2004/830/EC: Commission Decision of 18 October 2004 terminating the accelerated review of Council Regulation (EC) No 2164/98 imposing a definitive countervailing duty on imports of certain broad spectrum antibiotics originating in India
Date: 2004-10-18
Institutions: European Commission
Subjects: India, antibiotic, countervailing charge, import, originating product

4.12.2004

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Official Journal of the European Union

L 359/55

COMMISSION

COMMISSION DECISION

of 18 October 2004

terminating the accelerated review of Council Regulation (EC) No 2164/98 imposing a definitive
countervailing duty on imports of certain broad spectrum antibiotics originating in India

(2004/830/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,

establishing the European

Having regard to Council Regulation (EC) No 2026/97 of
6 October 1997 on protection against subsidised imports
from countries not members of the European Community (1)
(the basic Regulation), and in particular Article 20 thereof,

After consulting the Advisory Committee,

Whereas:

(1)

(2)

A. PREVIOUS PROCEDURE

The Council, by Regulation (EC) No 2164/98 (2), imposed
a definitive countervailing duty on imports of certain
broad spectrum antibiotics, namely amoxicillin trihydrate,
ampicillin trihydrate
and cefalexin not put up in
measured doses or in forms or packings for retail sale
(the product
falling within CN codes
ex 2941 10 10, ex 2941 10 20 and ex 2941 90 00 origi-
nating in India. The measures took the form of an ad
valorem duty ranging between 0 % and 12 % on individual
exporters, with a residual duty rate of 14,6 % for non-
cooperating exporters.

concerned)

B. CURRENT PROCEDURE

1. Request for review

the
Following the imposition of definitive measures,
Commission received a request for the initiation of an
accelerated review of Regulation (EC) No 2164/98
pursuant to Article 20 of the basic Regulation, from an
Indian producer of the product concerned, Nestor Phar-
maceuticals
applicant
claimed not to be related to any other exporters of the
product concerned in India. Furthermore, it asserted that
it had not exported the product concerned during the
investigation period (i.e. from 1 July 1996 to
original
30 June 1997), but had exported the product concerned

applicant). The

Limited (the

(1) OJ L 288, 21.10.1997, p. 1. Regulation as last amended by Regu-

lation (EC) No 461/2004 (OJ L 77, 13.3.2004, p. 12).

(2) OJ L 273, 9.10.1998, p. 1.

to the Community subsequently. On the basis of the
above, it requested that an individual duty rate be estab-
lished for it, in case subsidisation was to be found.

2. Initiation of an accelerated review

The Commission examined the evidence submitted by
the applicant and considered it sufficient to justify the
initiation of a review in accordance with the provisions
of Article 20 of the basic Regulation. After consultation
of the Advisory Committee and after the Community
industry concerned had been given an opportunity to
comment, the Commission initiated by a notice in the
the European Union (3) an accelerated
Official
review of Regulation (EC) No 2164/98 with regard to
the applicant.

Journal of

3. Product concerned

The product covered by this review is the same product
the one under consideration in Regulation (EC)
as
No 2164/98.

4. Investigation period

The investigation of subsidisation covered the period
from 1 April 2002 to 31 March 2003 (the review inves-
tigation period).

5. Parties concerned

The Commission officially advised the applicant and the
Government of India (the GOI) of the initiation of the
investigation. Furthermore, it gave other interested parties
an opportunity to make their views known in writing
and to request a hearing. However, no such views or
any
the
a hearing was
request
Commission.

received by

for

The Commission sent a questionnaire to the applicant
and received a full reply within the set deadline. The
information it
Commission sought and verified all
deemed necessary for the purpose of the investigation
and carried out verification visits at the premises of the
applicant in New Delhi and in Hyderabad.

(3)

(4)

(5)

(6)

(7)

(3) OJ C 102, 29.4.2003, p. 6.

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C. SCOPE OF THE REVIEW

As no request for a review of the findings on injury was
made by the applicant, the review was limited to subsi-
disation.

The Commission examined the same subsidy schemes
which were analysed in the original
It
also examined whether
the applicant had used any
schemes, or had received ad hoc
subsidy
other
subsidies in relation to the product concerned.

investigation.

D. RESULTS OF THE INVESTIGATION

1. New exporter qualification

The applicant was able to satisfactorily demonstrate that
it was not related, directly or indirectly, to any of the
Indian exporting producers subject to the countervailing
measures in force with regard to the product concerned.

(EXIM-policy 02-07) and in Chapter 4 of the comple-
menting Handbook of Procedures Volume I 2002-2007
(HOP I 02-07) (1). The EXIM-policy 02-07 is based on the
Foreign Trade (Development and Regulation) Act 1992
(No 22 of 1992).

(14) Any manufacturer-exporter or merchant-exporter

is
eligible for this scheme. It can apply for DEPBS credits
which are calculated as a percentage of the value of
products exported under this scheme. Such DEPBS rates
have been established by the Indian authorities for most
including the product concerned. They are
products,
determined on the basis of Standard Input/Output
Norms (SION), taking into account a presumed import
content of inputs in the export product and the customs
duty incidence on such presumed imports, regardless
whether actually import duties have been paid or not.

(8)

(9)

(10)

(11)

The investigation confirmed that the applicant had not
exported the product concerned during the original
period of
from 1 July 1996 to
i.e.
30 June 1997, and that it had begun exporting to the
Community after this period.

investigation,

(15)

Furthermore, the applicant was not individually inves-
reasons
tigated during the original
other than a refusal to cooperate with the Commission.

investigation for

considered as

Consequently, it is confirmed that the applicant should
be
in
accordance with Article 20 of the basic Regulation, the
Commission examined whether an individual counter-
vailing duty rate could be determined for the applicant.

a new exporter. Therefore,

2. Subsidisation

(12) On the basis of

the information contained in the
applicant’s reply to the Commission’s questionnaire and
further collected in the course of the investigation, the
following schemes were investigated:

— Duty Entitlement Passbook Scheme,

— Income Tax Exemption Scheme,

— Passbook Scheme,

— Export Promotion Capital Goods Scheme,

To be eligible for benefits under this scheme, a company
must export. At the point in time of the export trans-
action, a declaration must be made by the exporter to the
authorities in India indicating that the export is taking
place under the DEPBS. In order for the goods to be
exported,
the Indian customs authorities issue during
the dispatch procedure an export shipping bill. This
document shows, inter alia, the amount of DEPBS credit
which is to be granted for that export transaction. At this
point in time, the exporter knows the benefit it will
receive. Once the customs authorities issue an export
shipping bill,
the
granting of a DEPBS credit. The relevant DEPBS rate to
calculate the benefit is that which applied at the time the
export declaration is made. Therefore, there is no possi-
bility for a retroactive amendment to the level of the
benefit.

the GOI has no discretion over

(16)

It was also found that
in accordance with Indian
accounting standards, DEPBS credits can be booked on
an accrual basis as income in the commercial accounts,
upon fulfilment of the export obligation.

— Export Processing Zones/Export Oriented Units,

(17)

— Advance Licence Scheme physical export.

2.1. Schemes originally investigated and used by the company

2.1.1. D u t y E n t i t l e m e n t P a s s b o o k S c h e m e

Such credits can be used for payment of customs duties
imports of any goods unrestrictedly
on subsequent
importable,
imported
goods. Goods
such credits can be sold on the domestic
against
market (subject to sales tax) or used otherwise.

capital

except

( D E P B S )

G e n e r a l

(13)

It was established that
the applicant received benefits
under the DEPBS on a post-export basis. The detailed
the scheme is contained in paragraph
description of
and Import Policy 2002-2007
4.3 of

the Export

DEPBS credits are freely transferable and valid for a
period of 12 months from the date of issue.

(1) Notification No 1/2002-07 of 31 March 2002 of the Ministry of

Commerce and Industry of the GOI.

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transactions

(18) An application for DEPBS credits can cover up to 25
export
an
and if
unlimited amount of export transactions. De facto no
strict deadlines to apply exist, because the time periods
mentioned in Chapter 4.47 of the HOP I 02-07 are
always counted from the most recent export transaction
included in a given DEPBS application.

electronically

filed,

(19)

(20)

(21)

(22)

The main characteristics of the DEPBS have not changed
since the original investigation. The scheme is a subsidy
contingent in law upon export performance. Therefore, it
was determined during the original investigation that it is
deemed to be specific and countervailable under Article
3(4)(a) of the basic Regulation.

C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

In the original investigation the DEPBS subsidy amount
was calculated on the basis of best information available
in accordance with Article 28(1) of the basic Regulation
and pro rata temporis the DEPBS rate was regarded as the
corresponding subsidy rate. Because of the cooperation
of the applicant, which is considered as a change of
circumstances within the meaning of Article 22(4) of
the basic Regulation, this methodology should not be
applied to its detriment.

is

the GOI

In accordance with Articles 2(2) and 5 of the basic Regu-
the amount of countervailable subsidies was
lation,
calculated in terms of
the benefit conferred on the
recipient, which is found to exist during the investigation
period. In this regard, it was considered that the benefit is
conferred on the recipient at the point in time when an
export transaction is made under this scheme. At this
moment,
liable to forego the customs
duties, which constitutes a financial contribution within
the meaning of Article 2(1)(a)(ii) of the basic Regulation.
As stated in recital 15, once the customs authorities issue
an export shipping bill which shows,
the
amount of DEPBS credit which is to be granted for
that export transaction, the GOI has no discretion as to
the subsidy and it has no
whether or not
discretion as to the amount of the subsidy. Also, as
stated in the same recital, any change of the DEPBS
rates between the actual export and the issuance of a
DEPBS licence has no retroactive effect on the level of
the benefit granted. Furthermore, as stated in recital 16,
companies can, in line with Indian accounting standards,
book the DEPBS credits on an accrual basis as income at
the stage of export transaction. Finally, by virtue of the
fact that a company is aware that it will receive a subsidy
the DEPBS, and indeed benefits under other
under
schemes,
the company is already in a competitively
more advantageous position, because it can reflect the
subsidies through offering lower prices.

inter alia,

to grant

The rationale for imposing a countervailing duty, though,
is to redress unfair trading practices based on illicit
is
competitive advantage.

In light of

the above,

it

considered appropriate to assess the benefit under the
DEPBS as being the sum of the credits earned on all
export transactions made under this scheme during the
investigation period. In accordance with Article 7(1)(a) of
the basic Regulation, fees necessarily incurred to obtain
the subsidy were deducted.

transactions of

The applicant claimed that only DEPBS credits generated
the product concerned are
by export
relevant when calculating the subsidy margin in the
present investigation. However, under the DEPBS no obli-
gation exists which limits the use of the DEPBS credits to
linked to a specific
import duty-free input material
product. On the contrary, DEPBS credits are freely trans-
ferable, can even be sold and be used for imports of any
unrestrictedly importable goods (the input materials of
the product concerned belong to this category), except
capital goods. Consequently, the product concerned can
benefit from all DEPBS credits generated.

further claimed that

the sales tax payable on the
It
transfer of DEPBS credits should be deducted as an
expense when establishing the amount of the subsidy.
However, the sales tax is not a cost necessarily incurred
in order to qualify for, or to obtain the subsidy within
the meaning of Article 7(1)(a) of the basic Regulation.
The sales tax is only the consequence of a purely
commercial decision to dispose of an already obtained
DEPBS credit by selling it, instead of using it free of sales
imports.
tax to offset duties payable for subsequent
Application fees
for obtaining the DEPBS credits,
though, have been considered as necessary expenses
and deducted.

The amount of the total subsidy (nominator) has been
allocated over total export sales during the review inves-
tigation period (denominator) in accordance with Article
7(2) of the basic Regulation, since this subsidy was not
granted by reference to the quantities manufactured,
produced, exported or transported. The subsidy margin
for the applicant under this scheme was 3,3 %.

2.1.2. I n c o m e T a x E x e m p t i o n S c h e m e

( I T E S )

It was established that the applicant received the benefit
of a partial income tax exemption on profits from export
sales during the review investigation period. The legal
basis for this exemption is set by Section 80HHC of
the Income Tax Act 1961.

Section 80HHC of
the Income Tax Act 1961 was
abolished for the assessment year 2005 to 2006 (i.e.
for the financial year from 1 April 2004 to 31 March
2005) onwards. Consequently,
scheme will not
confer any benefits on the applicant after 31 March
2004.
the basic
Regulation, this scheme shall therefore not be counter-
vailed.

In accordance with Article 15(1) of

this

(23)

(24)

(25)

(26)

(27)

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2.2. Schemes originally investigated but not used by the

company

2.2.1. P a s s b o o k S c h e m e ( P B S )

(28)

It was found that the applicant had not received benefits
under the PBS, which on 1 April 1997 was abolished
and replaced by its successor, the DEPBS.

determined by the GOI on the basis of standard norms,
i.e. on SIONs, allegedly reflecting the most efficient use
possible to produce a reference quantity of the resultant
export product. SIONs exist for most products including
the product concerned and are published in the HOP II
02-07. Imported input materials are not transferable and
have to be used to produce the resultant export product.
The
fulfilled within a
prescribed time frame (18 months with two possible
extensions of six months each).

export obligation must be

2.2.2. E x p o r t P r o m o t i o n C a p i t a l G o o d s

S c h e m e ( E P C G S )

(29)

It was established that the applicant had not imported
capital goods under the EPCGS and therefore, had not
availed itself of this scheme.

(34)

2.2.3. E x p o r t P r o c e s s i n g Z o n e s

( E P Z ) / E x -

p o r t O r i e n t e d U n i t s ( E O U )

(30)

It was established that the applicant was not located in
an EPZ nor did it operate under the EOU scheme and as
a result, had not availed itself of these schemes.

In the course of the review investigation it was estab-
lished that the input materials, imported duty-free under
this scheme by the applicant according to the SION
import allowance, exceeded the material
it needed to
produce the reference quantity of the resultant export
product. Thus,
the SION for the product concerned
was not sufficiently accurate. Furthermore, the applicant
in
maintained the actual consumption register not
conformity with its
Instead it
real
recorded in this register,
its consumption
according to GOI’s more generous SIONs, although de
facto it consumed less input material for the reference
resultant export production. Neither the applicant nor
the GOI were able to demonstrate that the import duty
exemption did not lead to an excess remission.

consumption.

incorrectly,

2.3. Other scheme used by the applicant in relation to the
product concerned and found countervailable: Advance
Licence Scheme
(ALS physical
exports)

for physical

exports

L e g a l b a s i s

(31)

this

scheme during the

the applicant received benefits
It was established that
review investigation
under
is
period. The detailed description of
contained in paragraphs 4.1.1 to 4.1.7 of the EXIM-
policy 02-07 and Chapters 4.1 to 4.30 of the HOP I
02-07.

scheme

the

E l i g i b i l i t y

(32) Manufacturer-exporters and merchant-exporters ‘tied to’

supporting manufacturers are eligible for this scheme.

P r a c t i c a l

i m p l e m e n t a t i o n

(33)

the exporter

The ALS physical exports allows for the duty-free import
of input materials which have to be physically incor-
porated in the resultant export goods. For verification
purposes by the Indian authorities,
is
legally obliged to maintain ‘a true and proper account
of licence-wise consumption and utilisation of imported
goods’ in a specified format (Chapter 4.30 and Appendix
18 of the HOP I 02-07),
i.e. an actual consumption
register. Both import allowance and export obligation
are fixed in volume and value by the GOI and are docu-
mented on a licence. In addition, at the time of import
and of export, the corresponding transactions are to be
documented by government officials on the licence. The
is
volume of

allowed under

imports

scheme

this

(35)

(36)

C o n c l u s i o n

The exemption from import duties is a subsidy within
the meaning of Article 2(1)(a)(ii) and Article 2(2) of the
basic Regulation, i.e. a financial contribution of the GOI
which conferred a benefit upon the applicant.
In
addition, the ALS physical exports is contingent in law
upon export performance, and therefore deemed to be
specific and countervailable under Article 3(4)(a) of the
basic Regulation.

item (i), Annex II

This scheme can not be considered a permissible duty
drawback system or substitution drawback system within
the meaning of Article 2(1)(a)(ii) of the basic Regulation.
It does not conform to the strict rules laid down in
Annex I
(definition and rules for
drawback) and Annex III (definition and rules for substi-
tution drawback) to the basic Regulation. The GOI did
not effectively apply its verification system or procedure
to confirm whether and in what amounts inputs were
consumed in the production of the exported product
(Annex II(II)(4) to the basic Regulation and in the case
of substitution drawback schemes, Annex III(II)(2) to the
basic Regulation). The SIONs for the product concerned
were not sufficiently precise and cannot be considered a
verification system of actual consumption. An effective
control based on a correctly kept actual consumption
register did not take place. Besides, the GOI did neither
carry out a further examination based on actual inputs
involved, although this would normally need to be
carried out in the absence of an effectively applied veri-
fication system (Annex II(II)(5) and Annex III(II)(3) to the
basic Regulation), nor did it prove,
that no excess
remission took place.

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(37) Upon disclosure,

referred to the

the applicant claimed that

the ALS
physical exports operated as a permitted drawback or
argued, without
substitution drawback
It
system.
providing new factual evidence or
substantiating its
installed an adequate verification
claims, that the GOI
in conformity with the basic Regulation. To this end,
the applicant
following verification
elements available to the GOI: allegedly precise SIONs
for
the product concerned, quantity information on
input material and resultant products on import and
import bill of
export documents (export shipping bill,
entry), customs bond register of
imports and exports
under the ALS physical exports, the actual consumption
register (see recital 33), a Duty Entitlement Export Certi-
verification
fication book
mechanisms applied by the Indian authorities in the
context of
their excise duty administration (i.e. safe-
guarding that no excise duty credits on input materials
inputs
claimed
(CENVAT-credits)
imported duty-free under the ALS). Further,
it argued
that the Commission would have to quantify the impre-
cision of the SION. In addition, the applicant contended
that a verification system does not need to ascertain on a
shipment by shipment basis the link between import
to be in
materials and resultant products
conformity with the basic Regulation.
the
applicant claimed that the Commission is bound by the
results of past investigations not to countervail the ALS.

and additional

in order

(DEECB)

unjustly

Finally,

are

for

i.e.

lation. Further, the DEECB was abolished by the EXIM-
policy 02-07 and thus can no longer, contrary to the
claim of the applicant, constitute a relevant verification
element. In addition, it was not substantiated that actual
consumption data were recorded in the DEECB by the
applicant. No evidence was provided that in any other
way a system was effectively applied by the GOI
to
establish the nexus between imported input materials
and the resultant export products with the necessary
in another way than on the basis of
precision,
overly generous
it
should be noted that
indeed a verification system
should be based on a shipment per shipment basis in
order to reflect the standard set by the EXIM-policy 02-
07 as cited under recital 33. In addition, only such a
standard allows the controlling authorities to verify that
the strict rules for either a drawback system or a substi-
tution drawback system, as appropriate, are met.
It
in accordance with Annex I
should be recalled that
item (i) to the basic Regulation a substitution drawback
system is only permissible in particular cases and,
inter
alia, only during a two-year period between the import of
substitute inputs and export.

standard norms.

In this context,

(38)

The position of the applicant summarised in recital 37
does not change the Commission’s conclusions on the
ALS physical exports. The applicant has not refuted that
in the present case de facto, not de jure, the verification
system of actual consumption was not applied effectively
by the GOI. It was established during the investigation on
the basis of actual consumption data provided by the
applicant, that the SION for the product concerned is
not sufficiently precise (see recital 34). The applicant is
aware of this fact and confirmed this during the investi-
gation to the verification team. It is not the task of the
Commission to establish the exact amount of
impre-
cision of the SION, but only to refute, on the basis of
sufficient evidence, the alleged precision of the standard
norms. Further,
the applicant did not provide any
evidence that it kept records or other documentation
for ALS verification purposes by the GOI which
reflected its actual consumption,
i.e. not just standard
norm consumption. Thus, for verification purposes of
the GOI
quantities consumed in export production,
is
depended on its
considered by the Commission insufficient
to satisfy
the requirements of an effective verification system in
accordance with Annexes II and III to the basic Regu-
lation.

imprecise standard norms. This

(39)

The applicant did not substantiate that excise controls of
CENVAT-credits provide any information about
the
nexus between input materials and resultant export
products. Consequently, such controls are not considered
by the Commission as part of the verification system in
accordance with Annexes II and III to the basic Regu-

(40)

Finally, the Commission is not bound by any precedent
concerning the ALS physical exports. The scheme was
facts comparable with
never analysed on a basis of
those established during the present
in
particular in view of the imprecision of the SION for
the product concerned.

investigation,

(41)

Consequently,
in the absence of a permitted duty
drawback system or substitution drawback system and
in view of the fact that the verification system is not
applied effectively for the purpose intended, the counter-
vailable benefit is the remission of total
import duties
normally due upon importation.

(42)

C a l c u l a t i o n o f

t h e s u b s i d y a m o u n t

The subsidy amount was calculated on the basis of
import duties foregone (basic customs duty and special
additional customs duty) on the material imported under
the ALS physical exports for the product concerned
during the review investigation period with fees neces-
sarily incurred to obtain the
subsidy deducted in
accordance with Article 7(1)(a) of the basic Regulation
(nominator). This amount has been allocated over the
turnover generated by the product concerned
export
during the review investigation period in accordance
with Article 7(2) of the basic Regulation (denominator),
since this subsidy was not granted by reference to the
quantities manufactured, produced, exported or trans-
ported. On this basis, the subsidy obtained was 22 %.

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3. Total amount of countervailable subsidies

(43)

Taking account of the findings relating to the schemes as
set out above, the amount of countervailable subsidies
for the applicant is as follows:

Nestor Pharmaceuticals Ltd

3,3

DEPBS

(%)

Total

25,3

ALS

22

(44)

In accordance with Article 15(1) of the basic Regulation,
the amount of the countervailing duty should be less
than the total amount of countervailable subsidies,
if
such lesser duty were to be adequate to remove the
injury to the Community industry. In the original inves-
tigation an average injury elimination level of 14,6 % was
established. The applicant did not request a review of the
findings on injury. Therefore, the originally established
injury elimination level limits in the present review the
amount of the countervailing duty.

E. TERMINATION OF THE ACCELERATED REVIEW

it

is

considered that

(45) On the basis of the findings made during this review
investigation,
the
product concerned into the Community produced and
exported by
should continue being
subject to a countervailing duty rate corresponding to
the injury elimination level as established during the
original investigation.

imports of

applicant

the

(46) Given that this duty rate is the rate already applicable to
all companies not individually mentioned in Article 1(2)
of Regulation (EC) No 2164/98, this Regulation should
not be amended. The accelerated review concerning the
applicant should be therefore terminated.

F. DISCLOSURE

(47)

The applicant and the GOI were informed of the essential
facts and considerations upon which it was intended to
propose the termination of the accelerated review. They
were also given a reasonable time to comment. The GOI
did not make any comments. The applicant’s remarks on
the disclosure, which only concern the ALS physical
exports, were taken into consideration as set out under
recitals 37 to 40,

DECIDES:

Sole Article

The accelerated review of Regulation (EC) No 2164/98 con-
cerning Nestor Pharmaceuticals Limited is hereby terminated.

Done at Brussels, 18 October 2004.

For the Commission

Pascal LAMY
Member of the Commission