be levied, Section 2 of India's Customs Tariff Act
of 1975 provides:
"The rates at which duties of customs sh all be levied under the Customs Act, 1962,
are specified in the First and Second Schedules."
114
7.8 The First Schedule to the Customs Tariff Act specifies standard rates of duty for all imports.
India has, however, partially exempted imports of certain goods from these standard rates through
customs notifications. In the case of certain alc oholic beverages, for instance, India has done so
through Customs Notifications 11/2005 and 20/1997. Th ey were issued on the basis of Section 25 of
the Customs Act, a provision which is further explai ned in the following paragraph. As a result of
issuance of the aforementioned Customs Notifications , as of the date of establishment of the Panel,

111 India's reply to Panel Question No. 10.
112 E.g., US first written submission, para. 72.
113 US reply to Panel Question No. 16.
114 Footnote 4 to Section 2 provides that the "First Schedule to the Act was substituted by the Customs
Tariff (Amendment) Act, 1985 (8 of 1986) and further amended from time to time by subsequent amendment
Acts; the substituted schedule came in force on 8.2.1986."

the applied rate of BCD for imports of distilled spirits was 150 per cent ad valorem and the applied
rate of BCD for imports of beer and wine was 100 per cent ad valorem. On 3 July 2007, i.e., after the
date of establishment of the Panel, India increased the applied rate of BCD for wine to 150 per cent ad
valorem through Customs Notification 81/2007.115
7.9 Section 25 of the Customs Act confers upon the Central Government the power to grant
exemptions "from the whole or any part of" the BCD. It reads:
"Power to grant exemption from duty. (1) If the Central Government is satisfied that
it is necessary in the public interest so to do, it may, by notification in the Official
Gazette, exempt generally either absolutely or subject to such conditions (to be
fulfilled before or after clearance) as may be specified in the notification goods of any
specified description from the whole or any part of duty of customs leviable thereon."
3. The Additional Duty ("AD")
7.10 The additional duty 116 is provided for in Section 3(1) of the Customs Tariff Act. The text of
Section 3(1) reads:
"Any article which is imported into India shall, in addition, be liable to a duty
(hereafter in this section referred to as the additional duty) equal to the excise duty for
the time being leviable on a like article if produced or manufactured in India and if
such excise duty on a like article is leviab le at any percentage of its value, the
additional duty to which the imported article shall be so liable shall be calculated at
that percentage of the value of the imported article:
Provided that in case of any alcoholic li quor for human consumption imported into
India, the Central Government may, by no tification in the Official Gazette, specify
the rate of additional duty having regard to the excise duty for the time being leviable
on a like alcoholic liquor produced or manufactured in different States or, if a like
alcoholic liquor is not produced or manufactured in any State, then, having regard to
the excise duty which would be leviable for the time being in different States on the
class or description of alcoholic liquor to which such imported alcoholic liquor
belongs.
Explanation.— In this sub-section, the expression 'the excise duty for the time being
leviable on a like article if produced or ma nufactured in India' means the excise duty
for the time being in force which would be leviable on a like article if produced or
manufactured in India or, if a like article is not so produced or manufactured, which
would be leviable on the class or description of articles to which the imported article
belongs, and where such duty is leviable at different rates, the highest duty."
7.11 The United States in this case only challe nges the AD on alcoholic liquor for human
consumption such as beer, wine and distilled spirits.
117 The proviso to Section 3(1) relates the AD on
alcoholic liquor to excise duties leviable on alcoholic liquor in different States.

115 US first written submission, footnote 75. The WTO-bound rate for wine is 150 per cent ad valorem,
as is that for beer and distilled spirits.
116 As pointed out by the United States, the AD is sometimes also referred to as the "countervailing
duty".

7.12 Section 3(2) of the Customs Tariff Act requires, inter alia , that the BCD leviable under
Section 12 of the Customs Act is to be included in the calculation of the amount of AD due under
Section 3(1) of the Customs Tariff Act.
7.13 Section 3(7) of the Customs Tariff Act provides that the duty imposed under Section 3 shall be
in addition to any other duty imposed under the Customs Tariff Act or any other law.
7.14 Section 3(8) of the Customs Tariff Act explains the relationship between the AD and the
provisions of the Customs Act, including the above-mentioned Section 25 thereof. It reads:
"The provisions of the Customs Act, 1962 and the rules and regulations made
thereunder, including those relating to draw backs, refunds and exemption from duties
shall, so far as may be, apply to the duty chargeable under this section as they apply
in relation to the duties leviable under that Act."
7.15 Customs Notification 32/2003 118 of 1 March 2003 specifies the rates of AD for alcoholic
liquor as applied on the date of establishment of the Panel. The details are provided in the table below:
 Heading Description of goods Rate of additional duty
BEERS AND
WINES
2203,
2204,
2205,
or
2206
All goods put up in bottles or cans or
any other packing, for ultimate sale in
retail and having a CIF price, -

(a) not exceeding USD 25 per case;

(b) exceeding USD 25 but not
exceeding USD 40 per case;

(c) exceeding USD 40 per case

75% ad valorem

50% ad valorem or USD 37 per
case, whichever is higher

20% ad valorem or USD 40 per
case119, whichever is higher
DISTILLED
SPIRITS
2208 All goods put up in bottles or cans or
any other packing, for ultimate sale in
retail and having a CIF price, -

(a) not exceeding USD 10 per case;

(b) exceeding USD 10 but not
exceeding USD 20 per case;

(c) exceeding USD 20 but not
exceeding USD 40 per case;

(d)exceeding USD 40 per case

150% ad valorem

100% ad valorem or USD 40 per
case, whichever is higher

50% ad valorem or USD 53.2 per
case, whichever is higher

25% ad valorem or USD 53.2 per
case, whichever is higher

7.16 Soon after the establishment of this Panel, on 3 July 2007, India issued Customs Notification
82/2007, based upon Section 25 of the Customs Act r ead together with Section 3(8) of the Customs
Tariff Act. Through this notification, the Centra l Government of India exempted all the goods from
the whole of the duties leviable under Customs Notification 32/2003.

118 Exhibit US-6.
119 "Case" means a packing containing a total volume of nine litres of liquor (e.g., 12 bottles of 750ml
capacity).

4. The SUAD
7.17 The SUAD is provided for in Section 3(5) of the Customs Tariff Act. The text of Section 3(5)
is as follows:
"If the Central Government is satisfied that it is necessary in the public interest to
levy on any imported article [whether on such article duty is leviable under
subsection (1) or, as the case may be, sub-section (3) or not] such additional duty as
would counter-balance the sales tax, value a dded tax, local tax or any other charges
for the time being leviable on a like article on its sale, purchase or transportation in
India, it may, by notification in the Official Gazette, direct that such imported article
shall, in addition, be liable to an addition al duty at a rate not exceeding four per cent.
of the value of the imported article as specified in that notification.
Explanation.—In this sub-section, the expressi on 'sales tax, value added tax, local tax
or any other charges for the time being leviable on a like article on its sale, purchase
or transportation in India' means the sales tax, value added tax, local tax or other
charges for the time being in force, which would be leviable on a like article if sold,
purchased or transported in India or, if a like article is not so sold, purchased or
transported, which would be leviable on th e class or description of articles to which
the imported article belongs, and where su ch taxes, or, as the case may be, such
charges are leviable at different rates, the highest such tax or, as the case may be,
such charge."
7.18 The United States has referred to this particul ar additional duty as the "Extra-Additional Duty"
("EAD") while India has referred to it as the "SUAD" . The term "SUAD" is an abbreviation based on
the phrase "such additional d uty" which appears in Section 3(5). Neither "EAD" nor "SUAD" is an
official denomination.120 India considers the term "EAD" misleading as, in its view, it suggests that
the relevant duty is in some ways "extra". 121 In view of the fact that the term used by India reflects
the terms used in Section 3(5), the Panel has adopted the term "SUAD" and will use it throughout.
7.19 Based upon Section 3(5), the Central Government of India issued Customs Notification
19/2006122 of 1 March 2006 to impose a 4 per cent ad valorem duty of SUAD on imported goods
"specified under the Chapter, h eading, sub-heading, or tariff item of the First Schedule to the
[Customs Tariff Act]". The US claims in respect of the SUAD concern imports of all goods subject to
the SUAD for which imposition of the SUAD in co mbination with the BCD exceeds India's WTO-
bound rates, with the exception of those that ha ve been exempted through a customs notification. 123
Thus, the US claims against the SUAD concern a broader range of products than the US claims
against the AD, which concern only alcoholic liquor . The US claims against the SUAD concern not
only alcoholic liquor but also other products, including agricultural products (such as milk, raisins and
orange juice) and industrial products falling mainly under HS chapters 84, 85 and 90.
7.20 Section 3(6) of the Customs Tariff Act requires, inter alia , that the BCD leviable under
Section 12 of the Customs Act and the AD are to be included in the calculation of the amount of
SUAD owed under Section 3(5) of the Customs Tariff Act.

120 India's reply to Panel Question No. 4; India's first written submission, para. 5. As pointed out by the
United States, the duty in question is sometimes also referred to as the "special countervailing duty".
121 India's reply to Panel Question No. 4.
122 Exhibit US-7.
123 US reply to Panel Question No. 1; US first oral statement, para. 20.

7.21 As already noted, Section 3(7) of the Customs Tariff Act provides that the duty imposed under
Section 3 shall be in addition to any other duty imposed under the Customs Tariff Act or any other
law.
7.22 As also noted, Section 3(8) of the Customs Tariff Act explains the relationship between, on the
one hand, the AD and the SUAD, and, on the other hand, the provisions of the Customs Act, including
the above-mentioned Section 25 thereof.
7.23 Based upon Section 25 of the Customs Act 124, India issued Customs Notification 20/2006 125
which exempts specified goods from so much of the SUAD as is in excess of the amount calculated at
the rate indicated in the Notification. For all but one of the specified goods (for which a rate of
1 per cent ad valorem is indicated), the SUAD rate indicated is "nil".
7.24 During the Panel's first substantive meeting, India informed the Panel that its Central
Government had just issued Customs Notification 102/2007 126 of 14 September 2007. That
notification, also based upon Section 25 of the Cust oms Act, exempted, subject to certain conditions,
the products falling within the First Schedule to th e Customs Tariff Act, from the whole of the SUAD
when imported into India for subsequent sale. Purs uant to the Notification, the importer must pay the
SUAD on the product's importation, but may subse quently file a claim for refund of the SUAD
already paid on the imported products.
B. OVERVIEW OF THE PARTIES' CLAIMS AND ARGUMENTS
7.25 Having described the measures at issue, the Panel now provides a brief overview of the Parties'
claims and arguments.
7.26 The United States separately challenges the AD on alc oholic liquor, as such, and the SUAD,
as such. 127 In relation to the AD on alcoholic liquor, the United States notes that it is imposed in
addition to the BCD already levied on alcoholic liquor. The United States considers that the AD on
alcoholic liquor qualifies as an "ordinary customs du ty" or, in the alternative, as an "other duty or
charge" within the meaning of Article II:1(b) of the GATT 1994. The United States submits that, in
the light of this, the AD on alcoholic liquor is incons istent, as such, with Article II:1(a) and (b) of the
GATT 1994 because the combination of the AD and the BCD results in ordinary customs duties on
imports of alcoholic liquor that exceed those set forth in India's Schedule of Concessions.
Specifically, the AD on alcoholic liquor, when impo sed with the BCD, results in ordinary customs
duties on imports of alcoholic liquor that exceed India's bound rates by amounts ranging from 48 to
400 percentage points. Alternatively, to the extent the AD on alcoholic liquor is considered an "other
duty or charge", the United States submits that it woul d exceed the "other duties or charges" set out in
India's Schedule of Concessions, as India has not recorded the AD for alcoholic liquor in its Schedule.
The United States is challenging the AD on alcoholic liquor as in force on the date of establishment of
the Panel. The United States considers that the modifications introduced by Customs Notification
82/2007 are outside the Panel's terms of reference.
7.27 In relation to the SUAD, the United States notes that it is imposed in addition to the BCD
already levied on the products subject to the SUAD. The United States considers that the SUAD

124 According to India, even though Customs Notification 20/2006 does not refer to Section 3(8) of the
Customs Tariff Act, a reference to Section 3(8) is imp licit in Customs Notification 20/2006. India's reply to
Panel Question No. 39(a).
125 Exhibit US-11.
126 Exhibit IND-17.
127 The United States points out that the SUAD has been applied in addition to, and has been calculated
on top of, the AD but that its claims against the SU AD do not rely upon imposition of the AD to demonstrate
that the SUAD is inconsistent with India's WTO obligations.

qualifies as an "ordinary customs duty" or, in the alte rnative, as an "other duty or charge" within the
meaning of Article II:1(b) of the GATT 1994. The Un ited States submits that, in the light of this, the
SUAD is inconsistent, as such, with Article II:1(a) and (b) of the GATT 1994 because the
combination of the SUAD and the BCD results in ordinary customs duties on imports that exceed
those set forth in India's Schedul e of Concessions. More specifically, the SUAD results in ordinary
customs duties on imports in excess of India's bound ra tes in any situation where the BCD is already
at or near India's bound rate. 128 Alternatively, to the extent the SU AD is considered an "other duty or
charge", the United States submits that it would exceed the "other duties or char ges" set out in India's
Schedule of Concessions, as India has not schedul ed the SUAD for any product included in its
Schedule.
7.28 The United States requests the Panel to find that:
(a) the AD on alcoholic liquor is:
(i) inconsistent with Article II:1(b) of the GATT 1994 as an ordinary customs
duty that subjects imports of alcoholic liquor to ordinary customs duties in
excess of those set forth in India's WTO Schedule of Concessions; and
(ii) inconsistent with Article II:1(a) of the GATT 1994 as an ordinary customs
duty that affords imports of alcoholic liquor from the United States less
favourable treatment than that provi ded for in India's WTO Schedule of
Concessions; and
(b) the SUAD is:
(i) inconsistent with Article II:1(b) of the GATT 1994 as an ordinary customs
duty that subjects imports, including al coholic liquor and products listed in
Exhibit US-1, to ordinary customs duties in excess of those set forth in India's
WTO Schedule; and
(ii) inconsistent with Article II:1(a) of the GATT 1994 as an ordinary customs
duty that affords imports from the Un ited States, including alcoholic liquor
and products listed in Exhibit US-1, less favourable treatment than that
provided for in India's WTO Schedule of Concessions.
7.29 The United States has not requested any findings under Article III:2 of the GATT 1994 even
though an alternative claim under Ar ticle III:2 is put forward in the US request for the establishment
of a panel.
129
7.30 India submits that the AD on alcoholic liquor an d the SUAD have been mischaracterized by
the United States as being ordinary customs duties or , in the alternative, "other duties or charges"
within the meaning of Article II:1( b). India argues that the United States has based its identification
and characterization of the AD on alcoholic liquor and the SUAD on an errone ous understanding of
the scheme and provisions of law pertaining to cu stoms and off-setting duties and taxes in India.
According to India, both the AD on alcoholic liquor and the SUAD are duties levied in lieu of internal
taxes – the AD on alcoholic liquor is levied in lieu of excise duties and the SUAD is imposed to
counterbalance sales tax, VAT and other local taxes or charges. India points out that these duties are

128 The United States notes that Exhibit US-1 contains a number of examples in addition to alcoholic
liquor where this is the case.
129 We will revert to this point later on. See infra, Section F.

distinct from the BCD and submits that they have been levied in accordance with the provisions of
Article II:2(a) of the GATT 1994.
7.31 India further notes that the AD on alcoholic liquor has been withdrawn through Customs
Notification 82/2007 on 3 July 2007. In India's vi ew, there therefore no longer exists any valid basis
to challenge the AD on alcoholic liquor.
7.32 India therefore requests that the Panel reject all claims made by the United States, since, in its
view:
(a) the AD on alcoholic liquor has been validly removed through Customs
Notification 82/2007; and
(b) the SUAD is a charge "equivalent to an internal tax" within the meaning of
Article II:2(a) and imposed consistently with Article III:2 of the GATT 1994.
C. PRELIMINARY MATTERS
7.33 Before addressing the US claims of violation under Article II:1 of the GATT 1994, it is useful
to address two preliminary matters. The first concerns two new Indian customs notifications
concerning the AD on alcoholic liquor and the SU AD, both adopted after the establishment of the
Panel. The other preliminary matter concerns whether the measures before the Panel may be
challenged, as such, and if so, whether they may be determined to be inconsistent, as such, with WTO
rules. The Panel will address these two preliminary issues in turn.
1. New measures adopted by India after the establishment of the Panel
7.34 The first preliminary matter to be addressed by us was raised by India and concerns two new
customs notifications issued by India after the date of establishment of the Panel. India requests that
the Panel not only take these new customs notificatio ns into account, but that it rule on the measures
as modified by the new customs notifications. Be low, the Panel will address Customs Notification
("CN") 82/2007, which concerns the AD on alcoho lic liquor. After that, the Panel will address
Customs Notification ("CN") 102/2007.
(a) Customs Notification 82/2007
(i) Arguments of the Parties
7.35 India argues that the Central Government has co mplete discretion in the exercise of power
granted to it under Section 3(1) of the Custom s Tariff Act. The Central Government issued
CN 32/2003 on 1 March 2003 to levy additional duti es on alcoholic beverage pursuant to Section 3(1)
of the Customs Tariff Act. The Central Government issued CN 82/2007 on 3 July 2007 pursuant to
Section 3(8) of the CTA and Section 25(1) of the Customs Act. This Notification exempted all the
goods from the whole of the additional duty leviable under CN 32/2003.
7.36 India claims that the nature of a Custom Notification is not merely an executive order but a
delegated legislation. It has the force of law and is effective as of the date it is notified in the Official
Gazette of India. India argues that CN82/2007 has effectively overridden CN 32/2003.
7.37 India argues that CN 82/2007 must be viewed as being "an amendment that does not change
the essence of the identified measure" and, is therefor e well within the Panel's terms of reference.
India contends that the Appellate Body has previously held that "a panel has the authority to examine
a legal instrument enacted after the establishment of the panel that amends a measure identified in the

panel request" 130 . It also considers that the United States had envisaged such a subsequent
amendment in its request for establishment of this Panel, when it included "any amendments, related
measures, or implementing measures" in its panel request.
7.38 India argues that the measure of levying AD at the rate specified in CN 32/2003 has ceased to
have any effect because of the recent amendment made in CN 82/2007.
7.39 The United States argues that because CN 82/2007 was issued after the Panel was
established, it is outside the Panel's term of reference. In addition, CN 32/2003 remains in force and
Section 3(1) of the CTA directs that "[a] ny article which is imported into India shall… be liable " for
the AD. Therefore, the measures identified in the US panel request, i.e. CN 32/2003, remain in force
and should be considered by the Panel.
7.40 The United States argues that India does not assert that CN 32/2003 has been revoked. The
later Customs Notification, CN 82/2007, is not within the Panel's mandate. Rather, it is a matter to be
considered at the compliance stage of the disput e. Citing the Appellate Body's statement in Chile –
Price Band System , the United States also considers that a practice of amending measures during
proceedings is not to be condoned, if such changes are made with a view to shielding a measure from
scrutiny by a panel and that a complaining party should not have to adjust their pleadings during the
proceedings in order to deal with a moving target . The United States is concerned that CN82/2007
could have the effect of shielding the AD from scrutiny as the Indian Central Government has
complete discretion to re-impose the AD afterwards.
7.41 India replied to the Panel's question regarding the e ffect of CN 32/2007. It indicated that the
CTA empowers the Central Government to eith er impose AD on alcoholic liquor pursuant to
Section 3(1) of CTA read with the proviso, or to exempt imported alcoholic liquor from the AD
according to Section 3(8) of CTA read together with Section 25 of CA. Therefore, the AD imposed
by CN 32/2003 was removed as of 3 July 2007 through exemption notification CN 82/2007. If the
Central government were to withdraw CN 82/2007, it could do so through a new notification in the
future to remove the exemption. In that case, the effect of CN 32/2003 could be reinstated.
7.42 In India's view, it has effectively and in good faith removed the AD as of 3 July 2007. The
mere possibility that subsequent legislation c ould theoretically re-introduce the AD on imported
alcoholic beverages does not mean that the measure has not been revoked. India also argues that
CN 82/2007 is not a moving target; rather, the Panel' s terms of reference is broad enough to include
"any amendments, related measures, or implementi ng measures", and consequently, the Panel should
consider CN 82/2007.
7.43 The United States argues that it is not clear whether CN 82/2007 does remove the AD. The
fact is that Section 3(1) mandates that imports "shall… be liable" to the AD and that CN 32/2003
remains in force.
7.44 The United States also contends that if CN 82/2007 does what India contends – i.e. effectively
removes the AD – then it would seem to fundamentally change the essence of the AD. In its view,
this dispute is distinguishable from the Chile – Price Band System case. In that dispute, the
amendment of the measure made explicit a require ment already considered implicit under original
measure, whereas in this case, the amendment at issue allegedly removes the AD, that is, permits
something (exemption) that was not permitted unde r Indian law as of the date of the Panel's
establishment.

130 Appellate Body Report, EC – Selected Customs Matters, para. 184.

7.45 The United States also considers that it is not necessary to consider CN 82/2007 in order to
secure a positive solution in this dispute. If th e Panel were to take into account this customs
notification introduced after the establishment of this Panel, it would create a moving target and result
in shielding a measure from panel scrutiny. In the US view, the fact that CN32/2003 may be
reinstated and that the Central Government has a complete discretion to issue customs notifications
create a possibility that after the conclusion of these proceedings, CN82/2007 may be withdrawn
hence the measure would constitute a moving target as the Appellate Body stated.
7.46 India argues that the US understanding of the statement of the Appellate Body in Chile –
Price Band System that an amendment which merely made e xplicit a requirement that was implicit
under Chilean Law and which therefore did not change the essence is incorrect. In India's view, the
amendment to Chilean Law – Article 12 of Law 18.525, "puts in place a cap on the Chilean PBS
duties to avoid that those duties, in conjunction w ith the 8 percent applied rate, exceed the 31.5 per
cent bound rate." In other words, rather than making an implicit requirement explicit, that amendment
effectively placed a ceiling on the rates of duties in the PBS. Similarly, the CN 82/2007 is to bring
AD on alcoholic beverages to zero and does not change the essence of the measure.
7.47 India also points out that the words "any amendments, related measures or implementing
measures" used in the US panel request can include amendments made after the Panel's establishment,
just as the Appellate Body stated in Chile – Price Band System. The Appellate Body stated that if the
terms of reference are broad enough to include am endments and if it is necessary to consider an
amendment in order to secure a positive solution to the dispute, then it is appropriate to consider the
measure as amended. In India's view, this is also the situation in this dispute.
7.48 India argues that it has chosen to remove the AD, by reducing the rate of AD on alcoholic
beverages to nil through CN 82/2007. There are no lingering effects of the AD. Furthermore, the
specific way in which India achieved this policy obj ective is irrelevant. Concerning the possibility
that the AD may be re-introduced at any time, I ndia argues that previous panels have assumed that
Members would perform their treaty obligation in good faith and would not re-introduce the removed
measure. India further argues that CN 82/2007 w as introduced to address the trade concerns, not to
create a moving target.
7.49 India considers that the two new notifications were not intended to create a moving target, but
to address concerns raised by trading partners. They do not change the essence of the measure. Also,
India should be entitled to the benefit of the assumption of good faith principle.
7.50 The United States argues that the reference to "amendments, related measures, or
implementing measures "in the US panel request is a reference to any amendments or measures in
existence at the time of the establishment of the Pa nel. The reason for such inclusive language is due
to the fact that there is no compilation or datab ase of India's applied custom rates it may become
apparent that a relevant citation to one of the measures identified in existence at the time of the Panel's
establishment, was overlooked. But, the US argu es this phrase does not extend to measures not even
in existence at the time.
7.51 The United States also argues that given the un certainty as to the two notifications' effect on
AD and SUAD and the ease with which either custom notification may be rescinded or otherwise
removed, they could be used as a moving target that the US has to deal with. Therefore, consideration
of the two notifications would not, in US view contribute to the positive solution of the dispute.
7.52 In the US view, the modifications effected thr ough CN 82/2007 would, if at all, be a matter
for consideration at the compliance stage, but not for consideration by this Panel. Examining the
measures as set out in the US panel request will provide a benchmark by which India and the United
States may judge whether the new customs notificati on may bring the measure into conformity with

the WTO rules. The United Stat es also considers that CN 82/2007 does not affect the statutory
provisions imposing the AD nor does it rescind or remove CN 32/2003 which specifies the rates of
AD on alcoholic beverages.
(ii) Analysis of the Panel
7.53 India requests the Panel to make a ruling on the AD on alcoholic liquor as modified by
CN 82/2007, which was issued after the establishmen t of this Panel. The United States objects to
such request. The Panel considers that in orde r to determine whether it could rule upon the AD on
alcoholic liquor as modified by the new customs notifi cation, it is useful to understand the particular
situation of this dispute and compare it with releva nt rulings of previous panels and the Appellate
Body.
7.54 In this regard, we note that the AD on alcoholic liquor as in force on the date of establishment
of the Panel was imposed through the original Customs Notification ("CN") 32/2003 of 1 March 2003
which specifies rates of additional duty for alcoholic liquor. For beer and wines, the rates vary from
75 per cent ad valorem to 20 per cent ad valorem depending on the CIF value of the products, and for
certain CIF values the rates are set out as specific rates. For spirits, the rates vary from 150 per cent to
25 per cent, for products with different values respect ively, and for certain CIF values the rates are set
out as specific rates. 131 By contrast, CN 82/2007, issued on 3 July 2007, exempts all the goods
covered by CN 32/2003 from the whole of the duties leviable under CN 32/2003.132
7.55 The Panel notes India's argument that CN 32/2003 has been effectively overridden by
CN 82/2007, and that the former "has ceased to have any effect" due to the exemption made in
CN 82/2007. 133 However, it also notes India's subseque nt clarification that, legally speaking,
CN 32/2003 "remains in force", though it has ceased to have any effect on account of the exemption
notification CN 82/2007.134 Furthermore, the Panel understands that India's Central Government has
complete discretion under Section 3(1) of the Cust oms Tariff Act to issue new custom notifications
specifying rates of additional duty on alcoholic liquor. 135 Thus, the Central Government could issue a
new notification to withdraw CN 82/2007 or to specify the same rates as those specified in
CN 32/2003. In that case, the effect of CN 32/2003 could be reinstated. 136 Based on these
explanations by India, the Panel considers th at the AD on alcoholic liquor, as imposed through
CN 32/2003, has not "ceased to exist"; rather, the AD on alcoholic liquor has been modified by the
new CN 82/2007 after the Panel was est ablished. The Panel notes that the Chile – Price Band System
dispute concerned an amendment of a measure after th e establishment of the panel and, to that extent
is similar to the situation we are considering here. The Panel in its analysis below is therefore guided
by the approach followed by the Appellate Body in Chile – Price Band System.
Whether the Panel's terms of reference are sufficiently broad to include the new measure
7.56 In Chile – Price Band System , the Appellate Body considered a number of factors to
determine whether it could rule on a measure as amended in a case where the amendment was adopted
after the establishment of the panel. The first of these factors is whether a panel's terms of reference
are sufficiently broad to include the new measure. In this regard, the Panel recalls that the new
notification CN 82/2007 was not identified in the US panel request. As explai ned, it was issued after
the establishment of the Panel. Nevertheless, there is a phrase in the US panel request to indicate that

131 Exhibit US-6.
132 Exhibit IND-6.
133 India's first oral statement, para. 17.
134 India's reply to Panel Question No. 40(c).
135 India's first written submission, paras. 34-35.
136 India's reply to Panel Question No. 40(c).

the measures include those specifically identified "as well as any amendments, related measures, or
implementing measures".
7.57 The Panel notes that in Chile – Price Band System, the Appellate Body stated that the general
phrase "as well as the regulations and complementary provisions and /or amendments" included in
Argentina's panel request "suggests that Argentina intended the request to cover the measure even as
amended".137 On that basis, Argentina's panel request was found to be broad enough to include the
amendment adopted after the establishment of the panel.
7.58 In the present dispute, the United States argues th at the phrase it used in its panel request "is a
reference to any amendments or measures in existen ce at the time of the US panel request" and that
the phrase does "not extend to measures not even in existence at the time". 138 The United States
explained that the intention behind the phrase " as well as any amendments, related measures, or
implementing measures" was that in case the applied rate of customs duty had been modified in a
customs notification of which the United States was not aware at the time it drafted its panel request,
any such modifications in existence at the time of the establishment of the Panel would be included in
the Panel request.139 In the United States' view, the Panel's terms of reference are limited to measures
that existed at the time of establishment of the Panel and, therefore, CN 82/2007 falls outside the
Panel's terms of reference.140
7.59 The Panel is of the view that the phrase "as well as any amendments, related measures, or
implementing measures" is objectively open to the in terpretation argued for by the United States.
Moreover, we find plausible the United States' expl anation of its intention behind the reference to
amendments and related or implementing measures in the US panel request. After all, it is well-
established that a panel's terms of reference are set on the date of establishment of that panel and that,
but for certain exceptional situations, measures adopt ed, or coming into force, after that date are
outside a panel's terms of reference. The fact that the Appellate Body in Chile – Price Band System
found that a similar phrase revealed an intention by the complaining party to include a measure not
yet in existence on the date of establishment of a panel does not mean that the United States in this
case could not have intended its phrase to cover only measures in existence on the date of
establishment of the Panel, particularly when that phrase can be so interpreted. Furthermore, as a
panel, we must be careful not to rule upon a measure that the complaining party never intended to be
included within our terms of refere nce and is not requesting to be included. The Panel therefore sees
no reason to reject the United States' interpretation of the reference " as well as any amendments,
related measures, or implementing measures".
7.60 Accordingly, the Panel considers that the reference to " any amendments, related measures, or
implementing measures " in the US panel request does not include measures adopted after the
establishment of the Panel and that the US panel requ est is therefore not sufficiently broad to include
CN 82/2007, which was issued after the establishment of the Panel.
Whether CN 82/2007 changed the essence of the old measure
7.61 Another factor considered by the Appellate Body in Chile – Price Band System is whether
"the essence of the old measure" has been changed by the new measure. In that dispute, the Appellate

137 Appellate Body Report, Chile – Price Band System, para. 135 (emphasis added).
139 The United States notes in this respect that it fo und it difficult to determine India's applicable rates
of customs duty as there was no compilation or searchable database of India's applied customs rate for any
particular product. See US second oral statement, para. 20.

Body appears to have considered that the amen dment adopted after the establishment of the panel
made explicit an implicit cap on the amount of the tariff that could be applied:
"We understand the Amendment as having clar ified the legislation that established
Chile's price band system. However, the Amendment does not change the price band
system into a measure different from the price band system that was in force before
the Amendment. Rather, as we have pointed out, Article 2 of Law No. 19.772 simply
amends Article 12 of Law No. 18.525 by adding a final paragraph to that provision.
In its amended form, Law No. 18.525 incor porates the additional paragraph, making
explicit that there is a cap on the amount of the total tariff that can be applied under
the system at the tariff rate of 31.5 per cent ad valorem , which has been bound in
Chile's Schedule since the entry into force of the WTO Agreement."141
7.62 This statement of the Appellate Body suggests that the requirement in the amendment (i.e.,
Law 19.772) had existed before the amendment was made. The explicit requirement of Law 19.772
was that the combination of duties resulting from the Chilean price band system and the ad valorem
duty was not to exceed the rate of 31.5 per cent as bound in Chile's WTO Schedule. The Appellate
Body noted that under Chilean Law, WTO commitmen ts override domestic statutes even without the
explicit requirement in law 19.772. 142 The Appellate Body appears to have concluded that Law
19.772 did not change the essence of the old measure for this reason.
7.63 In the present case, the situation is different. First, CN 32/2003 specifies the rates at which
the additional duties on imported al coholic beverages have to be imposed, whereas the new customs
notification exempts all the goods from the whole of the duties leviable under CN 32/2003. Thus, the
two notifications have opposite legal effect – CN 32/2003 specifies positive duty rates for certain
products, CN 82/2007 exempts those same products fr om these duty rates. Secondly, before issuance
of CN 82/2007, the AD, as imposed through CN 32 /2003, affected trade by imposing various and
often high rates of additional duty on the rele vant imported products, whereas after issuance of
CN 82/2007, the AD should no longer affect trade in alcoholic liquor since CN 82/2007 completely
exempted relevant imported alcoholic liquor from the duties specified in CN 32/2003. 143 Therefore,
both the legal and practical effects resulting from the old measure and the new measure are
substantially different.
144 The fact that India argues that the reason for issuing CN 82/2007 was to
address the concerns of trading partners and that it effectively removed the additional duty 145 also
supports the understanding that CN 82/2007 changed th e essence of the old measure. Indeed, were it
otherwise, it would be difficult to see how the new measure could be said to respond to the concerns
of trading partners.
Whether one or both Parties object to a ruling on the new measure
7.64 The Appellate Body in Chile – Price Band System also noted that the parties had not objected
to it ruling on the measure as amended. It sated that "as we observed, the par ticipants to this dispute
do not object to our doing so", i.e., to the Appella te Body ruling on the price band system as amended

141 Appellate Body Report, Chile – Price Band System, para. 137.
142 Ibid, para. 126.
143 As noted by India, the effect of CN 82/2007 is to bring the rate of AD down to zero. India's second
oral statement, para. 5.3.
144 A specific example can demonstrate the difference. According to the old CN 32/2003, for bottled
spirit with a CIF price not exceeding USD 25 per case, the additional duty was imposed at a rate of "150%
ad valorem", whereas with the new CN 82/2007 the additional duty is imposed on such imported spirit product
at a rate of "nil". The Panel considers that such a drastic change in the rate of additional duty indicates that the
AD after issuance of CN 82/2007 is not essentially the same as the AD before issuance of CN 82/2007.
145 India 's second oral statement, para. 6.1.

by Law 19.772. 146 In this dispute however, the Parties disagree on whether the Panel should rule on
the AD on alcoholic liquor as modified by CN 82/2007. In fact, the United States explicitly objects to
our doing so. Thus, in relation to this fact or the situation is again different from the Chile– Price
Band System dispute.
Whether a ruling on the new measure is appr opriate to secure a positive solution to the
dispute
7.65 The Panel notes that the Appellate Body also considered in Chile – Price Band System
whether a ruling on the measure as amended was appr opriate in order to secure a positive solution to
the dispute.
"We consider it appropriate for us to rule on the price band system as currently in
force in Chile, that is, as amended by Law 19.772, to 'secure a positive solution to the
dispute" and to make 'sufficiently precise recommendations and rulings so as to allow
for prompt compliance'."147
7.66 The Parties in this case hold different views on whether a ruling on the AD on alcoholic
liquor as modified by CN 82/2007 would be appropri ate to secure a positive solution to the dispute.
The United States argues that given the uncertainty as to the precise legal effect of CN 82/2007 and
the ease with which customs notifications may be rescinded or otherwise removed by the Indian
Central Government, it would be useful for the Panel to consider the original measures set out in the
US panel request as this would provide a benchmar k by which India and the United States may judge
whether the CN 82/2007 may bring the AD on alcoholic liquor into conformity with WTO rules.
148 In
contrast, a ruling by the Panel on the situation as it exists after issuance of CN 82/ 2007 would not, in
the United States' view, contribute to a positiv e solution of the dispute concerning the AD. 149 The
impact of CN 82/2007 should be considered at the compliance panel stage.
7.67 India contends that previous panels have assumed that Members would perform their treaty
obligations in good faith and would not re-introdu ce measures that had been removed. India also
recalls that CN 82/2007 was introduced to address trad e concerns of its trade partners, not to create a
moving target for the complaining party. 150 India therefore contends that it should be entitled to the
presumption of good faith compliance with its WTO obligations. 151 India also argues that the AD has
been validly removed by CN 82/2007 and that it is, therefore, appropriate for the Panel to consider the
AD on alcoholic liquor as amended in coming to a decision in a dispute.152
7.68 The Panel is sympathetic to the US argument that a ruling on the original AD on alcoholic
liquor and not the AD as modified could contribute to a positive solution of the dispute. India has
explained that, legally speaking, CN 32/2003 has not been revoked. Rather, it has been effectively
overridden by the new CN 82/2007. India has also clarified that the Central Government has
complete discretion to issue new customs notificat ions or withdraw CN 82/2007. As a matter of
Indian domestic law, the previous legal situation could thus be reinstated easily and quickly.
7.69 The Panel also notes India's argument that its objective was not to create a "moving target" or
to shield the AD from scrutiny, but to address trade c oncerns of its trading partners and that India has

146 Appellate Body Report, Chile – Price Band System, para. 143.
147 Ibid.
148 US second oral statement, closing statement para. 17.
150 India's second oral statement, para. 6.2. India's second oral statement, closing statement, para. 23.
151 India's second oral statement, closing statement, paras. 23-24.
152 India's second oral statement, paras. 5.5, 6.1, 6.2.

effectively "removed" the AD on alcoholic liquor as of 3 July 2007. 153 The Panel does not question
the good faith of India in trying to address concerns of its trading partners by issuing CN 82/2007. In
fact, the Panel recognizes the significant efforts undertaken by India in this regard. However, the
Panel must also note that India has never stated th at the reason for the issuance of CN 82/2007 was to
address a perceived WTO-inconsistency. To the contrary, India has described the AD on alcoholic
liquor prior to issuance of CN 82/2007 as a measure compatible with India's WTO obligations and as
an "allegedly offending measure". As a result, we need to assume that CN 82/2007 was issued, not
because India considered it necessary to bring itself into conformity with its WTO obligations, but
rather voluntarily, in order to be responsive to con cerns expressed by its trading partners. At this
point, even though India has indicated that it has no intention of re-introducing the status quo ante, it
seems that India is maintaining that it would not be precluded by WTO rules from doing so in good
faith.
7.70 Under these circumstances, that is to say, in a situation where India faces no meaningful
obstacles in reinstating the status quo ante (i.e., the AD on alcoholic liquor as it existed before
issuance of CN 82/2007) and where India apparently believes the status quo ante was WTO-
consistent while the United States believes it was WT O-inconsistent, we consider that ruling on the
AD on alcoholic liquor as it existed before issuan ce of CN 82/2007 could contribute to securing a
positive solution to this dispute, whereas ruling on the AD on alcoholic liquor as modified by
CN 82/2007 would not adequately do so, given that the modification has, in our view, changed the
essence of the old measure. Therefore, we find it ne ither necessary nor appropriate to rule on the AD
on alcoholic liquor as modified by CN 82/2007 in order to secure a positive solution to this dispute.
(iii) Conclusion
7.71 To summarize the above considerations, the Panel finds that: (i) the Panel's terms of reference
do not extend to CN 82/2007; (ii) the AD on alcoholic liquor as modified by CN 82/2007 is not
essentially the same as the original AD on alcoholic liquor; (iii) one Party objects to the Panel ruling
on the AD on alcoholic liquor as modified by CN 82/2007; (iv) it is neither necessary nor appropriate
to rule on the AD on alcoholic liquor as modified by CN 82/2007 in order to secure a positive solution
to the dispute.
7.72 In the light of, and based upon, the totality of these findings, the Panel declines to rule on the
AD on alcoholic liquor as modified by CN 82/2007.
(b) Customs Notification 102/2007
(i) Arguments of the Parties
7.73 India argues that it has issued CN 102/2007
154 establishing a credit and refund mechanism
whereby imported products on which SUAD has alread y been paid receive either a full credit or a
refund of the SUAD if a VAT/sales tax is paid on the resale. In this way, the possibility of double
taxation is eliminated.
7.74 The United States argues that neither CN 82/2007, nor CN 102/2007 existed at the time the
Panel was established, the Panel's terms of reference are limited to those measures existing on the date
of establishment and cited in the US Panel request. Therefore, these two notifications are outside of
the Panel's terms of reference.

153 India's second oral statement para. 6.2.
154 Exhibit IND-17.

7.75 With respect to CN 102/2007, the United Stat es considers that the importer must pay the
SUAD at the time of importation and may only thereafter seek a refund of the SUAD paid if certain
documentation can be provided. In the US view , conditions to which exemption from the EAD is
subject may effectively undermine the exemption itself.
7.76 The United States also considers that it is not necessary to consider CN 82/2007 and
CN 102/2007 in order to secure a positive solution in this dispute. Rather, in the US view, doing so
would be contrary to that objective, as the Appellate Body found in Chile – Price Band System , that
"we do not mean to condone a practice of amendi ng measures during dispute settlement proceedings
if such changes are made with a vi ew to shielding a measure from scru tiny by a panel". Therefore, if
the Panel were to take into account these two cust oms notifications introduced after the establishment
of this Panel, it would create a moving target and result in shielding a measure from panel scrutiny.
In the US view, the fact that the Central Govern ment has a complete discretion to issue customs
notifications create a possibility that after the c onclusion of these proceedings, CN 102/2007 may be
withdrawn hence the measure would constitute a moving target as the Appellate Body stated.
7.77 India points out that the words "any amendments, related measures or implementing
measures" used in the US panel request can include amendments made after the Panel's establishment,
just as the Appellate Body stated in Chile – Price Band System. The Appellate Body stated that if the
terms of reference are broad enough to include am endments and if it is necessary to consider an
amendment in order to secure a positive solution to the dispute, then it is appropriate to consider the
measure as amended. In India's view, this is also the situation in this dispute.
7.78 India argues that Customs Notification 102/2007 does not change the essence of the measure,
rather it only addresses certain concerns raised by trading partners, in particular, to make sure that any
excess tax paid and not addressed by way of a credit/offset mechanism would be refunded upon
fulfilment of certain conditions. Therefore, India considers that the two new notifications were not
intended to create a moving target, but to address con cerns raised by trading partners. They do not
change the essence of the measure. Also, India s hould be entitled to the benefit of the assumption of
good faith principle.
7.79 India also argues that the United States' understa nding of the statement of the Appellate Body
in Chile – Price Band System that an amendment which merely made explicit a requirement that was
implicit under Chilean Law and which therefore did not change the essence is incorrect. In India's
view, the amendment to Chilean Law – Article 12 of Law 18.525, "puts in place a cap on the Chilean
PBS duties to avoid that those duties, in conjunc tion with the 8 per cent applied rate, exceed the
31.5 per cent bound rate".
7.80 The United States argues that the reference to "amendments, related measures, or
implementing measures "in the US panel request is a reference to any amendments or measures in
existence at the time of the establishment of the Pa nel. The reason for such inclusive language is due
to the fact that there is no compilation or datab ase of India's applied custom rates it may become
apparent that a relevant citation to one of the measures identified in existence at the time of the Panel's
establishment, was overlooked. But, the US argu es this phrase does not extend to measures not even
in existence at the time.
7.81 With respect to CN 102/2007, the United States argues that it does not address the situation
where goods are imported to the importer as the end consumer who has to pay the full SUAD. Also,
the conditions for requesting refund at the resale stage may render the measure less favourable for
imports comparing to the treatment given to domestic products.
7.82 The United States also argues that given the un certainty as to the two notifications' effect on
AD and SUAD and the ease with which either custom notification may be rescinded or otherwise

removed, they could be used as a moving target that the US has to deal with. Therefore, consideration
of the two notifications would not, in US view contribute to the positive solution of the dispute.
7.83 The United States argues that CN 102/2007 also change the essence of the SUAD if it does
what India claims to do, that is, by virtue of CN 102/2007, imports are no longer liable to SUAD
provided certain conditions are met. In such case, as with the AD, a measure that allegedly removes
liability for another measures would seem to necessar ily change the essence of the latter measure.
This is different from the situation in Chile – Price Band System, where both parties agreed to take the
amendment into account and that the amendment si mply made explicit something already implicit
under the Chilean law.
7.84 In the US view, the modifications effected th rough CN 102/2007 would, if at all, be a matter
for consideration at the compliance stage, but not for consideration by this Panel. Examining the
measures as set out in the US panel request will provide a benchmark by which India and the United
States may judge whether the new customs notificati on may bring the measure into conformity with
the WTO rules.
(ii) Analysis of the Panel
7.85 India requests the Panel to make a ruling on the SUAD as modified by CN 102/2007, whereas
the United States requests that the Panel rule on the SUAD as it existed at the time the Panel was
established and that it not rule on the modification effected through CN 102/2007.
7.86 The Panel recalls that based on Section 3(5) of the Customs Tariff Act, the Central
Government of India issued Customs Notification ("CN") 19/2006 on 1 March 2006 to impose the
SUAD at a rate of 4 per cent ad valorem on certain imported products. Section 3(5) and CN 19/2006
are identified in the US panel request.
7.87 During the Panel's first substantive meeting, Indi a informed the Panel that it had just issued a
new customs notification, CN 102/2007, providing for the possibility to claim a refund of the SUAD
already paid on imported goods in case of subsequent internal re-sale of the imported goods. The
refund is not automatic but subject to certain c onditions. Thus, CN 102/20 07 introduces a refund
mechanism available only in specifi ed circumstances. It is clear, therefore, that CN 102/2007
complements, and modifies, but does not repl ace the SUAD as imposed through CN 19/2006. In
other words, the SUAD has not "ceased to exist" as a result of issuance of CN 102/2007.
Accordingly, the situation with respect to the m odification of the SUAD after the establishment of the
Panel is similar to the situation in the Chile – Price Band System dispute and, hence, the Panel in its
analysis will again be guided by th e approach followed by the Appellate Body in that dispute. As the
Panel's analysis of the modification of the SUAD is similar in a number of ways to that of the
modification of the AD on alcoholic liquor, it is not necessary to repeat certain explanations already
provided. The analysis below should therefore be read together with the preceding analysis
concerning CN 82/2007.
Whether the Panel's terms of reference are sufficiently broad to include the new measure

7.88 Since CN 102/2007 was issued after the establishmen t of the Panel, it is not identified in the
US panel request. As we have noted earlier, howev er, the US panel request contains the phrase "as
well as any amendments, related measures, or implementing measures." Nevertheless, in the United
States' view, the Panel's terms of reference are li mited to measures that existed at the time of the

establishment of the Panel and, therefore, the ne w CN 102/2007 falls outside the Panel's terms of
reference.155
7.89 The Panel has previously explained its view that the phrase "as well as any amendments,
related measures, or implementing measures" in the US panel request should not be interpreted so as
to cover measures adopted after the establishment of the Panel. It follows that the US panel request is
not sufficiently broad to include CN 102/2007 since it was issued after the Panel's establishment.
Whether CN 102/2007 changed the essence of the old measure
7.90 As explained by India, CN 102/2007 provides that imported products on which the SUAD has
already been paid are eligible, upon fulfilment of certain conditions, to receive a full refund of the
SUAD on the re-sale of such imported products and thereby eliminates the possibility of double
taxation of imported goods, as re-sale tran sactions may be subject to State VAT. 156 Thus, according
to India, it is clear that the refund mechanism intr oduced by CN 102/2007 eliminated, in whole or in
part, what India refers to as possible double taxation of imported goods. The Panel is of the view that
this modification of the SUAD, viewed in its context, is not just a minor and marginal change. Based
upon India's explanation, we think it is a significant change since it in whole or in part removed an
element of possible less favourable treatment of re-sale transactions involving imported products vis-
à-vis re-sale transactions invol ving like domestic products. 157 In respect of the latter transactions, a
credit is available for the State VAT paid on prior-stage sale transactions.
7.91 Moreover, we note that, in terms of Indian la w, CN 102/2007 is an exemption notification.
Subject to certain conditions, it exempts from th e SUAD goods imported into India for subsequent
sale, by creating a refund possibility. Thus, the ol d measure and the new measure have different legal
effects, as otherwise there would have been no need to provide for an exemption from the old
measure. Also, the practical effects resulting from the old measure and the new measure are different
in that in the case of the old measure the im porter needed to pay the SUAD at 4 per cent ad valorem,
whereas in the case of the new m easure the importer can, subject to meeting relevant conditions, get
the SUAD already paid fully refunded. Therefor e, we consider that the SUAD as modified by
CN 102/2007 is not essentially the same as the original SUAD. We further note in this regard that
India has stated that it introduced CN 102/2007 in response to concerns expressed by trading
partners.
158 If the SUAD after issuance of CN 102/2007 were essentially the same as before, it is
difficult to see how the modification could make a difference for India's trading partners.
7.92 Finally, even if CN 102/2007 were considered not to have changed the essence of the SUAD,
we note that this factor by itself would not be dispositive of whether the Panel should rule on the
SUAD as modified by CN 102/2007. The Panel's c onclusion in this regard is based on an overall
assessment of all factors relevant to this issue.
Whether one or both Parties object to a ruling on the new measure
7.93 In this dispute, the Parties disagree on wh ether the Panel should rule on the SUAD as
modified by CN 102/2007. India requests that we do, while the United States objects to our doing so.
To that extent, the circum stances in this dispute are different from those in the Chile– Price Band
System dispute.

156 India's first oral statement, paras. 12-13.
157 We note that India itself stated that "[a]spects of [the SUAD] which raised doubts on its being 'in
excess' of domestic taxes now stand addressed and there is no question of any excess tax being retained".
India's second closing statement, para. 21
158 India's second closing statement, para. 23.

Whether a ruling on the new measure is appr opriate to secure a positive solution to the
dispute
7.94 The Parties in this case hold different views on whether a ruling on the SUAD as modified by
CN 102/2007 would be appr opriate to secure a positive solution to the dispute. The United States
argues that given the uncertainty as to the precise legal effect of CN 102/2007, and the conditions
attached thereto, and the ease with which custom s notifications may be rescinded or otherwise
removed by India's Central Government, it would be useful for the Panel to consider the original
measures set out in the US panel request as this would provide a benchmark by which India and the
United States may judge whether the new CN 102/ 2007 may bring the SUAD into conformity with
WTO rules. 159 In contrast, a ruling by the Panel on the situation as it exists after issuance of
CN 102/2007 would not, in the United States' view, contribute to a positive solution of the dispute. 160
The impact of CN 102/2007 should be considered at the compliance panel stage.
7.95 India contends that previous panels have assumed that Members would perform their treaty
obligations in good faith and would not withdraw corrective measures that had been introduced. India
also argues that CN 102/2007 was introduced to address concerns of its trade partners, not to create a
moving target for the complaining party. 161 India therefore contends that it should be entitled to a
presumption of good faith compliance with its WTO obligations.162
7.96 The Panel is sympathetic to the US argument th at a ruling on the original SUAD and not the
SUAD as modified could contribute to a positive solution of the dispute. India has clarified that the
Central Government has complete discretion to i ssue new customs notifications or to withdraw
CN 102/2007. As a matter of Indian domestic law, the previous legal situation could thus be
reinstated easily and quickly.
7.97 The Panel also notes India's argument that its objective was not to create a "moving target" or
to shield the SUAD from scrutiny, but to address concerns of its trading partners. 163 The Panel does
not question the good faith of India in trying to address trade concer ns of its trading partners by
issuing CN 102/2007. In fact, as already stated, the Panel recognizes the significant efforts
undertaken by India in this regard. However, the Pa nel must also note that In dia has never stated that
the reason for the issuance of CN 102/2007 was to address a perceived WTO-inconsistency. To the
contrary, India has described the SUAD prior to issuance of CN 102/2007 as a measure compatible
with India's WTO obligations. In particular, in its first written submission India has claimed that the
old SUAD was consistent with Article III:2 of th e GATT 1994, and subsequently it indicated that it
issued CN 102/2007 to remove "ambiguity".164 As a result, we need to assume that CN 102/2007 was
issued, not because India considered it necessary to bring itself into conformity with its WTO
obligations, but rather voluntarily, in order to be responsive to concerns expressed by its trading
partners. At this point, even though India has indicated that it has no intention of re-introducing the
status quo ante, it seems that India is maintaining that it would not be precluded by WTO rules from
doing so in good faith.
7.98 Under these circumstances, i.e., in a situati on where India faces no meaningful obstacles in
reinstating the status quo ante (i.e., the SUAD as it was before issuance of CN 102/2007) and where
India apparently believes the status quo ante was WTO-consistent while the United States believes it
was WTO-inconsistent, we consider that ruling on the SUAD as it was before issuance of

161 India's second oral statement, para. 6.2; India's second closing statement, para. 23.
162 India's second closing statement, paras. 23-24.
163 India's second oral statement, para. 4.7; India's second closing statement, paras. 23-24.
164 India's first written submission, para. 99; India's second closing statement, para. 19.

CN 102/2007 could contribute to securing a positive so lution to this dispute, whereas ruling on the
SUAD as modified by CN 102/2007 would not ade quately do so, given that, in our view, the
modification has changed the essence of the old measure. Therefore, we find it neither necessary nor
appropriate to rule on the SUAD as modified by CN 102/2007 to secure a positive solution to this
dispute.
(iii) Conclusion
7.99 To summarize the above considerations, the Pa nel finds that: (i) the Panel's terms of
reference do not extend to CN 102/2007; (ii) the SUAD as modified by CN 102/2007 is not
essentially the same as the original SUAD; (iii) one Party objects to the Panel ruling on the SUAD as
modified by CN 102/2007; (iv) it is neither necessary nor appropriate to rule on the SUAD as
modified by CN 102/2007 in order to secure a positive solution to the dispute.
7.100 In the light of, and based upon, the totality of these findings, the Panel declines to rule on the
SUAD as modified by CN 102/2007.
2. Discretionary vs. mandatory nature of the measures at issue
7.101 As indicated, the other preliminary matter to be addressed by us was also raised by India and
concerns whether the measures before the Panel may be challenged, as such, and if so, whether they
may be determined to be inconsistent, as such, with WTO rules.
7.102 India submits that the United States fails to appr eciate the distinction made under Indian law
between the provisions of the Customs Act and th e Customs Tariff Act, which empower the Central
Government to impose the BCD, the AD on alcoholic liquor and the SUAD, and the customs
notifications pursuant to which the Central Government may fix the rates of such duties. India argues
that the statutory provisions merely confer upon the Central Government the discretion to impose the
duties and do not themselves prescribe the rates at wh ich such duties may be charged. The statutory
provisions also confer upon the Central Government the discretion to exempt imports from the duties.
India considers that the United States has mischaracterized the provisions of Section 3(1) of the
Customs Tariff Act, which authorizes the imposition of the AD, and Section 3(5) of the Customs
Tariff Act, which authorizes the imposition of the SUAD, as being mandatory and consequently as
being challenged measures in the present dispute.
7.103 India further submits that while the Customs Act and the Customs Tariff Act are empowering
statutes, the customs notifications issued by the Central Government in the exercise of its powers
under these statutes are a form of delegated legislation under Indian law. According to India, they are
the mechanisms through which th e executive branch, i.e., the Ce ntral Government, imposes, or
exempts, a good from the levy of a duty. India stat es that the customs notifications, once issued, have
the force of law and so are mandatory. Therefore, India maintains, the United States' challenge, and
the Panel's investigation, has to be confined to the relevant customs notifications through which the
AD and the SUAD have been levied.
7.104 The United States does not agree that, under the relevant statutes, the imposition of the AD
or the SUAD rests completely at the discretion of the Central Government. In its view, Section 3(1)
and 3(5) of the Customs Tariff Act and Section 12 of the Customs Act are mandatory.
165 The United
States further submits that, in any event, India's ar guments on this issue are largely irrelevant to the
outcome of this dispute, and the Panel therefore ne ed not undertake an elaborate analysis of whether

165 In relation to Section 3(5) the United States argu es that although it is discretionary in terms of
whether the Central Government imposes the SUAD, it is mandatory with respect to the rate at which the SUAD
is to be imposed should the Central Government choose to exercise its discretion.

Section 12 of the Customs Act or Sections 3(1) and 3(5) of the Customs Tariff Act are mandatory or
discretionary. The United States points out in this respect that the US claims concerning the AD
relate to a number of provisions of Indian law (i ncluding Section 3(1) of the Customs Tariff Act and
CN 32/2003) that when imposed together with the BCD result in ordinary customs duties on alcoholic
liquor that exceed India's WTO-bound rate. Similarly, the US claims concerning the SUAD relate to
a number of provisions of Indian law (includi ng Section 3(5) of the Customs Tariff Act and
CN 19/2006) that when imposed together with the BCD result in ordinary customs duties on alcoholic
liquor that exceed India's WTO-bound rate. The United States submits that the provisions of Indian
law comprising the AD and the SUAD, when applie d together with the BCD, mandate a breach of
Article II:1 of the GATT 1994. The United States notes that India itself acknowledges that the AD
and the SUAD are mandatory insofar as CN 32/2003 and CN 19/2006 specify the rates at which
imports shall be liable to the AD and the SUAD, respectively.
7.105 The Panel recalls that the US claims concern th e AD on alcoholic liquor and the SUAD. The
United States is challenging the AD on alcoholic liq uor and the SUAD as such. It is not challenging
the AD or the SUAD on any particular shipment of goods entering India's customs territory.
7.106 The United States has described the AD on al coholic liquor as comprising a number of
provisions of Indian law, including Section 3(1) of the Customs Tariff Act and CN 32/2003.
Likewise, it has described the SUAD as comprising a number of provisions of Indian law, including
Section 3(5) of the Customs Tariff Act and CN 19/2006. The various provisions identified by the
United States are the provisions which it considers to be the provisions through which the AD on
alcoholic liquor and the SUAD are levied.
166 We understand that the United States has identified
these provisions in an effort to identify the specifi c measures at issue, which are the AD on alcoholic
liquor and the SUAD. The United States has never said that it is challenging Section 3(1) or
Section 3(5) of the Customs Tariff Act separately from the AD on alcoholic liquor and the SUAD, as
actually imposed through specific customs notificati ons, nor has it requested the Panel to find that
Section 3(1) and Section 3(5) are, as such, inconsistent with Article II:1.
167 It is clear to us, therefore,
that this case involves no challenge to Indian stat utory provisions as such. In our view, the United
States is challenging the AD on alcoholic liquor, as imposed through CN 32/2003, and the SUAD, as
imposed through CN 19/2006.
7.107 Regarding whether the AD on alcoholic liquor, as imposed through CN 32/2003, and the
SUAD, as imposed through CN 19/2006, may be challe nged, we note, as an initial matter, that it is
uncontested that on the date of establishment of this Panel both the AD on alcoholic liquor and the
SUAD were measures in force that were actually a pplied by the Central Government of India to
imports of subject goods. We further note that th e Appellate Body has stated that "any act or
omission attributable to a WTO Member can be a measure of that Member for purposes of dispute
settlement proceedings".168 Plainly, the AD on alcoholic liquor, as imposed through CN 32/2003, and
the SUAD, as imposed through CN 19/2006, are acts a ttributable to India's Central Government and,
as such, measures of India for the purposes of WTO dispute settlement proceedings. Accordingly,
they may be the subject of a challenge by the United States.
7.108 As to whether the AD on alcoholic liquor, as imposed through CN 32/2003, and the SUAD,
as imposed through CN 19/2006, are the kind of measures that we could possibly find to be

167 US reply to Panel Question No. 16. Indeed, if the United States had intended to challenge
Sections 3(1) and 3(5) separately, it would not have been logical for the United States to have told the Panel that
it is not necessary for the Panel to enga ge in elaborate analysis of whether Sections 3(1) or 3(5) are mandatory
or discretionary, particularly since the United States considers that the mandatory vs. discretionary distinction is
a relevant distinction in this case. US second written submission, para. 80 and note 110.
168 Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 81.

inconsistent, as such, with applicable WTO rules, we note that both Parties in their submissions on
this issue have attached importance to the di stinction between mandatory and discretionary
measures.169 In the specific circumstances of this case, we see no reason not to apply this distinction.
India has confirmed, and accepts, that CN 32/2003, through which the AD on alcoholic liquor was
imposed, and CN 19/2006, through wh ich the SUAD was imposed, have th e force of law and, in that
sense, are mandatory. 170 Since under the relevant customs notifications in force on the date of
establishment of this Panel the AD on alcoholic liquor and the SUAD were required to be applied by
the Central Government to imports of subject goo ds, it is of no particular importance whether the
statutory provisions upon which the customs notifications are based are also mandatory. We therefore
see no need to examine the relevant statutory provisions in this light.
7.109 Having regard to the above considerations, we are of the view that the AD on alcoholic
liquor, as imposed through CN 32/2003, and the SUAD, as imposed through CN 19/2006, being
measures which on the date of establishment of this Panel were required to be applied and enforced,
are the kind of measures which we could possibly find to be inconsistent, as such, with applicable
WTO rules.
7.110 As a consequence, we continue with our anal ysis of the US claims that both the AD on
alcoholic liquor, as imposed through CN 32/2003, and the SUAD, as imposed through CN 19/2006,
are inconsistent, as such, with Article II:1 of the GATT 1994.
D. US CLAIMS OF VIOLATION OF ARTICLE II:1(B) OF THE GATT 1994
7.111 As previously mentioned, the United Stat es claims that the AD and the SUAD are each
inconsistent, as such, with Article II:1(a) and (b) of the GATT 1994. In terms of the order of our
assessment of the separate US claims under Article II:1(a) and Article II:1(b), we begin with the
latter, as the Appellate Body did in Argentina – Textiles and Apparel:171
"Paragraph (a) of Article II:1 contains a general prohibition against according
treatment less favourable to imports than th at provided for in a Member's Schedule.
Paragraph (b) prohibits a specific kind of pr actice that will always be inconsistent
with paragraph (a): that is, the applica tion of ordinary customs duties in excess of
those provided for in the Schedule. Becau se the language of Article II:1(b), first
sentence, is more specific and germane to the case at hand, our interpretative analysis
begins with, and focuses on, that provision."
7.112 We, too, focus on issues of inte rpretation, before examining the measures at issue in the light
of Article II:1(b).
1. Relationship between Articles II:1(b) and II:2 of the GATT 1994
7.113 The Panel notes that Article II:1(b) of the GATT 1994 provides:
The products described in Part I of the Sc hedule relating to any contracting party,
which are the products of territories of other contracting parties, shall, on their
importation into the territory to which the Sc hedule relates, and subject to the terms,
conditions or qualifications set forth in that Schedule, be exempt from ordinary
customs duties in excess of those set forth and provided therein. Such products shall

169 Pursuant to that distinction in principle only mandatory measures may be found to be inconsistent,
as such, with applicable WTO rules.
170 India's first written submission, para. 32.
171 Appellate Body Report, Argentina – Textiles and Apparel, para. 45.

also be exempt from all other duties or charges of any kind imposed on or in
connection with the importation in excess of those imposed on the date of this
Agreement or those directly and mandator ily required to be imposed thereafter by
legislation in force in the importing territory on that date.
7.114 However, Article II:2 of the GATT 1994 provides:172
Nothing in this Article shall prevent any contracting party from imposing at any time
on the importation of any product:
(a) a charge equivalent to an intern al tax imposed consistently with the
provisions of paragraph 2 of Article III in respect of the like domestic product
or in respect of an article from which the imported product has been
manufactured or produced in whole or in part;
(b) any anti-dumping or countervailing duty applied consistently with the
provisions of Article VI;
(c) fees or other charges commensurate with the cost of services rendered.
7.115 We note the United States' argument that the AD and the SUAD are ordinary customs duties
within the meaning of the first sentence of Article II:1(b) or, in the alternative, "other duties or
charges of any kind imposed on or in connection with the importation" (hereafter "ODCs") within the
meaning of the second sentence of Article II:1(b). We also note that India disagrees, arguing that they
are neither ordinary customs duties nor ODCs with in the meaning of Article II:1(b), but charges
equivalent to internal taxes imposed in respect of the like domestic product, as contemplated in
Article II:2(a). Accordingly, we initially need to analyze the relationship between Articles II:1(b) and
II:2.
7.116 The United States submits that the ordinary meaning of the term "customs duty" as it appears
in Article II:1(b) is a duty imposed on a product up on its importation into the customs territory of a
Member. According to the United States, the term "ordinary" suggests a customs duty that is "normal,
customary, usual", "belonging to or occurring in regular custom or practice", "of the usual kind, not
singular or exceptional; commonplace, mundane."
173 For the United States, an ordinary customs duty
is thus a type of customs duty that is common and occurring most regularly. Determination of
whether a measure constitutes an ordinary customs duty should be based on the structure, design and
application of the measure; the name or stated purpose the Member imposing it may have ascribed to
it is not determinative.
7.117 The United States submits that by far the mo st common and regularly occurring types of
customs duties in terms of structure, design and application are ad valorem, specific or a combination
thereof, calculated on the value or quantity respectively of a good at the time of importation. The
United States considers that ordinary customs duties are not applied on a case-by-case basis or in
response to a singular or exceptional event or set of circumstances. Instead, Members apply ordinary
customs duties as a matter of course upon importation of a product into its customs territory. For the
United States it follows that an "ordinary custom s duty" means a duty that applies to a good at the
time of importation – not on a case-by-case basis or in response to a singular or exceptional event or
set of circumstances – but as a matter of course on, or in connection with, the good's importation. An

172 Ad Notes omitted.
173 The United States refers to The New Shorter Oxford English Dictionary, L. Brown (ed) ( Clarendon
Press), 1993, Vol., 2, p. 2018.

ordinary customs duty is typically ad valorem (that is, calculated on the value of the good), specific
(for example, calculated based on the quantity of the good), or a combination thereof.
7.118 The United States considers that there is no basis in the WTO Agreement for the proposition
that a Member may impose only one customs duty properly categorized as an "ordinary customs duty"
and that any other customs duty that the Member might impose is simply something other than an
ordinary customs duty. In fact, the text refers to "ordinary customs duties". Use of the plural "duties"
suggests that Article II:1(b) prohibits "ordinar y customs duties" on the importation of products –
whether resulting from the application of one or more individual duties – in excess of those specified
in the relevant Member's Schedule.
7.119 In addition, the United States argues that ODCs are defined in relation to ordinary customs
duties in that "other duties or ch arges" mean those duties or charg es that are not "ordinary" customs
duties but are nonetheless imposed on or in connection with a product's importation. The United
States considers that a charge imposed on importa tion would necessarily constitute an ODC if it were
not an ordinary customs duty. This is because, in the United States' view, the word "other" as used in
Article II:1(b) means duties or charges other than ordinary customs duties that are applied on or in
connection with importation.
7.120 In relation to the case at hand, the United States considers that having made a prima facie case
that the AD and the SUAD are ordinary customs duties, the necessary corollary of that showing is that
neither the AD nor the SUAD is a "charge equivalent to an internal tax". The United States further
submits that in asserting that the AD and the SUAD are charges equivalent to an internal tax within
the meaning of Article II:2(a), India has implic itly characterized the AD and the SUAD as charges
"imposed on importation", since the chapeau to Artic le II:2 makes clear that it concerns measures
"imposed on importation". Therefore, if the AD a nd the SUAD are not ordinary customs duties, they
must, in the United States' view, be "other duties or charges" within the meaning of Article II:1(b).
Thus, the United States considers that the measures sp ecified in Article II:2(a) are specific types of
"other ... charges applied on or in connection with importation" that Members have agreed are
permissible. For the United States, it follows that, in effect, India in this case is asserting that, even
though the AD and the SUAD are not specified in its WTO Schedule, the AD and the SUAD are
nonetheless justified as charges equivalent to an internal tax under Article II:2(a).
7.121 India understands the term "ordinary customs dut y" in consonance with the language of
Article II:1(b) and in light of its interpretation in prior decisions of the Appellate Body and the panel
in Chile – Price Band System . India notes that the panel in Chile – Price Band System defined the
term "ordinary customs duty" as being a duty "of the usual kind, not singular or exceptional;
commonplace, mundane".
174 An ordinary customs duty is usually expressed in ad valorem or specific
duty terms. However, India maintains, this does not mean that every duty that is imposed at the time
of importation on an imported product and is expressed in ad valorem terms will necessarily qualify
as an ordinary customs duty. The Appellate Body has itself noted that "it is not necessary that each
and every duty that is calculated on the basis of the value and/or volume of imports is necessarily an
'ordinary customs duty'". 175 Likewise, the Appellate Body in Chile-Price Band System has held that
the fact that duties are expressed in ad valorem terms does not make them ODCs under the second
sentence of Article II:1(b).176
7.122 India points out in this regard that there is a separate category of duties described in
Article II:2(a) that is imposed at the border and that is based on the value and/or volume of imports
and yet, according to the Appellate Body, does not qualify either as "ordinary customs duties" or as

174 Panel Report, Chile – Price Band System, para. 7.51.
175 Appellate Body Report, Chile – Price Band System, paras. 271-272 and 274.
176 Ibid., para. 275.

ODCs.177 In particular, India notes, the Appellate Body has acknowledged that Article II:2 permits
charges such as those that are equivalent to inte rnal taxes, which are imposed at the time of
importation, but do not amount to ODCs. 178 India submits, therefore, that the United States must
look beyond the mere point at which a duty is le vied and the manner in which it is expressed, since
neither of them will necessarily mean or indicate that the duty is an ordinary customs duty or ODC.
7.123 India further argues that the United States has ef fectively blurred the distinction between an
ordinary customs duty and ODCs by suggesting that if an import duty is not one, then it must be the
other. Such an interpretation is contrary to the text of Article II:1(b) and past interpretation of
ordinary customs duties and ODCs as being two distinct charges.179
7.124 Regarding the case at hand, India submits th at the United States must establish in the
affirmative that the AD and the SUAD are ordinary cu stoms duties. In addition, the United States
must substantiate in the affirmative that the "s tructure, design and effect" of the AD and the SUAD
make them ordinary customs duties.
(a) General
7.125 The Panel notes that Article II:1(b) identifies two categories of charges: (1) ordinary customs
duties imposed on the importation of a product and (2) "other duties or charges of any kind" (ODCs)
imposed on, or in connection with, the importation of a product. We agree with the United States that
the term "other" in the phrase "other duties or ch arges of any kind" indicates that the second category
of charges, which is identified in the second sentence of Article II:1(b), is defined in relation to the
first category, which is covered by the first sen tence of Article II:1(b). The second category of
charges thus encompasses duties and charges other than ordinary customs duties.
7.126 The second category of charges is itself subdivided into two categories. It includes ODCs
imposed on the importation of a product. In this respect, the terms "other" and "of any kind" would
appear to indicate that this category is intended to constitute a residual category of charges which, like
ordinary customs duties, are imposed on the im portation of a product. In addition, the second
category of charges includes a further type of ODCs, namely, those which are imposed, not on the
importation of a product, but in connection with the importation of a product.
7.127 The issue presented in this case is whether th e residual category of charges imposed on the
importation of a product – i.e., ODCs imposed on th e importation of a product – should be considered
as comprising any and all duties and charges imposed on the importation of a product, other than
ordinary customs duties, or whether that categor y should be considered instead as encompassing only
a subset of all such duties and charges. The Un ited States argues for the former view, India for the
latter.
7.128 As an initial matter, we note that, read in isola tion, the terms "other" and "of any kind" in the
phrase "other duties or charges of any kind" could conceivably support the interpretation argued for
by the United States. However, under the customary rules of treaty interpretation, it is necessary to
read the terms of a provision in their context. Th e immediate context of the phrase "other duties or
charges of any kind" includes the fi rst sentence of Article II:1(b) which relates to ordinary customs
duties. Reading the provisions of the first and second sentence of Article II:1(b) together, we are
struck by the parallelism between the two. Both prov isions are part of one and the same paragraph of
Article II and both stipulate that, fo r scheduled products (i.e., the prod ucts described in Part I of a

177 Ibid., para. 276.
178 India refers to the Appellate Body Report on Chile – Price Band System.
179 India refers to the Panel Report on Dominican Republic – Import and Sale of Cigarettes ,
para. 7.113.

Member's Schedule of Concessions), the level of the charges identified in each sentence may not
exceed a certain level. To us, this parallelism strongly suggests that the two provisions bind the
relevant categories of charges against increase beca use the charges intended to be covered by the two
provisions are charges of the same kind.
7.129 Ordinary customs duties are typically applie d so as to afford protection to domestic
production.180 This is because, by their nature, they discriminate against imports of the products
subject to the duty. Or to put it another way, th ey inherently disadvantage imports of the subject
products vis-à-vis domestic products. Indeed, this is pr ecisely why exporting Members seek tariff
concessions. And it is in order "to preserve the va lue of tariff concessions negotiated by a Member
with its trading partners" 181 that the provisions of the first sentence of Article II:1(b) make such
concessions legally binding.
7.130 The first sentence of Article II:1(b) could not effectively serve its purpose of preserving the
value of tariff concessions if Members were not s ubject to any legal constraint when imposing ODCs
that are of the same kind as ordinary customs duties, that is to say, ODCs that inherently discriminate
against, or disadvantage, imports of the products subject to bound ordinary customs duties. Of course,
the provisions of the second sentence of Article II:1(b) do introduce a relevant constraint, by requiring
that ODCs imposed on, or in connection with, the im portation of products subject to bound ordinary
customs duties may not exceed a defined level. In this way, the second sentence of Article II:1(b)
helps prevent tariff concessions from being circumvented.182
7.131 The foregoing considerations demonstrate that there is a readily apparent rationale – anti-
circumvention – for subjecting "other duties or charges" that are of the same kind as ordinary customs
duties to disciplines that parallel those contemplat ed by the first sentence of Article II:1(b).
Accordingly, we need to pro ceed to analyze whether there would likewise be a rationale for
subjecting different kinds of "other duties or charg es" to disciplines that pa rallel those contained in
Article II:1(b), first sentence, and more specifica lly, "other duties or charges" imposed on the
importation of a product but of a kind that is different from ordinary customs duties.
7.132 In undertaking this analysis, it is useful once ag ain to look to the context of the phrase "other
duties or charges of any kind" contained in Artic le II:1(b), second sentence. In particular, it is
instructive to look to Article II:2, which identifies three distinct categories of charges. The three
categories are: (1) charges equivale nt to internal taxes imposed in respect of domestic products or
articles from which the imported products have been manufactured or produced, (2) anti-dumping or
countervailing duties and (3) charges for services rendered.
7.133 The chapeau of Article II:2 makes clear that all three categories of charges (hereafter the
"Article II:2 charges") have in common the fact that they are imposed "on the importation of [a]
product". In addition, we consider that the three categories of Article II:2 charges are all of a kind
different from ordinary customs duties. As already noted, ordinary customs duties by their nature

180 We note that Article II:4, first sentence, of the GATT 1994 confirms that Schedules of Concessions
provide "protection". We also note that according to the Appellate Body, during the course of the Uruguay
Round, negotiators of Article 4 of the Agreement on Agriculture envisioned that "ordinary customs duties
would, in principle, become the only form of border protection". Appellate Body Report, Chile – Price Band
System, para. 200.
181 Appellate Body Report, Argentina – Textiles and Apparel, para. 47.
182 It is worth noting at this point that we ar e, of course, aware of the provisions of the Understanding
on the Interpretation of Article II:1(b) of th e General Agreement on Tariffs and Trade 1994 as well as of the
provisions of Article II:1(c) of the GATT 1994, both of wh ich also form part of the context of Article II:1(b).
While we have taken these provisions into account in our analysis, we di d not find it necessary separately to
refer to them in support of our findings. Having said this, we think our interpretation of Article II:1(b) and II:2
is consistent with these provisions.

discriminate against, or disadvantage, imports of th e product subject to the duty. This is true even
where they are applied consistently with the provisio ns of Article II:1(b), first sentence. In contrast,
the charges contemplated in Article II:2 do not, in our view, inherently discriminate against, or
disadvantage, imports of a product which is subject to one or more of these charges.
7.134 Beginning with the charges identified in Article II:2(a), they are charges equivalent to internal
taxes imposed in respect of domestic products. Such charges would discriminate against, or
disadvantage, imports only if the internal taxes to which they are equivalent were not applied
consistently with the provisions of Article III:2 of the GATT 1994. However, as Article II:2(a) itself
makes clear, the relevant internal taxes must be imposed consistently with the provisions of
Article III:2. This indicates that this category of charges does not inherently discriminate against, or
disadvantage, imports.
7.135 In relation to anti-dumping or countervailing duties, referred to in Article II:2(b), it is true that
they are applied exclusively to qualifying imports. Nonetheless, it would be incorrect, in our view, to
infer from this that they inherently discriminate agai nst, or disadvantage, imports. In Article VI:1 of
the GATT 1994 Members "recognize" that dumping is to be "condemned" if it causes or threatens to
cause material injury to a domestic industry or materially retards the establishment of a domestic
industry, and Article VI:2 therefore permits, in principle, the levying of an anti-dumping duty in order
to offset or prevent dumping. Article VI:3 deal s with countervailing duties. It defines the term
"countervailing duty" as meaning a special duty levied for the purpose of offsetting any bounty or
subsidy bestowed upon the manufacture, production or export of a product. It is clear to us from these
provisions of Article VI that when a Member levies an anti-dumping or countervailing duty on
qualifying imports, and does so consistently with the provisions of Article VI – which it must do, as
Article II:2(b) also makes clear – it should not be c onsidered to discriminate against, or disadvantage,
such imports. As we understand it, the concept unde rlying Article VI is that importing Members may
levy anti-dumping and countervailing duties in orde r to protect domestic industries against the
consequences of specified unfair trade practices attrib utable to private foreign exporters or producers,
or to exporting Members. 183 Seen in this light, rather than disadvantaging imports vis-à-vis domestic
products, anti-dumping and countervailing duties a pplied consistently with the provisions of
Article VI prevent domestic products from suffering a disadvantage vis-à-vis imports.
7.136 Finally, regarding charges for services rendered, d ealt with in Article II:2(c), here again these
are charges imposed exclusively on imports. Howeve r, the services in return for which this type of
charge is imposed are services by governmental authorities which are connected with importation,
that is to say, services which, by definition, are provided exclusively in relation to imports. 184 A
charge imposed for services provided in connec tion with importation in our view does not
discriminate against, or disadvantage, imports, at least not if it is commensurate with the cost of
services rendered. Needless to say, the text of Artic le II:2(c) in fact contemplates charges which are
commensurate with the cost of services rendered. Also, Article VIII:1(a) of the GATT 1994 requires
that such charges "be limited in amount to the approximate cost of services rendered". 185 We
therefore consider that the kind of charges cont emplated in Article II:2(c) does not inherently
discriminate against, or disadvantage, imports.

183 The Appellate Body in US – Line Pipe stated that "safeguard measures differ from, for example,
anti-dumping duties and countervailing duties to counter su bsidies, which are both measures taken in response
to unfair trade practices." Appellate Body Report, US – Line Pipe, para. 80.
184 We note that Article VIII of the GATT 1994, whic h deals with the type of charges at issue in
Article II:2(c), is entitled "Fees […] connected with Impor tation […]". We further note that the GATT panel in
US – Customs User Fee likewise considered that the services in ques tion were services provided to importers.
Panel Report, US – Customs User Fee, para. 77.
185 The GATT panel in US – Customs User Fee was of the view that despite the slightly different
wording of the "cost of services" limitations in Artic les II:2(c) and VIII:1(a), no difference in meaning was
intended. Panel Report, US – Customs User Fee, para. 75.

7.137 Having determined that Article II:2 charges ar e of a kind different from ordinary customs
duties, we now turn to consider whether there woul d be a rationale for subjecting such charges to the
disciplines contained in Article II:1(b), second senten ce, which parallel, and protect, those contained
in Article II:1(b), first sentence. In this regard, we recall that the first sentence of Article II:1(b)
serves the purpose of preserving the value of tariff c oncessions. We consider that the first sentence of
Article II:1(b) can serve this purpose even as Members impose additional charges of the kind
contemplated in Article II:2 on the importation of pr oducts subject to a tariff binding. As we have
explained, Article II:2 charges differ from ordinary customs duties (and "other duties or charges" that
are of the same kind as ordinary customs duties) in th at they do not inherently discriminate against, or
disadvantage, imports. The imposition of such ch arges on the importation of products subject to a
tariff binding does not inherently lessen the value of the relevant tariff concessions, which, to repeat,
are concessions relating to discriminatory charges on imports. Accordingly, in view of the different
nature of the Article II:2 charges, we see no obvi ous rationale for subjectin g such charges to the
disciplines contained in Article II:1(b), second sentence. It is important to remember in this respect
that the Article II:2 charges are each subject to sp ecific disciplines, set out in Articles III:2, VI and
VIII:1(a) of the GATT 1994 and designed, inter alia , to prevent these charge s from being used to
discriminate against, or disadvantage, imports.
7.138 Furthermore, we think it implausible to assume that the GATT contracting parties would have
accepted to bind charges that do not inherently discrim inate against, or disadvantage, imports. To see
this, consider a GATT contracting party who on th e date of the GATT 1947 imposed on imports of a
product subject to a tariff binding a charge equivalent to an internal tax imposed consistently with the
provisions of Article III:2 in respect of the like domestic product. Subsequently, that contracting
party determined that it was appropriate, e.g., for fi scal policy reasons, to raise the level of internal
taxation. Under the second sentence of Article II:1( b), that contracting party could not impose "other
duties or charges" on imports that exceeded t hose imposed on the date of the GATT 1947. If the
charge equivalent to the internal tax imposed on the like domestic product were considered to
constitute such an "other duty or charge" subject to the disciplines contained in Article II:1(b), second
sentence, the contracting party in question would have been presented with a dilemma. It could either
have refrained from implementing what it had determined to be sound fiscal policy, thus foregoing the
additional tax revenue to be generated by the planned increase in the level of internal taxation. Or the
relevant contracting party could have elected to put the like domestic product at a competitive
disadvantage by subjecting it to an internal tax higher than the corresponding charge applied to
imports of such product. 186 We do not believe that GATT contr acting parties in 1947, or in 1994,
would have agreed to abide by disciplines that could easily have produced such consequences.
7.139 This view draws further contextual support from the chapeau of Article II:2 which makes
clear that nothing in Article II prevents any contracting party from imposing "at any time" on the
importation of any product one or more of the Artic le II:2 charges. The phrase "at any time", which
qualifies the verb "impose", is yet another elemen t pointing to a difference between the Article II:2
charges and the "other duties or ch arges" identified in Article II:1(b), second sentence. To recall,
Article II:1(b), second sentence, stipulates that import s of a product are to be exempt from all other
duties or charges of any kind imposed on the importa tion in excess of those imposed "on the date of
this Agreement" or those directly and mandatorily re quired to be imposed thereafter by legislation "in
force in the importing territory on that date". Accordingly, whereas, under the GATT 1947, the "other
duties or charges" identified in Article II:1(b), sec ond sentence, could be imposed only if they existed
"on the date" of the GATT 1947 (and then only at the levels existing on that date), or pursuant to

186 It is no answer to say that the relevant contracting party could instead have applied the relevant
internal tax also to imported products. Article II:2 indicates that border charges may be used to adjust for
internal taxes imposed on domestic products. Moreov er, there may exist a domestic legal bar to subjecting
imported products to an internal tax as opposed to a border charge.

legislation "in force" on that date, the Article II:2 ch arges could be imposed "at any time". That is to
say, they could be introduced, and by implication increased, also after the date of the GATT 1947.
7.140 The aforementioned difference in the texts of the chapeau of Article II:2 and the second
sentence of Article II:1(b) is consistent with our vi ew that while there is a readily apparent rationale
for binding duties or charges that are of the same kind as ordinary customs duties (i.e., those covered
by Article II:1(b), second sentence), there is no obviou s rationale for binding Article II:2 charges (i.e.,
charges which are not of the same kind as ordinary customs duties) and that, in principle, Members
are therefore free to introduce new, or increase exis ting, charges of this kind "at any time", provided,
of course, they do so in accordance with the applicable requirements.
7.141 To sum up, consideration of relevant context, particularly of Article II:1(b), first sentence, and
Article II:2, leads us to the view that, notwithst anding the broad scope of the phrase "other duties or
charges of any kind" in Article II:1(b), second sente nce, the residual category of "other duties or
charges" imposed on the importation of a product should not be considered as comprising any and all
duties or charges imposed on the importation of a product other than ordinary customs duties.
Instead, the relevant context in this case indi cates that, consistently with the well-established ejusdem
generis canon of construction, the category of "other duties or charges" imposed on the importation of
a product should be considered as encompassing only su ch duties or charges as are of the same kind
as ordinary customs duties, i.e., charges which inhe rently discriminate agai nst, or disadvantage,
imports. As a result, the category of "other duties or charges" imposed on the importation of a
product in our view does not comprise the three ca tegories of charges identified in Article II:2,
notwithstanding the fact that the latter charges ar e also imposed on the importation of a product and
may be applied in respect of a product subject to a tariff binding.
187
7.142 The above interpretation of Artic le II:1(b), second sentence, is also consistent with the object
and purpose of the GATT 1994. Notably, that in terpretation does not run counter to the goal,
expressed in the preamble to the GATT 1994, of substa ntially reducing "tariffs" with a view to, e.g.,
raising standards of living, expanding the pro duction and exchange of goods, etc. Under our
interpretation, duties and charges other than or dinary customs duties which are imposed on the
importation of products described in Part I of a Member's Schedule of Concessions and which
inherently discriminate against, or disadvantage, imports (and hence are like "tariffs") are subject to
the strict disciplines contained in Article II:1( b), second sentence, whereas duties and charges which
do not inherently discriminate against, or disadvant age, imports (and hence are unlike "tariffs") are
not subject to those strict disciplines, but to others.
7.143 Finally, we note that our interpretation of Article II:1(b), second sentence, is also in line with
official GATT or WTO reports or decisions that specifically address the scope of the phrase "other

187 Regarding the broad phrase "other duties or charges of any kind", we note in passing that if the
drafters of Article II:2 had intended for the charges identifie d in Article II:2 to be considered as "other duties or
charges of any kind" within the meaning of Article II:1(b), second sentence, it would not only have been
possible, but also more natural, to express such an intention in different and clearer terms. For instance,
Article II:2 could have been cast in the following terms:
"Nothing in this Article shall prevent any contracting party from imposing on any product at
any time, on or in connection with importation, such other duty or charge (other than an
ordinary customs duty) as is:
(a) equivalent to an internal tax imposed in respect of a like domestic product …;
(b) imposed to offset or prevent dumping ... or to offset any bounty or subsidy ...
bestowed upon the manufacture, production of export of any product ...;
(c) commensurate with the cost of services rendered."
Wording along such lines would have clearly indicated the intention that the Article II:2 charges are to
be considered "other duties or charges of any kind" within the meaning of Article II:1(b), second sentence. Yet,
the above wording is very different from the actual wording adopted.

duties or charges". Thus, the 1955 Report of the Review Session Working Party on "Schedules and
Customs Administration" states in relation to Article II:1(b) and (c) that:188
"It is considered that the language of this sentence [the second sentence of
Article II:1(b) and (c)] is all-inclusive for it speaks of '… all other duties or charges of
any kind imposed on or in connection with importation', and paragraph 2
[Article II:2], which sets out the special charges which do not fall under paragraph 1,
does not refer to charges on transfers."
7.144 Subsequently, in 1980, the GATT Council adopted a proposal by the GATT Director-General
concerning introduction of a loose-leaf system for the Schedules of Concessions. The Council
decision on "Introduction of a Loose-Leaf System for the Schedules of Tariff Concessions" contains
the following paragraph discussing the phrase "other du ties or charges" as it appears in Article II:1(b),
second sentence:189
"A similar question arises with respect to th e date of application to each concession
for the purpose of Article II:1(b) of the Gene ral Agreement. It has been agreed that
the date, as of which "other duties or charges" are bound, applicable to any
concession in a consolidated schedule shoul d be, for the purpose of Article II, the
date of the instrument by which the c oncession on any particular item was first
incorporated into the General Agreement (c f. BISD 7S/115-116). In order to draw
full advantage of the loose-leaf system by making it as transparent as possible as to
the status of all concessions, I propose that the instrument by which the concession
was first incorporated into a GATT Schedule be indicated in a special column
(column 6 of the proposed format in the annex to document L/4821/Add.1) of the
loose-leaf schedules. I wish to point out in this co nnexion that such "other duties or
charges" are in principle only those that discriminate against imports. As can be seen
from Article II:2 of the General Agreement, such "other duties or charges" concern
neither charges equivalent to internal taxes, nor anti-dumping or countervailing
duties, nor fees or other charges commensurate with the cost of services rendered".
7.145 According to the United States, the phrase "such 'other duties or charges'" in the above-quoted
paragraph appears to be referring to a particular subs et of "other duties or charges", namely, those that
needed to be bound for the purposes of Article II:1(b), second sentence. 190 We are not persuaded by
this interpretation. It is the case that the phrase singl ed out by the United States refers to "other duties
or charges" on importation within the meaning of Article II:1(b), second sentence, but neither the
highlighted passage nor the paragraph of which it is part states or implies that there exists a subset of
"other duties or charges" on importation, or that Article II:2 identifies duties or charges falling within
such a category. In our view, the adjective "such" serves as a simple reminder to the reader that the
concept of "other duties or charges" has been introduced previously in the same paragraph.
7.146 More recently, the Appellate Body very briefly touched upon the issue in Chile – Price Band
System, opining that:191
"Article II:2 of the GATT 1994 sets out exam ples of measures that do not qualify as
either 'ordinary customs duties' or 'other duties or charges'. These measures include

188 GATT document L/329, adopted on 26 February 1955, BISD 3S/205, 209, para. 7.
189 GATT document C/107/Rev.1, adopted on 26 March 1980, BISD 27S/22, 24, para. 9 (italics
original; underlining added).
190 US reply to Panel Question No. 68.
191 Appellate Body Report, Chile – Price Band System, para. 276.

charges equivalent to internal taxes, an ti-dumping and countervailing duties, and fees
or other charges commensurate with the cost of services rendered."
7.147 This statement by the Appellate Body, offered w ithout elaboration, is interesting in that it
touches upon an issue we have not yet addressed se parately, namely, whether any of the Article II:2
charges could be considered as "ordinary customs du ties" within the meaning of Article II:1(b), first
sentence. Neither Party to this dispute has argued that they could. Like, apparently, the Appellate
Body, we consider that Article II:2 charges are not "ordinary customs duties" within the meaning of
Article II:1(b), first sentence. As is clear from the above considerations, we are of this view because
Article II:2 charges are not of the same kind as ordinary customs duties.192
7.148 Our view that Article II:2 charges are not subject to the obligations set out in Article II:1(b)
has significant implications. In particular, it means that Article II:2 does not set out exceptions to the
positive obligations contained in Article II:1(b). Accordingly, the sub-paragraphs of Article II:2
cannot be invoked to justify a breach of the obligations contained in Article II:1(b). 193 In saying this,
we are mindful of the fact that the chapeau of Article II:2 opens with the phrase "[n]othing in this
Article [Article II] shall prevent ...". That phrase is similar to the phrase "nothing in this Agreement
shall be construed to prevent ..." in the chapeau of Article XX of the GATT 1994 which is entitled
"General Exceptions" and which jurisprudence conf irms sets out exceptions to positive obligations.
However, we do not consider that a phrase like "nothi ng in this Article shall prevent ..." always and
necessarily introduces an exception of the kind describ ed above. We think that instead, as in the case
of Article II:2, such a phrase may also serve to pr ovide confirmation, clarification or reassurance and
carries no necessary implication that a measure caught by a clause introduced by such a phrase would
otherwise (i.e., but for that phrase and the clause it introduces) be prevented by a positive obligation
set out elsewhere in the relevant article or agreement.
7.149 Another implication flowing from the view that Article II:2 charges are not subject to the
obligations set out in Article II:1(b) is that it is in correct to suggest, as the United States does, that if a
given charge is not an ordinary customs duty within the meaning of Article II:1(b), first sentence, it
must necessarily be an "other duty or charge" with in the meaning of Article II:1(b), second sentence.
To be sure, the charge in question could be such an "other duty or charge". Equally, however, it could
be one of the Article II:2 charges.
(b) Case-specific
7.150 The Parties to this dispute disagree on whethe r the measures challenged by the United States,
the AD and the SUAD, are caught by the provisi ons of Article II:1(b) and, consequently,
Article II:1(a). The United States argues that the measures at issue are ordinary customs duties or, in
the alternative, "other duties or charges" on the im portation of certain products. As such, they would
be subject to the obligations laid down in Ar ticle II:1(b). India disagrees, submitting that the
measures in question are charges on the importation of products which are equivalent to internal taxes
imposed in respect of like domestic products. As su ch, the measures at issue would not be subject to
the obligations set out in Article II:1(b).
7.151 As noted earlier, the United States considers th at an "ordinary customs duty" means a duty
that applies to a good at the time of importati on – not on a case-by-case basis or in response to a

192 Being of the same kind as an ordinary customs duty is a necessary, but not a sufficient condition, for
a charge to be characterized as an "o rdinary customs duty". As we have i ndicated, charges that are of the same
kind as ordinary customs duties may fall within the category of "other duties or charges".
193 In other words, the sub-paragraphs of Article II:2 do not provide affirmative defences to a claim of
violation of Article II:1(b). We note in this respect that the United States, in response to Panel Question No. 44,
has indicated that, in its view, Article II:2 does not prov ide for exceptions that are affirmative defences. India
appears to agree. India's comments on the US reply to Panel Question No. 44.

singular or exceptional event or set of circumstance s – but as a matter of course on, or in connection
with, the good's importation. According to the United States, an ordinary customs duty is typically an
ad valorem duty, a specific duty, or a combination thereof. It is useful and instructive to consider the
concept of "other duties or charges" as it appear s in Article II:1(b), second sentence, and the concept
of "charges on imports equivalent to internal taxes on like domestic products", as described in
Article II:2(a), in the light of the elements relied upon by the United States to define the concept of
"ordinary customs duties".
7.152 We begin with the concept of "other duties or charges". In our view, this concept
encompasses duties or charges that apply to goods at the time of their importation and are imposed on
the goods' importation.194 It is also clear that "other duties or charges" may be expressed in the form
of ad valorem duties or charges, specific duties or charges, or a combination thereof. 195 While we
agree that the phrase "other duties or charges" c ould possibly cover duties or charges imposed "on a
case-by-case basis or in response to a singular or ex ceptional event or set of circumstances", we are
not persuaded that that phrase cannot cover duties or charges imposed "as a matter of course" on the
importation of goods. Indeed, the panel in Dominican Republic – Import and Sale of Cigarettes found
that a 2 percent ad valorem temporary surcharge imposed by the Dominican Republic on the
importation of all goods entered fo r consumption constituted an "other duty or charge" within the
meaning of Article II:1(b), second sentence.196 As we understand it, this surcharge was imposed "as a
matter of course" on the importation of subject goods, and not "on a case-by-case basis or in response
to a singular or exceptional event or set of circumst ances". Thus, the elements of the US definition of
"ordinary customs duties" do not allow us to distin guish such duties from "other duties or charges"
which are imposed as a matter of course on the importation of a good.
7.153 Next, we compare the elements used in the US definition of "ordinary customs duties" with
charges on imports equivalent to internal taxe s on like domestic products, as described in
Article II:2(a). We note that Article II:2(a) refers to charges, not duties. However, since the term
"charge" is defined as "pecuniary bur den" or "liability to pay money" 197, the term "charges" in our
view includes duties. Further, it is not apparent to us why charges equivalent to internal taxes could
not likewise be applied at the time of importation. Moreover, as also pointed out by the United States,
the chapeau to Article II:2 contempl ates that charges equivalent to in ternal taxes are imposed "on the
importation" of a product. The phrase "on the impo rtation" in Article II:2 parallels the phrase "on
their importation" in Article II:1(b), first senten ce, and also the phrase "on ... the importation" in
Article II:1(b), second sentence. Given that Article II:1(b) and Article II:2 use identical language, and
that the liability to pay ordinary customs duties is typically triggered by importation, we see no reason
why the liability to pay charges equivalent to in ternal taxes could not likewise be triggered by
importation.198
7.154 In relation to the US argument that ordinary customs duties are applied "as a matter of course"
on the importation of a product and not on a case-by-case basis or in response to a singular or
exceptional event or set of circumstances, it seems to us that charges equivalent to internal taxes could

194 We recall that Article II:1(b), second sentence, refers to "other duties or charges" imposed " on or in
connection with […] importation" (emphasis added).
195 The Appellate Body indicated that most "oth er duties or charges" within the meaning of
Article II:1(b), second sentence, are expressed in ad valorem and/or specific terms. Appellate Body Report,
196 Panel Report, Dominican Republic – Import and Sale of Cigarettes, paras. 7.11, 7.18 and 7.25.
197 Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 382.
198 The fact that the internal taxes to which the relevant charges are equivalent link liability to events
other than importation does not imply that the liability fo r the charges on imports ca nnot, or shoul d not, arise
from importation. In fact, in the case of imports, issues of jurisdiction would in most cases preclude linking
liability to the same events.

equally be applied "as a matter of course" on the impo rtation of a product. Internal taxes are applied
"as a matter of course" on like domestic products and not on a case-by-case basis or in response to a
singular or exceptional event or set of circumstan ces, certainly where tho se taxes are imposed to
generate revenue. Logically, the same would then be true for any charges imposed on imports which
are equivalent to such internal taxes. As regards the basis of calculation, in Chile – Price Band
System the Appellate Body indicated that Article II:2 ch arges, too, "may be based on the value and/or
volume of imports, and yet Article II:2 distin guishes them from 'ordinary customs duties ...'". 199 If,
then, Article II:2 charges may take the form of ad valorem or specific charges, we think they may also
be calculated on the basis of some combination of value and volume of imports.
7.155 Accordingly, based solely on the elements of the US definition of "o rdinary customs duties"
such duties cannot be distinguished from charges whic h are imposed as a matter of course on imports
and which are equivalent to internal taxes on lik e domestic products. We note, as an additional
matter, the term "ordinary" in the phrase "ordin ary customs duties". It is defined as meaning
"occurring in regular custom or practice; normal, cust omary, usual" or "of the usual kind, not singular
or exceptional".200 We do not think that the term "ordinary" is intended to define the duties caught by
the first sentence of Article II:1(b) based on the form they take. At any rate, it is not apparent to us
why an Article II:2(a) charge could not take the same form as a "normal" or "customary" customs
duty, or a customs duty "of the usual kind".201
7.156 As the above comparison shows, there can be char ges equivalent to internal taxes within the
meaning of Article II:2(a), and also "other duti es or charges", which meet the elements of the
definition of "ordinary customs duties" put forward by the United States. 202 It follows that a
demonstration that a charge satisfies these elements is not sufficient, by itself, to establish that the
relevant charge is an ordinary customs duty (or an "other duty or charge" imposed on the importation
of a good) under Article II:1(b) as opposed to a ch arge equivalent to an internal tax under
Article II:2(a). For such a charge, it is therefore ne cessary to establish, in addition, that it is of the
same kind as, or in the nature of, an ordinary cu stoms duty (or an "other duty or charge" imposed on
the importation of a good). Consistently with our analysis above, we consider that a charge which
meets the elements of the US definition is in the na ture of an ordinary customs duty (or an "other duty
or charge" imposed on the importation of a good) if it inherently discriminates against, or
disadvantages, imports.
7.157 Where the aforementioned additional demonstration has been made, the relevant charge could
be either an ordinary customs duty or an "other duty or charge" imposed on the importation of a good.
A further inquiry would then be called for to dete rmine whether the charge in question qualifies as an
ordinary customs duty under the first sentence of Article II:1(b) or as an "other duty or charge" under
the second sentence of Article II:1(b). It is in this context that the US argument that a particular
product can be subject to more than one ordinary customs duty would be relevant. As our assessment
below will show, to dispose of the claims before us, we need not, and hence do not, examine the
merits of this argument.
7.158 The United States has not sought to develop and apply a general test for determining whether
a charge which satisfies the elements of its defi nition of "ordinary customs duties" inherently

199 Appellate Body Report, Chile – Price Band System, para. 276.
200 Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 2017. The French and Spanish ve rsions of Article II:1(b), first sentence, refer to "droits
de douane proprement dits" and "derechos de aduana propiamente dichos", respectively.
201 Likewise, we do not see why an Article II:2(a) charge could not take the same form as a customs
duty "properly so called".
202 Indeed, this may be one reason why Article II:2 was included in Article II (which deals with
Schedules of Concessions), to make clear that some charges, even though they may look like ordinary customs
duties, or "other duties or charges", are charges of a different kind and, as such, subject to different disciplines.

discriminates against, or disadvantages, imports. In itself, this does not pose a problem. The United
States can, in our view, seek to establish by referenc e to the provisions of Article II:2 that a charge on
the importation of a good is in the nature of an ordinary customs duty (or an "other duty or charge"
imposed on the importation of a good). As we ha ve explained, Article II:2 lists three specific
categories of charges on the importation of a good that do not inherently discriminate against, or
disadvantage, imports.
7.159 In the case before us, the debate between the Pa rties has revolved almost exclusively around
the issue of whether the measures at issue fall within the scope of Article II:2(a) (dealing with charges
equivalent to internal taxes). In this situation, if the United States as the complaining party cannot
establish that a charge which meets the elements of its definition of "ordinary customs duties" falls
outside the scope of Article II:2(a), it cannot successfully establish that the charge is in the nature of
an ordinary customs duty (or an "other duty or charge" imposed on the importation of a good). 203
Conversely, if the United States can establish that such a charge falls outside the scope of
Article II:2(a), II:2(b) and II:2(c), bear ing in mind the Appellate Body report on Chile – Price Band
System, the issue could arise whether Article II:2 exhaustively defines the universe of charges that do
not inherently discriminate against, or disadvantag e, imports or whether it identifies only examples of
such charges.204 In the latter case, a showing that a charge falls outside the scope of Article II:2 might
not be sufficient, per se, to bring that charge within the scope of Article II:1. The United States might
also need to raise a presumption that the charge in question is not some other charge (not identified in
Article II:2) that does not inherently discriminate ag ainst, or disadvantage, imports. In view of our
findings below, we need not attempt to resolve th ese issues. Accordingly, we refrain from addressing
these issues further.
7.160 Below we will examine the measures at issue in the light of the provisions of Article II:2(a).
The United States argues that India as the Part y asserting that the AD on alcoholic liquor and the
SUAD are justified under Article II:2(a) bears the burden of substantiating that assertion. We
consider that, in the circumstances of the present case, it is incumbent upon the United States to make
a prima facie case that the measures at issue fall outside the scope of Article II:2(a). 205 In a case
where the United States has not sought to use a genera l test to demonstrate that a charge satisfying the
elements of its definition of "ordinary customs duties" inherently discriminates against, or
disadvantages, imports, it would be improper, in our view, to relieve the United States of the burden
of making a prima facie case that such a charge falls outside the scope of Article II:2(a). 206 To
reiterate, a charge can only be of the kind that inherently discriminates against, or disadvantages,
imports if it falls outside the scope of Article II:2(a).207

203 To recall, the situation we are referring to is one where the United States has not otherwise
successfully demonstrated, using an appropriate general te st, that a charge which meet s the elements of the US
definition of "ordinary customs duties" discriminates against, or disadvantages, imports. Also, we are assuming
that the issue of whether th e charge being challenged falls within th e scope of Article II:2(a) is objectively
presented, which is the situation of our case.
204 We recall, in this regard, that the Appellate Body in Chile – Price Band System observed that
Article II:2 sets out "examples" of measures which do not qualify as either ordinary customs duties or other
duties or charges within the meaning of Article II:1(b). Appellate Body Report, Chile – Price Band System ,
para. 276.
205 Having said this, it is clear that both the United St ates and India need to pr ove their own assertions
of fact.
206 We recall our view that a demonstration that a char ge satisfies the elements of the US definition of
"ordinary customs duties" would not be sufficient to establish that the charge falls outside the scope of
Article II:2(a).
207 We are not taking a position here on whether a showing that a charge falls outside the scope of
Article II:2(a) would be sufficient to establish that it falls within the scope of Article II:1(b). As we have said,

7.161 The mere fact that the responding party, due to greater familiarity with, and readier access to,
its domestic laws and policies, might find it easier than the complaining party to supply information to
a panel that would aid a determination of whether a particular border charge is equivalent to an
internal tax and falls within the scope of Article II:2(a) is not a sufficient reason for shifting the
burden of proof onto the responding party. 208 At any rate, any difficulties the complaining party
might have encountered in collecting relevant information could be taken into account, as appropriate,
in determining how much and what kind of eviden ce is required for the complaining party to sustain
its burden of establishing a prima facie case that the border charge it is challenging falls outside the
scope of Article II:2(a).
209 Thus, we consider that a complain ing party could seek to make a prima
facie case, e.g., by presenting a duly substantiated explanation of where it l ooked for information on
relevant internal taxes, what means of research it used 210, what it found and why what it found, or did
not find, warrants the inference that the challe nged border charge falls outside the scope of
Article II:2(a). We should note in this connection that in the present case there is no indication that
relevant information was not accessible to the United St ates. As a matter of fact, rebuttal evidence
submitted by the United States suggests that it was able to collect relevant information.211
7.162 We note that the United States in response to a question from the Panel referred to the GATT
panel report on US – Customs User Fee , saying that it appeared to require the responding party to
demonstrate the applicability of Article II:2(c) of the GATT 1994. 212 That panel observed that its
capacity to judge whether particular government ope rations of the responding party were "services"
within the meaning of Article II:2(c) was limited by the quality of the information presented to it.
Apparently, this was the reason why the panel reach ed the view that "the government imposing the
fee should have the initial burden of justifying any government activity being charged for".213
7.163 We observe that the GATT panel in US – Customs User Fee addressed the provisions of
Article II:2(c) and did not purport to make a ge neral statement about a ll sub-paragraphs of
Article II:2. In view of our findings below, we ha ve no need in this case to examine the measures at
issue in the light of the provisions of Article II:2(c). As a result, we do not comment upon the
approach followed by the GATT panel in US – Customs User Fee. Moreover, as we have explained,
we consider that, in the particular circumstance s of the present case, we would not be justified in
requiring India initially to make a prima facie case that the border charges at issue fall within the
scope of Article II:2(a).

in this case it can be left open what, if anything, more a complaining party would need to establish once it has
demonstrated that the relevant charge falls outside the scope of Article II:2(a).
208 It is worth noting in this conn ection that according to the Appellate Body there is "nothing in the
WTO dispute settlement system to support the notion that the allocation of the burden of proof should be
decided on the basis of a comparison between the respective difficulties that may possibly be encountered by the
complainant and the respondent in collecting information to prove a case". Appellate Body Report, EC –
Sardines, para. 281.
209 The Appellate Body stated that "how much and precisely what kind of evidence will be required to
establish such a presumption [that a claim of violation has merit] will necessarily vary from measure to measure,
provision to provision, and case to case". Appellate Body Report, US – Wool Shirts and Blouses, p. 14.
210 In this regard, in the case before us, the United States could, for instance, have availed itself of the
assistance of Indian tax lawyers, or of international or Indian accounting firms with a tax practice.
211 Exhibits US-23, -27, -28 and -29 contain the value-added tax legislation of four Indian States.
212 US reply to Panel Question No. 44.
213 Panel Report, US – Customs User Fee , para. 98. The Appellate Body in US – Wool Shirts and
Blouses referred to this paragraph in a footnote, citing it as an example of a case where the responding party
invoked certain provisions as a defence and the panel explicitly required the responding party to demonstrate the
applicability of the provision it was a sserting. Appellate Body Report, US – Wool Shirts and Blouses ,
footnote 23.

7.164 We note, in addition, that the United States app ears to accept that in at least some situations
the complaining party would have the burden of establishing that the border charge being challenged
does not meet the criteria of a particular paragra ph of Article II:2. Specifically, the United States
argues that in cases where the compla ining party asserts that the measure at issue is an "other duty or
charge" imposed on or in connection with importa tion in breach of Article II:1(b), second sentence,
and the responding party contends that the measure meets the criteria of Article II:2(a), (b) or (c), then
the complaining party must also establish that the me asure in dispute does not meet the criteria of the
particular paragraph of Article II: 2 identified by the responding party. 214 We recall that in our case
the United States asserts, in the alternative, that th e Indian border charges it is challenging are "other
duties or charges" imposed on importation and br each Article II:1(b), second sentence. Moreover,
although we do not consider that in the circumstances of this case India is required initially to identify
a particular paragraph of Article II:2 and contend that the challenged border charges meet the criteria
of that paragraph before the United States is to establish that the charges in question do not meet these
criteria, we note that India in this case has in any event done so as early as its first written submission.
2. Article II:2(a) of the GATT 1994
7.165 To resolve the issues presented in this case, the Panel needs to go beyond the analysis already
made of the provisions of Article II:2 of the GATT 1994. In particular, the Panel needs to undertake a
detailed examination of the provisions of Article II:2(a). To recall, Article II:2(a) states:215
Nothing in this Article shall prevent any contracting party from imposing at any time
on the importation of any product:
(a) a charge equivalent to an intern al tax imposed consistently with the
provisions of paragraph 2 of Article III in respect of the like domestic product
or in respect of an article from which the imported product has been
manufactured or produced in whole or in part.
7.166 The Panel begins its examination of the provi sions of Article II:2(a) with some general
observations regarding its structure and elements.
(a) General
7.167 The first observation to be made is that the te xt of Article II:2(a), read together with the
chapeau of Article II:2, refers to two distinct char ges: (1) an "external", or border, charge imposed on
the importation of a (foreign-made) product and (2) an internal tax, or charge
216, imposed in respect of
the like domestic product. 217 While there is nothing unusual ab out an "external" charge being
imposed on a product to be imported, it is noteworthy that, by its terms, Article II:2(a) appears to

214 US reply to Panel Question No. 44.
215 Ad Note omitted.
216 It is clear from the text of Article III:2 of the GATT 1994 that internal taxes are internal charges.
Article III:2 provides (note omitted):
The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal
charges of any kind in excess of those applied, directly or indirectly, to like domestic
products. Moreover, no contracting party shall otherwise apply internal taxes or other internal
charges to imported or domestic products in a manner contrary to the principles set forth in
paragraph 1.
217 For the purposes of this dispute, the special case of internal taxes imposed on "articles" from which
the imported product has been manufactured or produced in whole or in part can be left aside as none of the
Parties has presented arguments based on the clause referring to "articles".

contemplate an internal charge imposed in respect of the like domestic product only.218 Thus, analysis
of the basic structure and elements of Article II:2(a) suggests that it refers to a situation in which a
product to be imported is subject to an "external", or border, charge whereas the like domestic product
is subject to an internal charge.
7.168 Equally significant is the fact that Article II: 2(a) envisages the existence of a relationship
between the border charge and the internal charge that goes beyond them being imposed in respect of
a like product. More particularly, Article II:2(a) deals with situations where a border charge on a
product to be imported is "equivalent" to an in ternal charge on the like domestic product.
Accordingly, for a border charge to fall within the scope of Article II:2(a), the relationship between it
and the internal charge must be one of "equivalence".
7.169 Regarding the internal tax, or charge, imposed in respect of the like domestic product, it is
pertinent to add, taking account of the particular fact s of this case, that the text of Article II:2(a) does
not indicate that the internal tax needs to be imposed, in the case of a Member with a federal structure,
by the central government of that Member. Certai nly, Article II:2(a) implies a requirement that the
internal tax be an internal tax attributable to th e Member imposing an equivalent border charge. But,
in our view, this does not, and should not, preclude th e possibility of the internal tax referred to in
Article II:2(a) being imposed by, and at the level of, sub-federal governments.219
7.170 A further issue, linked to the previous one, arises from the fact that commonly, in Members
with a federal structure, the power of imposing border charges on the importation of products is
reserved to the central government. This leads to the possibility of the central government of a
Member imposing a border charge and claiming that it is equivalent to internal taxes imposed by, and
at the level of, sub-federal governments of that Memb er. We see nothing in the text of Article II:2(a)
to suggest an intention to rule out, a priori , the possibility of "equivalence" existing as between
measures emanating from different leve ls of government. In other words, we consider that the terms
of Article II:2(a) are sufficiently broad to c over federal border charges of a Member that are
equivalent to sub-federal internal taxes of that Member.220
7.171 Another element to which we wish to call atten tion already at this stage is the reference in
Article II:2(a) to the provisions of Article III:2. The phrase "consistently with the provisions of
paragraph 2 of Article III" is interposed between the term "imposed" and the phrase "in respect of like
domestic products". The term "im posed" in Article II:2(a) relates to the internal tax and not the
border charge. Hence, the text contemplates a situation in which the internal tax is imposed
consistently with Article III:2. In other words, the text of Article II:2(a) appears to adopt an "outside-
in" perspective, in the sense that it seems to take the border charge as a given and the internal tax as
something to be adjusted to it. This perspectiv e is understandable in a provision that is part of
Article II, entitled "Schedules of Concessions". Presumably, the question Article II:2(a) sought to
answer was under what circumstances contracting parties who at the time were maintaining border
charges of a kind different from ordinary customs du ties could continue to maintain them separately
from, and in addition to, bound ordinary customs duties or "other duties or charges" within the
meaning of Article II:1(b). In any event, the key poi nt to be retained in relation to the reference to
Article III:2 is that the text of Article II:2(a), on its face, draws a distinction between the concepts of

218 The European Communities suggests that Article II:2(a) could also cover a border charge equivalent
to an internal tax imposed in respect of the like domestic and imported product in cases where the domestic
product is subject to a higher tax rate than the importe d product in respect of which the same internal tax is
imposed. EC third party written submission, para. 66. In the present case, there is no need to decide whether
the situation described by the European Communities would in fact be one that would be covered by the
provisions of Article II:2(a).
219 We note that neither Party to this dispute has suggested otherwise.
220 Here again, we note that neither Party to this dispute has suggested otherwise.

"equivalence" and "consistency with Article III:2". We understand that neither Party disputes that the
concepts of "equivalence" and "consistency with Article III:2" are separate and distinct concepts.
7.172 With the foregoing remarks in mind, we now turn to examine in more detail the two concepts
of "equivalence" and "consistency with Article III:2" as they appear in Article II:2.
(b) "equivalent"
7.173 The United States argues that in Article II:2(a) the term "equivalent" is used to describe a
relationship between a "charge" and "internal tax". The ordinary mean ing of the word "equivalent" is
"equal in force, amount, or value" 221; "corresponding or virtually identical especially in effect or
function" 222 ; "virtually the same thing; having the same effect" 223 . Taken in the context of
Article II:2(a), an "equivalent" charge thus appear s to mean a charge imposed on importation that
corresponds to and is equal in force, amount or value, or virtually identical in effect, function or
amount, to an internal tax imposed on the like dom estic product. The United States considers that
examination of whether two measures are "equivale nt" requires an examination of the structure,
design and effect of the measures.
7.174 In the United States' view, while the amount of th e respective liability is certainly a factor in
whether the charge on the imported product and th e internal tax on the like domestic product are
"equivalent", the ordinary meaning of the word "e quivalent" does not appear to prejudge the aspects
of two measures that might be examined to dete rmine whether they correspond or are virtually
identical. Also, were the examina tion focused solely on the amount of the charge in relation to the
internal tax this would appear to make the require ment that the charge not be in excess of internal
taxes largely redundant.
7.175 The United States further argues that the term "cha rge" in Article II:2(a) is described not only
by the term "equivalent" but also by the phrase "i mposed consistently with the provisions of
Article III:2". The United States submits that whether a charge is "equivalent" to an internal tax and
whether a charge is imposed consistently with Artic le III:2 are separate inquiries. According to the
United States, the element of "equivalent to an internal tax" appears to focus on the qualitative aspects
of measure, whereas the other element referred to in Article II:2(a) – "consistently with the provisions
of Article III:2" – appears to focus on its quantitativ e aspects. With regard to the latter element, the
question is not whether the charges are in effect e qual or virtually identical but whether the charges
subject imported products to any taxation in excess of that imposed on like domestic products.
7.176 India argues that "equivalence" as referred to in Article II:2(a) has to be limited to ensuring
that the net fiscal burden imposed by the border ch arge on the imported product does not exceed that
imposed by the internal tax on the like domestic produc t. The intent and purpose of Article II:2(a) is
to provide WTO Members with a way in which they can offset internal taxes borne by domestic
products and ensure an equal fiscal burden on imported and domestic like products. India accordingly
understands the term "equivalent" as used in Article II:2(a) to mean that the taxes charged at the
border in lieu of internal charges do not impose a greater net fiscal burden on imported products than
on like domestic products.

221 Merriam-Webster Online Dictionary , available at <http://www.merriam-webster.com/-
dictionary/equivalent>.
222 Merriam-Webster Online Dictionary, available at <http://www.merriam-webster.com/-
dictionary/equivalent>.
223 The New Shorter Oxford English Dictionary, L. Brown (ed) (Clarendon Press), 1993, Vol. 1, p. 843.

7.177 More specifically, India argues that Webster's Dictionary defines the word "equivalent" as
being "equal in value, force, meaning or the like". 224 Accordingly, in India's view, Article II:2(a)
means that the charge imposed on imported products must be equal in force to the internal tax.
Therefore, the requirement of "equivalence" must be said to be met if the charges imposed at the
border overall impose an equal fiscal burden on importe d products as the internal taxes applied to like
domestic products.
7.178 India further argues that term "equivalent" must be contrasted with the phrase "in excess of"
used in Article III:2 which requires that taxes applie d internally to imported products must not be "in
excess of" internal taxes applied to like domestic pr oducts. India points out that the term "in excess
of" has been restrictively interpreted by the Appella te Body. Even the smallest amount of excess is
impermissible. 225 Thus, India submits, an internal tax imposed on imported products under
Article III:2 would need to satisfy a stricter sta ndard than a charge imposed on imported products at
the border under Article II:2(a). The equivalence re quired under Article II:2(a) is limited to requiring
an equality of net fiscal burden on imported and like domestic products. Consequently, a country like
India, with its federal structure and different rates of state-level internal taxes, need only ensure that
the net fiscal burden of any border charge imposed on imported products is no greater than the net
fiscal burden of any internal taxes imposed on like domestic products.
7.179 The Panel notes that dictionaries identify more than one possible ordinary meaning of the
term "equivalent". Among the possible meanings are: "[e]qual in power, rank, authority, or
excellence", "[e]qual in value, significance, or meaning", "[t]hat is virtually the same thing; having the
same effect" and "[h]aving the same re lative position or function; corresponding". 226 It emerges from
these definitions that "equivalence" and "equality" ar e not one and the same concept. The adjective
"equivalent" denotes something that is equal, or virtually equal, in one respect, but not others. 227
Thus, "equivalence" implies a lesser degree of commonality or correspondence than "equality".
7.180 This view fits well with the provisions of Artic le II:2(a) which contrast an "external", or
border, charge with an internal charge. In the s ituation contemplated in Article II:2(a), the product to
be imported and the like domestic produc t are not subject to "equal", or the same, charges, in that the
product to be imported is subject to an "external", or border, charge upon importation whereas the like
domestic product is subject to an internal ch arge, e.g. upon manufacture (ex factory level). 228 At the
same time, as Article II:2(a) makes clear, this important difference does not preclude the charge levied
at the border being considered "equivalent" to the charge levied internally.
7.181 The issue to which we must turn, then, is in what respect the border charge to which
Article II:2(a) refers needs to be equal, or virtually equal, to an internal charge for it to fall within the
scope of that provision. In this regard, we can qui ckly eliminate the dictionary definitions "[e]qual in
power, rank, authority, or excellenc e" and "[e]qual in value, significance, or meaning". The concepts
of power, rank, authority and excellence do not fit with the concept of charges imposed on

224 Merriam-Webster Online Dictionary available at <http://www.merriam-webster.com/-
dictionary/equivalent>.
225 India refers to the Appellate Body Report on Japan – Alcoholic Beverages II, p. 24.
226 Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 851.
227 Two objects x and y are equivalent if they are equal in respect of one particular trait, property,
attribute, feature, etc. See Meyers kleines Lexikon Philosophie , ed. Redaktion für Philosophie des
Bibliographischen Instituts (Mannheim/Wien/Zürich: Bibliographisches Institut, 1987), p. 46 (under "general").
228 In this respect, we agree with the United States th at the situation contemplated in Article II:2(a) is
different from that contemplated in the Note Ad Article III of the GATT 1994 where an internal tax or charge
which applies to both the imported product and the like domestic product is collected or enforced in the case of
the imported product at the time or point of importation. As the Note makes clear, the tax or charge collected at
the time or point of importation is to be regarded as an internal tax or charge.

products.229 Regarding the definition "equal in significan ce", we can see how it may be of interest to
determine whether winning the football world cup is equal in significance to winning a gold medal in
the athletics world championships, but we fail to see a plausible rationale for determining whether a
charge imposed at the border in respect of an impor ted product is equal in significance to an internal
charge imposed in respect of a like domestic product. Similarly, while it makes sense to say that in
American English the word "faucet" is "equal in mean ing" to the word "tap" in British English, it is
not clear to us how charges imposed on products c ould be usefully compared in terms of their
meaning. Finally, we note that in an exchange situation two sheep might be considered "equal in
value" to a dozen hens, or x USD may be "equal in value" to y Euros. Apart from the fact that
charges are not normally considered to have a valu e, we note that Article II:2(a) does not seem to be
concerned with an exchange situation.
7.182 Another dictionary definition we have noted is "having the same effect" or, as the United
States submits, "equal in amount". To assess the ap propriateness of these definitions, it is necessary
to look to the context of the term "equivalent" in Artic le II:2(a). Of particular relevance in this regard
is the phrase "consistently with the provisions of paragraph 2 of Article III ". We have already
underlined the importance of distinguishing the con cept of "equivalence" from that of "consistency
with Article III:2". As also pointed out by the United States, these concepts concern, and call for,
separate inquiries.
7.183 Regarding the inquiry into whether the internal tax (to which a border charge is equivalent) is
imposed consistently with Article III:2, it is useful to recall that Article II:2(a) refers to "like"
domestic products. Therefore, Article II:2(a) implicitly references the provisions of Article III:2, first
sentence.230 In this respect, we note the finding by the panel in Argentina – Hides and Leather that
Article III:2, first sentence, is concerned with th e "economic impact [of taxes or charges] on the
competitive opportunities of imported and like domestic products" and that, therefore, in an inquiry
under Article III:2, first sentence, "what must be compared are the tax burdens imposed on the taxed
products".231 The same panel further found that Article III:2, first sentence, does not permit any tax
burden differentials disfavouring imported products.232
7.184 In the situation contemplated in Article II: 2(a), tax burden differentials disadvantaging
imports could result, for instance, from the border charge being applied at higher rates than the
internal tax, or from it not being creditable against in ternal charges in case of internal re-sale of the
imported product when such credits are availabl e for equivalent transactions involving the like
domestic product. In the light of this, a situation where a border charge does not "have the same
effect" (in terms of its impact on competitive cond itions as between the imported product and the like
domestic product) as an internal tax, or is not "equ al in amount" to an internal tax, would be one
where the internal tax is not imposed consistently with Article III:2.
7.185 The foregoing demonstrates that if we were to construe "equivalent" as meaning "having the
same effect", or "equal in amount", we would fa il to give separate meaning to the concepts of
"equivalence" and "consistency with Article III:2", contrary to the requirement of effective treaty
interpretation.233 Indeed, if we were to adopt these meanings, it would be difficult to see any

229 Regarding the dictionary meaning "equal in fo rce", referred to by the United States, it is not
apparent to us how this could be considered a relevant meaning. While a tornado might, perhaps, be equal in
force to some types of explosions, we fail to see what th e United States means by a border charge that is equal
in force to an internal charge.
230 The present case does not present the issue whether Article II:2(a) might, in addition, imply a
reference to the provisions of Article III:2, second sentence. Both Parties have argued in terms of "like"
products only.
231 Panel Report, Argentina – Hides and Leather, para. 11.182.
232 Ibid., para. 11.243 (referring to the Appellate Body Report in Japan – Alcoholic Beverages II).
233 See Appellate Body Report, US – Gasoline, p. 23.

difference between the two concepts. Accordingly, reading the term "equivalent" in its context, we
think the mere fact that a comparison of a borde r charge on the importation of a product with an
internal tax imposed on the like domestic product reveal s a tax burden differential to the detriment of
imported products would not warrant the conclusion that the borde r charge is not "equivalent" to the
internal tax.234
7.186 We are thus left with the dictionary defi nition "[h]aving the same relative position or
function; corresponding". We consider that this definition, notably "having the same function" and
"corresponding", fits well with the specific context of Article II:2(a). In relation to the definition
"corresponding", consistent with the difference between "equivalence" and "equality", we would
nonetheless add that this should not be taken as mean ing "corresponding absolutely or completely",
but "corresponding in a relevant respect", such as function.
7.187 Both meanings – "having the same function" and "corresponding" – comport well with what
we have said above about the impor tance of distinguishing the concept of "equivalence" from that of
"consistency with Article III:2". Where a comp arison of a border charge on the importation of a
product with an internal tax imposed on the like do mestic product shows a ta x burden differential to
the detriment of imported products, this does not necessarily imply that the border charge does not
have the same function, or does not correspond, to th e internal tax. Analysis may indicate that the
border charge has the same function as, or corresponds to, the internal tax and hence is "equivalent" to
the internal tax. Or analysis may show that the border charge is, e.g., an "other duty or charge" and so
does not have the same function as, or does not correspond to, the internal tax. As a result, construing
"equivalent" as meaning "having the same functi on", or "corresponding", preserves the separate
meaning we think should be given to the con cepts of "equivalence" and "consistency with
Article III:2". Moreover, we consider that th e meanings "having the same function" and
"corresponding" are in accord with the explanati on of the term "equivalent" given by the Legal
Drafting Committee during the Geneva session of th e Preparatory Committee and referred to by the
Parties. The Legal Drafting Committee stated that the term "equivalent" meant that:235
"[F]or example, if a [charge] is imposed on perfume because it contains alcohol, the
[charge] to be imposed must take into c onsideration the value of the alcohol and not
the value of the perfume, that is to say th e value of the content and not the value of
the whole".
7.188 Plainly, a value-based border charge on perfume cannot be said to "have the same function"
as, or to "correspond" to, a valu e-based internal tax on domestic alcohol. On the other hand, a border
charge imposed in respect of the alcohol containe d in perfume could possibly be said to "have the
same function" as, or to "correspond" to, an internal tax on domestic alcohol.
7.189 Having ascertained the appropriate ordinary meani ng of the term "equivalent", we think it is
useful, in a second step, to attempt to elucidate wh en a border charge imposed on the importation of a
product can be said to "have the same function" as an internal tax imposed in respect of the like

234 Logically, then, the same conclusion would apply in cases where there is a tax burden differential to
the detriment of like do mestic products. A similar conclu sion was reached by the panel in Argentina – Hides
and Leather, although that case was an Article III:2 case. None theless, similarly to our case, the panel in that
case had to determine whether two Argentinean tax measures – RG 3543, which was applicable to import
transactions, and RG 2784, which was applicable to like domestic (and internally re-sold imported) products –
were "equivalent in nature" (Panel Report, Argentina – Hides and Leather, para. 11.154). The panel observed in
this regard that "[t]he mere fact that some equivalent transactions are not subject to RG 2784 or are subject to
different rates does not, in our view, detract from the co mparability of RG 3543 and RG 2784. In fact, such
differences may constitute infringements of Ar ticle III:2, first sentence". Panel Report, Argentina – Hides and
Leather, note 450.
235 Doc. EPCT/TAC/PV/26, p. 21.

domestic product.236 We begin this task by noting that Artic le II:2(a) relates a border charge imposed
on the importation of a product to an internal tax imposed on the like domestic product. To us, this
indicates that Article II:2(a) is concerned with the relative function of the border charge and internal
tax, respectively. In other words, we think that th e concept of "equivalence" in Article II:2(a) implies
that the relevant internal tax fulfils a certain f unction in respect of the domestic product whereas the
border charge fulfils the same (relative) functio n in respect of imports of the like product.
Additionally, since Article II:2(a) relates a border char ge to an internal tax, it can be inferred that it
needs to be assessed whether the two charges fulfil the same relative function within the customs duty
and tax system of the Member concerned. It foll ows that, in effect, an "equivalence" determination
under Article II:2(a) aims at establishing whether despite constituting separate charges, the border
charge on the importation of a product and the intern al tax on the like domestic product, when viewed
together, can be considered to form a distinct w hole within the relevant Member's customs duty and
tax system.
7.190 We consider that, for the purposes of an ex amination under Article II:2(a), the relevant
function fulfilled both by the internal tax on the domestic product and the border charge is to impose a
charge on a particular product qua product. It is not their function to impose a charge on a particular
product qua domestic product (in the case of the internal tax) or qua foreign product being imported
(in the case of the border charge). To take the example of a border charge on wine, if it is
"equivalent" to an internal tax, its function is, a nd must be, to impose a charge on the importation of
wine, not because it is foreign-made wine, but because it is a product on which a charge is to be
imposed regardless of whether it is of foreign or domestic origin, with the consequence that it needs to
be imposed on wine also if and when it is being imported.
7.191 For further illustration, it is useful to consider the case of or dinary customs duties or "other
duties or charges". We have already explained that these are charges which by nature and design
discriminate against, or disadvantage, imports. Cons istently with this, we consider that the basic
function fulfilled by this kind of charges is to impose a charge on a particular product qua foreign
product being imported. Thus, to stick to the example of wine, an ordinary customs duty, or an "other
duty or charge", is imposed on the importation of wi ne because it is foreign-made wine that is being
imported. Where an ordinary customs duty or "other duty or charge" is imposed, the foreign origin of
the subject product is not merely an incidental characteristic of that product but the very reason for the
imposition of such a duty.
7.192 Yet another situation that it is instructive to consider is one where a border charge on the
importation of a product is levied at a higher rate th an an internal tax imposed in respect of the like
domestic product.
237 The question presented by this type of s ituation is whether the mere existence of
a rate differential disfavouring the product bei ng imported would preclude the border charge from
being regarded as "having the same function" as the in ternal tax. As mentioned previously, our view
is that the existence of such a rate differentia l would not preclude an a ffirmative "equivalence"
determination that would otherwise be warranted.
7.193 We think it is not incongruous to say that a bor der charge can have the same function as, and
hence be equivalent to, an internal tax, but at the same time provide for less favourable treatment of
the subject product than the internal tax. On the co ntrary, allowing for this possibility is consistent
with the distinction drawn in Article II:2(a) betw een the concepts of "equivalence" and "consistency
with Article III:2". That distinction suggests that it must be possible for a border charge to be

236 Hereafter we omit separate reference to the mean ing of "corresponding". This is because we think
that in the particular context of Article II:2(a) the "correspondence" required as between a border charge and an
internal tax is, essentially, "correspondence in function".
237 We are using the case of a rate differential as one example of a case involving a tax burden
differential.

equivalent to an internal tax and for that internal tax to be imposed inconsistently with Article III:2. 238
Accordingly, the fact that a border charge on the importation of a product is levied at a higher rate
than an internal tax imposed on the like domestic product in our view does not demonstrate that the
two charges do not have the same function, viz., to impose a charge on the relevant product qua
product. Instead, the existence of such a rate di fferential may merely demonstrate that each charge
fulfils that function (i.e., that of im posing a charge on the relevant product qua product) in a different
manner, with the consequence that the product being imported is treated less favourably than the like
domestic product.239
7.194 We see nothing in our interpretation of the term "equivalent" that would conflict with the
object and purpose of the GATT 1994 of substantially reducing "tariffs" with a view to, e.g., raising
standards of living, expanding the pr oduction and exchange of goods, etc. 240 In particular, we do not
share the United States' co ncern that if we were not to give th e term "equivalent" the interpretation it
appears to argue for – equal in amount or value, or virtually identical in effect or amount – we would
undermine the value of tariff concessions negotiated by exporting Members. This argument might
have some force if an affirmative "equivalence" determination meant that the importing Member
would be essentially free to impose, in addition to any WTO-consistent ordinary customs duty and/or
ODC, a border charge on the importation of a product at a level, or otherwise in a manner, that would
disadvantage it vis-à-vis the like domestic product. This is not the case, however. As we will explain
further below, if a border charge is determined to be equivalent to an internal tax, it is caught by the
provisions of Article III:2, first sentence. 241 Article III:2, first sentence, sets out a strict national
treatment obligation. Indeed, as the United States itself has reminded us, under Article III:2, first
sentence, even a de minimis tax burden differential disfavouring the product being imported would put
the importing Member in breach of Article III:2. 242 Thus, we do not believe the interpretation which
we consider should be given to th e term "equivalent" in Article II:2( a) diminishes the value of tariff
concessions.
7.195 As to how it is to be determined whether a particular border charge on the importation of a
product is being imposed to levy a charge on that product qua product or qua foreign product being
imported, we consider this type of determination must be made having regard to the specific facts and
circumstances of each case, notably including the customs duty and tax system of the relevant
Member as in existence at the time of review. Indeed, by nature, the outcome of an Article II:2(a)
inquiry is highly context-dependent. One and the sa me border charge may be determined to have the
same function as an internal tax in one context but to have a different function in another context. To
provide an example, a border charge which at present has the same function as an internal tax
imposed on the like domestic product may subsequent ly cease to fulfil the same function if the
internal tax is repealed or imposed also in respect of the imported product.
7.196 Finally, we need to consider the consequences of a negative "equivalence" determination. In
this regard, it is useful to thin k first about what are the consequen ces of an affirmative "equivalence"
determination. As we have expl ained above, a border charge which is imposed on the importation of
a product and which is equivalent to an internal ta x imposed in respect of the like domestic product is

238 This is also consistent with the point we have made earlier that Article II:2(a) charges are charges
that do not inherently discriminate against, or disadvantage, imports, but that particular Article II:2(a) charges
may discriminate against, or disadvantage, imports (and, hence, fall foul of the provisions of Article III:2).
239 Of course, it is possible that a border charge, such as an ordinary customs duty, is applied to the
product being imported at a higher rate than an internal tax imposed in respect of the like domestic product
without the two charges having the same function. In such a case the existence of a rate differential would
obviously not demonstrate that each charge fulfils the same function in a different manner.
240 See the preamble to the GATT 1994.
241 We reiterate that the case at hand does not present the issue whether Article II:2(a) might, in
addition, imply a reference to the provisions of Article III:2, second sentence.
242 See Appellate Body Report, Japan – Alcoholic Beverages II, p. 25.

one which has the same function as the internal tax, bu t in other respects differs from the internal tax.
As further addressed in the next sub-section, the re ference in Article II:2(a) to "consistency with
Article III:2" makes clear that, in the view of the drafters of Article II:2(a), a border charge on the
importation of a product which fulfils the same f unction as an internal tax on the like domestic
product should be, and is, subject to the provisions of Article III:2. Since such a border charge is
caught by the provisions of Article III:2, there is, to that extent, a clear indication that it is a border
charge of the kind which does not inherently discrimin ate against, or disadvantage, imports. In view
of this indication, it seems sensible not to subj ect this kind of border charge to the obligations
contained in Article II:1.
7.197 In contrast, a border charge on the importation of a product which has been determined not to
be equivalent to an internal tax imposed in r espect of the like domestic product does not have the
same function as the internal tax. It stands to reason that a border charge which, quite apart from
being different from an internal tax in terms of fo rm, etc., does not even have the same function as an
internal tax cannot be considered to be subject to the provisions of Article III:2. If such a border
charge is not caught by the provisions of Article III: 2, however, there is, to that extent, no indication
that it is a border charge of the kind which does not inherently discriminate against, or disadvantage,
imports. In the absence of such an indication 243, there does not appear to be an obvious reason for not
subjecting this kind of border charge to the obligations contained in Article II:1.
7.198 The foregoing considerations lead us to the view th at, in an Article II:2(a) inquiry, it is only if
a border charge is equivalent to an internal tax th at it can (ever) be concluded that – to use terms
similar to those appearing in the chapeau of Article II:2 – "nothing in Article II would prevent" the
imposition of such a charge. Or to put it another way, for the purposes of an Article II:2(a) inquiry,
"equivalence" is a necessary condition for a charge to fall outside the scope of Article II:1. It is
important to recall, however, that "equivalence" is a necessary condition for the purposes of an
Article II:2(a) inquiry only. To explain, even if a border charge is not equivalent to an internal tax
and thus does not fall within the scope of Article II:2(a), it may still fall within the scope of, e.g.,
Article II:2(b). If it meets the conditions of Article II:2(b), it falls outside the scope of Article II:1.
Hence, in cases where a border charge is not equivale nt to an internal tax, it may or may not fall
outside the scope of Article II:1.
(c) "consistently with the provisions of paragraph 2 of Article III"
7.199 As already pointed out, Article II:2(a) distingui shes the concept of "equivalence" from that of
"consistency with Article III:2". Below, some additional observations are offered regarding the
relevance of the latter concept to an Article II:2(a) inquiry.
7.200 The United States, as previously noted, stresses that whether a charge is "equivalent" to an
internal tax and whether a charge is imposed cons istently with Article III:2 are separate inquiries.
According to the United States, the element of "equiva lent to an internal tax" appears to focus on the
qualitative aspects of measure, whereas the element of "consistently with the provisions of
Article III:2" appears to focus on its quantitative aspec ts. Specifically, the latter element requires that
the charge applied to imported products must not exceed the internal taxes on like domestic products
to which they are asserted to be equivalent.
7.201 The United States considers that each of the two separate elements of Article II:2(a) –
"equivalent to an internal tax" a nd "imposed consistently with the provisions of Article III:2" – must
be met for a charge on the importation of a product to fall within the scope of that provision. As a
result, a charge equivalent to an internal tax imposed in respect of the like domestic product but

243 We note that such an indication could also result, e.g., from the fact that the border charge in
question is caught by the provisions of Article VI of the GATT 1994.

imposed inconsistently with Article III:2 could not , in the United States' view, be justified under
Article II:2(a).
7.202 India states that Members are permitted by Artic le II:2(a) to levy charges at the border,
notwithstanding the restrictions contained in Artic le II:1, provided that such charges are: (a)
"equivalent" to an internal tax, (b) imposed in a mann er that is consistent with Article III:2, and (c) in
respect of a "like domestic product". Thus, from this statement it would appear that it, too, views the
element of "consistently with the provisions of Article III:2" as an independent element to be
separately established.244 As noted earlier, however, India also appears to suggest that a border charge
need only be equivalent to an internal tax and that "equivalence" is a more flexible concept than the
concept used in Article III:2 of "not in excess of". 245 In this regard, India refers to the GATT panel in
US – Superfund which stated that Article III:2 requires "complete equivalence between domestic and
imported products".246 To India, this apparently suggests that if a border charge is "equivalent" to an
internal tax, it would also be consistent with Article III:2.247
7.203 The Panel begins its additional analysis of the con cept of "consistency with Article III:2" by
noting again that it does not consider that "equiva lence" and "consistency with Article III:2", as
distinguished in Article II:2(a), are one and the same concept, such that a finding of "equivalence" is
one and the same things as a finding of "consiste ncy with Article III:2", or that a finding of
"equivalence" compels a finding of "consistency w ith Article III:2". Regarding the first proposition,
as is clear from previous discussion, it is possible, an d makes sense, to give the two concepts different
meaning. Also, if the concepts were the same, or were intended to mean the same, there would be no
point in referring to both concepts in one and th e same subparagraph and in relation to the same
measures being related to each other.
7.204 With regard to the second proposition (to the effect that a finding of "equivalence" compels a
finding of "consistency with Article III:2"), we recall that Article II:2(a) refers to the "like domestic
product" and that it therefore implicitly refers to Article III:2, first sentence. 248 In our view, in a case
involving charges on imported and like domestic products , it is not possible to infer "consistency with
Article III:2" from the existence of "equivalence". This is because, as we have said, the concept of
"equivalence" is compatible with the existence of a tax burden differential, which is not the case of
the concept of "consistency with Article III:2", at least not in a case involving charges imposed on
like products as opposed to charges imposed on directly competitive or substitutable products.
7.205 We note India's reference to the GATT panel report on US – Superfund. We agree with India
that that panel appears to have used the term "e quivalent" both to indicate "equivalence" within the
meaning of Article II:2(a) 249 and to mean "not in excess of" within the meaning of Article III:2, first
sentence250. In its report, the panel does not suggest, however, that the concepts of "equivalence"

244 In fact, this is how India has analyzed the measures at issue in this case under Article II:2(a).
245 India's reply to Panel Question No. 14.
246 India refers to GATT Panel Report, US – Superfund, para. 5.2.9.
247 India's reply to Panel Question No. 68.
248 We recall that the present case does not present the issue whether Article II:2(a) might, in addition,
imply a reference to the provisions of Article III:2, second sentence. Accordingly, we leave this issue
unaddressed.
249 See, e.g., GATT Panel Report, US – Superfund , para. 5.2.9 ("[a tax imposed on imported
substances, appraised on the basis of the value of the imported substance] would […] no longer be imposed in
relation to the amount of taxable chemicals used in their production but the value of the imported substance
[derived from the chemicals]" and hence not meet "the requirement of equivalence which the drafters explained
in the perfume – alcohol example").
250 See ibid., paras. 5.2.8 ("to the extent that the tax on certain imported substances was equivalent to
[i.e., did not exceed] the tax borne by like domestic substances as a re sult of the tax on certain [domestic]
chemicals, the tax met the national treatment requirement of Article III:2, first sentence") and 5.2.9 ("whether

within the meaning of Article II:2(a) and "consiste ncy with Article III:2" are the same. Nor does the
panel say that "equivalence" implies "consistency wi th Article III:2". The panel did seem to consider,
however, that, on the facts of the case before it, a l ack of equivalence meant that the challenged tax,
which was imposed on imported produc ts, would have fallen foul of Article III:2, first sentence. 251
But this was because, on the facts of that case, th e absence of an equivalent tax imposed on domestic
products meant that the tax imposed on imported products was imposed exclusively on imported
products. It is important to note in this connection that the case before the GATT panel in US –
Superfund involved a completely different situation from ours. In that case, the panel was examining
a claim under Article III:2. As is clear from our prev ious remarks, in the context of an Article II:2(a)
inquiry, a lack of equivalence does not imply an inconsistency with Article III:2.
7.206 Next, we wish to elaborate upon a point we have made earlier, namely, that a border charge
on the importation of a product equivalent to an in ternal tax on the like domestic product is within the
ambit of Article III:2. Absent the provisions of Ar ticle II:2(a), it might have been open to debate
whether a border charge which is equivalent to an inte rnal tax (that is to say, a border charge which is
not itself an internal tax) falls within the scope of ap plication of Article III:2. This is because, by its
terms, Article III:2 applies to "internal taxes or other internal charges". The provisions of
Article II:2(a) have rendered any such debate moot. The reference in Article II:2(a) to an internal tax
imposed consistently with the provisions of Artic le III:2 would not make much sense if the border
charge contemplated in Article II:2(a) were not ca ught by the provisions of Article III:2. Indeed,
Article III:2 requires a comparison of the tax bur den borne by imported products, on the one hand,
and domestic products, on the other. The text of Artic le II:2(a) refers to an internal tax imposed in
respect of the like domestic product. Thus, in the si tuation contemplated in Article II:2(a), the charge
to which it is logical to compare the internal tax on the domestic product is the border charge on the
importation of that same product.
7.207 The view that border charges equivalent to in ternal taxes are subject to the provisions of
Article III:2 is further supporte d by the GATT panel report on EEC – Animal Feed Proteins. The
panel in that case observed that:
252
"The wording of Article II:2(a) which refers to 'charges equivalent to internal taxes' is
different from that of Article III:2 which refe rs to 'internal taxes and other charges of
any kind', but it appeared to be the comm on understanding of the drafters of these
articles that their scope should be the same as to the kind of measures being covered."
7.208 The other issue to be examined as part of this additional analysis is th at of the consequences
that would flow from an affirmative or nega tive determination regard ing "consistency with
Article III:2". It is well to recall in this regard that, in an Article II:2(a) inquiry, the issue of
consistency with Article III:2 would only arise in a case where it ha d been previously determined that
a border charge is equivalent to an internal tax, as otherwise the border charge would not be subject to
the provisions of Article III:2. Accordingly, for the purposes of the present analysis, we shall assume
a border charge that is equivalent to an internal tax.
7.209 We need not dwell upon the cases where a border char ge is equivalent to an internal tax and
the internal tax is imposed consistently with Artic le III:2. Undoubtedly, such a border charge would
fall outside the scope of application of Article II:1. The cases we need to discuss are those where a
border charge is equivalent to an internal tax an d the internal tax is imposed inconsistently with
Article III:2. In relation to those cases, we recall our view that it is the fact of being equivalent to an

they will establish complete equivalence [i.e., equal ta x burdens] between domestic and imported products, as
required by Article III:2, first sentence, remain open questions").
251 Ibid., para. 5.2.9.
252 GATT Panel Report, EEC – Animal Feed Proteins, para. 4.16c.

internal tax which brings a border charge within the scope of application of Article III:2 and removes
that border charge from the scope of application of Ar ticle II:1. The validity of this conclusion is not
affected by whether the internal tax to which the relevant border ch arge is equivalent is imposed
consistently with the pr ovisions of Article III:2. 253 If the internal tax is imposed inconsistently with
the provisions of Article III:2, then, quite simply, the importing Member is in breach of its obligations
under Article III:2. This finding of a breach of Article III:2 would be the end result of the analysis
(barring availability of exceptions justifying such br each) and not merely an intermediate result that
would take the analysis of the border charge back to Article II. 254 In other words, we consider that a
border charge which is equivalent to an internal ta x imposed inconsistently with Article III:2 would,
also, fall outside the scope of application of Article II:1.
7.210 Thus, we think it would be incorrect to say that it is only if a border charge is equivalent to an
internal tax and the internal tax is imposed consisten tly with Article III:2 that it can be concluded, in
the words of the chapeau of Article II:2, that not hing in Article II would prevent the imposition of
such a charge. As we just have explained, a borde r charge equivalent to an internal tax which is
imposed inconsistently with the provisions of Artic le III:2 would, in our view, fall outside the scope
of application of Article II:1. As a result, we consider that, for the purposes of an inquiry under
Article II:2(a), equivalence is both a necessary a nd a sufficient condition whereas consistency of the
internal tax with the provisions of Article III:2 is not a necessary condition.
7.211 The foregoing presents the issue of what purpose is served by the reference in Article II:2(a)
to the consistency with Article III:2 of the internal tax to which a border charge is equivalent. As we
see it, rather than to stipulate an additional require ment that must be met for a border charge to fall
outside the scope of Article II:1, the purpose of th e reference in question is to acknowledge, and call
attention to, the existence of relevant requirements stipulated elsewhere in the GATT 1994, viz., in the
provisions of the next article. In other words, we consider that the main purpose of the reference in
question is to link up the provisions of Article II:2(a) with those of Article III:2. In so doing, the
reference acts as an important reminder to Members that their obligations in respect of border charges
of the kind at issue in Article II:2(a) go beyond ensuring that such border charges are equivalent to
internal taxes.255 In our view, Article II:2(a) could thus be understood as referring, in effect, to "an
internal tax imposed (as it must be pursuant to this Agreement) consistently with the provisions of
paragraph 2 of Article III".
7.212 We do not think it is possible to draw particul ar inferences from the reference to consistency
with Article III:2 regarding the GATT 1947 negotiators' intentions in respect of those cases, discussed
above, where a border charge is equivalent to an in ternal tax, but the tax is imposed inconsistently
with Article III:2.256 Indeed, as we have suggested, Article II:2(a) in our view refers to an internal tax
imposed "consistently with" Article III:2 becau se this is what the GATT 1947 prescribed (and the

253 We recall our view that the fact that the border charge is imposed at a higher rate than the internal
tax to which it is equivalent does not preclude an affirmative "equivalence" determination.
254 Indeed, in view of the fact that Article II:2(a) confirms that a border charge equivalent to an internal
tax is subject to Article III:2, the situation is comparable to one where an internal tax is applied to the imported
product at a higher rate than is applied to the like domestic product pursuant to a separate, but corresponding,
internal tax. The fact of being inconsistent with Artic le III:2 would not remove such an internal tax from the
scope of application of Article III:2 and bring it within the scope of application of Article II:1, e.g., on the
grounds that it disadvantages imports in the same way an "ordinary customs duty" (or "other duty or charge")
would do.
255 As we have indicated previously, the reference in addition provides important confirmation of the
fact that border charges equivalent to internal taxes are caught by the provisions of Article III:2. This, in turn, is
an indicator that such border charges are border charges of the kind which do not inherently discriminate
against, or disadvantage, imports.
256 Nonetheless, as we have said, the reference supports the inference that border charges equivalent to
internal taxes are subject to the provisions of Article III:2.

GATT 1994 still prescribes today). Where a border charge is equivalent to an internal tax, it is
subject to Article III:2, and so the internal tax to which the border charge is equivalent must be
imposed consistently with Article III:2. If a refe rence to other requirements to be complied with –
specifically, those contained in Article III:2 – was to be included in Article II:2(a), it stands to reason
that the text of Article II:2(a) would do so in a ma nner that reflects, and is consistent with, what the
GATT 1947 prescribed and, hence, would contemplate an internal tax imposed consistently with
Article III:2. In the light of this, the fact that th e text of Article II:2(a) contemplates an internal tax
imposed "consistently with" Article III:2 in our vi ew does not support the conclusion that the GATT
1947 negotiators considered that if a contractin g party subsequently imposed an internal tax
inconsistently with Article III:2, the border charge eq uivalent to that internal tax would be subject to
the provisions of Article II:1.
7.213 Additionally, we note that the relevant context of Article II:2(a) includes Article II:2(b) which
makes clear that Article II does not prevent the imposition, on the importation of a product, of an
"anti-dumping or countervailing duty a pplied consistently with the provi sions of Article VI". In our
view, similarly to what we have said in respect of the concept of "consistency with Article III:2" in
Article II:2(a), the concept of "consistency with Article VI" in Article II:2(b) is not to be regarded as a
necessary condition, for the purpo ses of an Article II:2(b) inqui ry, for an "anti-dumping or
countervailing duty" imposed on the importation of a prod uct to fall outside the scope of Article II:1.
Accordingly, we consider that our interpretation of the phrase "an internal tax imposed consistently
with the provisions of paragraph 2 of Article III" in Article II:2(a) is consistent with the provisions of
Article II:2(b).
7.214 As to whether our interpretation of the phrase "a n internal tax imposed consistently with the
provisions of paragraph 2 of Article III" is consis tent with the object and purpose of the GATT 1994,
we recall our view that a border charge equivalent to an internal tax which is imposed inconsistently
with the provisions of Article III:2 would fall outside the scope of Article II:1. However, we have
also indicated that such a border charge would be caught by the strict obligations contained in
Article III:2. In the light of this, we do not c onsider that our interpretation of the aforementioned
phrase could be said to undermine the value of tariff concessions negotiated by exporting Members.257
As our interpretation does not threaten to unde rmine the value of tariff concessions, we do not
consider that it runs counter to the object and pu rpose, expressed in the preamble to the GATT 1994,
of substantially reducing "tariffs".
7.215 A final point should be made. In keeping with our view that the reference in Article II:2(a) to
"consistency with Article III:2" is not intended to stipulate an additional requirement to be met for a
border charge to fall outside the scope of Article II:1, we would not proceed, in an inquiry under
Article II:2(a), to examine the consistency of an inte rnal tax with Article III:2 after having determined
that a particular border charge is equivalent to that internal tax. 258 It is important to keep in mind, in
this connection, that if the complaining party wi shes a panel to examine the internal tax and an
equivalent border charge in the light of the require ments of Article III:2, it is open to the complaining
party to include in its panel request an independent claim of violati on of Article III:2, and to develop
such a claim in its submissions to a panel.
3. Consistency of the AD on alcoholic liquor with Article II:1(b) of the GATT 1994
7.216 The Panel now turns to assess the Unit ed States' claim that the AD on alcoholic liquor is, as
such, inconsistent with Article II:1(b) of the GATT 1994.

257 For further elaboration, see supra, para. 7.194.
258 In a case where it has been determined that a particular border charge is not equivalent to an internal
tax, a necessary condition of Article II:2(a) is not met, and so a negative "equivalence" determination ipso facto
ends an Article II:2(a) inquiry.

7.217 The United States recalls that Article II:1(b) prohibits Members from levying "ordinary
customs duties" or "other duties or charges imposed on or in connection with importation" in excess
of the rates established in Members' Schedule (" WTO-bound rates"). In the United States' view, the
AD on alcoholic liquor is inconsistent with this pr ovision as an "ordinary cu stoms duty" that exceeds
India's WTO-bound rates. The United States submits that the AD on alcoholic liquor is an "ordinary
customs duty" because it applies: (1) at the time of importation (and, in this connection, it must be
paid by the importer before the good may clear customs); (2) as a matter of course upon a good's
importation (and, in this connection, it applies ge nerally on the importation of alcoholic beverages
into India and the event for which liability ensu es is importation); and (3) as a combination of ad
valorem and specific duties. The United States points out that in this regard the AD on alcoholic
liquor is no different from India's BCD. In relati on to the BCD, the United States observes that India
has already conceded that the BCD is an ordinary customs duty within the meaning of Article II:1(b).
The United States notes that like the AD on alcoholic liquor, the BCD applies: (1) at the time of
importation (and, in this connection, it must be paid by the importer before the good may clear
customs); (2) as a matter of course upon a good's impor tation (and, in this connection, it applies
generally on the importation of products into India and the event for which liability ensues is
importation); and (3) as a combination of ad valorem and specific duties.
7.218 The United States contends that there are a number of additional similarities between the
BCD and the AD on alcoholic liquor which indicate that the AD on alcoholic liquor like the BCD is
an "ordinary customs duty", including the fact that bot h are referred to under Indian law as "duties of
customs", authorized under the same constitutional provision, required to be levied under the same
provision of the Customs Act, subjected to exemp tions under the same provision of the Customs Act,
and administered under the same Customs rules and procedures.
7.219 The United States points out that the principal distinction India draws between the BCD and
the AD on alcoholic liquor is that the latter is in tended to offset internal taxes imposed on like
domestic products. The United States argues that whether the AD on alcoholic liquor constitutes an
ordinary customs duty must be based on an examinati on of its structure, design and effect. The stated
purpose or intent of a duty does not determine whether it is or is not an ordinary customs duty. The
United States notes that the GATT 1947 panel in EEC – Parts and Components rejected the notion
that the stated purpose or characterization of an EEC anti-circumvention duty under EEC law
provided a sufficient basis to characterize the measure as an internal tax rather than a customs duty.
Similarly, the United States submits, this Panel shoul d reject India's contention that the stated purpose
or characterization of the AD under Section 3(1) of the Customs Tariff Act provides a sufficient basis
to find the AD on alcoholic liquor a charge equivalent to an internal tax rather than an ordinary
customs duty.
7.220 The United States argues, in addition, that an in terpretation of Article II:1(b) that would allow
the stated purpose or intent of a measure to determ ine whether it fell within the scope of that article
would allow Members to avoid or manipulate WTO co mmitments simply by attributing a particular
purpose to a measure (regardless of what the measure in fact does) or by calling a measure by one
name versus another, similar to the situation faced in EEC – Parts and Components . In this dispute,
the United States contends, India may attribute a different purpose to the BCD on the one hand and
the AD on alcoholic liquor on the other, but both of them, based on an examination of their structure,
design and effect as reviewed a bove, constitute "ordinary customs duties" within the meaning of
Article II:1(b).
7.221
 Furthermore, in the United Sates' view, the fact that the AD on alcoholic liquor may be
distinct from India's basic customs duty, in that it is imposed under a separate section of the Customs
Tariff Act, does not mean that the AD on alcoholic liquor is not an ordinary customs duty. According
to the United States, it is not the case that a Memb er may only impose one duty that may properly be
characterized as an "ordinary customs duty" unde r Article II:1(b). Nothing in the text of

Article II:1(b) suggests that Members are limited to a single "ordinary customs duty" and, in fact, the
text refers to "ordinary customs duties" in the plural.
7.222 In the alternative, the United States believes that even if the AD on alcoholic liquor were not
an "ordinary customs duty", it would constitute an "other duty or charge" (ODC) within the meaning
of Article II:1(b), second sentence. The United St ates submits that the AD on alcoholic liquor would
necessarily constitute an ODC if it were not an or dinary customs duty. This is because the word
"other" as used in Article II:1(b) means duties or ch arges that are not ordinary customs duties that are
applied on or in connection with importation. If the AD on alcoholic liquor is not an ordinary
customs duty, then it must, in the United States' view, necessarily be something other than an ordinary
custom duty. The United States points out in this regard that the AD on alcoholic liquor applies on or
in connection with importation. Specifically, it applies at the time of importation and as a
consequence of importation (that is, importation is the event for which liability for duty ensues).
Moreover, the United States considers that in asserti ng that the AD on alcoholic liquor is a charge
equivalent to an internal tax within the meaning of Article II:2(a), India has implicitly characterized it
as a charge "imposed on importation" since the chap eau to Article II:2 makes clear that it concerns
measures "imposed on importation". Therefore, the United States maintains, if the AD on alcoholic
liquor is not an ordinary customs duty, it must be an other duty or charge within the meaning of
Article II:1(b).
7.223 Regarding the other element of an Article II:1(b) inquiry, the United States contends that the
AD on alcoholic liquor when imposed with India's BCD results in ordinary customs duties on imports
of alcoholic liquor in excess of India's WTO-bound rates. Specifically, the United States asserts that
the AD on alcoholic liquor imposed with the BCD r esults in ordinary customs duties on imports of
alcoholic beverages that exceed Indi a's WTO-bound rates of 150 percent ad valorem by amounts
ranging from 48 to 400 percentage points. According to the United States, the AD on alcoholic liquor
is therefore as such inconsistent with Article II: 1(b). Moreover, if the AD on alcoholic liquor were
considered an ODC, it would, in the United Stat es' view, exceed the ODCs specified in India's
Schedule as India's Schedule does not specify any ODCs for alcoholic liquor or any other product.
7.224 The United States notes India's assertion that the AD on alcoholic liquor is equivalent to State
excise duties imposed on like domestic products and t hus imposed in accordance with Article II:2(a).
The United States considers that it has presented evidence and argument sufficient to establish a prima
facie case that the AD on alcoholic liquor is (i) an ordinary customs duty that (ii) exceeds India's
WTO-bound rates and, therefore, is inconsistent with Article II:1(b). According to the United States,
having made a prima facie case that the AD on alcoholic liquor is an ordinary customs duty, the
necessary corollary of that showing is that the AD on alcoholic liquor is not a "charge equivalent to an
internal tax".
7.225 The United States further points out that even if the AD on alcoholic liquor were not
considered an ordinary customs duty but an "other duty or charge" on importation, India has presented
no evidence that it is "equivalent" to an internal tax on like domestic alcoholic liquor and imposed
consistently with Article III:2. The United Stat es argues that India as the party asserting that the AD
on alcoholic liquor is justified under Article II:2(a) bears the burden of sustaining that assertion.
According to the United States, in view of the Appellate Body report in United States – Wool Shirts
and Blouses
, it is up to India to present evidence and argum ent sufficient to establish that what it
asserts is true.
7.226 The United States submits in this regard that although India asserts that the AD on alcoholic
liquor is equivalent to State excise duties on domest ic alcoholic liquor, it has not actually identified

any such State excise duties,259 much less explained how the AD on alcoholic liquor is "equivalent" to
them or imposed consistently with Article III:2. In the United States' view, simply citing the stated
purpose of Section 3(1) of the Customs Tariff Act is insufficient. According to the United States, to
be considered equivalent to internal taxes within the meaning of Article II:2(a), the AD on alcoholic
liquor must in fact be equivalent to, and offset or counterbalance, internal taxes on like domestic
products.
7.227 The United States submits, in addition, that India has admitted that the AD on alcoholic liquor
"could in some cases, have been less than the ex cise duty being charged on like domestic products in
some States, and in other cases equal to or perhaps slightly in excess of the excise duty being charged
in some other States".260 Therefore, the United States contends, since the AD on alcoholic liquor – by
India's own admission – exceeds the excise duties char ged on like domestic products in at least some
instances, it is not imposed consistently with Ar ticle III:2 with respect to like domestic products.
Furthermore, the United States notes that even if India had not admitted that the AD on alcoholic
liquor is imposed on imports in excess of State excise duties on like domestic products in some States,
the Explanation to Section 3(1) supports the same conclusion. The United States considers that,
notwithstanding India's contentions to the contrary , Section 3(1) read with the Explanation means
that, since the rate of excise duty on like domestic alcoholic liquor varies from State to State, imports
shall be liable to an AD that is equal to the high est rate of State excise duty imposed. Accordingly,
the United States believes, Section 3(1) read with the Explanation subjects imports of alcoholic liquor
to rates of AD that exceed the rate of excise dutie s on like domestic alcoholic beverages in at least
some Indian States and, as a consequence, the AD on alcoholic liquor is not imposed consistently with
Article III:2.
7.228 The United States further notes an assertion made by the European Communities in its third
party submission. The United States points out that in that submission the European Communities
explained that it had compared the taxation resultin g from the AD on alcoholic liquor on imports with
the taxation resulting from excise taxes applied by a number of Indian States on like domestic
products and concluded that the AD on alcoholic li quor "exceeds by a large margin the taxation
resulting from taxes denominated 'excise duty' in the legislation of most Indian States representing a
major proportion of the market for wines and spirits".261
7.229 In the light of this, the United States considers that the AD on alcoholic liquor is not a charge
"equivalent" to internal taxes (State excise duties) and, as India even concedes, that it is imposed on
imports in excess of State excise duties on like domestic alcoholic liquor. Therefore, the United
States believes, the AD on alcoholic liquor is not a charge "equivalent" to internal taxes imposed
consistently with Article III:2.
7.230 India submits that the United States fails to appreci ate that there is a clear demarcation under
Indian law between the BCD and the AD on alcoholic liquor. India argues that the BCD is the only
duty imposed by it on imports which is in the natu re of an "ordinary customs duty" as understood
under Article II:1(b) and is accordingly bound at the levels prescribed in India's Schedule. India does
not levy any "other duties or charges". India stat es that the BCD is distinct from the AD on alcoholic
liquor, which is levied on imported products in lieu of different internal taxes.
7.231 India submits that the United States has failed properly to distinguish between different types
of duties and the statutory provisions based upon wh ich they are imposed. India notes in this regard

259 The United States contends that it has made requests for relevant information to India. However, in
the context of the Panel proceedings, the United States has not made use of the opportunity to put an appropriate
written question to India.
260 The United States refers to India's reply to Panel Question No. 28.
261 The United States refers to paras. 79-82 of the EC third party written submission.

that although the AD and the BCD are authorized unde r the same constitutional entry, they are levied
under different statutory provisions. India recalls that the Customs Act and the Customs Tariff Act
are different statutory enactments created by separate acts of Parliament. India contends that the BCD
is levied under Section 12 of the Customs Ac t whereas the AD on alcoholic liquor was levied under
Section 3(1) of the Customs Tariff Act. India also maintains that the United States has misinterpreted
the cross-reference provisions contained in Section 3( 8) of the Customs Tariff Act and Section 25 of
the Customs Act to mean that both statutes essentially administer the same duties and that they are in
the nature of "ordinary customs du ties" or ODCs. India argues that the mere existence of a cross-
reference between two statutes, inserted primarily for administrative convenience, does not alter the
nature of the distinct charges levied under each. Sp ecifically in relation to Section 25 of the Customs
Act, India does not agree with the United States that the power to exempt imports from the AD is
contained in the Customs Act. According to In dia, without the existence of the reference in
Section 3(8) of the Customs Tariff Act, the po wer to exempt imports from the AD does not exist
under Section 25. Furthermore, India considers that the mere fact that the AD on alcoholic liquor is
calculated "inclusive of" the BCD does not make it an "ordinary customs duty" or an ODC. India
points out that the AD is calculated under the Cust oms Tariff Act and not the Customs Act. In sum,
India submits that the levy, calculation and colle ction of the AD on alcoholic liquor as well as
exemptions from the AD on alcoholic liquor are prov ided for in the Customs Tariff Act, which makes
the AD on alcoholic liquor fundamentally different from the BCD levied under Customs Act.
7.232 According to India, the intent and design of the AD on alcoholic liquor is solely to offset the
excise duty payable by Indian manufacturers on the like domestic product. India contends that this
view has been confirmed by a binding interpretation of Section 3(1) of the Customs Tariff Act – the
statutory basis of the AD – by the Supreme Court of India in Hyderabad Industries Ltd. v. Union of
India. India is of the view that the policy purpose behind the introduction of a duty is an important
factor, although not the only factor, which a Panel may look into while characterizing a duty. The
Panel, India suggests, is not precluded from reviewing all relevant factors.
7.233 In sum, in India's view, it is clear from su ch factors as the purpose of the AD on alcoholic
liquor, its statutory basis and its relationship with the internal taxes it is intended to counterbalance
that the AD on alcoholic liquor is a distinct duty from the BCD. The BCD, India notes, has no such
purpose (as it is intended as a tariff imposed in accordance with India's Schedule), no relationship
whatsoever with any internal tax and a different statutory basis.
7.234 India notes that the only commonality between the BCD, which is an "ordinary customs
duty", and the AD on alcoholic liquor is that they are imposed on imports at the border and that both
are expressed in ad valorem terms. India submits in this re gard that the Appellate Body in Chile –
Price Band System held that this does not necessarily mean that such duties are "ordinary customs
duties". As a result, the United States as the compla ining party must look beyond the mere point at
which the duty is levied and the manner in which the duty is expressed, since neither of them will
necessarily mean or indicate that th e duty is an "ordinary customs dut y". Yet, India contends, instead
of positively substantiating the existence of a prim a facie case, the United St ates has based its claim
under Article II:1(b) on two elements: (i) what it consid ers to be the general definition of an "ordinary
customs duty" and (ii) India's alleged failure to pr ove that the AD on alcoholic liquor falls outside this
broad definition. India considers, therefore, that the United States as the complaining party in this
case has failed to make out a prima facie case that the AD on alcoholic liquor is an "ordinary customs
duty". Consequently, in India's view, the United States' further assertion that the AD on alcoholic
liquor results in ordinary customs duties "in excess of" the WTO-bound rates in India's Schedule is
without merit.
7.235 Regarding the United States' alternative asserti on that the AD on alcoholic liquor may qualify
as an "other duty or charge", India submits that the United States has offered no reason in support of
its contention other than that it is imposed "on impor tation". India submits that the United States has,

therefore, failed to discharge its burden of proof. India considers that the AD on alcoholic liquor is
not in the nature of an ODC. It is imposed at the time of import but is not imposed on, or in
connection with importation. India argues that, c ontrary to the United States' contention, the AD on
alcoholic liquor is not imposed as a consequence of importation. India maintains that the liability to
pay the AD on alcoholic liquor arises as a consequen ce of domestic like products being charged an
excise duty and not merely because the products are imported into India. Looked at in another way, if
domestically manufactured goods are not charged an excise duty, then, India contends, imported like
products will also not be charged the AD on alcoholic liquor even if they are imported into the
customs territory of India.
262
7.236 Based upon the above arguments, India submits that rather than being an "ordinary customs
duty" or an ODC within the meaning of Article II:1(b), the AD on alcoholic liquor was being imposed
in accordance with the provisions of Article II:2(a). India considers that as a charge equivalent to an
internal tax, it did not erode the "value of tariff concessions" offered by India.
7.237 Concerning the issue of "equivalence", India no tes that each of its 28 State Governments and
7 Union Territories are empowered to levy their ow n excise duties. Consequently, India argues, the
AD on alcoholic liquor could not be fixed with refe rence to any one single rate of State excise duty
and the Central Government decided in its discreti on to adopt the most practical method of imposing
the AD on alcoholic liquor through a process of averag ing, whereby the Central Government arrived
at an approximation of the excise duty rates paid by different States on alcoholic liquor. India notes
that this rate could in some cases be less than the excise duty being charged on like domestic products
in some States, and in other cases equal to or pe rhaps in excess of the excise duty being charged in
some other States. However, India contends, the Central Government tried to ensure that to the extent
possible, the rate was a reasonable approximation of the net fiscal burden imposed on like domestic
products on account of the excise duty payable on alcoholic liquor.
7.238 India submits, finally, that the Explanation to Section 3(1) cannot be interpreted as binding
the Central Government to impose the AD on alcoholic liquor at the highest rate, as the United States
seems to believe. India contends in this respect that the on AD on alcoholic liquor as imposed
through CN 32/2003 was in some States lower th an the State excise duty being charged on like
domestic products. Thus, if the United States' cont ention that the Central Government is required to
levy the AD on alcoholic liquor at the highest rate were accepted, the Central Government would not
have been empowered to levy the AD on alcoholic liquor at a rate lower than the highest excise
duties. India submits that this clearly establishes the existence of discretion on the part of the Central
Government.
7.239 In view of the above, India considers that the United States has failed to demonstrate that the
AD on alcoholic liquor was not imposed in accordance with Article II:2(a) and that, notwithstanding
the United States' failure to discharge its burde n, India has amply demonstrated how the AD on
alcoholic liquor was imposed in accordance with Article II:2(a).
7.240 The Panel notes India's argument that the United States' claim of inconsistency with
Article II:1(b) lacks merit because, in its view, the challenged measure – the AD on alcoholic liquor,
as imposed through CN 32/2003
263 – was not subject to the provisions of Article II:1(b). India
considers that, contrary to the United States' assertio n, the measure at issue was neither an "ordinary
customs duty" nor an "other duty or charge" within the meaning of Article II:1(b), but rather a charge
equivalent to State-level internal taxes within the meaning of Article II:2(a).

262 India argues that this position is confirmed by the decision of the Supreme Court of India in
Hyderabad Industries Ltd. v. Union of India.
263 Hereafter, unless the context requires otherwise, we will for the sake of brevity refer to the "AD on
alcoholic liquor" rather than "the AD on alcoholic liquor, as imposed through CN 32/2003".

7.241 In view of the disagreement between the Parti es over the correct legal characterization of the
AD on alcoholic liquor, before undertaking any further analysis of the United States' claim under
Article II:1(b), the Panel needs to satisfy itself that the measure at issue fell within the scope of
application of Article II:1(b). As correctly argu ed by the United States, if the challenged measure
qualifies as either an "ordinary customs duty" or an "other duty or charge", it was subject to the
provisions of Article II:1(b). The United States' prin cipal contention in this regard is that the AD on
alcoholic liquor constituted an "ordinary customs dut y" within the meaning of Article II:1(b), first
sentence. The United States' altern ative contention is that it constituted an "other duty or charge"
within the meaning of Article II:1(b), second sentence.
7.242 The United States' alternative contention is not based on separate or additional evidence, but
rather on the word "other" in th e phrase "other duty or charge". 264 According to the United States, if
the challenged measure were considered by the Pane l not to constitute an "ordinary customs duty", it
would, in view of the word "other", necessarily be an "other duty or charge" imposed on the
importation of alcoholic liquor. This means that if the United States cannot demonstrate, based on the
evidence adduced by it, that the AD on alcoholic liq uor was an ordinary customs duty, it will also
have failed to establish its alternative contention.
7.243 In the light of the above, the Panel will exam ine first whether the AD on alcoholic liquor was
an "ordinary customs duty" (or, alternatively, an "other duty or charge" imposed on the importation of
alcoholic liquor) and, thus, subject to the obligations contained in Article II:1(b), first sentence (or,
alternatively, those contained in Article II:1(b), second sentence).
(a) Ordinary customs duty (or "other duty or charge")
7.244 We begin our examination by recalling at the outset that the United States has sought to
establish that the AD on alcoholic liquor was an "ordin ary customs duty" by reference to its definition
of that concept. Accordingly, we now proceed to consider the definitional and other elements relied
upon by the United States with a view to determin ing whether they establish that the AD on alcoholic
liquor was an "ordinary customs duty" (or alternatively, an "other duty or charge" imposed on the
importation of alcoholic liquor).
7.245 To recall, the United States considers that the term "ordinary customs duty" as it appears in
Article II:1(b) means a duty that applies to a good at the time of importation – not on a case-by-case
basis or in response to a singular or exceptional event or set of circumstances – but as a matter of
course on, or in connection with, the good's importati on. According to the United States, an ordinary
customs duty is typically an ad valorem duty, a specific duty, or a combination thereof.
7.246 The AD, as its statutory name makes clear, is a "duty". 265 It applies to goods (articles) which
are imported into India (in our case, alcoholic liquor). 266 It does not apply to domestic goods. The
AD is assessed at the time and point of importation by India's Customs authorities.267 The good which
is imported and subject to the AD is cleared through customs for entry into India's customs territory
once the AD has been paid. 268 The AD is payable by the importers of the subject goods or their

265 Section 3(1) of the Customs Tariff Act, including its proviso.
266 Ibid; CN 32/2003.
267 India's replies to Panel Question Nos. 5 and 12; US reply to Panel Question No. 12.
268 India's reply to Panel Question No. 12. In some circumstances, goods may clear customs on
execution of bonds or under duty deferment procedures. US reply to Panel Question No. 12.

agents.269 Furthermore, as imposed through CN 32/2003, the AD on alcoholic liquor took the form of
either an ad valorem duty or a specific duty.270
7.247 Regarding whether the AD on alcoholic liquor was also applied "as a matter of course" on the
importation of alcoholic liquor, we note India's argument that the AD is not levied on imports
unconditionally. Specifically, India stated that if domestically manufactured goods are not charged an
excise duty, imported like products will also not be charged the AD. 271 This statement appears to be
consistent with the text of CN 32/2003 and the proviso to Section 3(1) of the Customs Tariff Act, in
that both refer to "the excise duty for the time bei ng leviable". Moreover, the Supreme Court of India
stated in Hyderabad Industries Ltd. v. Union of India that "[t]he levy of additional duty being with a
view to provide for counter balancing the excise duty leviable, we are clearly of the opinion that
additional duty can be levied only if on a like article excise duty could be levied". 272 The Supreme
Court's statement concerned the AD as it existed prior to the inclusion in Section 3(1) of the proviso
regarding alcoholic liquor. Section 3(1) at the time consisted of what is now the opening paragraph of
Section 3(1) and the Explanation. However, we unde rstand that as of the date of establishment of the
Panel, the opening paragraph of S ection 3(1) and the Explanation also applied to alcoholic liquor. 273
Moreover, the text of the opening paragraph and the proviso both contain the phrase "the excise duty
for the time being leviable". In view of these el ements, we see no reason to disagree with India's
statement that the AD on alcoholic liquor can be levied only if on like domestically manufactured
alcoholic liquor (or domestically manufactured alc oholic liquor of the same class or description)
excise duty is leviable. Accordingly, since the AD on alcoholic liquor was being collected on the date
of establishment of this Panel, it can be inferred th at, in the view of India's Central Government, the
aforementioned condition for the levy of the AD was satis fied at the time. In the light of this, as well
as the characteristics of the AD on alcoholic liquor set out at paras. 7.246 and 7.248, it seems to us to
be correct for the United States to say that in resp ect of alcoholic liquor subject to the AD, the AD on
alcoholic liquor was applied as a matter of course, and not on a case-by-case basis or in response to a
singular or exceptional event or set of circumstances.
7.248 Finally, as to whether the AD on alcoholic liquor was imposed "on the importation" of
alcoholic liquor, we note India's assertion that liability for the payment of the AD arises as a
consequence of domestic like products being charge d an excise duty and not merely because the
products are imported into India. In our view, India's assertion does not adequately distinguish
between what we see as two separ ate issues: (1) whether a particul ar good is liable to a duty (i.e.,
whether a duty is to be imposed in respect of a particular good) and (2) what is the event which
triggers the liability to pay a duty that is to be im posed respect of a particular good (i.e., what is the
taxable event). We consider that the element of "on the importation" as it appears in Article II:1(b)
and II:2, and also in the US definition of "ordin ary customs duties", goes to the second issue. In
relation to the AD, as discussed above, the evidence s uggests that it may be levied on alcoholic liquor
only if State excise duty is leviable on like do mestically manufactured alcoholic liquor, or
domestically manufactured alcoholic liquor of the same class or description. 274 Where this condition
is met, and the AD is imposed in respect of re levant alcoholic liquor, the event which in our

269 Ibid.
270 Exhibit US-6.
271 India's second oral statement, para. 3.5; India's comments on the US reply to Panel Question No. 43.
272 Exhibit IND-11, para. 17. We note, also with a view to further references by us to statutory
interpretations by the Supreme Court of India, that India has stated that pursuant to Article 141 of the
Constitution of India the law declared by the Supreme Court is binding on all courts within the territory of India.
273 India's replies to Panel Question Nos. 27(b), (c) an d (i). The United States similarly considers that
the opening paragraph of Section 3(1) requires the impos ition of the AD on alcoholic liquor (and all other
imports). US reply to Panel Question No. 11; US second written submission, paras. 84-85.
274 It is not clear from the evidence before us whethe r it would be sufficient if one or more States, as
opposed to all States, permitting the sale of alcoholic liquo r levied an excise duty on like alcoholic liquor or on
alcoholic liquor of the same class or description.

understanding triggers the liability to pay the AD is the importation of the relevant alcoholic liquor. 275
Therefore, it seems to us that the United States is correct in saying that the AD was a duty imposed
"on the importation" of alcoholic liquor.
7.249 Judging exclusively by the above characteristi cs of the AD on alcoholic liquor as in force on
the date of establishment of this Panel, we would agree with the United States that the AD on
alcoholic liquor could, in principle, have qualified as an "ordinary customs duty", or an "other duty or
charge", within the meaning of Article II:1(b) . However, these same characteristics are also
consistent with India's view that the AD on alc oholic liquor qualified as a charge imposed on the
importation of a product and equivalent to an inte rnal tax imposed in respect of the like domestic
product within the meaning of Article II:2(a). In this regard, to mention only a few elements 276, the
AD being a "duty" imposed on a product, it can be considered a "charge" imposed on a product as that
term is used in Article II:2(a). Also, as we have explained, the AD is a duty imposed "on the
importation of a product". And finally, as is already clear from its name, the AD is imposed in
addition to India's basic customs duty (BCD) which the United States does not dispute is an "ordinary
customs duty" within the meaning of Article II:1(b).
277 Article II:2 implies that Article II:2(a) charges
may be imposed on a product subject to a tariff binding in addition to the ordinary customs duty
levied on that product.278
7.250 In response to a question from the Panel, I ndia has stated that the BCD, the AD and the
SUAD are referred to in India as "duties of customs". 279 India has explained that this reflects the fact
that all three duties are authorized by the same constitutional entry, Entry 83 of List I (Union List),
which confers upon the Central Government the exclusiv e power to legislate with regard to "duties of
customs".280 In our view, the fact that, for the purposes of Indian constitutional law, the AD
constitutes a "duty of customs" does not imply that , for WTO purposes, it is an "ordinary customs
duty", or an "other duty or charge", within the meaning of Article II:1(b). 281 Moreover, we do not
consider that the fact of describing the AD as a "duty of customs" undermines India's view that it is an
Article II:2(a) charge. Article II:2(a), read together with the chapeau of Article II:2, refers to a charge
imposed on the importation of a product and equivalent to an internal tax. Hence, the border charge
in question is not itself an internal tax, but merely equivalent to such a tax. We therefore think that
even as a "duty of customs" the AD on alcoholic liquor could qualify as a border charge equivalent to
an internal tax within the meaning of Article II:2(a) . Moreover, we are not troubled by the fact that
India's basic customs duty (BCD), which we have said may be considered, for WTO purposes, as an

275 As we have said, India has indicated that the AD is payable by the importer at the point and time of
importation, and customs clearance is not granted until the AD has been paid.
276 See also supra, paras. 7.153-7.155.
277 The United States considers, however, that the BCD is not the only "ordinary customs duty"
imposed by India.
278 We note that since the AD on alcoholic liquor applies exclusively to imports, it is clear that it
produces the same type of effect as the BCD. However, Article II:2(a) charges by definition apply to imports
only. We also note in this context the European Co mmunities' allegation that the AD on alcoholic liquor was
introduced on the same date India committed to eliminate the last quantitative restrictions judged WTO-
inconsistent in the dispute India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial
Products (WT/DS90). According to the European Communities, "it seems fair to assume" that the new measure
was adopted to produce the same or similar effects as the measures just withdrawn, i.e., to limit imports of
alcoholic liquor into India. EC third party oral statement, para. 18. We note in this regard the statement by the
Appellate Body in Chile – Alcoholic Beverages according to which "Members of the WTO should not be
assumed, in any way, to have continued previous protection or discrimination through the adoption of a new
measure". Appellate Body Report, Chile – Alcoholic Beverages, para. 74 (footnote omitted).
279 India's reply to Panel Question No. 7.
280 Ibid.
281 We note, in this respect, the statement by the United States that, according to the GATT panel report
on EEC – Parts and Components , the particular characterization of a measure under the domestic law of the
responding party is not determinative of the proper characterization of that measure under WTO rules.

"ordinary customs duty", is also regarded, for the purposes of Indian constitutional law, as a "duty of
customs". Indeed, as we have said, it is not appare nt to us why an Article II:2(a) charge could not
take the same form as an "ordinary customs duty", or an "other duty or charge".
7.251 Consistently with the fact that the AD is c onsidered in India a "duty of customs", it is
collected and administered by India's Customs au thorities pursuant to the provisions of India's
Customs Act.282 In our view, this does not disqualify th e AD from being an Article II:2(a) charge.
Since an Article II:2(a) charge is, by nature, a border charge, it seems quite natural that a Member
might find it convenient to entrust its Customs author ities with the collection of such a charge and, to
that end, would apply its Customs legislation as appropriate.
7.252 Relying upon the fact that the AD is regarded as a "duty of customs", the United States asserts
that Section 25 of the Customs Act is the legal authority used by India's Central Government to
exempt imports from the BCD and/or the AD. Section 25 empowers the Central Government to
exempt goods "from the whole or any part of duty of customs leviable thereon". India contests this
US assertion, arguing that the specific provision conf erring the power to exempt imports from the AD
is Section 3(8) of the Customs Tariff Act. Section 3(8) states that the provisi ons of the Customs Act,
including those relating to exemption from duties – i.e ., Section 25 – "shall, so far as may be, apply"
to the AD as they apply to duties leviable under the Cu stoms Act. Thus, from the text of Section 3(8)
it would appear that Section 3(8) renders applicable to the AD, "so far as may be", the provisions of
Section 25. If this were a correct interpretation of Section 3(8), it would be plausible to argue, as
India does, that, but for Section 3(8), the provisions of Section 25 would not be available to exempt
imports from the AD. We note that unlike CN 82/2007, other customs notifications, including CN
20/2006 or CN 102/2007, reference Section 25, but not Section 3(8). In reply to a question from the
Panel India stated that some customs notifications refer to Section 25 only and that in those cases a
reference to Section 3(8) is implicit, since, without it, the exemption mechanism provided for in
Section 25 could not be invoked. According to Indi a, the absence of a reference to Section 3(8) does
not invalidate an exemption notification.
283
7.253 Even if Section 3(8) did not have the legal significance ascribed to it by India and Section 25
provided independent authority to exempt imports from the AD, contrary to what the United States
suggests, this would not demonstrate that India's customs duty system regards both the BCD and the
AD as "ordinary customs duties". Rather, it would merely demonstrate that there exists a common
exemption authority for different types of "duty of customs", such as the BCD, the AD or the SUAD.
Logically, this does not imply that, for the purpo ses of Indian law, the BCD, the AD and the SUAD
are all considered charges of the same nature and serving the same purpose. Indeed, Section 25
makes clear that an exemption may be granted with regard to only a part of the "duty of customs"
leviable on a good. This appears to make it possible to grant an exemption from one type of "duty of
customs" (e.g., the BCD), but not another (e.g., the AD).284
7.254 Having regard to the description of the AD as a "duty of customs", the United States further
asserts that the AD is required to be collected under the same provision of India's Customs legislation
– Section 12(1) of the Customs Act – as the BCD. Section 12(1) provides that "[e]xcept as otherwise
provided in this Act, or any other law for the time be ing in force, duties of customs shall be levied at
such rates as may be specified under [the Customs Ta riff Act], or any other law for the time being in

282 India's replies to Panel Question Nos. 5 and 12; Section 3(8) of the Customs Tariff Act.
283 India's replies to Panel Question Nos. 39(a) and 27 (h). In its reply to Panel Question No. 27(h),
India stated that the Supr eme Court of India, in Assistant Commissioner , Commercial Taxes v. Dharmender
Trading Co., AIR 1988 SC 1247, held that when the exercise of legislativ e power can be traced to a legitimate
source, mere failure to mention it does not vitiate the exer cise of the power. India has not submitted the text of
the decision.
284 Exhibits IND-13, paras. 14 and 18; IND-12.

force, on goods imported into […] India". Section 2 of the Customs Tariff Act provides that "[t]he
rates at which duties of customs shall be levied under the Customs Act, 1962, are specified in the First
and Second Schedules". India argues that the United States' assertion regarding the statutory basis for
the levy of the AD is incorrect as a matter of Indian law.
7.255 It is important not to be misled, in construing Section 12(1), by the fact that Section 12(1)
uses the term "duties of customs" and talks about rates being specified under the Customs Tariff Act.
As was observed by the Supreme Court of India in Hyderabad Industries Ltd. v. Union of India ,
"[t]here are different types of customs duty levied under different acts or rules". 285 The Supreme
Court further stated that "there can be no manne r of doubt that additional duty which is levied under
Section 3(1) of the Tariff Act is independent of th e customs duty which is levied under Section 12 of
the Customs Act". 286 Thus, even though both the BCD and the AD are "duties of customs" and the
issue of the specification of rates is in both cases d ealt with in the Customs Tariff Act, the statutory
basis for the levy of the BCD is Section 12(1) of the Customs Act, whereas that for the levy of the AD
is Section 3(1) of the Customs Tariff Act, a nd not, as the United States suggests based upon its own
interpretation of Indian law, Section 12(1) of the Customs Act. As a result, consideration of the
statutory bases of the BCD and the AD does not bear out the United States' assertion that under India's
customs duty regime both the BCD and the AD are regarded as "ordinary customs duties".
7.256 The United States also points out that in accordance with Sectio n 3(2) of the Customs Tariff
Act the AD on alcoholic liquor is to be calcu lated based upon the value of the imported good
inclusive of the BCD. India has said that the method of calculating the AD on alcoholic liquor is
based upon that applied for excise duties.
287 In our understanding, it is not uncommon even in the
case of ad valorem internal taxes enforced and collected at the point and time of importation to assess
them on the basis of the duty-paid value of the imported good. 288 In the light of this, we do not think
that the fact that the AD on alcoholic liquor is levied based upon a value of the imported good which
is defined to include the BCD indicates that the AD is itself an "ordinary customs duty" or an "other
duty or charge".
7.257 Another point clarified by India in response to a question from the Panel is that the revenue
collected by India's Customs authorities as a result of the levy of the AD on alcoholic liquor does not
go to the States alone, but is distributed as between India's Central Government and the States in
accordance with a revenue sharing formula. The same applies to the BCD and the SUAD. 289 As we
see it, the fact that the Central Government does not distribute to the States all of the revenues
collected as a result of imposition of the AD on alcoholic liquor does not demonstrate that the AD is
not a border charge equivalent to State-level internal taxes. Article II:2(a) does not speak to the issue
of revenue distribution, and our interpretation of the term "equivalent" does not turn on how revenues
collected are distributed. Moreover, one reason for im posing an Article II:2(a) charge is to level the
competitive playing field as between products being imported and like domestic products. This can
be achieved independently of the pa rticular revenue sharing formula that is adopted. Therefore, we
attach no particular importance to the fact that in terms of the distribution of revenues collected there
is no difference between the AD and the BCD.

285 Exhibit IND-11, para. 14.
286 Ibid., para. 17. At para. 14, the Court provided elaboration as follows: "Merely because the
incidence of tax under Section 3 of the Customs Tariff Ac t, 1975 arises on the import the articles into India it
does not necessarily mean that the Customs Tariff Act cannot provide for the charging of a duty which is
independent of the customs duty leviable under the Customs Act".
287 India's reply to Panel Question No. 29.
288 See also GATT Panel Report, Canada – Provincial Liquor Boards (US), para. 5.25.
289 India's replies to Panel Question Nos. 25 and 47(b)-(d).

7.258 The foregoing analysis shows that even though the AD on alcoholic liquor met the elements
of the US definition of "ordinary customs duties", this is not sufficient, on its own, to establish that the
AD on alcoholic liquor was an ordinary customs duty (or an "other duty or charge" imposed on the
importation of alcoholic liquor) under Article II:1(b) as opposed to a border charge equivalent to an
internal tax under Article II:2(a). This remains true even if account is taken of the overall structure of
India's customs duty and tax system, including su ch aspects as the domestic legal description of the
AD as a "duty of customs", the role of India's Cu stoms authorities in the collection of the AD, the
exemption mechanism established by Section 25 of th e Customs Act, the method of calculation of the
AD and the distribution of the revenues collected as a result of imposition of the AD.
7.259 As we have explained previously, under such circumstances, it is necessary for the United
States to establish, in addition, that the AD on alc oholic liquor was of the same kind as, or in the
nature of, an ordinary customs duty (or an "other duty or charge" imposed on the importation of
alcoholic liquor).
(b) Equivalence to internal taxes
7.260 We have also indicated previously that the United States can seek to establish by reference to
the provisions of Article II:2 that the AD on alcoholic liquor was in the nature of an ordinary customs
duty (or an "other duty or charge" imposed on the impor tation of alcoholic liquor). In this regard, the
only category of Article II:2 charges discussed by th e Parties is that concerning charges imposed on
the importation of a product and equivalent to inte rnal taxes imposed in respect of the like domestic
product.
7.261 As our analysis below amply demonstrates, this case does indeed objectively present the issue
whether the AD on alcoholic liquor was a charge equiva lent to an internal tax within the meaning of
Article II:2(a), or to be more accurate, whether it was a charge equivalent to State-level internal taxes
(excise duties). In these conditions, if the United St ates as the complaining party cannot establish that
the AD on alcoholic liquor was not equivalent to Stat e-level internal taxes imposed in respect of like
domestic alcoholic liquor, it cannot successfully estab lish that the AD on alcoholic liquor was in the
nature of an ordinary customs duty (or an "other duty or charge" imposed on the importation of a
good).
290 Accordingly, the issue we turn to examin e now is whether the United States has met its
burden of establishing that the AD on alcoholic liquor was not "equivalent" to State-level internal
taxes on like domestic alcoholic liquor.291
7.262 We first examine the particular features, stru cture and design of CN 32/2003. CN 32/2003
says the Central Government specified the rates of AD applicable to alcoholic liquor "having regard
to the excise duties for the time being leviable on like alcoholic liquors produced or manufactured in
different States, or the excise duties which would be leviable for the time being in different States on
the class or description of alcoholic liquor, as th e case may be". Thus, CN 32/2003 suggests that
"excise duties" were in force at the time in diffe rent States of the Union and that such excise duties
were imposed in respect of like alcoholic liquor produced or manufactured in these States or in
respect of domestic alcoholic liquor of the class or description of alcoholic liquor to which the
imported alcoholic liquor belongs.
292 The passage quoted from CN 32/2003 further indicates that the

290 We have explained previously that if the United States could establish that the AD on alcoholic
liquor was not an Article II:2(a) charge, we would need to examine what, if any, further demonstration would be
required of it.
291 We recall that, for the purposes of an Article II: 2(a) inquiry, "equivalence" is a necessary condition
for the AD on alcoholic liquor to fall outside the scope of Article II:1.
292 We note that there is a distinction to be made be tween India's 28 States and the 7 Union Territories.
In its reply to Panel Question No. 24, India indicates, however, that this distinction is not relevant to the
resolution of any issue put before the Panel. The United States has not claimed otherwise. Accordingly, we will
hereafter pay no further attention to this distinction.

Central Government set the rates of AD for alcohol ic liquor having regard to the State excise duties
on domestic alcoholic liquor leviable at the time.
7.263 We observe that CN 32/2003, on its face, points to the existence of a relationship between the
AD on alcoholic liquor and State excise duties on alc oholic liquor. In relation to these State excise
duties on alcoholic liquor, we note that the Cons titution of India describes and characterizes State
excise duties on alcoholic liquor as duties on goods manufactured or produced in the relevant State. 293
According to India, the taxable event from which lia bility to pay such a duty arises is the manufacture
of the product.294 Evidence submitted by the United States rega rding the so-called central excise duty
(i.e., the excise duty levied by the Central Government of India on goods manufactured or produced in
India other than, inter alia , alcoholic liquor) suggests that it applies to goods manufactured or
produced in India upon their removal from the place of manufacture or production. 295 Nevertheless,
in response to a question from the Panel, the United States said that the reference in the proviso to
Section 3(1) to "excise duties" appeared to be a re ference to internal taxes. The United States further
said that without knowing the details of these exci se duties, it could not make a determination that
they constituted internal taxes within the meaning of Article III:2. 296 In our assessment, the elements
before us tend to support the view that the State ex cise duties on domestic alcoholic liquor referred to
in CN 32/2003 and the proviso to Section 3(1) ar e imposed in respect of domestic goods – alcoholic
liquor manufactured or produced in the relevant State. However, in view of the particular
circumstances297, we deem it appropriate to suspend our analysis of this issue for the time being and to
conduct our "equivalence" inquiry on the assumption that the State excise duties on alcoholic liquor
may be regarded as internal tax es imposed in respect of a domestic product, as contemplated in
Article II:2(a).
7.264 As to whether the alcoholic liquor subject to the AD was "like" 298 domestic alcoholic liquor
subject to State excise duties, we note that the Par ties have been arguing or assuming that this is the
case.299 Since the Parties did not treat this as an issue of particular interest or concern and there is
little relevant information on the record, in relation to this issue as well we consider it appropriate to
suspend our analysis for the time being and to conduct the present "equivalence" inquiry on the
assumption that the alcoholic liquor subject to the AD was "like" domestic alcoholic liquor subject to
State excise duties.
7.265 The United States notes that CN 32/2003 does not identify any State excise duties to which
the AD relates. However, Article II:2(a) requires that a border charge imposed on a product being
imported be equivalent to an internal tax imposed in respect of the like domestic product. It contains
no requirement specifically to identify the relevant internal tax by name, date of publication, etc.
300

293 Entry 51 of List II of the Constitution of India, quoted in India's reply to Panel Question No. 26.
294 India's reply to Panel Question No. 36.
295 Exhibit US-21; US reply to Panel Question No. 12. This seems relevant in view of the similar
language of the provisions of the Constitution of India authorizing the making of laws concerning State excise
duties and the central excise duty. Entr y 84 of List I of the Constitution refers to "[d]uties of excise on tobacco
and other goods manufactured or produced in India except", inter alia, alcoholic liquor for human consumption.
Entry 51 of List II of the Constitution refers to "[d]uties of excise on the following goods manufactured or
produced in the State", including on alcoholic liquor for human consumption.
296 US reply to Panel Question No. 19.
297 The record contains little evidence on the issue, wh ich reflects the fact that neither Party paid much
attention to it.
298 Article II:2(a) uses the phrase "like domestic product".
299 US second written submission, para. 30 (assuming " likeness" and noting, in addition, that the Panel
need not reach the issue); India's first written submission, para. 84 (arguing "likeness" for SUAD, but addressing
also alcoholic liquor).
300 The fact that it is not a requir ement does not mean that it would no t be desirable for a Member, as a
matter of good practice, specifically to identify the relevant internal tax.

At any rate, it is clear to us from the text of CN 32/2003, particularly when read together with the
proviso to Section 3(1) of the Customs Tariff Act, that the State excise duties on alcoholic liquor to
which CN 32/2003 refers are those in force at the tim e in the different States of the Union. In other
words, they comprise the excise duties of all tho se States which levied such duties on alcoholic liquor
at the time. 301 Also, as we have just mentioned, the C onstitution of India explicitly refers to, and
explains, the concept of State excise duties on al coholic liquor. Based upon these elements, we think
that the relevant State excise duties referred to in CN 32/2003 are, in principle, identifiable.302
7.266 The United States further points out that CN 32/2003 does not indicate how the rates of AD
specified by the Central Government "have regard" to the excise duties levied by the States. It is
useful to deal with this point after we have cons idered relevant provisions of Section 3(1) of the
Customs Tariff Act pertaining to the AD on alcoholic li quor. We note in this respect the statement in
CN 32/2003 to the effect that the rates of AD were specified by the Central Government "[i]n exercise
of the powers conferred by the proviso to sub-sec tion (1) of Section 3 of the Customs Tariff Act,
1975". In view of the fact that there is a clear and direct link between CN 32/2003 and the proviso to
section 3(1) of the Customs Tariff Act, the proviso is relevant to an assessment of whether the AD on
alcoholic liquor was equivalent to State excise duties imposed in respect of domestic alcoholic liquor.
7.267 We recall that the proviso to Section 3(1) reads:
"Provided that in case of any alcoholic li quor for human consumption imported into
India, the Central Government may, by no tification in the Official Gazette, specify
the rate of additional duty having regard to the excise duty for the time being leviable
on a like alcoholic liquor produced or manufactured in different States or, if a like
alcoholic liquor is not produced or manufactured in any State, then, having regard to
the excise duty which would be leviable for the time being in different States on the
class or description of alcoholic liquor to which such imported alcoholic liquor
belongs."

7.268 Concerning the proviso's phrase "having regard to ", India has explained that it "addresses the
specific situation of alcoholic liquor where different States levy varying rates of excise duty and the
Central Government is [therefore] unable to fix a si ngle rate of AD which is 'equal to the excise duty'
[as is contemplated in the introductory paragraph of Section 3(1) for products imported into India
other than alcoholic liquor and in respect of whic h the like domestic product is subject to an excise
duty levied by the Central Government (the Central Excise Tax)]".
303 India further stated that the
proviso "requires the Central Government to cons ider the varying rates of State excise duties
pertaining to alcoholic liquor before fixing the rate of AD, but does not make it mandatory to adopt
any one single rate – this continues to be left to the discretion of the Central Government". 304 Finally,
India observed that the proviso "does not require a correlation between the methodology for the
calculation of the AD and the respective State excise duties" due to "the inherent difficulties in using
the same methodology when different States have different rates of excise duties for alcoholic
liquor".305

301 India's reply to Panel Question No. 8(a) suggests that some States do not permit the sale of domestic
alcoholic liquor. It is uncl ear from India's reply whether these States permit the sale of imported alcoholic
liquor.
302 We note in this respect that the United States is not alleging that India is in breach of its obligations
of Article X:1 of the GATT 1994 on publication of trade regulations.
303 India's reply to Panel Question No. 27(d).
304 Ibid.
305 Ibid. (corrected for typographical error).

7.269 With these explanations in mind, we now return to the point raised by the United States that
CN 32/2003 does not indicate how the Central Governme nt had regard to State excise duties when it
specified the rates of AD for alcoholic liquor. Indi a has addressed the specific point raised by the
United States in response to a question from the Panel. India stated that the rates of AD specified in
CN 32/2003 are the result of "a process of averaging, whereby the Central Government tried to ensure
that to the extent possible, the rate was a reasonable representation of the net fiscal burden imposed on
like domestic products on account of the excise duty payable on alcoholic liquor". 306 India went on to
observe that the Central Government "also noticed that the fiscal burden imposed on lower-priced
alcoholic liquor, which accounts for a majority of sales in the domestic market, was higher than that
imposed on higher priced alcoholic liquor" and that , consequently, it was decided "to divide the rate
into four ad valorem rates and impose these rates as the additional duty on alcoholic liquor through …
CN 32/2003".307 Finally, India stated that "[w]hile it is po ssible that in some States and in some price
bands, the AD imposed [through CN 32/2003] on importe d products may be marginally in 'excess of'
the excise duty imposed on like domestic products in that State, it is equally likely that the AD is less
than the State excise duty in some other States".
308
7.270 The first point we wish to make in response to the above is that, by itself, the fact that
CN 32/2003 does not say how the Central Government "had regard" to State excise duties does not
mean that the AD on alcoholic liquor is not equi valent to State-level excise duties on domestic
alcoholic liquor. We see no requirement in Article II:2(a) that a Member imposing a border charge
equivalent to an internal tax needs explicitly to state, either in the measure establishing the border
charge or that establishing the corresponding internal tax, why and how either is equivalent to the
other.
309
7.271 As to whether the rates specified in CN 32/ 2003 indicate that the AD on alcoholic liquor is
not equivalent to State-level excise duties on domest ic alcoholic liquor, we should make clear at the
outset that neither the United States nor India has supplied specific information about excise duties
actually levied by different States on alcoholic liquor.310 This said, it is clear from India's Constitution
that the States are empowered to levy excise du ties on alcoholic liquor manufactured or produced in
the relevant State. 311 Since there do not appear to exist any harmonization measures, it is also clear
that the structure and level of these excise duties may vary from State to State.312 India has asserted in
response to a question that, at the time of the Panel's establishment, all States that permitted the sale of

306 India's reply to Panel Question No. 28. India has not provided further particulars in support of its
statement.
307 Ibid. India has provided no information regarding the fiscal burden imposed in different States on,
respectively, low- and high-priced domestic alcoholic liquor.
308 Ibid.; India's reply to Panel Question No. 8(c). We note that the quoted statement seems consistent
with India's argument that in cases wh ere the rates of excise duty in eac h State vary, the Central Government
need not specify the rate of AD at the highest excise duty rate.
309 We do not understand the United States to say otherwise. However, we do not wish to suggest that
it would not be desirable for a Member, as a matter of good practice, to provide an ex ante explanation.
310 After the second substantive meeting with the Par ties, the Panel, in a written question, requested
India to identify relevant State excise duties and any differences in terms of the form of taxation, applicable duty
rates, etc. India did not respond to the Panel's question. Regrettable as this is, we note that we put the question
to India in an effort at obtaining more background information that could have helped us in our internal
deliberations. Also, some of the information might have enabled us to verify certain assertions by India in case
this would have proved necessary. As is clear from our findings, however, we have been able to dispose of the
US claim under Article II:1(b) without the information in question. We have, therefore, refrained from pursuing
our question.
311 Entry 51 of List II of the Constitution of India.
312 We note that this can also be in ferred from the text of the provis o to Section 3(1) of the Customs
Tariff Act.

alcoholic liquor levied an excise duty on alcoholic liquor subject to the AD. 313 India further stated
that the excise duties levied by the States did, indeed, vary.314
7.272 Although we have no information on specific State excise duties, it is possible, and useful, to
offer some observations regarding the rates of AD specified in CN 32/2003, based upon the
explanations India has provided. To begin with, Indi a has stated that the proviso to Section 3(1) does
not require any correlation between the methodology for the calculation of the AD and that for the
calculation of the respective State excise duties. It appears that, in essence, the point India intends to
convey in referring to methodologies for calculation is that, irrespectively of what individual States
may do in relation to their excise duties on al coholic liquor, the provi so leaves the Central
Government free to decide, e.g., whether to impose the AD on alcoholic liquor in the form of an
ad valorem duty, a specific duty or a combination of both. As we have already pointed out, the rates
of AD specified in CN 32/2003 take the form of either ad valorem duties or specific duties. Similarly,
we note that CN 32/2003 creates different price bands and different rates of AD corresponding to
these bands.
7.273 In our view, even if, as appears possible, the form ( ad valorem vs. specific duties, etc.) and
structure of the rates of AD for alcoholic liquor were different from the form and structure of the rates
of State excise duties on alcoholic liquor, this would not demonstrate that the AD on alcoholic liquor
was not equivalent to State excise duties on domestic alcoholic liquor. The concept of "equivalence"
as it appears in Article II:2(a) does not imply that a bo rder charge and an internal tax need to have the
same form ( ad valorem vs. specific duties, etc.) and/or rate structure.
315 Rather, it implies that they
need to have the same function of imposing a charge on a product qua product. We do not see why a
border charge and an internal tax having a different form ( ad valorem vs. specific duties, etc.) and/or
rate structure could not nonetheless fulfil the same relative function within the customs duty and tax
system of the Member concerned.
7.274 We also wish to comment upon India's stat ement that the rates of AD specified in
CN 32/2003 reflect a process of averaging. As expl ained by India, its attempt at averaging in a
context of State excise duties leviable at different rates could have meant that the rate of AD for
alcoholic liquor exceeded the rate of excise duty appl icable to like domestic alcoholic liquor in some
States and in some price bands (or, more generally , that the tax burden as a result of imposition of the
AD on alcoholic liquor exceeded the tax burden as a resu lt of imposition of a particular State excise
duty on like alcoholic liquor manufactured or produced in the State). If that was the case, and India
explicitly acknowledged that this was a possible c onsequence of CN 32/2003, it would nevertheless

313 India's reply to Panel Question 8(a). India has not provided any supporting evidence. At the same
time, we note that the United States has not asserted otherwise or provided evidence to the contrary. In contrast,
the European Communities as a third party asserts that not all Indian States appl y taxes on alcoholic liquor
under the denomination "excise duty". It refers to De lhi for wines and spirits, and Maharashtra as regards
wines. EC third party written submission, para. 20. Neither Party has commented or relied upon this EC
assertion. As the European Communities has not substant iated its assertion through documents, information or
detailed explanation, we are not in a position to determine whether the European Communities is correct in
asserting that the States in question do not levy any excise duty on specified alcoholic liquor. Also, as noted by
the European Communities itself at para. 19 of its submission, the denominations of State taxes may vary from
State to State. In these circumstances, just like we can on ly note India's assertion that all States did levy excise
duties on alcoholic liquor, so also we can only note the EC assertion to the contrary.
314 India's reply to Panel Question 8(b). The United States relied upon this reply by India. US second
written submission, note 58.
315 Indeed, if it were otherwise, a Member could not, e.g., use a price band to apply an additional and
preferential rate (e.g., 2 per cent ad valorem) to products being imported while applying a general rate (e.g., 6
per cent ad valorem) to all like domestic products and to products being imported that do not qualify for the
preferential rate. We do not consider that the terms of Article II:2(a) are intended to prevent a trade-creating
rate structure of this type.

not demonstrate, for the reasons we have articulated earlier316, that the AD on alcoholic liquor and the
State excise duties did not fulfil the same relative function within India's customs duty and tax system.
Instead, the existence of a rate differential (or, more generally, of a tax burden differential)
disfavouring alcoholic liquor being imported may merely indicate that the AD on alcoholic liquor and
the State excise duties fulfilled the function of imposing a charge on alcoholic liquor qua alcoholic
liquor in a different manner, with the consequence that, in some States and circumstances, alcoholic
liquor being imported was treated less favourably than the like domestic product.317
7.275 Before proceeding to consider the purpose of th e AD on alcoholic liquor it is appropriate to
call attention to a feature of CN 32/2003 that neither Party specifically commented upon. As we
understand it, pursuant to CN 32/2003, the AD on alc oholic liquor was imposed on the importation of
specified alcoholic liquor apparently without regard for where in India, and, specifically, in which
State, it would be finally consumed. 318 To our minds, if it was the case that the AD was being
imposed, pursuant to CN 32/2003, on alcoholic liquor destined for consumption in a State where no
excise duty was leviable on like alcoholic liquor, this would present the issue whether in respect of
alcoholic liquor destined for consumption in that State, the AD was "equivalent" to a State-level
excise duty. However, as previously noted and as further addressed below, it is not clear from the
record whether on the date of establishment of the Panel there were States that permitted the sale of
alcoholic liquor but did not levy an excise duty on alcoholic liquor subject to the AD.
7.276 Having regard to our considerations so far, it can thus be said that the particular features and
structure of CN 32/2003, including the fact that, on its face, it points to a relationship with State
excise duties, the form and structure of the rates it sp ecifies, and the fact that it applies to imports of
alcoholic liquor without apparent regard for its final destination in India, sup port or at least are not
inconsistent with India's position that the AD on al coholic liquor was "equivalent" to State excise
duties.
7.277 Turning now to examine the design, or purpose, of the measure at issue, we note the United
States' argument that the proviso's phrase "having re gard to the excise duty for the time being leviable
on like alcoholic liquor produced or manufactured in different States" does not change the
appropriateness of characterizing the AD on alcoholic liquor as an ordinary customs duty, because, in
its view, the purpose or intent a Member attributes to a duty is not determinative. Otherwise, the
United States maintains, a Member could avoid the commitments made in its Schedule simply by
attributing an appropriate purpose to the duty. 319 In considering this argument, we note, as an initial
matter, that the phrase referred to by the United St ates does not actually state the purpose of the AD
on alcoholic liquor. Rather, as stated by India, it directs the Central Government to take account of
State excise duties when exercising its right to set the rate of AD for alcoholic liquor.320
7.278 Nonetheless, we consider that the phrase in question is consistent with India's view 321 that the
AD on alcoholic liquor is designed to offset State ex cise duties levied on alcoholic liquor produced or

316 See supra, para. 7.192-7.193.
317 Ibid.
318 CN 32/2003 applies to alcoholic liquor for human consumption. See the proviso to Section 3(1) of
the Customs Tariff Act. We also note that as of the date of establishment of the Panel no exemptions had been
granted from the AD as imposed through CN 32/2003.
319 In support of its argument, the United States refers to the GATT Panel Report on EEC – Parts and
Components, para. 5.7.
320 To that extent, the proviso does not appear to constitute an example of a case where a Member's
statute attributes to a duty a particular purpose or intent. At any rate, we would agree that the purpose stated in a
Member's legislation is not determinative, by itself, fo r WTO purposes. Nevertheless, it is a relevant factual
element which we may consider together with others in coming to an overall conclusion on the issue of
"equivalence".
321 India's reply to Panel Question No. 27(d).

manufactured in the States. 322 To us, this seems to be a natural and plausible explanation of why the
Central Government is to have regard to Stat e excise duties when specify ing the rate of AD for
alcoholic liquor. However, from the text of the pr oviso it is not clear to us whether the AD may be
imposed on alcoholic liquor imported into India onl y in cases where an excise duty is for the time
being leviable on like domestic alcoholic liquor in all States permitting the sale of the alcoholic liquor
in question, or whether it would be sufficient that an excise duty is leviable in only some States
permitting its sale. 323 Regarding the second hypothesis, it is pertinent to note that pursuant to
Section 3(8) of the Customs Tariff Act in conjuncti on with Section 25 of the Customs Act the Central
Government appears to have the power to grant ex emptions from the levy of the AD subject to such
conditions (to be fulfilled before or after custom s clearance) as it may sp ecify in the exemption
notification.324 Thus, it seems to us that even if the proviso authorized, or required, the Central
Government to impose the AD in cases where an ex cise duty is leviable in only some States
permitting the sale of alcoholic liquor, it is not clear that the Central Government would be required to
impose it on all alcoholic liquor imported into India, i rrespective of its final destination. In the light
of this, and in the absence of evidence to the contrary, we see no reason to consider that the AD on
alcoholic liquor, as designed, necessarily "overshoots" in certain circumstances.
7.279 In support of its view regarding the design of the AD on alcoholic liquor, India has referred to
the following statement offered by the Supreme Court of India in its decision in Hyderabad Industries
Ltd. v. Union of India:325
"Even though the impost under Section 3 [of the Customs Tariff Act] is not called a
countervailing duty there can be little doubt that this levy under Section 3 is with a
view to levy additional duty on an imported article so as to coun terbalance the excise
duty leviable on the like article indigenously made."
7.280 Although this statement concerns an earlier version of Section 3(1) which did not include the
current proviso relating to alcoholic liquor, we consid er that it is relevant also to the AD on alcoholic
liquor as contemplated in the proviso. 326 To begin with, the proviso was incorporated into, and thus
forms an integral part of, Section 3(1). Furtherm ore, the principal change effected by the proviso
relates to the rate of AD to be applied. The openi ng paragraph stipulates that for products other than
alcoholic liquor the AD is to be equal to the ex cise duty (central excise tax), whereas the proviso
stipulates that for alcoholic liquor the rate must have regard to the excise duty in different States. We
fail to see in this difference regarding the rate of AD to be applied any indication that India's

322 In our view, the fact that, as pointed out by India in reply to Panel Question No. 28, the proviso
allows the Central Government to set the rate of AD in a manner that results in the rate exceeding the excise
duty leviable in some States and being lower than the excise duty leviable in other States does not imply that it
is designed to accomplish something other than offsetting State excise duties. Setting the AD rate based upon a
determination of some kind of average State excise duty is one way of offsetting such duties.
323 We note that neither Party has addressed this issue.
324 The power to grant exemptions appears to include the power to grant a refund of a duty already
paid. See the decision by th e Supreme Court of India in Assistant Commissioner of Commercial Taxes (Asst.)
Dharwar and Ors. vs. Dharmendra Trading Company and Ors ., at para. 8 (Exhibit IND-20), and CN 102/2007
which references Section 25 and provides for the possibility of obtaining a refund of the SUAD paid in specified
circumstances.
325 Exhibit IND-11, para. 15.
326 As a separate matter, we note that the Supreme Court of India is an independent branch of the
Central Government of India (Exhibit IND-9).

legislature intended for the AD on alcoholic liquor to have a purpose different from that of the AD on
other products.327
7.281 In sum, having regard to the issue of the d esign of the AD on alcoholic liquor, we think the
text of the proviso, the above-quoted statement by the Supreme Court of India as well as the
previously discussed condition that the AD is to be le vied on alcoholic liquor only if on like alcoholic
liquor (or alcoholic liquor of the same class or descri ption) excise duty is leviable are all consistent
with India's view that the AD on alcoholic liquor as contemplated in the proviso to Section 3(1) is
designed to counterbalance State excise duties. More over, it does not appear to us to be the case that
the AD on alcoholic liquor, as designed, necessar ily "overshoots" in certain circumstances. 328 If, as
argued by India, the AD on alcoholic liquor was designed to counterbalance State excise duties on
like domestic alcoholic liquor, this would in our view support the inference that it was designed to
impose a charge on alcoholic liquor imported into India qua alcoholic liquor, and not qua alcoholic
liquor being imported.
7.282 As to what this means for the AD on alcoholic liquor, as actually imposed through
CN 32/2003, we recall that the proviso to Section 3(1) is the statutory basis upon which CN 32/2003
was issued, that CN 32/2003 explicitly states that the Central Government had regard to the excise
duties leviable in different States, as required by the proviso
329, and that there is no indication that the
consistency of CN 32/2003 with the pr oviso was ever questioned in India 330. To that extent, there is
no reason to think, based upon CN 32/2003 and its stat utory basis, that the AD on alcoholic liquor
could not be designed to counterbalance State excise duties, as argued by India. Or to put it another
way, the aforementioned elements do not contradi ct the view that the function which the AD on
alcoholic liquor was designed to fulfil was to impos e a charge on alcoholic liquor imported into India
qua alcoholic liquor.
7.283 Nevertheless, the design of the AD on alc oholic liquor could not, in any event, be
determinative, on its own, of whet her it was equivalent to State excise duties. As we have pointed
out, the outcome of an "equivalence" inquiry unde r Article II:2(a) is cont ext-dependent. Depending
on the context, one and the same border charge may be equivalent, or not equivalent, to an internal
tax. As a result, we also need to examine the AD on alcoholic liquor in its relevant context.
7.284 We turn first to the legal context within wh ich the AD on alcoholic liquor operated, i.e., the
legal structure of India's customs duty and tax sy stem. Indeed, the AD on alcoholic liquor did not
operate within a vacuum, but formed part of, an d was embedded in, the legal framework of India's
customs duty and tax system. We commence our review of the relevant legal context with the State
excise duties on alcoholic liquor. As we have indicated previously, the Constitution of India
empowers the States to impose "duties of excise" on alcoholic liquor manufactured or produced in the
State.
331 In addition, the same entry of th e Constitution empowers the States to impose
"countervailing duties" on alcoholic liquor manufact ured or produced elsewhere in India. The
relevant entry is silent on the issue of the power s of State Governments in respect of imposition of
excise duties or countervailing duties on imported alcoholic liquor. However, India has told the Panel

327 To recall India's explanation: "The proviso to Section 3(1) addresses the specific situation of
alcoholic liquor where different States levy varying rates of excise duty and the Central Government is unable to
fix a single rate of AD which is 'equal to the excise duty'". India's reply to Panel Question No. 27(d).
328 In the light of these elements as well as in vi ew of our consideration below of the legal context
within which the AD on alcoholic liquor operates, there is no apparent reason to be concerned that the relevant
phrase in the proviso is designed to conceal the true nature of the AD on alcoholic liquor.
329 We also recall in this regard the further explanations provided by India in response to Panel
Question No. 28.
330 In the context of the present pr oceedings, the United States has not, itself, alleged that CN 32/2003
is not properly based on the proviso to Section 3(1).
331 Entry 51 of List II of the Constitution of India.

that its Constitution adopts a positive list approach according to which the Central Government and
the State Governments are to exercise their powers strictly in accordance with their respective lists.332
Thus, since the aforementioned relevant entry of the State List does not confer upon State
Governments the power to impose excise duties, or countervailing duties, on alcoholic liquor
imported into India, and such power does not app ear to be conferred elsewhere, it seems the State
Governments lack the power to impose excise duti es or countervailing duties on alcoholic liquor not
manufactured or produced in the State or elsewhere in India.
333
7.285 Given the lack of powers of State Governments in respect of imposition of excise duties or
countervailing duties on alcoholic liquor not manufactured or produced in the State or elsewhere in
India334, it is not unreasonable that India's customs duty and tax system, as it existed on the date of
establishment of this Panel, would provide for so me form and measure of compensatory taxation of
imported alcoholic liquor. In this regard, we firs t note that the Constitution of India authorizes the
Central Government to impose "duties of exci se" on goods, but only on "goods manufactured or
produced in India".335 Moreover, the relevant provision exp licitly states that the Central Government
is not authorized to impose duties of excise on al coholic liquor. In other words, the Constitution
reserves to State Governments the right to impose excise duties on alcoholic liquor. 336 And, at any
rate, the Central Government can impose excise du ties only on goods manufactured or produced in
India.
7.286 However, as we have seen, the Constitution of India authorizes the Central Government, and
it alone, to impose "duties of customs". 337 India has explained that the term "duties of customs"
encompasses the BCD, the AD and the SUAD. The Pa rties have not specifically discussed any other
"duties of customs" that would be applicable to alc oholic liquor. In view of the fact that the Central
Government does not have the authority, under India's Constitution, to impose excise duties on
alcoholic liquor imported into India, it seems natural that it might possibly wish to use a "duty of
customs" in order to counterbalance State excise du ties. In this regard, it is common ground in this
case that the BCD, which is also applied to alcoholic liquor, is an "ordinary customs duty" within the
meaning of Article II:1(b). 338 As such, in relation to alcoholic liquor, as in relation to any other
products on which it is imposed, it has the func tion of imposing a charge on the subject product qua
product being imported into India. Put differently, it is not imposed to counterbalance State excise
duties. The SUAD is imposed pursuant to Section 3( 5) of the Customs Tariff Act to "counter-balance
the sales tax, value added tax, local tax or any other charges" leviable on the sale, purchase or
transportation of domestic products. India has explai ned that the categories of charges enumerated in
Section 3(5) do not overlap with the category of excise duties mentioned in the proviso to
Section 3(1).339 Thus, the SUAD does not purport to counterbalance State excise duties on alcoholic
liquor. Consequently, the "duty of customs" that is left to achieve this purpose is the AD. As we have
previously seen, the AD has a statutory basis that is different from that of the BCD, which is
consistent with the view that it fulfils a different function within India's customs duty and tax system,
namely, in relation to alcoholic liquor, the f unction of imposing a charge on alcoholic liquor qua
alcoholic liquor.

332 India's reply to Panel Question No. 48(d). As part of the same reply, India also explained that it has
a system of judicial review whereby the exercise of by the Central Government and State Governments of their
respective powers under the positive lists is subject to judicial scrutiny.
333 India's reply to Panel Question No. 48(c).
334 Ibid.
335 Entry 84 of List I of the Constitution of India.
336 India's replies to Panel Question Nos. 30(a) and (b).
337 Entry 83 of List I of the Constitution of India.
338 India's first written submission, para. 12; US second written submission, paras. 8, 10 and 16.
339 India's reply to Panel Question No. 27(e).

7.287 We note that the State List of the Constitution of India confers upon State Governments
exclusive power with regard to "[i]ntoxicating liq uors, that is to say, the production, manufacture,
possession, transport, purchase and sale of intoxicating liquors". 340 Furthermore, the Constitution of
India grants the State Governments exclusive power with regard to "[f]ees in respect of any of the
matters in this List [the State List], but not including fees taken in any court". 341 Hence, it may be the
case that the State Governments have the power to impose fees on, e.g., the transport of intoxicating
liquor. We note, however, that neither Party has ex plained the concept of "fees" as it appears, inter
alia, in the State List and how it relates to other relevant concepts appearing in that List, such as
"duties of excise" and "taxes". 342 Nor have we been provided with any example of a State measure
imposing a fee on imported alcoholic liquor in lieu of State excise duties. Based upon the information
on the record it is not clear to us whether, as a matt er of Indian law or as a practical matter, fees could
be used by State Governments to counterbalan ce State excise duties imposed on alcoholic liquor
manufactured or produced in the relevant State.343
7.288 Even if fees could, in principle, be so used (and we recall that we have seen no example
documenting this), it seems to us that a "duty of cu stoms" like the AD fits more naturally with the
provisions of Entry 51 of the State List which deals with State "excise duties" and "countervailing
duties". To recall, in a case involving alcoholic liquor, States may in accordance with Entry 51
impose excise duties only on alc oholic liquor manufactured or produced in the State and
countervailing duties only on alcoholic liquor manufact ured or produced elsewhere in India. Given
this, it seems natural, having regard to alcoholic liquor manufactured or produced outside India, to
counterbalance State excise duties by using a "dut y of customs" like the AD, since "duties of
customs" are by definition imposed only on goods im ported into India. In contrast, there is no
indication in the relevant List s of the Constitution that "fees" are by definition imposed only on
imported goods. Moreover, if fees were the more obvious and natural inst rument to use for the
purpose of counterbalancing State excise duties, it is not easy to see why Entry 51 contemplates
countervailing duties imposed at the same or lower rates as excise duties, and not fees, since States
imposing excise duties on alcoholic liquor would then typically impose "fees" on out-of-State Indian
alcoholic liquor.344
7.289 In the light of the above, the legal framework of India's customs duty and tax system, as
described above, is not inconsistent with India's position that the AD on alcoholic liquor was designed
to counterbalance excise duties imposed by States pe rmitting the sale of alcoholic liquor. Simply put,

340 Entry 8 of List II of the Constitution of India.
341 Entry 66 of List II of the Constitution of India.
342 The term "fee" is commonly used to denote charge s payable in return for services. See, e.g.,
Articles II:2(c) and VIII of the GATT 1994. Thus, in relation, for instance, to the "production", "manufacture",
"purchase" or "sale" of alcoholic liquo r, the term "fees" as it appears in Entry 66 could be referring to licensing
fees.
343 For instance, it is not clear from the record whether the Constitution of India would permit the
imposition by a State Government of a fee that discriminates against imported alcoholic liquor and whether a
fee imposed by a State Government on imported alcoholic liquor could be properly compared, not to a fee, but
an excise duty imposed on alcoholic liquor manufactured or produced in the relevant St ate. We recall in this
context that it is not clear whether Entry 66 of List II us es the term "fee" to denote service charges or whether it
uses the term in a broader sense.
344 We note, as a separate and additional matter, the United States' comment that it is not clear that the
State Governments lack the power to impose excise taxes on the consumption of imported alcoholic liquor.
However, the United States has failed to identify any en try in the State or Concurrent List authorizing the
imposition of this type of tax. Nor has the United States cited an example of a State excise tax on the
consumption of imported alcoholic liquor, imposed in lieu of an "excise duty" imposed on State-manufactured
alcoholic liquor. As we will explai n in more detail in our analysis below of the SUAD , alcoholic liquor,
whether imported or domestically produced, may, like other products, be subject to the Central Sales Tax, a
State sales tax, etc. However, these taxes are not exci se taxes, nor is there any information on the record to
suggest that they are imposed to counterbalance State "excise duties" on alcoholic liquor.

the relevant States cannot impose excise duties on im ported alcoholic liquor, and it appears that the
Central Government can only counterbalance State excise duties on alcoholic liquor by means of a
"duty of customs". Moreover, the record does not indicate that there is another "duty of customs"
applicable to alcoholic liquor designed to counterba lance State excise duties, or that there are other
taxes or charges imposed by State Governments th at could be said to counterbalance State excise
duties with regard to alcoholic liquor imported into I ndia. It is true that the States are not legally
required to impose excise duties. The lack of a requirement to impose excise duties does not,
however, give rise to a presumption that the Stat es permitting the sale of alcoholic liquor would not
actually impose such duties.
7.290 If all States permitting the sale of alcoholic liq uor levied an excise duty on alcoholic liquor
subject to the AD, and if the States levied exci se duties on alcoholic liquor as envisaged in India's
Constitution (and so did not impose them on imported alcoholic liquor), 345 the legal framework
described above also supports the view that the AD on alcoholic liquor and the State excise duties on
alcoholic liquor fulfilled the same relative function within India's customs duty and tax system. To
begin with, it is clear that, under the legal framework in existence at the time of establishment of the
Panel, the AD constituted a charge on alcoholic liquo r imported into India, whereas the State excise
duties referred to in CN 32/2003 and the proviso to Section 3(1) constituted charges on alcoholic
liquor produced or manufactured in the State imposing the duty. Moreover, to the extent all States
permitting the sale of alcoholic liquor levied an ex cise duty on alcoholic liquor subject to the AD, the
legal framework supports the inference that the function the AD, as imposed by CN 32/2003, fulfilled
within India's customs duty and tax system was to impose a charge on alcoholic liquor qua alcoholic
liquor, and not qua alcoholic liquor being imported into India. Furthermore, to the extent the States
levied excise duties as envisaged in India's C onstitution (and thus did not impose them on imported
alcoholic liquor), the legal framework also supports the inference that the f unction the State excise
duties fulfilled within India's customs duty and tax system was to impose a charge on alcoholic liquor
qua alcoholic liquor, and not qua alcoholic liquor produced or manufactured in the State imposing the
duty.
7.291 Besides the legal context within which the AD on alcoholic liquor operated, it is, of course,
important to have regard also to the factual cont ext within which it was imposed. In this respect, a
relevant factual issue is whether, on the date of establishment of the Panel, all States permitting the
sale of alcoholic liquor levied an excise duty on al coholic liquor subject to the AD. As we have
indicated, if this was not the case, it would present th e issue of whether in respect of alcoholic liquor
destined for consumption in States that did not le vy an excise duty, the AD fulfilled the same function
as, and so was "equivalent" to, a State excise duty. We recall in this regard that it is unclear from the
record whether on the date the Panel was establishe d all States permitting the sale of alcoholic liquor
levied an excise duty on alcoholic liquor subject to the AD. As there is no apparent reason to presume
that individual States would not use their power to impose an excise duty on alcoholic liquor and
since in this case it is up to the United States to establish that the AD was not "equivalent" to State
excise duties, we can only conclude that there is no evidence on the record to demonstrate that there
were States permitting the sale of alcoholic liquor that did not levy an excise duty on alcoholic liquor
subject to the AD.
7.292 Another relevant factual issue is whether Indi a's Constitution and/or relevant laws were in
fact implemented as envisaged in these legal instruments. We note in this respect that we have seen
no concrete evidence of instances where an excise duty was imposed on imported alcoholic liquor in
individual States. In the absence of evidence to the contrary, we must, therefore, presume that, at the

345 We will revert to these two factual conditions further below.

time of establishment of this Panel, the States followed the requirements of India's Constitution and
did not impose excise duties on imported alcoholic liquor.346
7.293 Accordingly, the legal and factual context w ithin which the AD on alcoholic liquor operated
on the date of establishment of the Panel does not indicate that the AD on alcoholic liquor was not
"equivalent" to State excise duties imposed in respect of like alcoholic liquor produced or
manufactured in the State imposing the duty.
7.294 Based upon the above analysis of the AD on alcoholic liquor, including its particular features,
structure and design and the legal and factual contex t within which it operated, we thus come to the
following overall result regarding the element of "equivalence":
(a) The evidence before us, comprising, inter alia , CN 32/2003, its statutory basis and
the general legal framework of India's customs duty and tax system as it existed at the
time of establishment of this Panel, is not inconsistent with India's position that the
AD on alcoholic liquor was "equivalent" to St ate excise duties imposed in respect of
like alcoholic liquor produced or manufactured in the State imposing the duty;
(b) there is no evidence on the record to demons trate that, on the date of establishment of
the Panel, there were States permitting the sale of alcoholic liquor that did not levy an
excise duty on alcoholic liquor subject to the AD; and
(c) there is no evidence on the record to demonstrate that, notwithstanding the general
legal framework in existence at the time, ex cise duties were, in fact, imposed in the
States on imported alcoholic liquor.
7.295 In these circumstances, we can only conclude that the United States has failed to meet its
burden of establishing that the AD on alcoholic liquo r was not "equivalent", within the meaning of
Article II:2(a), to State excise duties imposed in respect of like alcoholic liquor produced or
manufactured in the State imposing the duty.
7.296 In view of this conclusion, we need not, fo r the purposes of disposing of the United States'
claim under Article II:1(b), and hence do not, come b ack to the issues of wh ether the State excise
duties on domestic alcoholic liquor are internal taxes imposed in respect of domestic products and
whether the alcoholic liquor subject to the AD was in fact "like" domestic alcoholic liquor subject to
State excise duties.
(c) Conclusion
7.297 As we have explained earlier, in the specific circumstances of this case, if the United States as
the complaining party cannot meet its burden of establishing that the AD on alcoholic liquor was not
"equivalent" to State excise duties imposed in respect of like domestic alcoholic liquor, 347 it cannot
successfully establish that the AD on alcoholic liquor was of the same ki nd as, or in the nature of, an
ordinary customs duty (or an "other duty or charge" imposed on the importation of alcoholic liquor).
7.298 As we have also explained, in the absence of a showing that the AD on alcoholic liquor was
in the nature of an ordinary customs duty (or an "other duty or charge" imposed on the importation of
a good), the fact that it met the elements of the US definition of "ordinary customs duties" is not

346 We also recall in this context that the record cont ains no example of a fee, or other tax or charge,
imposed by a State, consistently or inconsistently with the Constitution of India, on imported alcoholic liquor in
lieu of State excise duties imposed on alcoholic liquor manufactured or produced in the relevant State.
347 We recall that, for the purposes of an Article II: 2(a) inquiry, "equivalence" is a necessary condition
for the AD on alcoholic liquor to fall outside the scope of Article II:1.

sufficient to establish that it was an ordinary customs duty (or an "other duty or charge" imposed on
the importation of alcoholic liquor) under Article II: 1(b). Hence, we find that the United States has
failed to establish that the AD on alcoholic liquor co nstituted an ordinary customs duty (or an "other
duty or charge" imposed on the importation of alcoholic liquor) within the meaning of Article II:1(b).
As a result, it has not been demonstrated that th e obligations contained in Article II:1(b) were
applicable to the AD on alcoholic liquor.
7.299 Accordingly, we come to the conclusion that the United States has failed to establish that the
AD on alcoholic liquor, as imposed through CN 32/2003, was inconsistent with Article II:1(b), first or
second sentence.
4. Consistency of the SUAD with Article II:1(b) of the GATT 1994
7.300 The Panel now proceeds to examine the United States ' additional claim that the SUAD is, as
such, inconsistent with Article II:1(b) of the GATT 1994.
7.301 The United States submits that the SUAD is inconsistent with this provision as an "ordinary
customs duty" that exceeds India's WTO-bound rates. The United States submits that the SUAD is an
"ordinary customs duty" because it a pplies: (1) at the time of importation (and, in this connection, it
must be paid by the importer before the good ma y clear customs); (2) as a matter of course upon a
good's importation (and, in this connection, it appl ies generally on the importation of alcoholic
beverages into India and the event for which liability ensues is importation); and (3) as an ad valorem
duty. The United States points out that in this re gard the SUAD is no different from India's BCD. In
relation to the BCD, the United States observes that India has already conceded that the BCD is an
ordinary customs duty within the meaning of Artic le II:1(b). The United States notes that like the
SUAD, the BCD applies: (1) at the time of importation (and, in this connection, it must be paid by the
importer before the good may clear customs); (2) as a matter of course upon a good's importation
(and, in this connection, it applies generally on the importation of products into India and the event for
which liability ensues is importation); and (3) as a combination of ad valorem and specific duties.
7.302 The United States contends that there are a number of additional similarities between the
BCD and the SUAD which indicate that the latter, like the former, is an "ordinary customs duty",
including the fact that both are referred to under In dian law as "duties of customs", authorized under
the same constitutional provision, required to be le vied under the same provision of the Customs Act,
subjected to exemptions under the same provision of the Customs Act, and administered under the
same Customs rules and procedures.
7.303 The United States points out that the principal distinction India draws between the BCD and
the SUAD is that the latter is intended to offset internal taxes imposed on like domestic products. The
United States argues that whether the SUAD constitu tes an ordinary customs duty must be based on
an examination of its structure, design and effect. The stated purpose or intent of a duty does not
determine whether it is or is not an ordinary cu stoms duty. The United States notes that the GATT
1947 panel in EEC – Parts and Components rejected the notion that the stated purpose or
characterization of an EEC anti-circumvention du ty under EEC law provided a sufficient basis to
characterize the measure as an internal tax rather than a customs duty. Similarly, the United States
submits, this Panel should reject India's contention that the stated purpose or characterization of the
SUAD under Section 3(5) of the Customs Tariff Ac t provides a sufficient basis to find the SUAD a
charge equivalent to an internal tax rather than an ordinary customs duty.
7.304 The United States argues, in addition, that an interpretation of Article II:1(b) that would
permit the stated purpose or intent of a measure to determine whether it fell within the scope of that
article would permit Members to avoid or manipul ate WTO commitments simply by attributing a
particular purpose to a measure (regardless of what the measure in fact does) or by calling a measure

by one name versus another, similar to the situation faced in EEC – Parts and Components . In this
dispute, the United States contends, India may a ttribute a different purpose to the BCD on the one
hand and the SUAD on the other, but both of them, based on an examination of their structure, design
and effect as reviewed above, constitute "ordinary customs duties" within the meaning of
Article II:1(b).
7.305 Furthermore, in the United Sates' view, the f act that the SUAD may be distinct from India's
basic customs duty, in that it is imposed under a separate section of the Customs Tariff Act, does not
mean that the SUAD is not an ordinary customs duty. According to the United States, it is not the
case that a Member may only impose one duty that may properly be characterized as an "ordinary
customs duty" under Article II:1(b).
7.306 In the alternative, the United States believes that even if the SUAD were not an "ordinary
customs duty", it would constitute an "other duty or charge" (ODC) within the meaning of
Article II:1(b), second sentence. The United States submits that the SUAD would necessarily
constitute an ODC if it were not an ordinary cust oms duty. If the SUAD is not an ordinary customs
duty, then it must, in the United States' view, necessar ily be something other than an ordinary custom
duty. The United States points out in this regard that the SUAD applies on or in connection with
importation. Specifically, it applies at the time of importation and as a consequence of importation
(that is, importation is the event for which liabilit y for duty ensues). Moreover, the United States
considers that in asserting that the SUAD is a charge equivalent to an internal tax within the meaning
of Article II:2(a), India has implicitly characterized it as a charge "imposed on importation" since the
chapeau to Article II:2 makes clear that it concerns measures "imposed on importation". Therefore,
the United States maintains, if the SUAD is not an or dinary customs duty, it must be an other duty or
charge within the meaning of Article II:1(b).
7.307 Regarding the other element of an Article II:1(b) inquiry, the United States contends that the
SUAD when imposed with India's BCD results in ordinary customs duties on imports in excess of
India's WTO-bound rates. More particularly, the United States asserts that the SUAD imposed with
the BCD results in ordinary customs duties on impor ts in excess of WTO-bound rates in any situation
where the BCD is already at or very near I ndia's WTO-bound rate. The United States notes that
Exhibit US-1 contains a number of examples of produc ts in addition to alcoholic liquor where this is
the case. According to the United States, the SUAD is therefore as such inconsistent with
Article II:1(b). Moreover, if the SUAD were considered an ODC, it would, in the United States' view,
exceed the ODCs specified in India's Schedule as India's Schedule does not specify any ODCs for any
product.
7.308 The United States notes India's assertion that th e SUAD is equivalent to State excise duties
imposed on like domestic products and thus imposed in accordance with Article II:2(a). The United
States considers that it has presented evidence and argument sufficient to establish a prima facie case
that the SUAD is (i) an ordinary customs duty that (ii) exceeds India's WTO-bound rates and,
therefore, is inconsistent with Article II:1(b). According to the United States, having made a prima
facie case that the SUAD is an ordinary customs duty, the necessary corollary of that showing is that
the SUAD is not a "charge equivalent to an internal tax".
7.309 The United States further points out that even if the SUAD were not considered an ordinary
customs duty but an "other duty or charge" on impor tation, India has presented no evidence that it is
"equivalent" to an internal tax on like domestic produc ts and imposed consistently with Article III:2.
The United States argues that India as the part y asserting that the SUAD is justified under
Article II:2(a) bears the burden of sustaining that assertion.
7.310 The United States notes in this regard India's st atement that the SUAD is equivalent to State-
level VATs and the CST in addition to unnamed ot her local taxes and charges imposed on domestic

products. With regard to the latter category of taxes, the United States argues that India has not
identified any such other local taxes or charges un til its second written submission. In the US view,
India's effort to identify such taxes is not adequa te. The United States argues that India has provided
no evidence that such taxes or char ges exist, much less any evidence that such taxes or charges are
equivalent to the SUAD, or that the SUAD results in charges that do not exceed such taxes or charges.
Accordingly, the United States considers, Indi a cannot sustain its assertion that the SUAD is
equivalent to these local taxes or charges.
7.311 With regard to State-level VATs, the United Stat es argues that they are not, in terms of their
structure, design or effect, "equivalent" to the SUAD. First, the United States notes that while,
according to India, the State-level VATs are set generally at four different rates depending on the
product subject to the VAT (zero and one, four and 12.5 per cent ad valorem)348, the SUAD is set at a
single rate of four per cent for all products. Sec ondly, the United States asser ts that while the State
level VATs may generally break down into four rates, there is no requirement that the individual
States apply the same rate to the same domestic products. Thus, the United States maintains, one
State may apply a VAT of four or 12.5 percent on a particular product, whereas another state may
apply no VAT on that same product. The United States points out in this respect that a White Paper
on State-Level Value Added Tax by the Empowered Committee of [Indian] State Finance Ministers
explains that an individual State may exempt up to ten commodities of its choosing from the VAT and
that certain goods will be "outside" the VAT system , including liquor. In addition, the United States
notes, the Union Territory of Delhi applies its VAT at five rates (zero and one, four, 12.5 and 20
percent). The United States notes that this c ontrasts with the SUAD which does not prescribe
different rates for different produc ts and does not subject imports to different rates depending on the
Indian State into which it is imported. Thirdly, the United States mentions the fact that State VAT
operates by crediting against the VAT owed on a product's transfer, the VAT paid on the product's
previous transfers. By contrast, the United States submits, there is no mechanism for crediting against
the SUAD owed on a product, taxes or charges paid on the product's previous transfers. Nor is there a
mechanism for crediting the SUAD paid on a pr oduct against the VAT owed on the product's
subsequent transfers in India.
7.312 Regarding the CST, the United States consider s that it is not equivalent to the SUAD for
similar reasons. The United States contends that like the VAT, it is imposed at various rates and may
vary from State to State and from product to product. Depending on the recipient, the United States
notes, the CST may be set at a flat 3 per cent rate (if the recipient is a registered dealer) or may be set
at a rate corresponding to one of the four VAT rates a pplicable to that product in the State in which it
originated (if the recipient is not a registered dealer).
7.313 The United States further states that with respect to both the VAT and the CST the amount of
SUAD owed on imports as compared to the amount of VAT or CST owed on like domestic products
is not equivalent, since it does not correspond, and is not virtually identical to, the VAT or CST,
respectively, on like domestic products. For example, with respect to some products, the rate of State-
level VATs and the CST is 12.5 per cent, whereas the rate of SUAD is four per cent. A rate of four
per cent, the United States submits, does not appear to correspond, or be virtually identical to, a 12.5
per cent rate (the base on which both are calculated are the same).
7.314 Finally, the United States reiterates that the st ated purpose of the SUAD is not sufficient to
support India's assertion that it is a charge equivalent to an internal tax. Thus, in the United States'
view, the fact that Section 3(5) of the Custom s Tariff Act authorizes the Central Government to
impose "an additional duty as would counter-balance" certain internal taxes does not mean that the
resulting SUAD in fact "counter-balances" such internal taxes.

348 The United States notes, however, that some Stat e-level VATs appear to apply five rates: zero and
one, four, 12.5 and 20 per cent. The United States refers to the example of the Union Territory of Delhi.

7.315 The United States submits, as an additional ma tter, that India also acknowledges that the
SUAD may in some instances be "marginally 'i n excess' of the tax on like domestic products". 349
Therefore, the United States maintains, in con ceding that the SUAD may result in any amount of
charge on imports in excess of internal taxes on like domestic products, Indi a has disproved its own
assertions that the SUAD is imposed consistently w ith Article III:2 and in turn justified under GATT
1994 Article II:2(a).
7.316 The United States further asserts that State-level VATs and the CST apply to imported
products sold within India and that imported products are, therefore, subject to the SUAD as well as
the State-level VATs and CST with no offsetting cr edit for the SUAD paid. As a consequence, and
since domestic products are not subject to the SUAD, imported products are, in the United States'
view, subject to charges in exces s of those on like domestic products and, therefore, the SUAD is not
imposed consistently with Article III:2.
7.317 Finally, the United States submits that the rate of SUAD, on the one hand, and the rates of
State-level VATs and the CST, on the other, are not the same. First, the United States points out that
the rate of CST for sales to registered dealers is three per cent whereas the rate of SUAD is four per
cent. Secondly, the United States contends that, as noted above, there may be instances where the rate
of State-level VATs vary from State to State. In such instances, the United States argues, the SUAD
which is imposed at a single rate cannot at the same time be equal to two or more rates of State-level
VAT on like domestic products. Thirdly, the United States submits that in instances where the CST is
based on the rate of State-level VAT of the State from which it originates, there may be instances
where the rate of CST varies within in a single Stat e. The United States notes that, for example, if the
VAT rate in one State (State A) is four per cent and in another State (State B) is zero, when sold from
State A to a non-registered dealer in State C, a produc t will be subject to a CST rate of four per cent,
whereas when sold from State B to a non-registered dealer in State C, the product will be subject to a
CST rate of zero. The United States argues that the SUAD imposed at a single rate cannot at the same
time be equal to two or more rates of CST.
7.318 In the light of the above, the United States considers that the SUAD is not a charge equivalent
to an internal tax (State-level VATs, the CST, or unnamed other local taxes or charges) and, as India
even concedes, it is imposed on imports in excess of internal taxes on like domestic products.
Therefore, the United States believes, the SUAD is not a charge equivalent to an internal tax imposed
consistently with Article III:2.
7.319 India submits that the United States fails to appreci ate that there is a clear demarcation under
Indian law between the BCD and the SUAD. India argues that the BCD is the only duty imposed by
it on imports which is in the nature of an "ordin ary customs duty" as understood under Article II:1(b)
and is accordingly bound at the levels prescribed in India's Schedu le. India does not levy any "other
duties or charges". India states that the BCD is distinct from the SUAD, which is levied on imported
products in lieu of different internal taxes. Acco rding to India, the structure and design of the SUAD
clearly highlight the fact that it is an "extra-ordinar y" duty levied at the time of import and not in the
nature of an "ordinary customs duty" or ODC.
7.320 India submits that the United States has failed properly to distinguish between different types
of duties and the statutory provisions based upon wh ich they are imposed. India notes in this regard
that although the SUAD and the BCD are authorized under the same constitutional entry, they are
levied under different statutory provisions. India re calls that the Customs Act and the Customs Tariff
Act are different statutory enactments created by separ ate acts of Parliament. India contends that the
BCD is levied under Section 12 of the Customs Act whereas the SUAD is levied under Section 3(5)
of the Customs Tariff Act. India maintains that the United States has misinterpreted the cross-

349 The United States refers to India's first written submission, note 51.

reference provisions contained in Section 3(8) of the Customs Tariff Act and Section 25 of the
Customs Act to mean that both statutes essentially admini ster the same duties that are in the nature of
"ordinary customs duties" or ODCs. India argues that the mere existence of a cross-reference between
two statutes, inserted primarily for administrative convenience, does not alter the nature of the distinct
charges levied under each. Specifically in relation to Section 25 of the Customs Act, India does not
agree with the United States that the power to ex empt imports from the SUAD is contained in the
Customs Act. According to India, without the ex istence of the reference in Section 3(8) of the
Customs Tariff Act, the power to exempt imports from the SUAD does not exist under Section 25.
Furthermore, India considers that the mere fact that the SUAD is calculated "in addition" to the BCD
does not make it an "ordinary customs duty" or an ODC. India points out that the SUAD is calculated
under the Customs Tariff Act and not the Customs Act. In sum, India submits that the levy,
calculation and collection of the SUAD as well as exemptions from the SUAD are provided for in the
Customs Tariff Act, which makes the SUAD funda mentally different from the BCD levied under
Customs Act.
7.321 According to India, Section 3(5) of the Cust oms Tariff Act makes clear that the intent and
design of the SUAD is solely to offset, or counter balance, certain internal taxes from which imported
products at the time of importation are exempt, i.e ., the State value-added tax ("VAT"); and/or the
Central Sales Tax ("CST"); and/or "other local taxes and charges" on the sale, purchase or transport of
domestic products. India is of the view that the po licy purpose behind the introduction of a duty is an
important factor, although not the only factor, wh ich a Panel may look into while characterizing a
duty.
7.322 In sum, in India's view, it is clear from such factors as the purpose of the SUAD, its statutory
basis and its relationship with the internal taxes it is intended to counterbalance that the SUAD is a
distinct duty from the BCD. The BCD, India notes, has no such purpose (as it is intended as a tariff
imposed in accordance with India's Schedule), no rela tionship whatsoever with any internal tax and a
different statutory basis.
7.323 India notes that the only commonality between the BCD, which is an "ordinary customs
duty", and the SUAD is that they ar e imposed on imports at the bord er and that both are expressed in
ad valorem terms. India submits in this re gard that the Appellate Body in Chile – Price Band System
held that this does not necessarily mean that such duties are "ordinary customs duties". As a result,
the United States as the complaining party must look beyond the mere point at which the duty is
levied and the manner in which th e duty is expressed, since neither of them will necessarily mean or
indicate that the duty is an "ordinary customs dut y". Yet, India contends, instead of positively
substantiating the existence of a prima facie case, the United States has based its claim under
Article II:1(b) on two elements: (i) what it consider s to be the general definition of an "ordinary
customs duty" and (ii) India's alleged failure to prove that the SUAD falls outside this broad
definition. India considers, therefore, that the United States as the complaining party in this case has
failed to make out a prima facie case that the SUAD is an "ordinary customs duty". Consequently, in
India's view, the United States' further assertion that the SUAD results in ordinary customs duties "in
excess of" the WTO-bound rates in India's Schedule is without merit.
7.324 Regarding the United States' alternative asser tion that the SUAD may qualify as an "other
duty or charge", India submits that the United States has offered no reason in support of its contention
other than that it is imposed "on importation". In dia submits that the United States has, therefore,
failed to discharge its burden of proof. India consid ers that the SUAD is not in the nature of an ODC.
It is imposed at the time of import but is not im posed on, or in connection with importation. India
argues that, contrary to the United States' contenti on, the SUAD is not imposed as a consequence of
importation. India maintains that the liability to pay the SUAD arises as a consequence of domestic
like products being charged a VAT/sales and other local taxes and not merely because the products
are imported into India. Looked at in another way, if domestically manufactured goods are not

charged a VAT/sales and other local taxes, then, India contends, imported lik e products will also not
be charged the SUAD even if they are imported into the customs territory of India.
7.325 Based upon the above arguments, India submits that rather than being an "ordinary customs
duty" or an ODC within the meaning of Article II: 1(b), the SUAD is imposed in accordance with the
provisions of Article II:2(a). India considers that as a charge equivalent to an internal tax, it does not
erode the "value of tariff concessions" offered by India.
7.326 Concerning the issue of "equivalence", India argues that the SUAD is calibrated by the
Central Government to be equivalent to the State VAT, the CST and other local taxes and charges.
With regard to the State VAT, India points out that it is imposed by State Governments on the intra-
State sale of domestic products under their respec tive State VAT statutes on domestic products and
not on the importation of like products from outside India since they are precluded by the Constitution
of India from levying VAT on the import of goods. 350 India submits that since domestic
manufacturers have to bear the incidence of VAT which is not equally imposed on the import of
products into India, the Central Government has sought to counterbalance the incidence of the VAT
(and the CST and other local taxes and charges) by imposing the SUAD. According to India,
appropriate tax credit and exemption mechanisms ensu re that if certain domestic products are exempt
from the payment of State VAT, then the like imported products are also correspondingly exempted
from the payment of the SUAD. Similarly, products that are charged at a nominal rate of 1 per cent
under the relevant State VAT legislation are ch arged SUAD for imported like products at a
corresponding rate of 1 per cent.
351 Therefore, India contends, the SUAD is designed to be equivalent
to the State VAT. India notes in this regard that it is because of variations in the State VAT rates that
India has chosen to peg the SUAD on imported produc ts to the lowest rate of VAT imposed on a like
domestic product. 352 In India's view, merely because the VAT is in some instances charged at
different rates cannot mean that the SUAD is not "equivalent" to internal taxes imposed on like
domestic products.
7.327 With regard to the CST, India notes that it is levied only on the inter-state movement of
domestically manufactured products by the Centra l Government under the Central Sales Tax Act.
India argues that since domestic manufacturers have to bear the incidence of the CST (on inter-State
sales) which is not imposed on the import of products into India, the Central Government has sought
to counterbalance the incidence of the CST by impos ing a 4 per cent SUAD. India points out that the
rate at which the CST is charged on a product is determined in accord ance with the laws of the State
from where the movement originates, that is to sa y, the rate of CST will be equivalent to the
prescribed rate of sales tax/VAT of the State of origin. Thus, the rate at which CST is levied on inter-
state sales is interconnected with the VAT rates. According to India, appropriate tax credit and
exemption mechanisms ensure that domestic goods that are exempt from the payment of VAT in the
State from where they originate are also exempt from the payment of CST. Simultaneously, India
contends, their like imported products are also ex empted from the payment of the SUAD when they
are imported into India. 353 Similarly, India notes, in the case of products such as gold, jewellery, etc.
that are eligible to be charged the CST at the nomi nal rate of 1 per cent, th eir like imported products
are correspondingly subject to the SUAD at the (reduced) rate of 1 per cent.354
7.328 With regard to the "local taxes and other char ges", India notes that each State Government is
empowered by the Constitution of India to collect a variety of local levies on goods and the raw
materials used in their manufacture, such as transpor t fees, various type of surcharges, cess etc. India

350 India refers to Article 286 of the Constitution of India.
351 India refers to CN 20/2006.
352 India notes that where the VAT rate exceeds 4 per cent, the SUAD charged is only 4 per cent.
353 India refers to CN 20/2006.
354 India refers to CN 20/2006.

submits that the cumulative effect of all State-le vel internal taxes imposed only on domestic products,
from the raw material stage to its finished state, have to be counterbalanced on imported like products.
India asserts that the SUAD was introduced with the objective of counterbalancing such internal taxes
which may vary from State to State in terms of their nomenclature, quantum and character.
According to India, the SUAD is levied at the lowest rate possible to counterbalance these State levies
that are not imposed on like imported products.
7.329 India submits, as an additional matter, that the SUAD does not tax imported products "in
excess of" like domestic products since it is equiva lent to the VAT, the CST and/or other local taxes
and charges paid by like domestic products. India notes that the imposition of the SUAD on the
imported product merely equalizes the tax burden im posed on the like domestic product. India argues
that since internal taxes and charges (VAT and CST) are levied at a minimum rate of 4 per cent, the
tax burden on an imported product on account of the SUAD, which is levied at a rate of 4 per cent,
cannot be said to be in excess of the tax burden imposed on like domestic products. Furthermore,
India recalls that the benefit of an exemption or reduction from an internal tax such as VAT or CST
results in a parallel exemption or reduction from the payment of the SUAD for like imported products,
thus ensuring an overall equality of tax burdens on imported and like domestic products.
7.330 In view of the above, India considers that the United States has failed to demonstrate that the
SUAD is not imposed in accordance with Article II: 2(a) and that, notwithstanding the United States'
failure to discharge its burden, India has amply demonstrated how the SUAD is imposed in
accordance with Article II:2(a).
7.331 The Panel notes at the outset that the United States' legal claim in respect of the SUAD is the
same as its claim in respect of the AD on alcoholic liquor. The analytical framework of the Panel's
examination of the SUAD is, therefore, not different from that applied in the Panel's examination of
the AD on alcoholic liquor. The SUAD itself bears many similarities with the AD on alcoholic liquor,
and so the issues presented in respect of the SUAD ar e in good part the same as, or similar to, those
presented in respect of the AD on alcoholic liquor. As a result, there are observations and
explanations the Panel considers it is not necessary to repeat in its examination below of the SUAD.
It is important, therefore, that the Panel's analysis of the SUAD be read together with, and in the light
of, the more detailed analysis of the AD on alcohol ic liquor. Also, the Panel will refer back to its
analysis of the AD on alcoholic liquor, as appropriate.
7.332 With this said by way of introduction, we now turn to examine the Un ited States' claim of
inconsistency with Article II:1(b) . The United States, as is logical in view of its claim under
Article II:1(b), asserts that the SUAD, as imposed through CN 19/2006 355, constitutes an "ordinary
customs duty", or, in the alternative, an "other duty or charge" within the meaning of Article II:1(b).
As the United States' alternative contention is not ba sed on separate or additional evidence, but rather
on the word "other" in the phrase "other duty or charge" 356, if the United States cannot demonstrate,
based on the evidence adduced by it, that the SUAD is an ordinary customs duty, it will also have
failed to establish its alternative contention. Indi a contests that the SUAD is either an "ordinary
customs duty" or an "other duty or charge". I ndia considers that it instead constitutes a charge
equivalent to internal taxes within the meaning of Article II:2(a). India therefore requests the Panel to
reject the United States' claim under Article II:1(b).
7.333 In the light of the disagreement between the Pa rties over the correct legal characterization of
the SUAD, the Panel will examine first whether the SUAD was an "ordinary customs duty" (or,
alternatively, an "other duty or charge" imposed on the importation of the products subject to the

355 Hereafter, unless the context requires otherwise, we will for the sake of brevity refer to the "SUAD"
rather than "the SUAD, as imposed through CN 19/2006".

SUAD) and, thus, subject to the obligations co ntained in Article II:1(b), first sentence (or,
alternatively, those contained in Article II:1(b), second sentence).
(a) Ordinary customs duty (or "other duty or charge")
7.334 We begin our examination by recalling that the United States has sought to establish that the
SUAD is an "ordinary customs duty" by reference to its definition of that concept. Accordingly, we
now proceed to consider the definitional and othe r elements relied upon by the United States with a
view to determining whether they establish that the SUAD is an "ordin ary customs duty" (or
alternatively, an "other duty or charge" imposed on the importation of the products subject to the
SUAD).
7.335 The SUAD, as its statutory name makes clear, is a "duty". 357 It applies to goods (articles)
which are imported into India (in our case, those specified in CN 19/2006). 358 It does not apply to
domestic goods. The SUAD is assessed at the time and point of importation by India's Customs
authorities.359 A good which is imported and subject to the SUAD is cleared through customs for
entry into India's customs territo ry once the SUAD has been paid. 360 The SUAD is payable by the
importers of the subject goods or their agents. 361 Furthermore, the SUAD takes the form of an ad
valorem duty.362
7.336 Regarding whether the SUAD was also applied "as a matter of course" on the importation of
the subject products, we note India's argument that the SUAD is not levied on imports
unconditionally. Specifically, India stated that if domestic products are not charged State VAT or
sales tax, or other local taxes, imported like products will also not be charged the SUAD. 363 This
statement appears to be consistent with the text of CN 19/2006 and Section 3(5) of the Customs Tariff
Act and its Explanation, in that both refer to diffe rent types of internal taxes "for the time being
leviable"364 on the sale, purchase or transportation in India of a like product, or a product of the same
class or description as the imported product. We recall that corresponding language is found in the
proviso to Section 3(1) and CN 32/2003 dealing with the AD on alcoholic liquor, and that a decision
by the Supreme Court of India makes clear that the AD can be levied on a product only if on a like
product excise duty is leviable. In view of these elements, we see no reason to disagree with India's
statement that the SUAD can be levied on an imported product only if on a like domestic product (or a
domestic product of the same class or description) rele vant internal taxes are leviable. Accordingly,
since the SUAD was being collected on the date of establishment of this Panel, it can be inferred that,
in the view of India's Central Government, the aforementioned condition for the levy of the SUAD
was satisfied at the time. In the light of this , as well as the characteristics of the SUAD set out at
paras. 7.335 and 7.337, it seems to us to be correct for the United States to say that in respect of the
products subject to the SUAD the SUAD is applie d as a matter of course, and not on a case-by-case
basis or in response to a singular or exceptional event or set of circumstances.
7.337 Finally, as to whether the SUAD was imposed "on the importation" of the products subject to
the SUAD, we note India's assertion that liab ility for the payment of the SUAD arises as a
consequence of relevant intern al taxes being leviable on domes tic like products and not merely

357 Section 3(5) of the Customs Tariff Act.
358 Ibid; CN 19/2006.
359 India's replies to Panel Question Nos. 5 and 12; US reply to Panel Question No. 12.
360 India's reply to Panel Question No. 12. In some circumstances, goods may clear customs on
execution of bonds or under duty deferment procedures. US reply to Panel Question No. 12.
361 Ibid.
362 Section 3(5) of the Customs Tariff Act; CN 19/2006.
363 India's second oral statement, para. 3.5; India's comments on the US reply to Panel Question No. 43.
364 CN 19/2006 omits the words "for the time being" but at the same time indicates that it is based on
Section 3(5).

because the products are imported into India. As discussed above, the evid ence suggests that the
SUAD can be levied on an imported product only if on a like domestic product (or a domestic product
of the same class or description) relevant internal taxes are leviable. 365 Where this condition is met,
and the SUAD is imposed in respect of the rele vant product, the event which in our understanding
triggers the liability to pay the SUAD is the importation of the product. 366 Therefore, it seems to us
that the United States is correct in saying that the SUAD is a duty imposed "on the importation" of the
products subject to the SUAD.
7.338 Judging exclusively by the above characteris tics of the SUAD, we would agree with the
United States that the SUAD could, in principle, qu alify as an "ordinary customs duty", or an "other
duty or charge", within the meaning of Article II: 1(b). However, these same characteristics are also
consistent with India's view that the SUAD qualifies as a charge imposed on the importation of a
subject product and equivalent to internal taxes imposed in respect of the like domestic product within
the meaning of Article II:2(a). In this regard, to mention only a few elements
367, the SUAD being a
"duty" imposed on a product, it can be considered a "charge" imposed on a product as that term is
used in Article II:2(a). Also, as we have explai ned, the SUAD is a duty imposed "on the importation
of a product". And finally, as is clear from its name, the SUAD is imposed in addition to India's BCD
which the United States does not dispute is an "o rdinary customs duty" within the meaning of
Article II:1(b).368 As we have stated earlier, Article II:2(a) charges may be imposed on a product
subject to a tariff binding in addition to the ordinary customs duty levied on that product.369
7.339 We recall that the BCD, the AD and the SUAD are regarded under Indian law as "duties of
customs".370 In fact, CN 20/2006 which exempts specified products from some or all of the SUAD,
refers to the SUAD as an "additional duty of custom s". We also note that the SUAD is collected and
administered by India's Customs authorities pursu ant to the provisions of India's Customs Act. 371 For
the reasons we have given earlier in the context of our analysis of the AD on alcoholic liquor, we
consider that these elements do not conflict with India's view that the SUAD, as imposed by
CN 19/2006, is an Article II:2(a) charge.372
7.340 The fact that the SUAD under Indian law is considered a "duty of customs" presents another
issue, identified by the United States and familia r from our discussion of the AD on alcoholic liquor.
Section 25 of the Customs Act empowers the Centra l Government to exempt goods "from the whole
or any part of duty of customs leviable thereon". India argues that the authority to exempt products
from the SUAD is not conferred by Section 25 of the Customs Tariff Act, but Section 3(8) which, as
we have also noted earlier, stipulates that the provisions of the Customs Act, including Section 25,
apply to the SUAD. We also recall that in reply to a question from the Panel India stated that some
customs notifications, including CN 20/2006, refe r to Section 25 only and that in those cases a
reference to Section 3(8) is implicit. According to India, the absence of a reference to Section 3(8)

365 It is not clear from the evidence before us whethe r it would be sufficient if one or more States, as
opposed to all States, levied relevant internal taxes on a like domestic product or a domestic product of the same
class or description.
366 As we have said, India has indicated that the SUAD is payable by the importer at the point and time
of importation, and customs clearance is not granted until the SUAD has been paid.
367 See also supra, paras. 7.153-7.155.
368 The United States considers, however, that the BCD is not the only "ordinary customs duty"
imposed by India.
369 We note that since the SUAD applies exclusively to imports, it is clear that it produces the same
type of effect as the BCD. However, Article II:2(a) charges by definition apply to imports only.
370 India's reply to Panel Question No. 7.
371 India's replies to Panel Question Nos. 5 and 12; Section 3(8) of the Customs Tariff Act.
372 See supra, paras. 7.250-7.251.

does not invalidate an exemption notification. 373 We consider that even if Section 25 provided
independent authority to exempt imports from the SUAD, contrary to what the United States suggests,
this would not demonstrate that India's customs duty system regards both the BCD and the SUAD as
"ordinary customs duties". The reasons supporting this view are articulated in our analysis of the AD
on alcoholic liquor.374
7.341 Having regard to the description of the SUAD as a "duty of customs", the United States
further asserts that the SUAD and the BCD are requir ed to be collected under Section 12(1) of the
Customs Act, a proposition contested by India whic h says the statutory basis for the levy of the
SUAD is Section 3(5) of the Customs Tariff Act. We are of the view that the statutory basis for the
levy of the BCD is Section 12(1) of the Customs Act, whereas that for the levy of the SUAD is
Section 3(5) of the Customs Tariff Act. In support of our view, we refer to the considerations we
have offered when analyzing the same issue in the context of our discussion of the AD on alcoholic
liquor.375 In the light of our view, we are unable to ag ree with the United States that consideration of
the statutory bases of the BCD and the SUAD supports the United States' assertion that under India's
customs duty regime both the BCD and the SUAD are regarded as "ordinary customs duties".
7.342 The United States also points out that in accordance with Sectio n 3(6) of the Customs Tariff
Act the SUAD is to be calculated based upon the value of the imported good inclusive of the BCD
and the AD. India has said that the method of calculating the SUAD is based on that of the State
VATs. 376 As we have indicated, we understand th at it is not uncommon even in the case of
ad valorem internal taxes enforced and co llected at the point and time of interpretation to assess them
on the basis of the duty-paid value of the imported good. 377 Moreover, it is our understanding that in
the case of general sales taxes like the VAT that are imposed on imported goods at the border it is not
uncommon to include in the value of the imported good also specific commodity taxes (such as excise
taxes payable on the good in question). In the light of this, we do not think that the fact that the
SUAD is levied based upon a value of the imported good which is defined to include the BCD and the
AD indicates that the SUAD is itself an "ordinary customs duty" or an "other duty or charge".
7.343 Another point previously covered in relati on to the AD on alcoholic liquor concerns the
distribution of revenues collected between India's Ce ntral Government and the States. As we have
stated in that context, the re venues collected from the levy of the AD, the SUAD and the BCD are
distributed as between India's Central Governme nt and the States in accordance with a revenue
sharing formula. Thus, although the SUAD is said to counterbalance, inter alia, State-level internal
taxes, some of the revenues collected go to the Ce ntral Government. At the same time, some of the
revenues collected from the levy of the BCD, which is not said to counterbalance any internal taxes,
go to the States. For the reasons explained in our analysis of the AD on alcoholic liquor, we attach no
particular importance to the fact that in terms of the distribution of revenues collected there is no
difference between the SUAD and the BCD.
378
7.344 The foregoing analysis shows that even t hough the SUAD meets the elements of the US
definition of "ordinary customs duties", this is not su fficient, on its own, to establish that it is an

373 India's replies to Panel Question Nos. 39(a) and 27 (h). In its reply to Panel Question No. 27(h),
India stated that the Supr eme Court of India, in Assistant Commissioner , Commercial Taxes v. Dharmender
Trading Co., AIR 1988 SC 1247, held that when the exercise of legislativ e power can be traced to a legitimate
source, mere failure to mention it does not vitiate the exer cise of the power. India has not submitted the text of
the decision.
374 See supra, paras. 7.252-7.253.
375 See supra, paras. 7.254-7.255.
376 India's reply to Panel Question No. 29. India has said that State VAT is levied based upon a value
of the product which is defined to include other taxes, including excise duties, as applicable.
377 See also GATT Panel Report, Canada – Provincial Liquor Boards (US), para. 5.25.
378 See supra, para. 7.260.

ordinary customs duty (or an "other duty or charge" imposed on the importation of the products
subject to the SUAD) under Article II:1(b) as opposed to a border charge equivalent to an internal tax
under Article II:2(a). This remains true even if a ccount is taken of the overall structure of India's
customs duty and tax system, including such aspects as the domestic legal description of the SUAD as
a "duty of customs", the role of India's Custom s authorities in the collection of the SUAD, the
exemption mechanism established by Section 25 of th e Customs Act, the method of calculation of the
SUAD and the distribution of the revenues collected as a result of the levy of the SUAD.
7.345 As a result, as in the case of the AD on alcoholic liquor, we need to go on to determine
whether the United States has established, in addition, that the SUAD is of the same kind as, or in the
nature of, an ordinary customs duty (or an "other duty or charge" imposed on the importation of the
products subject to the SUAD).
(b) Equivalence to internal taxes
7.346 We have indicated previously that the United St ates can seek to establish by reference to the
provisions of Article II:2 that the SUAD is in the nature of an ordinary customs duty (or an "other
duty or charge" imposed on the importation of the produc ts subject to the SUAD). In this regard, as
in the case of the AD on alcoholic liquor, the Parti es only discussed Article II:2(a)-type charges, i.e.,
charges equivalent to internal taxes.
7.347 As our analysis below amply demonstrates, th is case objectively presents the issue whether
the SUAD is a charge equivalent to internal taxes (sales tax, value added tax and other local taxes and
charges) within the meaning of Article II:2(a). As a result, if the United States as the complaining
party cannot establish that the SUAD is not equivalent to internal taxes imposed in respect of like
domestic products, it cannot successfully establish that the SUAD is in the nature of an ordinary
customs duty (or an "other duty or charge" imposed on the importation of the products subject to the
SUAD). Accordingly, we now turn to examine whether the United States has met its burden of
establishing that the SUAD is not "equivalent" to internal taxes on like domestic products.
379
7.348 We first examine the particular features, structure and design of CN 19/2006 which directs the
imposition of the SUAD on specified goods at a rate of 4 per cent ad valorem.380 CN 19/2006 says
the Central Government directed the imposition of th e SUAD at the rate identified "having regard to
the sales tax, value added tax, local tax and other taxes or charges leviable on sale or purchase or
transportation of like goods in India". Thus, CN 19/2006 states that internal taxes of the specified
kind were in force at the time in India and that such internal taxes were imposed in respect of goods
that are like those subject to the SUAD.
7.349 We observe that CN 19/2006, on its face, point s to the existence of a relationship between, on
the one hand, the SUAD and, on the other hand, th e sales tax, value added tax, local tax and other
taxes or charges leviable in India. In relation to these taxes or charges, CN 19/2006 indicates that
they are leviable on the sale, purchase or transporta tion of goods. India contends that the internal
taxes or charges referred to in CN 19/2006 are in ternal taxes or charges imposed in respect of
domestic products. In response to a question from th e Panel, the United States said that the reference
in Section 3(5) to various taxes or charges appeared to be a referen ce to internal taxes. The United
States further said that without knowing the details of these taxes or charges, it could not make a
determination that they constituted internal taxes within the meaning of Article III:2. 381 In our
assessment, to the extent CN 19/2006 refers to ta xes or charges leviable on the sale or purchase of

379 We recall that, for the purposes of an Article II: 2(a) inquiry, "equivalence" is a necessary condition
for the SUAD to fall outside the scope of Article II:1.
380 Section 3(5) of the Customs Tariff Act envisages a maximum rate of 4 per cent ad valorem.
381 US reply to Panel Question No. 19.

goods, the elements before us tend to support the view that they are internal taxes or charges imposed
in respect of domestic goods. To the extent CN 19/2006 refers to taxes or charges leviable on the
transportation of goods, there is not much informati on on the record about the nature of these internal
taxes or charges. 382 In these circumstances, we deem it appropriate to suspend our analysis of this
issue for the time being and to conduct our "equiva lence" inquiry on the assumption that the relevant
taxes or charges may be regarded as internal ta xes or charges imposed in respect of domestic
products, as contemplated in Article II:2(a).
7.350 As to whether the products subject to the SUAD are "like" 383 domestic products subject to
relevant internal taxes, we note that the Parti es have been arguing or assuming that this is the case. 384
Since the Parties did not treat this as an issue of particular interest or concern, and there is little
relevant information on the record, in relation to this issue as well we consider it appropriate to
suspend our analysis for the time being and to conduct the present "equivalence" inquiry on the
assumption that the products subject to the SUAD ar e "like" domestic products subject to relevant
internal taxes.
7.351 As correctly noted by the United States, CN 19/2006 does not specifically identify any
internal taxes to which the SUAD relates. Howeve r, as we have previously stated, Article II:2(a)
contains no requirement specifically to identify the re levant internal tax by na me, date of publication,
etc. At any rate, from the text of CN 19/2006, it is clear to us that the internal taxes to which
CN 19/2006 refers are taxes in force at the time in India. 385 Also, we note that, by definition, sales
taxes and value-added taxes ("VAT") are taxes on the sale of a product. 386 Therefore, it follows from
the text of CN 19/2006 that the category of "local taxes and other charges" are charges imposed on the
sale, purchase or the transportation of a domestic good.
7.352 More particularly, regarding the "sales tax", we note that there exist in India State-level sales
taxes.387 To begin with, State sales taxes are imposed on goods outside the State VAT system. 388
India has indicated that these goods include alcoholic liquor, tobacco products and certain petroleum
products.389 In addition, there apparently is one State – Uttar Pradesh – which still applies a sales tax
instead of a VAT.390 State sales taxes are leviable on sales taking place within the State imposing the
tax.391 In addition, there is a Central Sales Tax ("C ST") which is levied exclusively on inter-state

382 This reflects the fact that neither Party paid much attention to this category of taxes or charges. In
particular, there is little information regarding whether th ese taxes or charges are (a) internal taxes or charges
within the meaning of Article III:2 or (b) internal tr ansportation charges within the meaning of Article III:4,
second sentence.
383 Article II:2(a) uses the phrase "like domestic product".
384 US second written submission, para. 30 (assuming " likeness" and noting, in addition, that the Panel
need not reach the issue); India's first written submission, para. 84.
385 This is also confirmed by the statutory basis of Section 3(5), more specifically the Explanation to
Section 3(5) which refers to taxes "for the time being in force".
386 This has been confirmed, for India's case, by India in its reply to Panel Question No. 35.
387 They are authorized under Entry 54 of List II (State List) of the Constitution of India.
388 India's replies to Panel Question Nos. 33 and 52; Exhibit IND-25, p. 13.
389 India's reply to Panel Question No. 33; Exhibit IND-25, p. 13.
390 India's second written submission, note 2 and para. 2.12.
391 Pursuant to Entry 92A of List I (Union List) of the Constitution of India, the Central Government
alone is empowered to impose taxes on inter-State trade or commerce. India's replies to Panel Question Nos.
30(c), 49(b) and 58. Furthermore, Section 286 of the Constitution of India the States may not impose taxes on
the sale of goods where the sale take s place "in the course of the import of the goods into […] the territory of
India".

sales.392 Although it is prescribed by a law of the Ce ntral Government, the CST is levied, collected
and appropriated by the State where the good being sold originates.393
7.353 Regarding the "value added tax", as already mentioned, all States but one apply a State
VAT.394 As with State sales taxes, State VAT is leviable on sales taking place within the State
imposing the VAT. There is a separate tax referred to as the Central VAT, or "CENVAT". However,
this Central VAT system concerns the central excise duty. 395 As we have previously explained,
India's Constitution distinguishes between excise duties, which are taxes on the manufacture of a
good, and sales taxes. 396 Since CN 19/2006 refers to sales taxes and VAT but not excise duties, it is
apparent that CN 19/2006 does not refer to the CENVAT, or central excise duty.
7.354 In sum, it seems clear that the sales tax referred to in CN 19/2006 is any applicable State sales
tax or the CST, and the value added tax referred to is any applicable State VAT. It is useful to note
that a sale in India involving a particular good would be subject either to State sales tax/State VAT (in
case of intra-State transactions) or to the CST (in case of inter-State transactions).
7.355 So far as concerns the "local tax and other taxes or charges", the term "local tax" suggests that
the relevant tax is applied in a local area, by a local government or municipality of the State. The
phrase "other taxes or charges" does not explicitly indicate whether the relevant charges are imposed
by the Central Government and/or the State Governments. In view of the fact that the other taxes
identified in CN 19/2006 are all State taxes
397, it seems natural to infer that the "other taxes or
charges" at issue are those imposed at State level.398 At any rate, India has pointed out that any "local
tax and other taxes or charges" must be authorized by a specific constitutional entry. 399 We note in
this regard that there are entries in the State List concerning charges other than general sales taxes.400
7.356 In the light of the above, we think that the rele vant internal taxes referred to in CN 19/2006
are, in principle, identifiable. 401 In fact, the taxes and charges id entified by India before the Panel
correspond to the above inferences. Specifically, India has stated that the SUAD is intended to
counterbalance the following three categories of intern al taxes: (1) the State VAT/State sales taxes,
(2) the CST, and (3) other local taxes and charges imposed by State402 or local governments.403
7.357 The United States further observes that CN 19/2006 does not indicate how the 4 per cent ad
valorem rate of SUAD specified therein "has regard" to the internal taxes menti oned. By itself, the
fact that CN 19/2006 does not say how the Central G overnment "had regard" to the relevant internal
taxes does not mean that the SUAD is not equivalent to those internal taxes. We further note that, as
is indicated in its text, CN 19/2006 was issued by the Central Government "[i]n exercise of the powers
conferred by sub-section (5) of section 3 of the Cust oms Tariff Act, 1975". In view of the fact that

392 Section 6(1) of the Central Sales Tax Act (Exhibit IND-3).
393 India's replies to Panel Question Nos. 6 and 25. Th e CST is collected from th e seller. India's reply
to Panel Question No. 61.
394 India's second written submission, para. 2.12. Like State sales taxes, State VAT is authorized under
Entry 54 of List II (State List) of the Constitution of India.
395 Exhibit IND-25, p. 3; Section 3(1) of the Central Excise Act (Exhibit US-21).
396 See, e.g., India's replies to Panel Question Nos. 36 and 48(a).
397 As noted, the CST, in effect, is also a State tax in that it is levied and appropriated by the States.
398 In fact, India has said that the local taxes and ot her charges the SUAD is intended to counterbalance
are those levied at State level. India's reply to Panel Question No. 25.
399 India's reply to Panel Question No. 30(a).
400 E.g., Entries 56-58 and 66.
401 We note in this respect that the United States is not alleging that India is in breach of its obligations
of Article X:1 of the GATT 1994 on publication of trade regulations.
402 India's first written submission, para. 79; India's reply to Panel Question No. 25.
403 India's first written submission, paras. 23 and 70; India's second written submission, note 2.

there is a clear and direct link between CN 19/20 06 and Section 3(5) of the Customs Tariff Act,
Section 3(5) is relevant to an assessment of whethe r the SUAD is equivalent to internal State taxes
imposed in respect of like domestic products.
7.358 We recall that Section 3(5) reads:
"If the Central Government is satisfied that it is necessary in the public interest to
levy on any imported article [whether on such article duty is leviable under
subsection ( 1) or, as the case may be, sub-section ( 3) or not] such additional duty as
would counter-balance the sales tax, value a dded tax, local tax or any other charges
for the time being leviable on a like article on its sale, purchase or transportation in
India, it may, by notification in the Official Gazette, direct that such imported article
shall, in addition, be liable to an addition al duty at a rate not exceeding four per cent.
of the value of the imported article as specified in that notification."

7.359 Thus, Section 3(5) leaves a margin of discreti on to the Central Government, but at the same
time stipulates that the rate of SUAD may not exceed 4 per cent ad valorem. CN 19/2006 imposes the
SUAD at this maximum rate of 4 per cent ad valorem. India has explained that the rate of 4 per cent
has been calibrated to ensure equivalence between the SUAD and the State VAT/sales taxes, the CST
and other local taxes and charges. More specifical ly, India has explained that the rate of the SUAD
has been set so as to correspond to the lowest rate of State VAT applicable to a particular product. 404
The 4 per cent rate of SUAD corresponds to the lowest basic rate of State VAT.405
7.360 According to India, based on guidelines prep ared by the Empowered Committee of State
Finance Ministers for the implementation of Stat e-level VAT, the States adopted VAT statutes which
largely provide for the same four applicable ad valorem rates of VAT: (1) nil for exempt goods,
which include (a) certain natural and unprocessed goods as well as (b) "goods of local importance",
(2) a special rate of 1 per cent for gold, bullion, je wellery, etc., (3) a basic rate of 4 per cent for basic
necessities and (4) a basic rate of 12.5 per cent for all other goods. 406 With regard to "goods of local
importance", India has stated that they are identif ied in a list of 50 goods which has been approved by
the Empowered Committee. 407 From this list, each State may choose 10 goods to be nil-rated or
exempted.408 The remaining goods on the list are apparently subject to any of the State's basic rates.

404 E.g., India's second written submission, para. 2.12, stating that the SUAD ha s been "pegged" to the
lowest rate of State VAT.
405 The term "basic rate" is used, e.g., in Exhibit IND-25, p. 13.
406 The guidelines at issue are entitled "A White Paper On State-Level Value Added Tax" (Exhibit
IND-25). India has confirmed that the White Paper is not binding on States, noting that under the Constitution
of India the States alone are empowered to levy sales taxes. India's reply to Panel Question No. 54.
Nonetheless, we note that the White Paper states that "[ i]t should be clearly noted, as already mentioned before,
that all the States have agreed to amend their earlier VAT Bills so as to conform broadly to the common design
as elaborated in this White Paper. […] The point of reference on VAT should therefore be this design of VAT
as explained in this White Paper". Exhibit IND-25, p.18. Under the heading of "Design of State-Level VAT",
the White Paper includes a sub-heading "VAT Rates and Classification of Commodities" which identifies the
identified four rates of VAT and also indicates the type and approximate number of goods to be subject to each
rate. Ibid., p. 13. Finally, the White Paper states that the common design of the State-level VAT "will also stop
unhealthy tax rate 'war' and trade diversion among the States". Ibid., p. 14. Taken together, these elements
suggest to us that individual States are not supposed, e.g., to nil-rate goods falling within the 4 per cent category
(with the possible exception of any "goods of local importance" which might fall within that category), as
otherwise it is difficult to see how the common design could achieve the goal of averting a tax rate "war". In
relation to "goods of local importance", we note that the White Paper describes them as goods which are of local
social importance for individual States "without having any inter-state implication". Ibid., p. 13.
407 Exhibit IND-24.
408 India's reply to Panel Question No. 55.

7.361 The United States has submitted evidence concerning one State that applies an additional rate
of 20 per cent. 409 India does not dispute that in different States different VAT rates may apply to the
same good, but asserts that the lowest basic rate in every State is 4 per cent.410 In fact, India has stated
that the SUAD is imposed at the single rate of 4 per cent, among other things, because the States
where imported goods will eventually be sold may ha ve different applicable rates of 4 per cent or
higher. Evidence supplied by the United States further shows that there are at least four States which,
under their relevant laws, have the authority to reduce any applicable rates of State VAT.411 However,
the fact that these States have the authority to redu ce rates does not demonstrate that the lowest basic
rate in any of these States is less than 4 per cent. The authority to lower rates may have been provided
for other reasons.412 Moreover, we understand that the Cent ral Government, under Sections 3(5) and
3(8) of the Customs Tariff Act, also has the author ity to reduce the rate of SUAD in general or for
specific goods.
7.362 As noted, the SUAD as imposed through CN 19/2006 is levied at 4 per cent. However, a
separate customs notification issued by the Central Government – CN 20/2006 413 – exempts certain
goods from some or all of the SUAD. Specifically, as a result of CN 20/2006, India maintains, goods
(other than "goods of local importance") that are exempt from State VAT are also exempt from the
SUAD (nil rated). 414 Similarly, goods subject to the special VAT rate of 1 per cent are subject to a
corresponding rate of SUAD of 1 per cent. India has stated that since the SUAD has been set so as to
correspond to the lowest VAT rate applicable to a pa rticular product, the SUAD is levied at nil or 1
per cent even where other relevant taxes, such as "o ther local taxes or charg es", are leviable on the
like domestic good. 415 India acknowledges, however, that for "goods of local importance" which are
nil rated in individual States there is no corresponding SUAD exemption. India submits that its
international trading partners cannot be said to have a significant commercial interest in the relevant
goods which, India notes, include products such as re ligious threads, indigenous food ingredients and
handicraft items. India asserts that there are no signi ficant imports of such goods into India. The
United States points out that it does export at least some of the listed products, such as tapioca.
7.363 The CST is interconnected with the State VAT. The CST is levied at the rate applicable to
the sale of the relevant good under the sales tax la w of the State where the good originates (i.e., from
which it is sold). 416 Thus, since the State VAT rates in the St ate of origin generally are either nil,
1 per cent, 4 per cent or 12.5 per cent, the CST would be levied at these same rates, respectively.
Where the CST rate is nil or 1 per cent, by virt ue of CN 20/2006, the corresponding rate of SUAD
would also be nil (except for "goods of local importance") or 1 per cent. For other goods, the rate of
SUAD is 4 per cent, whereas, according to India, the rate of CST is 4 per cent or higher, since, like
VAT rates, the CST rates in different States may be different for the same good. There appear to be
two possible exceptions, however. First, based on Indi a's explanations of State VAT and the CST, it
would seem that where a "good of local importance" h as been nil-rated in the State of origin, the CST
rate would also be nil. However, the informati on before us does not allow us to verify this.
Secondly, as pointed out by India, where a dealer se lls to a registered dealer in another State, the

409 Exhibit US-23.
410 India's second written submission, para. 2.12; India's reply to Panel Question No. 53.
411 Exhibits US-23, -27, -28 and –29.
412 One such purpose could be to allow for co-ordinated downward adjustment of all State VAT rates in
the light of actual experience with implementation of a State VAT system or a changi ng economic situation.
The guidelines prepared by the "Empowered Committee" of State Finance Ministers for the implementation of
State-level VAT state that it is expected that after an initial loss of revenue in some States, introduction of VAT
may, after a few years, lead to revenue growth. Exhibit IND-25, p. 15. If so, then there might be room for a
lowering of the basic rates of 4 and 12.5 per cent.
413 Exhibit US-11.
414 The United States has not contested this.
415 India's reply to Panel Question No. 34.
416 Section 8(2) of the Central Sales Tax Act.

dealer is to pay CST amounting to 3 per cent of his turnover or at the rate applicable to the sale of
such good under the sales tax law of the State of origin, whichever is lower. 417 It seems that this
concessional rate reflects the fact that the CST pa id on a first inter-State sale transaction is not
creditable against the State VAT (or the CST) pa yable in case of subsequent re-sale within the
relevant State (or to another State). 418 India has, however, confirmed that the SUAD is applicable to
imports by registered dealers. 419 Accordingly, if application of the turnover rule leads to a lower
effective tax rate than the relevant State VAT rate , the rate of the SUAD may, depending on the State
of origin of the good subject to the CST, exceed the rate of the CST.
7.364 In relation to State sales taxes other than VAT , i.e., those applicable to goods outside the
VAT system, India has stated that State sales taxes for such goods vary from State to State, but are
equal to or higher than 4 per cent. 420 They may, India maintains, be higher than 12.5 per cent. 421
India has, however, provided no supporting eviden ce. The United States, for its part, has not
submitted evidence disproving this assertion. Furthermore, no informa tion was provided to us
regarding the rates applicable under the sales tax maintained by the State of Uttar Pradesh.
7.365 Finally, so far as concerns "other local taxes a nd charges", we understand that some or all of
these charges (such as Mandi taxes, market committee fees, turnover taxes or transport fees) are not
eligible for credit against the State VAT. 422 India states that the SUAD is intended to counterbalance
those "other local taxes and charges" whic h are not creditable against the State VAT. 423 These
charges increase the tax burden borne by goods subject to State VAT or CST as well as of goods
subject to State sales tax. India submits that th ese charges therefore effec tively raise the cumulative
rate resulting from imposition of intern al taxes to one that is higher than the basic 4 per cent rate of
SUAD. As previously pointed out, India has said th at where a good is subject to a State VAT rate of
nil (or 1 per cent) and, in addition, to "other local taxes and charges" which are not creditable against
State VAT, the SUAD would, nevertheless, be applied at a rate of nil (or 1 per cent), and not at a rate
of 4 per cent.424
7.366 It is important to note, as an additional matter, India's explanation that the SUAD was
introduced to counterbalance only those of the rele vant internal taxes or charges that would be
leviable on a good in respect of a domestic sal e transaction equivalent to the import transaction
involving the like good. 425 India refers to this as the "first sal e" transaction. Subsequent to the first
(international) sale transaction, imported goods – like domestic goods subsequent to a domestic first
sale transaction – may of course be re-sold internally or used in the manufacture of another product.
India notes that where imported goods on which the SUAD has been paid have entered India's
customs territory, and where they are subsequently re-sold internally or used in the manufacture of
another product, they are subject to State VAT, Stat e sales tax, CST and/or "other local taxes or
charges", or not, in the same way as like domestic products.

417 Section 8(1) of the Central Sales Tax Act. India ha s stated that this rule has been in force since 1
April 2007. However, Exhibit IND-3 shows that a simila r rule was in force previously. Also, this Panel was
established on 20 June 2007.
418 India's reply to Panel Question No. 59.
419 India's reply to Panel Question No. 37(b).
420 By implication, the same would then be true for the CST in case of inter-state transactions involving
such goods.
421 India's reply to Panel Question No. 33.
422 India's reply to Panel Question No. 46; India's second written submission, para. 2.17.
423 India's first written submission, para. 79; India's second written submission, para. 2.17.
424 India's reply to Panel Question No. 33.
425 India's first written submission, para. 71; India's second written submission, para. 2.5; India's reply
to Panel Question No. 48(e) and (f).

7.367 In this regard, India has stated that on the date of establishment of the Panel no refund of the
SUAD paid in respect of the import transaction was available against the State VAT, or the CST,
payable in respect of a domestic re-sale transaction. 426 Nor was the SUAD paid creditable against the
State VAT, or the CST, payable in respect of a domestic re-sale transaction. 427 This mirrors the
situation of the CST, in that the CST paid in resp ect of a first inter-State sale transaction is not
creditable against the State VAT, or the CST, payable in respect of a domestic re-sale transaction. 428
In relation to State VAT, we recall that one of the particularities of State VAT is that an off-set is
given for State VAT paid in respect of previous sale transactions (e.g., for inputs or the same good
where the goods was not further processed). 429 Accordingly, the State VAT paid in respect of a first
intra-State sale transaction is creditable against the State VAT payable in respect of an intra-State re-
sale transaction.430
7.368 India has pointed out that a credit of the SUAD paid is available when imported raw materials
are used for further manufacturing finished products and the finished products are sold. That credit
can be used against the central excise duty (C ENVAT) payable on the finished manufactured
product.431 In response to a question, India has confirme d, however, that the credit in question cannot
be used to offset any other tax es like the State VAT, the CST, etc. 432 Furthermore, the credit against
the central excise duty is equally available where the raw materials from wh ich the finished product
has been manufactured are domestic.433
7.369 As to whether the rate of SUAD specified in CN 19/2006 indicates that the SUAD is not
equivalent to the relevant internal taxes (i.e., th e State VAT/sales tax, the CST and "other local taxes
or charges"), the first point to be made is that while, as indicated above, we have a good deal of
general information, we have little specific information about State VAT/sales taxes or "other local
taxes or charges" actually levied by different States. Nevertheless, it is clear from the information we
have and the explanations India has provided that there could conceivably be circumstances where the
SUAD is levied at a rate that is higher than the rate resulting from imposition of the relevant internal
taxes on like domestic goods, or results in a hi gher tax burden being im posed on products being
imported. Such circumstances might, for example, ari se where an equivalent domestic transaction: (i)
involves a "good of local importance" for which a partic ular State has set a rate of State VAT of nil,
(ii) involves an inter-State sale to a registered dealer434 or (iii) is subject to State VAT and followed by
an intra-State re-sale transaction involving the same good 435 . Even assuming, however, that
circumstances might arise where, e.g., the rate of SUAD exceeded the rate resulting from imposition
of relevant internal taxes on like domestic goods, in our view this would nevertheless not demonstrate,

426 As previously noted, in the course of the Panel proceedings India issued CN 102/2007 which
provides, subject to certain conditions being satisfied, for the possibility of obtaining a refund from the SUAD
paid in case of a subsequent domestic re-sale transaction subject to State VAT.
427 India's reply to Panel Question No. 51(a).
428 India's reply to Panel Question No. 59. In our understanding, there also is no possibility of
obtaining a refund.
429 India's reply to Panel Question No. 32(b); Exhibit IND-25, p. 1.
430 It is unclear from the information on the record whether the State VAT paid is also creditable
against the CST which is payable in respect of a domestic inter-State re-sale transaction.
431 The availability of the credit is provided for in Rule 3 of the Cenvat Credit Rules (Exhibit IND-4).
432 India's reply to Panel Question No. 51(b) and (c).
433 India's reply to Panel Question No. 51(b).
434 We make no comment upon whether this second set of circumstances remains relevant in view of
CN 102/2007 which came into force after the date of establishment of the Panel. We note in this regard India's
contention that registered dealers will either resell the same product or use the imported product to manufacture
other products. The United States contends that a regi stered dealer could also co nsume or use a product it
purchased inter-State.
435 We make no comment upon whether this third set of circumstances remains relevant in view of
CN 102/2007 which came into force after the date of establishment of the Panel.

for the reasons we have stated earlier 436, that the SUAD and relevant internal taxes do not fulfil the
same relative function within India's customs duty a nd tax system. Instead, the existence of a rate
differential (or, more generally, of a tax burden differential) disfavourin g products being imported
may merely indicate that the SUAD and the relevant internal taxes fulfil the function of imposing a
charge on the products subject to the SUAD qua products in a different manner, with the consequence
that, in certain circumstances, products being imported are treated less favourably than like domestic
products.437
7.370 An additional feature of CN 19/2006 to which we wish to draw attention is that according to
our understanding, pursuant to CN 19/2006, the SUAD is imposed on the importation of a subject
good without regard for the particular State into which it is imported. To our minds, if the SUAD
were imposed, through CN 19/2006, on a good imported into a State where relevant internal taxes are
not leviable on the like domestic good, this would pr esent the issue whether in respect of imports of
the relevant good into that State the SUAD is "equivalent" to relevant internal taxes. 438 However, as
further addressed below, there is no evidence on the r ecord to show that, on the date of establishment
of the Panel, this situation pertained.
7.371 Having regard to the foregoing considerations, it can thus be said that the particular features
and structure of CN 19/2006, including the fact that, on its face, it points to a relationship with
relevant internal taxes, the rate it specifies, and the fact that it applies to imports of subject goods
without apparent regard for the State into which they are imported, support or at least are not
inconsistent with India's position that the SUAD is "e quivalent" to relevant internal taxes leviable in
India.
7.372 Turning now to examine the design, or purpo se, of the SUAD, we note the United States'
argument that the statement in Section 3(5) th at the SUAD may be imposed "[i]f the Central
Government is satisfied that it is necessary in the public interest to levy on any imported article […]
such additional duty as would counter-balance the sales tax, value added tax, local tax or any other
charges for the time being leviable […] in India" does not affect whether the SUAD may be regarded
as an ordinary customs duty. In the United States' view, the purpose or intent a Member attributes to
a duty is not determinative. 439 We would agree that the purpose stated by a Member in its legislation
is not determinative, by itself, for WTO purposes. Nevertheless, it is a relevant factual element which
we may consider together with others in co ming to an overall conclusion on the issue of
"equivalence".440
7.373 In considering this element, we observe, as an initial matter, that the quoted statement in
Section 3(5) makes clear that if the SUAD is imposed, it must be imposed for the purpose of
counterbalancing the internal taxes identified in Sec tion 3(5). We therefore consider that the passage
in question is consistent with India's view 441 that the SUAD is a duty imposed by the Central
Government of India to offset the incidence of State VAT/sales taxes, the CST and other local taxes
or charges that are not levied on the importation of goods into India.442

436 See supra, para. 7.192-7.193.
437 Ibid.
438 We recall that pursuant to CN 20/2006 a list of specified goods are nil-rated. In relation to these
goods, the issue referred to would not arise.
439 In support of its argument, the United States refers to the GATT Panel Report on EEC – Parts and
Components, para. 5.7.
440 See also Panel Report, Argentina – Hides and Leather, note 440.
441 India's first written submission, paras. 69 and 70.
442 In our view, the mere fact that the Explanation to Section 3(5) contemplates that in cases "where
such [internal] taxes, or, as the case may be, such charges are leviable at different rates", the Central
Government may set the rate of SUAD by reference to "t he highest such tax or, as the case may be, such

7.374 It is not clear to us from the quoted statement whether the SUAD may be imposed on a good
being imported into India only in cases where relevant internal taxes are for the time being leviable on
a like domestic good in all States, or whether it woul d be sufficient that relevant internal taxes are
leviable in only some States. 443 Regarding the second hypothesis, it is pertinent to note that pursuant
to Section 3(8) of the Customs Tariff Act in conjunction with Section 25 of the Customs Act the
Central Government appears to have the power to grant exemptions from the levy of the SUAD
subject to such conditions (to be fulfilled before or after customs clearance) as it may specify in the
exemption notification. 444 Thus, it seems to us that even if Section 3(5) authorized the Central
Government to impose the SUAD in cases where relevant taxes are leviable on a good in only some
States, it is not clear that the Central Governme nt would be required to impose it on all like goods
imported into India, irrespective of the State into whic h they are imported. In the light of this, and in
the absence of evidence to the cont rary, we see no reason to consider that the SUAD, as designed,
necessarily "overshoots" in certain circumstances.
7.375 In sum, having regard to the issue of the design of the SUAD, we think the text of
Section 3(5) as well as the previously discussed co ndition that the SUAD is to be levied on a good
only if on a like good (or a good of the same class or d escription) relevant internal taxes are leviable
are consistent with India's view that the SUAD as contemplated in Section 3(5) is designed to
counterbalance the internal taxes Section 3(5) identifi es. Moreover, it does not appear to us to be the
case that the SUAD, as designed, necessarily "overshoots" in certain circumstances.445
7.376 If, as argued by India, the SUAD is designed to counterbalance the internal taxes identified in
Section 3(5) and leviable on like domestic goods, this would in our view support the inference that it
is designed to impose a charge on the subject goods as such, and not qua goods being imported. It
should be recalled in this respect that the SUAD is cappe d, by virtue of Section 3(5), at a rate of 4 per
cent ad valorem for all subject goods whereas, as we have seen , in respect of some of these goods the
States may apply rates of, e.g., State VAT that are hi gher. It is clear, therefore, that the SUAD, as
designed, may not fully counterbalance the relevant in ternal taxes. The fact that it may not does not
imply, in our view, that it is designed to have a di fferent function. Rather, as we have said earlier, it
may indicate that the SUAD and the relevant internal taxes fulfil the function of imposing a charge on
the goods subject to the SUAD qua goods in a different manner, with the consequence in this case
being that, in certain circumstances, goods bei ng imported are treated more favourably than like
domestic products.
7.377 As to what this means for the SUAD, as actua lly imposed through CN 19/2006, we recall that
Section 3(5) is the statutory basis upon which CN 19/2006 was issued, that CN 19/2006 explicitly
states that the Central Government had regard to th e "sales tax, value added tax, local tax and other
taxes or charges" leviable in India, as required by Section 3(5), and that there is no indication that the
consistency of CN 19/2006 with Sectio n 3(5) was ever questioned in India
446. To that extent, there is
no reason to think, based upon CN 19/2006 and its statutory basis, that the SUAD could not be
designed to counterbalance the internal taxes identif ied in CN 19/2006, as argued by India. Or to put

charge", provided the rate does not exceed 4 per cent ad valorem , does not demonstrate that the SUAD is
designed to accomplish something other than offsetting the incidence of relevant internal taxes. As CN 19/2006
and CN 20/2006 indicate, the provisions of Section 3( 5) and its Explanation leave the Central Government
considerable freedom of action.
443 We note that neither Party has addressed this issue.
444 As we have indicated previously, the power to grant exemptions appears to include the power to
grant a refund of a duty already paid.
445 In the light of these elements as well as in vi ew of our consideration below of the legal context
within which the SUAD operates, there is no apparent re ason to be concerned that the relevant statement in
Section 3(5) is designed to conceal the true nature of the SUAD.
446 In the context of the present pr oceedings, the United States has not, itself, alleged that CN 19/2006
is not properly based on Section 3(5).

it another way, the aforementioned elements do not contradict the view that the function which the
SUAD is designed to fulfil is to impose a charge on goods imported into India as such, and not on
goods qua goods being imported.
7.378 Nevertheless, the design of the SUAD could not, in any event, be determinative, on its own,
of whether it is equivalent to rele vant internal taxes. As we have previously explained, as part of our
"equivalence" inquiry under Article II:2(a), we also need to examine the SUAD in its relevant context.
7.379 We turn first to review the legal contex t within which the SUAD operates and, more
specifically, the legal framework of India's customs duty and tax system, of which the SUAD forms
part. We commence our review with the State VA T and the sales taxes. The Constitution of India
empowers the States to impose taxes on the sale (o r purchase) of goods, except where such sale (or
purchase) takes place in the course of inter-State trade or commerce.
447 However, pursuant to
Article 286(1) of the Constitution of India, "[n]o law of a State shall impose, or authorise the
imposition of, a tax on the sale or purchase of goods wh ere such sale or purchase takes place […] (b)
in the course of import of the goods into […] the territory of India". As explained by India,
Article 286(1) prohibits States from imposing State VAT or sales taxes in respect of the import
transaction, i.e., when an imported product first enters the Indian customs territory.
448 Accordingly,
the first (international) sale transaction may not be subjected to State VAT or a State sales tax, but
subsequent domestic re-sale transactions may be subjected to State VAT or a State sales tax. In
addition, the States lack the power of imposing State VAT or a State sales tax in respect of inter-State
sale transactions. The power to impose taxes on the sale or purchase of goods where such sale or
purchase takes place in the course of inter-State trade or commerce is reserved to the Central
Government.
449
7.380 Given that State Governments lack the power to impose VAT or sales taxes in respect of
international or inter-State sale transactions, it is not unreasonable that India's customs duty and tax
system, as it existed on the date of establishment of this Panel, would provide for some form and
measure of compensatory taxation of these sale tran sactions. In this rega rd, it is our understanding
that the Central Government has exercised its pow er to impose sales taxes on inter-State trade inter
alia by enacting the Central Sales Tax Act which provides for the imposition of the CST. 450 We
further understand that the Central Government does not have the power to impose taxes on the sale
or purchase of goods where such sale or purchase tak es place in the course of import of the goods into
the territory of India. 451 However, as we have seen, the Cons titution of India authorizes the Central
Government, and it alone, to impose "duties of customs" . To recall, India has explained that the term
"duties of customs" encompasses th e BCD, the AD and the SUAD. The Parties have not specifically
discussed any other "duties of customs" that would be applicable to the goods subject to the SUAD.
In view of the fact that the Central Government does not have the authority, under India's
Constitution, to impose sales taxes on products being imported into In dia, it seems natural that it
might possibly wish to use a "duty of customs" in order to counterbalance the State VAT or sales
taxes leviable on like products in India.
7.381 In this regard, it is common ground in this case that the BCD, which is no doubt also applied
to some or all of the products subject to the SUAD, is an "ordinary customs duty" within the meaning
of Article II:1(b). As such, it has the function of imposing a charge on the subject product qua

447 Entry 54 of List II (State List) of the Constitution of India.
448 India's reply to Panel Question No. 30(a).
449 Entry 92A of List I (Union List). India asserts that this also follows from Article 286(1)(a) which
prohibits the imposition of State sales taxes where the sale takes place "outside of the State". India's reply to
Panel Question No. 58.
450 India's reply to Panel Question No. 30(c).
451 India's first written submission, para. 71.

product being imported into India. Put differently , it is not imposed to counterbalance any of the
internal taxes at issue. The AD is imposed pursuant to Section 3(1) of the Customs Tariff Act to
counterbalance State or Central excise duties. In dia has explained that the categories of taxes or
charges enumerated in Section 3(5) do not overlap with the category of excise duties referred to in
Section 3(1).452 Thus, the AD does not purport to counterbal ance any of the internal taxes or charges
referred to in Section 3(5). Consequently, the "duty of customs" that is left to achieve this purpose is
the SUAD. As we have seen, the SUAD has a statut ory basis that is different from that of the BCD,
which is consistent with the view that it fulfils a different function within India's customs duty and tax
system, namely, the function of imposing a charge on the products subject to the SUAD qua products
rather than qua products being imported.
7.382 Regarding the "other local taxes or charges" leviable on the sale, purchase or transportation of
like domestic products, India has stated that Article 286(1) of the Constitution of India prohibits the
imposition of "other local taxes or charges" on the sale or purchase of goods where the sale or
purchase takes place in the course of th e import of the goods into India. 453 We note that
Article 286(1) only concerns State or local taxes on the sale or purchase of goods; it does not concern
State or local taxes on the transportation of goods. 454 However, as pointed out by India, "other local
taxes or charges" must be authorized by a specific constitutional entry in List II or III.455 We have not
been able to identify, nor did the Parties identify, among the "other local taxes or charges" authorized
by specific constitutional entries in List II or III, any which could be imposed, in lieu of transportation
charges, in the course of the import of relevant goods into India's customs territory. 456 India has also
confirmed that "other local taxes or charges" on the sale or purchase of goods may not be applied
when the sale or purchase takes place in the course of in ter-State trade, and that such taxes or charges
may be imposed on the transportation of goods only to th e extent that such goods enter the territory of
the State or local area imposing such a tax or charge. 457 In view of the foregoing, it is understandable
that the Central Government might possibly wish to use a "duty of customs" like the SUAD to
counterbalance any "other local taxes or charg es" on the sale, purchase or transportation of goods
which cannot be imposed, at the State or local level, in respect of import transactions.458
7.383 In the light of the above, we consider that the legal framework of India's customs duty and tax
system, as described above, is not inconsistent w ith India's position that the SUAD is designed to
counterbalance State VAT/sales taxes, the CST and "other local taxes or charges" leviable in India.
The States are either expressly prohibited from imposi ng, or lack the power to impose, the relevant
internal taxes (State VAT/sales taxes and "other lo cal taxes or charges") on goods in the course of the

452 India's reply to Panel Question No. 27(e).
453 India's reply to Panel Question No. 48(e). India has confirmed that once imported products enter
India's customs territory, they may be subjected to "other local taxes or ch arges" in the same way as domestic
products. India's replies to Panel Question Nos. 30(a), 41 and 48(f).
454 Ibid.
455 India's reply to Panel Question No. 30(a). We also recall that India has explained that it has a
system of judicial review whereby the exercise by the Central Government and State Governments of their
respective powers under the pos itive lists is subject to judicial scruti ny. India's reply to Panel Question No.
48(d).
456 We note Entry 52 of List II (Exhibit US-20) wh ich deals with taxes on the "entry of goods into a
local area for consumption, use or sale therein". However, it would appear that the word "entry" does not refer
to entry into the customs territory of India, but rather, as the text of Entry 52 suggests, entry into a local area.
This understanding appears to be consistent also with India's response to Panel Qu estion No. 48(e) as well as
India's response to Panel Question No. 49(b) which indicates that no "other local taxes or charges" may be
imposed on the inter-State sale of goods.
457 India's reply to Panel Question No. 49(b).
458 India's reply to Panel Question No. 48(f). In the case of inter-State transactions, to the extent it
wished to provide for any compensatory taxation, the Central Government would need to use the CST or
another tax on the sale or purchase of goods.

import into India's customs territory. In turn, it appears that the Central Government can only
counterbalance relevant internal taxes (the CST, State VAT/sales taxes and "other local taxes or
charges") by means of a "duty of customs". More over, the record does not indicate that there is a
"duty of customs" other than the SUAD applicab le to the relevant products and designed to
counterbalance relevant internal taxes, or that th ere are other types of taxes or charges imposed by
State Governments that could be said to counterbalance relevant internal taxes with regard to products
imported into India and subject to the SUAD. It is true that the States are not legally required to
impose State VAT/sales taxes and/or "other local ta xes or charges". The lack of a requirement to
impose such taxes or charges does not, however, give rise to a presumption that the States would not
actually impose such taxes or charges.
7.384 If relevant internal taxes are leviable in all States on products subject to the SUAD, and if the
States levy such taxes as envisaged in India's C onstitution (and so do not impose them on products in
the course of their import into India's customs territory), 459 the legal framework described above also
supports the view that the SUAD and the relevant in ternal taxes fulfil the same relative function, in
respect of equivalent transactions, within India's customs duty and tax system. To begin with, it is
clear that, under the legal framework as described above, the SUAD imposes a charge in respect of
import transactions involving specified products impor ted into India, whereas the relevant internal
taxes impose a charge in respect of equivalent domestic transactions i nvolving like products.
Moreover, to the extent all States levy relevant internal taxes on products subject to the SUAD, the
legal framework supports the inference that th e function the SUAD, as imposed by CN 19/2006,
fulfils within India's customs duty and tax system is to impose a charge on the specified products qua
products, and not qua products being imported into India. Furthermore, to the extent the States levy
the relevant internal taxes as envisaged in Indi a's Constitution (and thus do not impose them on
products in the course of their import into India's customs territory), the legal framework also supports
the inference that the function these internal taxes fulfil within India's customs duty and tax system, in
respect of domestic transactions equivalent to import transactions, is to impose a charge on the
products qua products, and not qua domestic products.
7.385 Having reviewed the legal context within which the SUAD operates, we now turn to consider
the factual context within which the SUAD is imposed. In this respect, a relevant issue is whether, on
the date of establishment of the Panel, all States levi ed relevant internal taxes on products subject to
the SUAD. We note in this respect that pursuant to the Central Sales Tax Act the CST is required to
be levied. Furthermore, India has stated that all States but one impose State VAT and that the State
which does not impose a VAT imposes a sales tax. 460 The United States did not contest this
statement. Regarding the list of "goods of local importance" from which States may select up to 10
items to be nil-rated or exempted from VAT, we observe that the fact that the States have the right to
do so does not necessarily imply that any State had actua lly availed itself of that right as of the date of
establishment of the Panel. 461 At any rate, we have been provided no evidence indicating that a
particular State has nil-rated or exempted one or more products which are included in the list of
"goods of local importance" and subject to the S UAD. In relation to goods outside the VAT system,
India asserts that such taxes are levied at a rate of 4 per cent or higher. However, there is no
information on the record which confirms that all States impose a sales tax on goods which are
outside the VAT system but subject to the SUAD. 462 Finally, concerning other "local taxes or
charges", we have been given examples of such tax es or charges imposed by particular States, but the
evidence before us does not indicate whether such taxes or charges are levied in all States.

459 We will revert to these two factual conditions further below.
460 India's second written submission, note 2 and para. 2.12.
461 India has suggested that conditions apply, including that nil-rating or exempting a listed good not
have any inter-State implications. India's reply to Panel Question No. 55.
462 Exhibit IND-25, p. 13, suggests that the relevant goods used to be taxed and would "continue to be
taxed", but no specific information is provided.

7.386 We see no basis upon which we would be entitled to presume that, as of the date of
establishment of the Panel, there were States which did not impose relevant taxes on goods subject to
the SUAD (e.g., on goods outside the VAT system or "goods of local importance"). 463 We also recall
that in this case it is up to the United States to est ablish that the SUAD is not "equivalent" to relevant
internal taxes. As a result, we can only conc lude that there is no evidence on the record to
demonstrate that, on the date of establishment of the Panel, there were States which did not levy
relevant internal taxes on products subject to the SUAD.
7.387 Another relevant factual issue is whether India' s Constitution and/or relevant laws are in fact
implemented as envisaged in these legal instruments. We note in this respect that there is no evidence
on the record indicating that relevant internal ta xes have been imposed on products subject to the
SUAD in the course of their import into India's customs territory. In the absence of such evidence, we
must presume that, at the time of establishment of this Panel, the States followed the requirements of
India's Constitution and/or relevant laws and did not impose relevant internal taxes on products
subject to the SUAD in the course of their import into India's customs territory.464
7.388 Accordingly, the legal and factual context w ithin which the SUAD operated on the date of
establishment of the Panel does not indicate that th e SUAD was not "equivalent" to relevant internal
taxes leviable on products subject to the SUAD.
7.389 Based upon the above analysis of the SUAD, incl uding its particular features, structure and
design and the legal and factual context within wh ich it operates, we thus come to the following
overall result regarding the element of "equivalence":
(a) The evidence before us, comprising, inter alia , CN 19/2006, its statutory basis and
the general legal framework of India's customs duty and tax system, is not
inconsistent with India's position that the SUAD is "equivalent" to taxes or charges
referred to in CN 19/2006 and leviable in India on like domestic products;
(b) there is no evidence on the record to demons trate that, on the date of establishment of
the Panel, there were States which did not le vy internal taxes or charges referred to in
CN 19/2006 on products subject to the SUAD; and
(c) there is no evidence on the record to demonstrate that, notwithstanding the general
legal framework in existence at the time, re levant internal taxes or charges were, in
fact, imposed on products subject to the SUAD in the course of their import into
India's customs territory.
7.390 In these circumstances, we can only conclude that the United States has failed to meet its
burden of establishing that the SUAD is not "equivale nt", within the meaning of Article II:2(a), to
taxes or charges referred to in CN 19/2006 and leviable in India on like domestic products.
7.391 In view of this conclusion, we need not, fo r the purposes of disposing of the United States'
claim under Article II:1(b), and hence do not, come back to the issues of whether the taxes or charges
referred to in CN 19/2006 and leviable in India ar e internal taxes or charg es imposed in respect of
domestic products and whether the pr oducts subject to the SUAD are in fact "like" domestic products
subject to the previously mentioned internal taxes or charges.

463 We recall that CN 20/2006 nil-rates certain goods that would otherwise be subject to the SUAD, as
imposed through CN 19/2006.
464 We also recall in this context th at the record contains no specific example of another type of tax or
charge, imposed by a State, consistently or inconsisten tly with the Constitution of India, on imported products
subject to the SUAD in lieu of relevant internal taxes.

(c) Conclusion
7.392 As we have explained earlier, in the specific circumstances of this case, if the United States as
the complaining party cannot meet its burden of est ablishing that the SUAD is not "equivalent" to
taxes or charges referred to in CN 19/2006 and leviable in India on like domestic products,465 it cannot
successfully establish that the SUAD is of the same kind as, or in the nature of, an ordinary customs
duty (or an "other duty or charge" imposed on the importation of the products subject to the SUAD).
7.393 As we have also explained, in the absence of a showing that the SUAD is in the nature of an
ordinary customs duty (or an "other duty or char ge" imposed on the importation of a good), the fact
that it meets the elements of the US definition of "ordinary customs duties" is not sufficient to
establish that it is an ordinary customs duty (or an "other duty or charge" imposed on the importation
of the products subject to the SUAD) under Article II:1(b). Hence, we find that the United States has
failed to establish that the SUAD constitutes an ordi nary customs duty (or an "other duty or charge"
imposed on the importation of the products subject to the SUAD) within the meaning of
Article II:1(b). As a result, it has not been demonstrated that the obligations contained in
Article II:1(b) are applicable to the SUAD.
7.394 Accordingly, we come to the conclusion that the United States has failed to establish that the
SUAD, as imposed through CN 19/2006, is inconsistent with Article II:1(b), first or second sentence.
E. US
 CLAIMS OF VIOLATION OF ARTICLE II:1(A) OF THE GATT 1994
7.395 Having disposed of the US claims of violati on of Article II:1(b) of the GATT 1994, we turn
now to assess the separate and additional US claims of violation of Article II:1(a) of the GATT 1994.
To recall, the United States claims that both th e AD and the SUAD are inconsistent, as such, with
Article II:1(a). Article II:1(a) reads as follows:
"Each contracting party shall accord to the commerce of the other contracting parties
treatment no less favourable than that provi ded for in the appropriate Part of the
appropriate Schedule annexed to this Agreement."
7.396 The claims made by the United States under Article II:1(a) are linked to its claims under
Article II:1(b). As already noted, the United States is of the view that the AD is inconsistent with
Article II:1(b) because it results in ordinary cust oms duties on imports of alcoholic beverages that
exceed those set out in India's WTO Schedule. Based on this view, and relying on the Appellate Body
report on Argentina – Textiles and Apparel , the United States submits that by imposing ordinary
customs duties on imports of alcoholic beverages from the United States in excess of those set forth in
India's Schedule, the AD also accords imports from the United States less favourable treatment than
provided for in India's Schedule and is therefore, as such, inconsistent with Article II:1(a).
7.397 Similarly, the United States submits that the SUAD is, as such, inconsistent with
Article II:1(a). Because in the United States' view the SUAD results in customs duties on imports of
alcoholic beverages and other produc ts (including those in Exhibit US-1) from the United States that
exceed those set out in India's Schedule, it accord s imports from the United States less favourable
treatment than provided for in India's Schedule. Consequently, the United States argues, the SUAD
is, as such, inconsistent with Article II:1(a).
7.398 India considers that the SUAD is not inconsistent with Article II:1(a). India submits that
Article II:1(a) and (b) when read together require that an offending measure be either an ordinary

465 We recall that, for the purposes of an Article II: 2(a) inquiry, "equivalence" is a necessary condition
for the SUAD to fall outside the scope of Article II:1.

customs duty or an ODC which is in excess of bound commitments and which results in "less
favourable" treatment being given to imported products. In this respect, India recalls its view that the
SUAD is neither an ordinary customs duty nor an ODC as defined under Article II:1(b), and hence is
not required to be listed as part of India's Schedule. Instead, India argues, the SUAD is a charge
levied at the border in lieu of internal taxes and in accordance with Section II:2(a). India therefore
considers that it has "preserved the value of tariff concessions" listed in its Schedule and its ordinary
customs duty applied on the importation of certain alcoholic beverages and ot her identified industrial
and agricultural products is well within the limits prescribed in its Schedule.
7.399 Regarding the AD, India's position is that it has been validly removed by virtue of Customs
Notification 82/2007 which reduced the AD rate applicable to alcoholic beverages to nil.
7.400 The Panel notes that the United States' claims under Article II:1(a) are in the nature of
consequential claims.466 The United States argues, in essence, that an inconsistency with Article II:1(a)
follows by implication from an established inconsistency with Article II:1(b). We are able to accept this
argument, which is supported by the Appellate Body report on Argentina – Textiles and Apparel
wherein the Appellate Body found that "[p]aragraph (b) [of Article II:1] prohibits a specific type of
practice that will always be inconsistent with paragraph (a) [of Article II:1]".467 And further on in the
same report, the Appellate Body observed that "[i]t is evident to us that the application of customs duties
in excess of those provided for in a Member's Sc hedule, inconsistent with the first sentence of
Article II:1(b), constitutes 'less favourable' treatment under the provisions of Article II:1(a)".468
7.401 Accordingly, the starting point of our analysis are our conclusions concerning the US claims
under Article II:1(b). These conclusions are to the effe ct that the United States has failed to establish
that India has acted inconsistently with its obligations under Article II:1(b) either in respect of the AD or
in respect of the SUAD. As no inconsistency with Article II:1(b) has been established, and as the
United States' claims under Article II:1(a) are premised on the existence of a breach by India of
Article II:1(b), we come to the conclusion that the United States has also failed to establish that the AD
and/or the SUAD are inconsistent with Article II:1(a).
F. REFERENCES BY THE UNITED STATES TO ARTICLE III:2 OF THE GATT 1994
7.402 There is one additional matter it is appropriate to address before concluding. This concerns
various references made by the United States to th e provisions of Article III:2 of the GATT 1994 and
to the alleged inconsistency of the measures at issue with these provisions.
7.403 In this regard, we recall at the outset the US request for the establishment of a panel of
25 May 2007 which states in relevant part:469
"Even if the additional duty and the extr a additional duty were considered to be
internal taxes applied at the time of impo rtation, these duties subject imports from the
United States to internal taxes in excess of those applied to like domestic products or
directly competitive or substitutable domest ic products in breach of Article III:2 of
the GATT 1994, and afford less favourable tr eatment to imported products than to
like domestic products in breach of Article III:4 of the GATT 1994.

466 See, e.g., para. 14 of the US first oral statement where the United States submits that "because India
imposes each of the AD and the [SUAD] in excess of the ordinary customs duties, or other duties or charges, set
forth in its WTO Schedule, each is inconsistent with Article II:1(b) and, as a consequence, also Article II:1(a) of
the GATT 1994".
467 Appellate Body Report, Argentina – Textiles and Apparel, para. 45.
468 Ibid., para. 47.
469 WT/DS360/5.

These measures appear to be inconsistent w ith India's obligations under provisions of
the GATT 1994, in particular with:
[Article II:1(b) of the GATT 1994 and Article II:1(a) of the GATT 1994];
and to the extent that the measures impose an internal tax or other charge on imported
products,
(5) Article III:2 of the GATT 1994; and
(6) Article III:4 of the GATT 1994."
7.404 It is clear from the above-quoted passage that the US request for the establishment of a panel
covers alternative US claims under Article III:2 and Article III:4 of the GATT 1994.
7.405 Subsequent to the establishment of the Panel, in its submissions to the Panel, the United
States, as already noted, referred to the provisions of Article III:2 of the GATT 1994, but nowhere do
these submissions refer, either explicitly or by imp lication, to the provisions of Article III:4 of the
GATT 1994 in connection with a measure before the Panel. 470 There can therefore be no doubt that
the United States has effectively abandoned its altern ative claim under Article III:4. Conversely, in
view of the fact that the United States has made re ferences to the provisions of Article III:2 and to the
alleged inconsistency of the AD on alcoholic liquo r and the SUAD with these provisions, as well as
the Panel's findings that the AD and the SUAD are "cha rges equivalent to internal taxes imposed ... in
respect of the like domestic product", it is appropriate to examine below whether the United States put
forward a claim under Article III:2 on which the Panel needs to rule.
7.406 Section IV of the US first written submission is entitled "Summary of Legal Argument". In
that section, there is a paragraph – paragraph 33 – which reads as follows:
"Alternatively, the additional customs dut y and extra-additional customs duty are
inconsistent with GATT Article III:2 as taxes applied on imported products, including
alcoholic beverages, that exceed those app lied to like domestic products or directly
competitive or substitutable domestic products."
7.407 This paragraph states an alternative claim of violation, albeit in very summary form. The
brevity of the statement is not surprising for a para graph included in a summary. However, contrary
to what one would expect after reading the summary, Section V of the US first written submission,
which is entitled "Legal Argument", does not prov ide any arguments in support of a separate and
independent claim under Article III:2.
7.408 Moreover, both in the introductory section a nd in the concluding section of the US first
written submission, the United States put forward requests for findings by the Panel. In both sections,
the United States requests findings in relation to its claims under Article II:1(a) and Article II:1(b) of
the GATT 1994. Yet in neither section does the Unit ed States request findings in relation to a claim
under Article III:2.

470 The United States appears to suggest that CN 102/2007 may not be consistent with Article III:4. US
second oral statement, para. 22. However, as we have previously explained, the United States itself has
requested that we not rule upon CN 102/2007 in this case.

7.409 Consideration of the US first written submission thus leads to the conclusion that although the
United States at paragraph 33 stated a claim unde r Article III:2 in summary form, it refrained both
from developing relevant arguments and from requesting findings in relation to that claim. In the
light of this conclusion, it is necessary to go on to review the US second written submission and other
submissions to the Panel.
7.410 The introductory and concluding sections of the US second written submission set out
requests to the Panel for findings in relation to the US claims under Article II:1(a) and Article II:1(b)
of the GATT 1994, but, as in the case of the US firs t written submission, do not request the Panel to
make findings in relation to a claim under Artic le III:2. Likewise, while the US second written
submission contains specific sections discussing th e US claims under Article II:1(b), there is no
section devoted to a possible alternative US claim under Article III:2.471
7.411 Nevertheless, there exists one section in the US second written submission, Section III, which
contains statements relating to Article III:2. Sec tion III is intended to demonstrate that the AD on
alcoholic liquor and the SUAD are not charges with in the meaning of Article II:2(a) of the GATT
1994. As part of that demonstra tion, the United States argues that in at least some instances the AD
and the SUAD result in charges on imported products in excess of those on like domestic products
and hence are not imposed consistently with Article III:2.472
7.412 The statements in Section III alleging a lack of consistency of the AD and the SUAD with
Article III:2 do not warrant the conclusion that the United States has pursued a separate and
independent claim under Article III:2. As explaine d, the statements in question are embedded in a
discussion of whether the AD and the SUAD fall within the scope of Article II:2(a). In turn, that
discussion is linked to the US claims under Article II:1( a) and (b). It would be improper for the Panel
proprio motu to take these statements out of their specific context and rely on them to rule on an
alternative claim under Article III:2. Certainly, it would be improper to do so in the present case
where the United States has not requ ested any findings in relation to a claim under Article III:2 and
has not incorporated relevant statements, through cross-references, into a section or paragraph(s)
devoted to a separate alternative claim under Article III:2.473
7.413 Turning to the two US oral statements, we not e that neither of them sets out a request for
findings in relation to a claim under Article III:2. Both oral statements nevertheless argue that the
SUAD is not a charge imposed in a manner consistent with Article III:2. 474 In addition, the second
oral statement argues that India effectively conceded that the AD is not a charge imposed in a manner
consistent with Article III:2. 475 However, as is the case with the US second written submission, the
discussion offered in the oral statements regardi ng the consistency with Article III:2 of the AD and
the SUAD forms part of an analysis of whether the AD and the SUAD are, to use the United States'
terms, "justified" under Article II:2(a) notwithsta nding the prohibitions contained in Article II:1(a)
and (b). The relevant discussion is not part of a separate and independent analysis of whether the AD
and the SUAD are in breach of Article III:2, nor is it made part of any such analysis through cross-
references.

471 This is despite the fact that India had previously argued at para. 98 of its first written submission and
para. 29 of its first oral statement that the United States had failed to explain the basis for its contention that the
AD and the SUAD are inconsistent with Article III:2.
472 US second written submission, paras. 34, 39, 42, 52, 54, 57 and 60.
473 This seems consistent with the view of the Appellate Body expressed in US – Certain EC Products.
The facts of that case were somewhat different but the Appellate Body appeared to indicate that where a
complaining party in support of a claim wishes to rely on relevant references made in its submissions to a panel,
such references need to be "specifically linked" to th e claim of violation in question. See Appellate Body
Report, US – Certain EC Products, para. 113.
474 US first oral statement, paras. 22-23; US second oral statement, paras. 13-15.

7.414 Finally, neither of the concluding statements of the United States delivered at the end of each
substantive meeting requests findings in resp ect of a separate and independent claim under
Article III:2. The first concluding statement allege s that India has failed to prove its contention that
the AD and the SUAD are applied in a manner consistent with Article III:2.476 The second concluding
statement asserts that the United States has demo nstrated that neither the AD nor the SUAD is
equivalent to an internal tax or imposed consistently with Article III:2 and that they are therefore not
to be considered as charges under Article II:2(a).477 However, once again, the issue of the consistency
of the AD and the SUAD with Article III:2 is addressed exclusively in connection with the US claims
under Article II:1(a) and (b) and India's counter-a rgument that the AD and the SUAD fall within the
scope of Article II:2(a).
7.415 Accordingly, having regard to the US submissions as a whole, the Panel is not convinced that
the United States meant to pursue the alternative cl aim under Article III:2 it stated in its first written
submission. Indeed, if the United States meant to pursue such a claim, it would be highly unusual to
state it in a summary section of the first written submission without ever following up, and
supporting, such an initial statement of claim wi th independent or incorporated argument and
evidence.
7.416 But even assuming that the United States intended to pursue an alternative claim of violation
based on paragraph 33 of its first written submission, the fact remains that the United States failed to
make a request for findings in relation to a claim unde r Article III:2. In a situation such as the one we
are facing, where the complaining party has explicit ly requested findings in relation to some claims
put forward by it but not others, it would be incongr uous for a panel to offer findings on those claims
in respect of which the complaining party has not requested any findings.
478 Consequently, as the
United States at no point requested us to make findings on a claim under Article III:2, and as there is
no other indication in the record suggesting that such findings were nevertheless expected, we see
neither a need nor a justification to rule on such a claim.
479
7.417 In any event, paragraph 33 of the US first wr itten submission, which is the only paragraph
devoted to a possible independent claim under Articl e III:2, would be insufficient to sustain the
United States' burden of establishing that the challe nged measures are inconsistent with Article III:2.
That paragraph states a claim, but offers no arguments or evidence in support. As indicated above,
the fact that the United States advanced relevant arguments in connection with other claims is
inapposite in the absence of appropriate incorporation of those arguments.
7.418 In the light of the above considerations, we offer no findings on the merits of the US
alternative claim, stated at paragraph 33 of the US first written submission, that the AD and the
SUAD are inconsistent with Article III:2.

477 US second concluding statement, paras. 2-3.
478 We note in this regard the Appellate Body's view that for reasons of due process and orderly
procedure the responding party and the third parties must not be left to wonder what specific claims have been
made. See Appellate Body Report, Chile – Price Band System , para. 164. By extension, where a complaining
party requests findings in relation to some of the claims it has made, for the reasons enunciated by the Appellate
Body, it appears justifiable to conclude, absent other evid ence to the contrary, that a failure to request findings
in relation to other claims means that no findings are requested.
479 We note in passing that in US – Certain EC Products the United States appealed against the panel's
finding of inconsistency with Artic le 23.2(a) of the DSU arguing, inter alia, that the complaining party in that
case "never requested or argued for findings unde r Article 23.2(a)". See Appellate Body Report, US – Certain
EC Products, para. 108.

VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 For the reasons set forth in this Report, the Panel concludes as follows:
(a) the United States has failed to establish that the Additional Duty on alcoholic liquor is
inconsistent with Article II:1(a) or (b) of the GATT 1994; and
(b) the United States has failed to establish that the SUAD is inconsistent with
Article II:1(a) or (b) of the GATT 1994.
8.2 In the light of these conclusions, the Panel ma kes no recommendations under Article 19.1 of
the DSU. However, we find it appropriate, in the particular circumstances of this case, to offer some
concluding remarks. To recall, after the establis hment of this Panel, India issued new customs
notifications making certain changes to the AD on alcoholic liquor and the SUAD
480, "to address
concerns raised by [India's] trading partners" 481. It is therefore appropriate to note that the Panel's
disposition of the US claims under Article II:1(a) and (b) does not necessarily imply that it would be
consistent with India's WTO obligations for India to withdraw the relevant new customs notifications
or otherwise re-establish the status quo ante , i.e., the situation as it existed on the date of
establishment of the Panel. By the same token, in making this point, we do not wish to suggest that
the entry into force of the new customs notifica tions necessarily implies that the AD on alcoholic
liquor, to the extent it still exists, and the SUAD are WTO-consistent.482