Proposal for a Council Regulation amending Council Regulation (EC) No 713/2005 imposing a definitive countervailing duty on imports of certain broad spectrum antibiotics originating in India
Date: 2008-10-29
Institutions: European Commission
Subjects: India, anti-dumping legislation, antibiotic, pharmaceutical industry

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 29.10.2008 
COM(2008) 684 final 

Proposal for a 

COUNCIL REGULATION 

amending Council Regulation (EC) No 713/2005 imposing a definitive countervailing 
duty on imports of certain broad spectrum antibiotics originating in India 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

On 11 September 2007, the Commission initiated on its own initiative a partial interim review 
of the countervailing duty in force in respect of imports of certain broad spectrum antibiotics 
originating  in  India.  The  review  was  initiated  because  there  was  sufficient  prima  facie 
evidence suggesting that the circumstances with regard to subsidisation on the basis of which 
measures had been established have changed and that these changes were of a lasting nature. 

The  partial  interim  review  investigation  confirmed  that  (i)  the  level  of  subsidisation  with 
regard to the sole co-operating Indian producer has decreased, (ii) the actual modalities of the 
investigated  schemes  and  their  coutervailiability  have  not  changed  since  the  previous 
investigation. The recalculation of subsidy rates of companies that did not co-operate with this 
partial interim review would not be in the interest of the Community.  

Therefore, it is suggested that the Council adopts the attached proposal for a Regulation so as 
to amend the duty rate applicable to the sole co-operating Indian producer.  

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Proposal for a 

COUNCIL REGULATION 

amending Council Regulation (EC) No 713/2005 imposing a definitive countervailing 
duty on imports of certain broad spectrum antibiotics originating in India 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community,  

Having  regard  to  Council  Regulation  (EC)  No  2026/97  of  6  October  1997  on  protection 
against  subsidised  imports  from  countries  not  member  of  the  European  Community1  ('the 
basic Regulation'), and in particular Articles 15 and 19 thereof, 

Having  regard  to  the  proposal  submitted  by  the  Commission  after  consulting  the  Advisory 
Committee, 

Whereas: 

A. 

I. 

(1) 

PROCEDURE 

Previous investigation and existing measures 

The  Council,  by Regulation (EC) No 713/20052,  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 concerned') falling within CN codes ex 2941 10 
10, ex 2941 10 20 and ex 2941 90 00 originating in India. The rate of the duty ranges 
between 17,3% and 30,3% for individually named exporters with a residual duty rate 
of 32% imposed on imports from other exporters. 

II. 

Initiation of a partial interim review 

(2) 

Following  the  imposition  of  the  definitive  countervailing  duty  the  Government  of 
India  ('GOI')  made  submissions  that  the  circumstances  with  regard  to  two  subsidy 
schemes  (the  Duty  Entitlement  Passbook  Scheme  and  the  Income  Tax  Exemption 
under Section 80 HHC of the Income Tax Act) have changed and that these changes 
are of a lasting nature. Consequently, it was argued that the level of subsidisation was 
likely to have decreased and thus measures that had been established partly on these 
schemes should be revised.  

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OJ L 288, 21.10.97, p.1, Regulation as last amended by Council Regulation (EC) No 461/2004 (OJ L 
77, 13.3.2004, p.12). 
OJ L 121, 13.5.2005, p. 1. 

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(3) 

(4) 

The  Commission  examined  the  evidence  submitted  by  the  GOI  and  considered  it 
sufficient  to  justify  the  initiation  of  a  review  in  accordance  with  the  provisions  of 
Article 19 of the basic Regulation. After consultation of the Advisory Committee, the 
Commission  initiated  by  a  notice  published  in  the  Official  Journal  of  the  European 
Union3, an ex officio partial interim review of Council Regulation (EC) No 713/2005. 

The  purpose  of  the  partial  interim  review  investigation  is  to  assess  the  need  for  the 
continuation,  removal  or  amendment  of  the  existing  measures  in  respect  of  those 
companies  which  benefited  from  one  or  both  the  changed  subsidy  schemes  where 
sufficient evidence was provided in line with the relevant provisions of the notice of 
initiation.  The  partial  interim  review  investigation  would  also  assess  the  need, 
depending  on  the  review  findings,  to  revise  the  measures  applicable  to  other 
companies  that  cooperated  in  the  investigation  that  set  the  level  of  the  existing 
measures and/or the residual measure applicable for all other companies. 

III. 

Investigation period 

(5) 

The investigation covered the period from 1 April 2006 to 31 March 2007 ('the review 
investigation period' or 'RIP') 

IV. 

Parties concerned by the investigation 

(6) 

(7) 

(8) 

(9) 

The  Commission  officially  informed  the  GO  and  those  Indian  exporting  producers 
who  co-operated  in  the  previous  investigation,  were  mentioned  under  Council 
Regulation (EC) No 713/2005 and were listed in the notice of initiation of the partial 
interim  review,  that  were  found  to  benefit  from  any  of  the  two  allegedly  changed 
subsidy schemes, as well as the Community producers of the initiation of the partial 
interim review investigation. Interested parties had the opportunity to make their views 
known in writing and to request a hearing. The written and oral comments submitted 
by the parties were considered and, where appropriate, taken into account. 

In view of the apparent number of parties involved in this review, the use of sampling 
techniques  for  the  investigation  of  subsidisation  was  envisaged  in  accordance  with 
Article 27 of the basic Regulation. 

Only two exporting producers made themselves known and provided the information 
requested for sampling. Therefore, the use of sampling techniques was not considered 
necessary. 

However, one of the aforesaid exporting producers stated in its sampling reply that it 
did  not  receive  benefits  under  the  two  allegedly  changed  subsidy  schemes  (i.e.  the 
Duty Entitlement Passbook Scheme and the Income Tax Exemption under Section 80 
HHC  of  the  Income  Tax  Act)  during  either  the  investigation  period  that  led  to  the 
measures in force or the RIP. Moreover, this company did not cooperate in the original 
investigation,  and  no  particular  need  was  identified  to  adapt  the  residual  measure 
applicable to all other companies, including this one. Thus, the company did not fulfil 
the eligibility provisions of the scope of the partial interim review investigation as set 
out  in  point  (4)  of  the  notice  of  initiation  and  could  not  therefore  participate  in  this 
review investigation. The company in question was informed accordingly.  

3 

OJ C 212, 11.9.2007, p. 10. 

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(10)  The  Commission  sent  questionnaires  to  the  sole  co-operating  exporting  producer 
which was eligible for this review (Ranbaxy Laboratories Ltd) and to the GOI. Replies 
were received from both that producer and the GOI. 

(11)  The  Commission  sought  and  verified  all  information  it  deemed  necessary  for  the 
determination of subsidisation. Verification visits were carried out at the premises of 
the following interested parties: 

1.  Government of India 

Ministry of Commerce, New Delhi. 

2. 

Exporting producers in India 

Ranbaxy Laboratories Ltd., New Delhi. 

VI.  Disclosure and comments on procedure 

(12)  The  GOI  and  the  other  interested  parties  were  informed  of  the  essential  facts  and 
considerations  upon  which  it  was  intended  to  propose  to  amend  the  duty  rate 
applicable to the sole co-operating Indian producer and prolong existing measures for 
all  other  companies  which  did  not  co-operate  with  this  partial  interim  review.  They 
were also given a reasonable time to comment. All submissions and comments were 
taken duly into consideration as set out below. 

B. 

PRODUCT CONCERNED  

(13)  The  product  covered  by  this  review  is  the  same  product  as  the  one  concerned  by 
Council  Regulation  (EC)  No  713/2005,  namely  amoxicillin  trihydrate,  ampicillin 
trihydrate and cefalexin not put up in measured doses or in forms or packings for retail 
sale  falling  within  CN  codes  ex  2941  10  10,  ex  2941  10  20  and  ex  2941  90  00 
originating in India. 

C. 

I. 

SUBSIDIES 

Introduction 

(14)  On  the  basis  of  the  information  submitted  by  the  GOI  and  the  sole  co-operating 
exporting  producer  and  the  replies  to  the  Commission’s  questionnaire,  the  following 
schemes, which allegedly involve the granting of subsidies, were investigated:  

(a)  Advance  Authorization  Scheme  (formerly  known  as  Advance  Licence 

Scheme),  

(b)  Duty Entitlement Passbook Scheme, 

(c)  Export Promotion Capital Goods Scheme, 

(d)  Focus Market Scheme, 

(e) 

Income Tax Schemes, 

– 

Export Income Tax Exemption Scheme, 

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– 

Income Tax Incentive for Research and Development, 

(f)  Export Credit Scheme. 

(15)  The schemes (a) to (d) specified above are based on the Foreign Trade (Development 
and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 
('Foreign Trade Act'). The Foreign Trade Act authorises the GOI to issue notifications 
regarding the export and import policy. These are summarised in 'Export and Import 
Policy'  documents,  which  are  issued  by  the  Ministry  of  Commerce  every  five  years 
and updated regularly. One Export and Import Policy document is relevant to the RIP 
of this case; i.e. the five-year plan relating to the period 1 September 2004 to 31 March 
2009  ('EXIM-policy  04-09').  In  addition,  the  GOI  also  sets  out  the  procedures 
governing the EXIM-policy 04-09 in a 'Handbook of Procedures - 1 September 2004 
to  31  March  2009,  Volume  I'  ('HOP  I  04-09').  The  Handbook  of  Procedure  is  also 
updated on a regular basis. 

(16)  The Income Tax Schemes specified above under (e) are based on the Income Tax Act 

of 1961, which is amended yearly by the Finance Act. 

(17)  The Export Credit Scheme specified above under (f) is based on sections 21 and 35A 
of the Banking Regulation Act 1949, which allow the Reserve Bank of India ('RBI') to 
direct commercial banks in the field of export credits.  

(18) 

In accordance with Article 11(10) of the basic Regulation, the Commission invited the 
GOI for additional consultations with respect to both changed and unchanged schemes 
with  the  aim  of  clarifying  the  factual  situation  as  regards  the  alleged  schemes  and 
arriving  at  a  mutually  agreed  solution.  Following  these  consultations,  and  in  the 
absence  of  a  mutually  agreed  solution  in  relation  to  these  schemes,  the  Commission 
included all these schemes in the investigation of subsidisation. 

II. 

Specific Schemes 

1 

Advance Authorisation Scheme ('AAS') 

(a)  Legal basis 

(19)  The detailed description of the scheme is contained in paragraphs 4.1.1 to 4.1.14 of the 
EXIM-policy  04-09  and  chapters  4.1  to  4.30  of  the  HOP  I  04-09.  This  scheme  was 
called  Advance  Licence  Scheme  during  the  previous  review  investigation  that  led  to 
the  imposition  by  Council  Regulation  (EC)  No  713/2005  of  the  definitive 
countervailing duty currently in force.  

(b)  Eligibility 

(20)  The  AAS  consists  of  six  sub-schemes,  as  described  in  more  detail  in  recital  (21). 
Those sub-schemes differ inter alia in the scope of eligibility. Manufacturer-exporters 
and  merchant-exporters  "tied  to"  supporting  manufacturers  are  eligible  for  the  AAS 
physical  exports  and  for  the  AAS  for  annual  requirement.  Manufacturer–exporters 
supplying  the  ultimate  exporter  are  eligible  for  AAS  for  intermediate  supplies.  Main 
contractors  which  supply  to  the  "deemed  export"  categories  mentioned  in  paragraph 
8.2 of the EXIM-policy 04-09, such as suppliers of an export oriented unit ('EOU'), are 
eligible for AAS deemed export. Eventually, intermediate suppliers to manufacturer-

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exporters  are  eligible  for  "deemed  export"  benefits  under  the  sub-schemes  Advance 
Release Order ('ARO') and back to back inland letter of credit. 

(c)  Practical implementation 

(21)  Advance authorisations can be issued for: 

(i)  Physical exports: This is the main sub-scheme. It allows for duty free import of 
input  materials  for  the  production  of  a  specific  resultant  export  product. 
"Physical"  in  this  context  means  that  the  export  product  has  to  leave  Indian 
territory.  An  import  allowance  and  export  obligation  including  the  type  of 
export product are specified in the authorisation. 

(ii)  Annual  requirement:  Such  an  authorisation  is  not  linked  to  a  specific  export 
product, but to a wider product group (e.g. chemical and allied products). The 
authorisation holder can – up to a certain value threshold set by its past export 
performance - import duty  free any input to  be  used  in  manufacturing  any  of 
the  items  falling  under  such  a  product  group.  It  can  choose  to  export  any 
resultant  product  falling  under  the  product  group  using  such  duty-exempt 
material.  

(iii)  Intermediate supplies: This sub-scheme covers cases where two manufacturers 
intend  to  produce  a  single  export  product  and  divide  the  production  process. 
The manufacturer-exporter who produces the intermediate product can import 
duty  free  input  materials  and  can  obtain  for  this  purpose  an  AAS  for 
intermediate  supplies.  The  ultimate  exporter  finalises  the  production  and  is 
obliged to export the finished product.  

(iv)  Deemed  exports:  This  sub-scheme  allows  a  main  contractor  to  import  inputs 
free of duty which are required in manufacturing goods to be sold as “deemed 
exports”  to  the  categories  of  customers  mentioned  in  paragraph  8.2.(b)  to 
(f),(g),(i)  and  (j)  of  the  EXIM  policy  04-09.  According  to  the  GOI,  deemed 
exports refer to those transactions in which the goods supplied do not leave the 
country.  A  number  of  categories  of  supply  is  regarded  as  deemed  exports 
provided the goods are manufactured in India, e.g. supply of goods to an EOU 
or to a company situated in a special economic zone ('SEZ').  

(v)  ARO: The AAS holder intending to source the inputs from indigenous sources, 
in lieu of direct import, has the option to source them against AROs. In such 
cases the Advance Authorisations are validated  as  AROs  and  are  endorsed  to 
the  indigenous  supplier  upon  delivery  of  the  items  specified  therein.  The 
endorsement  of  the  ARO  entitles  the  indigenous  supplier  to  the  benefits  of 
deemed exports as set out in paragraph 8.3 of the EXIM-policy 04-09 (i.e. AAS 
for intermediate supplies/deemed export, deemed export drawback and refund 
of terminal excise duty). The ARO mechanism refunds taxes and duties to the 
supplier instead of refunding the same to the ultimate exporter in the form of 
drawback/refund  of  duties.  The  refund  of  taxes/duties  is  available  both  for 
indigenous inputs as well as imported inputs.  

(vi)  Back to back inland letter of credit: This sub-scheme again covers indigenous 
supplies  to  an  Advance  Authorisation  holder.  The  holder  of  an  Advance 

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Authorisation  can  approach  a  bank  for  opening  an  inland  letter  of  credit  in 
favour of an indigenous supplier. The authorisation will be invalidated by the 
bank for direct import only in respect of the value and volume of items being 
sourced  indigenously  instead  of  importation.  The  indigenous  supplier  will  be 
entitled  to  deemed  export  benefits  as  set  out  in  paragraph  8.3  of  the  EXIM-
policy  04-09  (i.e.  AAS  for  intermediate  supplies/deemed  export,  deemed 
export drawback and refund of terminal excise duty). 

It was established that during the RIP the co-operating exporter only obtained 
concessions  under  two  sub-schemes  linked  to  the  product  concerned,  i.e.  (i) 
AAS physical exports and (ii) AAS for intermediate supplies. It is therefore not 
necessary  to  establish  the  countervailability  of  the  remaining  unused  sub-
schemes.  

(22)  Following the  imposition  by  Council Regulation (EC) No 713/2005 of  the definitive 
countervailing  duty  currently  in  force,  the  GOI  has  modified  the  verification  system 
applicable  to  AAS.  In  concrete  terms,  for  verification  purposes  by  the  Indian 
authorities, an Advance Authorisation holder is legally obliged to maintain "a true and 
proper  account  of  consumption  and  utilisation  of  duty  free  imported/domestically 
procured goods" in a specified format (chapters 4.26, 4.30 and Appendix 23 HOP I 04-
09), i.e. an actual consumption register. This register has to be verified by an external 
chartered accountant/cost and works accountant who issues a certificate stating that the 
prescribed  registers  and  relevant  records  have  been  examined  and  the  information 
furnished  under  Appendix  23  is  true  and  correct  in  all  respects.  Nevertheless,  the 
aforesaid provisions apply only to Advance Authorisations issued on or after 13 May 
2005.  For  all  Advance  Authorisations  or  Advance  Licenses  issued  before  that  date, 
holders are requested to follow the previously applicable verification provisions, i.e. to 
keep  a  true  and  proper  account  of  licence-wise  consumption  and  utilisation  of 
imported goods in the specified format of Appendix 18 (chapter 4.30 and Appendix 18 
HOP I 02-07).  

(23)  With  regard  to  the  sub-schemes  used  during  the  RIP  by  the  sole  co-operating 
exporting  producer,  i.e.  physical  exports  and  intermediate  supplies,  both  the  import 
allowance and the export obligation are fixed in volume and value by the GOI and are 
documented on the Authorisation. In addition, at the time of import and of export, the 
corresponding  transactions  are  to  be  documented  by  Government  officials  on  the 
Authorisation. The volume of imports allowed under this scheme is determined by the 
GOI  on  the  basis  of  standard  input-output  norms  ('SIONs').  SIONs  exist  for  most 
products  including  the  product  concerned  and  are  published  in  the  HOP  II  04-09. 
Following  the  imposition  by  Council  Regulation  (EC)  713/2005  of  the  definitive 
countervailing  duty  currently  in  force,  SION  norms  for  the  product  concerned  were 
only applicable up to September 2005. New norms were issued in September 2006 (for 
amoxicillin trihydrate) and April 2007 (for ampicillin trihydrate and cefalexin). In the 
meantime, ad hoc norms applied. 

(24) 

Imported  input  materials  are  not  transferable  and  have  to  be  used  to  produce  the 
resulting  export  product.  The  export  obligation  must  be  fulfilled  within  a  prescribed 
time frame after issuance of the authorisation (24 months with two possible extensions 
of 6 months each).  

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(25)  The review investigation established that raw materials were imported under different 
authorisations/licenses and different SION norms and then were mixed and physically 
incorporated  in  the production process of the same exported good.  Account taken of 
the above, it was not possible to establish whether SION norm requirements, stipulated 
under specific authorisations/licenses, with respect to duty free input materials exceed 
the material needed to produce the reference quantity of the resulting export product. 

(26)  The review investigation also established that the verification requirements stipulated 
by  the  Indian  authorities  were  either  not  honoured  or  not  yet  tested  in  practice.  For 
Advance Licenses issued before 13 May 2005 the necessary actual consumption and 
stock  registers  (i.e.  Appendix  18)  did  not  exist.  For  Advance  Authorisations  issued 
after 13 May 2005 the necessary actual consumption and stock registers were used but 
GOI  had  not  yet  verified  the  compliance  of  these  registers  with  EXIM  policy 
requirements.  In  the  latter  case,  the  registers  were  only  verified  by  an  external 
chartered  accountant  as  required  by  the  relevant  Indian  legislation  mentioned  under 
recital (22). Nevertheless, there were no records kept either by the company or by the 
chartered accountant on how this certification process took place. There was no audit 
plan or any other supporting material of the audit performed, no recorded information 
on  the  methodology  used  and  the  specific  requirements  needed  for  such  scrupulous 
work  that  requires  detailed  technical  knowledge  on  production  processes,  EXIM 
policy  requirements  and  accounting  procedures. Account  taken  of  this  situation,  it  is 
considered that the investigated exporter was not able to demonstrate that the relevant 
EXIM provisions were met.  

(d)  Disclosure comments 

(27)  The  sole  co-operating  producer  submitted  comments  on  the  AAS.  The  company 
claimed  that  despite  the  situation  described  under  recital  (24)  it  was  possible  to 
establish  whether  SION  norm  requirements  stipulated  under  specific  authorisations 
exceed the materials needed to produce the reference quantity of the resulting export 
product  and  that  the  company  maintained  actual  consumption  records  in  highly 
meticulous  manner.  In  this  respect  it  is  noted  that  the  actual  production  records 
confirmed  that  it  was  not  possible  to  establish  a  reliable  benchmark  per  given 
authorisation (i.e. materials needed to produce the reference quantity) account taken of 
the various applicable SION norms and the incoherent mixture of raw materials used 
for  production.  Furthermore,  raw  materials  covered  by  the  scheme  were  found  to  be 
used for products other than the product concerned. Thus, making virtually impossible 
any  attempt  to  calculate  yield  results  for  the  product  under  investigation.  Moreover, 
the  company  did  not  keep,  in  breach  of  the  relevant  GOI  provisions,  the  per  EXIM 
policy requested consumption record (i.e. Appendix 18) which purpose is to provide a 
comprehensible  way  of  monitoring  and  verifying  actual  consumption.  The  company 
also  claimed  that  Article  26(1)  of  the  basic  Regulation  does  not  empower  the 
Commission  to  examine  the  records  of  the  independent  chartered  accountant. 
According to the company, the certificate has to be accepted unless there are grounds 
to believe that the chartered accountant has made a false certification. In this respect it 
is recalled that the verification process performed by the chartered accountant and the 
issuing of the relevant certificate form part of the verification system introduced by the 
GOI  in  its  EXIM  policy,  as  described  under  recital  (22).  The  Commission  was 
therefore obliged to examine whether the aforesaid verification system was effectively 
applied.  Furthermore,  in  line  with  the  provisions  of  Article  11(8)  of  the  basic 
Regulation,  the  Commission  had  to  examine  the  information  supplied  during  the 

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course  of  the  investigation  upon  which  findings  are  based.  The  fact  that  neither  the 
company nor the assigned chartered account hold any record on the checks performed 
in order to issue the EXIM policy stipulated certificate demonstrates that the company 
was not in a position to prove that the relevant EXIM policy provisions were met. The 
company disputed the fact that GOI has not yet verified the compliance of its registers 
with  EXIM  policy  requirements  but  did  not  provide  any  concrete  evidence  on  its 
claim. It was also argued that the actual consumption of the sole co-operating producer 
had  been  higher  than  the  SION  norms  for  every  input  and  that  there  was  no  excess 
remission  of  duties.  Nevertheless,  account  taken  of  the  actual  situation  found  on  the 
spot (i.e. mixture of inputs and produced products, use of different SION norms, lack 
of  the  by  EXIM  policy  stipulated  actual  consumption  registers)  and  pending  the 
fulfilment  of  the  necessary  final  verification  steps  by  the  GOI,  any  calculation  with 
respect  to  actual  consumption  and  consequent  excess  remission  of  duties  per 
authorisation/license  and  SION  norm  was  not  feasible.  Therefore,  all  the  aforesaid 
claims had to be rejected. Finally, the company provided comments on a computation 
error  which  was  considered  warrant  and  was  acknowledged  in  the  calculation  of  the 
subsidy amount.  

(e)  Conclusion 

(28)  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 investigated exporter.  

(29) 

In  addition,  AAS  physical  exports  and  AAS  for  intermediate  supply  are  clearly 
contingent in law upon export performance, and therefore deemed to be specific and 
countervailable  under  Article  3(4)(a)  of  the  basic  Regulation.  Without  an  export 
commitment a company cannot obtain benefits under these schemes. 

(30)  None  of  the  two  sub-schemes  used  in  the  present  case  can  be  considered  as 
permissible  duty  drawback  systems  or  substitution  drawback  systems  within  the 
meaning  of  Article  2(1)(a)(ii)  of  the  basic  Regulation.  They  do  not  conform  to  the 
rules laid down in Annex I item (i), Annex II (definition and rules for drawback) and 
Annex III (definition and rules for substitution drawback) of 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)  of  the  basic  Regulation  and,  in  the  case  of  substitution  drawback 
schemes, Annex III(II)(2) of the basic Regulation). The SIONs themselves cannot be 
considered a verification system of actual consumption, since duty free input materials 
imported  under  authorisations/licenses  with  different  SION  yields  are  mixed  in  the 
same production process for an exporting good. This type of process does not enable 
the GOI to verify with sufficient precision what amounts of inputs were consumed in 
the  export  production  and  under  which  SION  benchmark  they  should  be  compared. 
Furthermore,  an  effective  control  done  by  the  GOI  based  on  a  correctly  kept  actual 
consumption  register  either  did  not  take  place  or  has  not  yet  been  completed.  In 
addition,  the  GOI  did  not  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  verification  system  (Annex  II(II)(5)  and  Annex  III(II)(3)  to  the 
basic Regulation). Finally, the involvement of chartered accountants in the verification 
process has not led to the improvement of the verification system as no detailed rules 
exist  on  how  chartered  accountants  should  perform  the  entrusted  tasks  and  the 

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information presented during the investigation could not warrant the fulfilment of the 
aforesaid rules laid down under the basic Regulation.  

(31)  These two sub-schemes are therefore countervailable. 

(f)  Calculation of the subsidy amount 

(32) 

In the absence of permitted duty drawback systems or substitution drawback systems, 
the countervailable benefit is the remission of total import duties normally due upon 
importation of inputs. In this respect, it is noted that the basic Regulation does not only 
provide for the countervailing of an "excess" remission of duties. According to Article 
2(1)(a)(ii)  and Annex I(i) of the basic Regulation only an excess remission of duties 
can  be  countervailed,  provided  the  conditions  of  Annexes  II  and  III  of  the  basic 
Regulation are met. However, these conditions were not fulfilled in the present case. 
Thus,  if  an  absence  of  an  adequate  monitoring  process  is  established,  the  above 
exception  for  drawback  schemes  is  not  applicable  and  the  normal  rule  of  the 
countervailing  of  the  amount  of  (revenue  forgone)  unpaid  duties,  rather  than  any 
purported  excess  remission,  applies.  As  set  out  in  Annexes  II(II)  and  III(II)  of  the 
basic  Regulation  the  burden  is  not  upon  the  investigating  authority  to  calculate  such 
excess  remission.  To  the  contrary,  according  to  Article  2(1)(a)(ii)  of  the  basic 
Regulation it only has to establish sufficient evidence to refute the appropriateness of 
an alleged verification system.  

(33)  The subsidy amount for the exporter which used the AAS was calculated on the basis 
of import duties forgone (basic customs duty and special additional customs duty) on 
the  material  imported  under  the  two  sub-schemes  used  for  the  product  concerned 
during the RIP (nominator). In accordance with Article 7(1)(a) of the basic Regulation, 
fees necessarily incurred to obtain the subsidy were deducted from the subsidy amount 
where  justified  claims  were  made.  In  accordance  with  Article  7(2)  of  the  basic 
Regulation, this subsidy amount has been allocated over the export turnover generated 
by  the  product  concerned  during  the  RIP  as  appropriate  denominator,  because  the 
subsidy is contingent upon export performance and was not granted by reference to the 
quantities manufactured, produced, exported or transported.  

(34)  The subsidy rate established in respect of this scheme during the RIP for the sole co-

operating producer amounts to 8,2 %. 

2. 

Duty Entitlement Passbook Scheme ('DEPBS') 

(a)  Legal Basis 

(35)  The  detailed  description  of  the  DEPBS  is  contained  in  paragraph  4.3  of  the  EXIM-

policy 04-09 and in chapter 4 of the HOP I 04-09.  

(b)  Eligibility 

(36)  Any manufacturer-exporter or merchant-exporter is eligible for this scheme.  

(c)  Practical implementation of the DEPBS 

(37)  An eligible exporter 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 

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established  by  the  Indian  authorities  for  most  products,  including  the  product 
concerned.  They  are  determined  on  the  basis  of  SIONs,  taking  into  account  a 
presumed  import  content  of  inputs  in  the  export  product  and  the  customs  duty 
incidence on such presumed imports, regardless of whether import duties have actually 
been paid or not.  

(38)  To be eligible for benefits under this scheme, a company must export. At the point in 
time  of  the  export  transaction,  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 GOI has no discretion over 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 possibility for 
a retroactive amendment to the level of the benefit. 

(39)  DEPBS  credits  are  freely  transferable  and  valid  for  a  period  of  12  months  from  the 
date of issue. They can be used for payment of customs duties on subsequent imports 
of any goods unrestrictedly importable, except capital goods. Goods imported against 
such  credits  can  be  sold  on  the  domestic  market  (subject  to  sales  tax)  or  used 
otherwise. 

(40)  Applications  for  DEPBS  credits  are  electronically  filed  and  can  cover  an  unlimited 
amount of export transactions. De facto no strict deadlines exist to apply for DEPBS 
credits. The electronic system used to manage DEPBS does not automatically exclude 
export transactions outside the deadline submission periods mentioned in chapter 4.47 
HOP  I  04-09.  Furthermore,  as  clearly  provided  in  chapter  9.3  HOP  I  04-09 
applications  received  after  the  expiry  of  submission  deadlines  can  always  be 
considered with the imposition of a minor penalty fee (i.e. 10 % on the entitlement). 

(d)  Disclosure Comments 

(41)  Upon  disclosure  the  sole  co-operating  exporting  producer  submitted  comments  on 
DEPBS. The company claimed that DEPB benefit should not be countervailed because 
it was not availed for the product concerned. However, the company did not provide 
any  argument  that  could  dispute  the  practical  implementations  of  the  scheme  as 
expressed  under  recitals  (37)  to  (40).  The  company  also  claimed  that  only  the  credit 
amount of the exports made during the RIP should be used for the calculation of the 
duty benefit granted but failed to substantiate why the calculation methodology used 
both in the present and previous investigation that led to the imposition of the existing 
measures are not in line with the provisions of the basic Regulation. Therefore, those 
claims had to be rejected. Finally, the company provided comments on a computation 
error  which  was  considered  warrant  and  was  acknowledged  in  the  calculation  of  the 
subsidy amount.  

(e)  Conclusions on the DEPBS 

(42)  The  DEPBS  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and  Article 
2(2) of the basic Regulation. A DEPBS credit is a financial contribution by the GOI, 

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since  the  credit  will  eventually  be  used  to  offset  import  duties,  thus  decreasing  the 
GOI’s  duty  revenue  which  would  be  otherwise  due.  In  addition,  the  DEPBS  credit 
confers a benefit upon the exporter, because it improves its liquidity. 

(43)  The DEPBS is contingent in law upon export performance, and therefore deemed to be 

specific and countervailable under Article 3(4)(a) of the basic Regulation.  

(44)  This scheme cannot 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 item (i), Annex II (definition 
and rules for drawback) and Annex III (definition and rules for substitution drawback) 
of  the  basic  Regulation.  An  exporter  is  under  no  obligation  to  actually  consume  the 
goods imported free of duty in the production process and the amount of credit is not 
calculated in relation to actual inputs used. Moreover, there is no system or procedure 
in  place  to  confirm  which  inputs  are  consumed  in  the  production  process  of  the 
exported product or whether an excess payment of import duties occurred within the 
meaning of item (i) of Annex I and Annexes II and III of the basic Regulation. Lastly, 
an  exporter  is  eligible  for  the  DEPBS  benefits  regardless  of  whether  it  imports  any 
inputs  at  all.  In  order  to  obtain  the  benefit,  it  is  sufficient  for  an  exporter  to  simply 
export goods without demonstrating that any input material was imported. Thus, even 
exporters which procure all of their inputs locally and do not import any goods which 
can be used as inputs are still entitled to benefit from the DEPBS.  

(f)  Calculation of the subsidy amount 

(45) 

In  accordance  with  Articles  2(2)  and  5  of  the  basic  Regulation  and  the  calculation 
methodology  used  for  this  scheme  in  Council  Regulation  (EC)  No  713/2005,  the 
amount  of  countervailable  subsidies  was  calculated  in  terms  of  the  benefit  conferred 
on  the  recipient,  which  is  found  to  exist  during  the  RIP.  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,  the  GOI  is  liable  to 
forgo the customs duties, which constitutes a financial contribution within the meaning 
of  Article  2(1)(a)(ii)  of  the  basic  Regulation.  Once  the  customs  authorities  issue  an 
export shipping bill which shows, inter alia, the amount of DEPBS credit which is to 
be granted for that export transaction, the GOI has no discretion as to whether or not to 
grant the subsidy and it has no discretion as to the amount of the subsidy. 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, the sole co-
operating exporting producer booked the DEPBS credits on an accrual basis as income 
at the stage of export transaction.  

(46)  Where justified claims were made, fees necessarily incurred to obtain the subsidy were 
deducted from the credits so established to arrive at the subsidy amount as nominator, 
pursuant to Article 7(1)(a) of the basic Regulation. In accordance with Article 7(2) of 
the  basic  Regulation  this  subsidy  amount  has  been  allocated  over  the  total  export 
turnover  during  the  review  investigation  period  as  appropriate  denominator,  because 
the subsidy is contingent upon export performance and it was not granted by reference 
to the quantities manufactured, produced, exported or transported. 

(47)  The subsidy rate established in respect of this scheme during the RIP for the sole co-

operating exporting producer amounts to 2,1 %. 

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3. 

Export Promotion Capital Goods Scheme ('EPCGS') 

(a)  Legal basis 

(48)  The detailed description of the EPCGS is contained in chapter 5 of the EXIM-policy 

04-09 and in chapter 5 of the HOP I 04-09.  

(b)  Eligibility 

(49)  Manufacturer-exporters,  merchant-exporters  "tied  to"  supporting  manufacturers  and 

service providers are eligible for this scheme.  

(c)  Practical implementation 

(50)  Under  the  condition  of  an  export  obligation,  a  company  is  allowed  to  import  capital 
goods (new and -since April 2003- second-hand capital goods up to 10 years old) at a 
reduced rate of duty. To this end, the GOI issues, upon application and payment of a 
fee, an EPCGS licence. Since April 2000, the scheme provides for  a reduced  import 
duty rate of 5 % applicable to all capital goods imported under the scheme. Until 31 
March 2000, an effective duty rate of 11 % (including a 10 % surcharge) and, in case 
of  high  value  imports,  a  zero  duty  rate  was  applicable.  In  order  to  meet  the  export 
obligation,  the  imported  capital  goods  must  be  used  to  produce  a  certain  amount  of 
export goods during a certain period.  

(51)  The  EPCGS  licence  holder  can  also  source  the  capital  goods  indigenously.  In  such 
case,  the  indigenous  manufacturer  of  capital  goods  may  avail  of  the  benefit  for  duty 
free import of components required to manufacture such capital goods. Alternatively, 
the  indigenous  manufacturer  can  claim  the  benefit  of  deemed  export  in  respect  of 
supply of capital goods to an EPCGS licence holder. 

(d)  Disclosure comments 

(52)  Upon  disclosure  the  sole  co-operating  exporting  producer  submitted  comments  on 
EPCGS. The company claimed that on the basis of the generally accepted accounting 
principles  capital  goods  are  consumed  in  the  production  process.  In  this  respect  it  is 
noted  that  the  company  failed  to  substantiate  this  claim  by  explicitly  mentioning  the 
so-called  generally  acceptable  accounting  principles  and  providing  an  analysis  in 
relation  with  the  relevant  EPCGS  provisions  of  the  EXIM  policy  as  well  as  the 
definition of inputs consumed in the production process, as set out in Annex II of the 
basic  Regulation.  It  also  argued  that  the  company's  depreciation  period  should  have 
been  used  as  the  normal  depreciation  period.  Nevertheless,  such  an  approach  is 
contrary  to  the  relevant  provision  of  Article  7(3)  of  the  basic  Regulation.  Therefore, 
these  claims  had  to  be  rejected.  Finally,  the  company  provided  comments  on  a 
computation  error  which  was  considered  warrant  and  was  acknowledged  in  the 
calculation of the subsidy amount.  

(e)  Conclusion on EPCG Scheme 

(53)  The  EPCGS  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and  Article 
2(2) of the basic Regulation. The duty reduction constitutes a financial contribution by 
the  GOI,  since  this  concession  decreases  the  GOI’s  duty  revenue,  which  would  be 

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otherwise  due.  In  addition,  the  duty  reduction  confers  a  benefit  upon  the  exporter, 
because the duties saved upon importation improve its liquidity. 

(54)  Furthermore,  the  EPCGS  is  contingent  in  law  upon  export  performance,  since  such 
licences cannot be obtained without a commitment to export. Therefore, it is deemed 
to be specific and countervailable under Article 3(4)(a) of the basic Regulation.  

(55)  Eventually, 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. Capital goods are not covered by the scope of such permissible systems, 
as set out in Annex I, item (i), of the basic Regulation, because they are not consumed 
in the production of the exported products. 

(f)  Calculation of the subsidy amount 

(56)  The  subsidy  amount  was  calculated,  in  accordance  with  Article  7(3)  of  the  basic 
Regulation, on the basis of the unpaid customs duty on imported capital goods spread 
across a period which reflects the normal depreciation period of such capital goods in 
the  antibiotics  industry.  In  accordance  with  the  established  practice,  the  amount  so 
calculated,  which  is  attributable  to  the  RIP,  has  been  adjusted  by  adding  interest 
during  this  period  in  order  to  reflect  the  full  value  of  the  benefit  over  time.  The 
commercial  interest  rate  during  the  review  investigation  period  in  India  was 
considered  appropriate  for  this  purpose.  Where  justified  claims  were  maid,  fees 
necessarily  incurred  to  obtain  the  subsidy  were  deducted  in  accordance  with  Article 
7(1)(a)  of  the  basic  Regulation  from  this  sum  to  arrive  at  the  subsidy  amount  as 
nominator.  In  accordance  with  Article  7(2)  and  7(3)  of  the  basic  Regulation,  this 
subsidy  amount  has  been  allocated  over  the  export  turnover  during  the  RIP  as 
appropriate denominator, because the subsidy is contingent upon export performance 
and it was not granted by reference to the quantities manufactured, produced, exported 
or transported. 

(57)  The subsidy rate established in respect of this scheme during the RIP for the sole co- 

operating exporting producer amounts to 0,1 %. 

4. 

Export Credit Scheme ('ECS') 

(a)  Legal basis 

(58)  The  details  of  the  scheme  are  set  by  in  Master  Circular  DBOD  No.  DIR.(Exp).BC 
01/04.02.02/2007-08 of the Reserve Bank of India (‘RBI’), which is addressed to all 
commercial banks in India.  

(b)  Eligibility 

(59)  Manufacturing exporters and merchant exporters are eligible for this scheme. 

(c)  Practical implementation 

(60)  Under  this  scheme,  the  RBI  mandatorily  sets  maximum  ceiling  interest  rates 
applicable  to  export  credits,  both  in  Indian  rupees  or  in  foreign  currency,  which 
commercial banks can charge an exporter. The ECS consists of two sub-schemes, the 
Pre-Shipment Export Credit Scheme ("packing credit"), which covers credits provided 

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to an exporter for financing  the purchase, processing,  manufacturing, packing and/or 
shipping of goods prior to export, and the Post-Shipment Export Credit Scheme, which 
provides  for  working  capital  loans  with  the  purpose  of  financing  export  receivables. 
The  RBI  also  directs  the  banks  to  provide  a  certain  amount  of  their  net  bank  credit 
towards export finance. 

(61)  As  a  result  of  the  RBI  Master  Circular,  exporters  can  obtain  export  credits  at 
preferential  interest  rates  compared  with  the  interest  rates  for  ordinary  commercial 
credits ("cash credits"), which are set purely under market conditions. The difference 
in  rates  might  decrease  for  companies  with  good  credit  ratings.  In  fact,  high  rating 
companies might be in a position to obtain export credits and cash credits at the same 
conditions.  

(d)  Disclosure comments 

(62)  Upon  disclosure  the  sole  co-operating  exporting  producer  submitted  comments  on 
ECS.  The  company  argued  that  (i)  there  is  no  public  funding  into  the  granting  of 
export credit in foreign currency, (ii) its low rates in foreign currency export credit was 
due to the company's high credit rating and (iii) the interest rate used as benchmark on 
foreign  currency  credit  should  not  be  the  same  with  the  one  used  on  Indian  rupee 
credit.  In  this  respect  it  is  noted  that  both  Indian  rupee  and  foreign  currency  export 
credit form part of the same RBI Master Circular, with the practical implementations 
described  under  recitals  (60)  and  (61),  whose  detailed  and  restrictive  provisions 
demonstrates that foreign currency export credit funding and interest rates levied are 
linked to clear government imposed directives. As regards to the benchmark rate, it is 
noted that this was reported by the company on its Indian rupee credit and, in line with 
the  relevant  policies  of  the  RBI  Master  Circular,  exporters  have  the  ability  to  freely 
pass for the same export transaction from rupee credit to foreign currency credit. It is 
therefore  considered  appropriate  to  use  as  benchmark  the  only  rate  reported  by  the 
company as its normal Indian interest rate. Therefore, those claims had to be rejected. 
Finally,  the  company  provided  comments  on  a  computation  error  which  was 
considered warrant and was acknowledged in the calculation of the subsidy amount.  

(e)  Conclusion on the ECS 

(63)  The  preferential  interest  rates  of  an  ECS  credit  set  by  the  RBI  Master  Circular 
mentioned in recital (58) can decrease interest costs of an exporter as compared with 
credit  costs  purely  set  by  market  conditions  and  confer  in  this  case  a  benefit  in  the 
meaning of Article 2(2) of the basic Regulation on such exporter. Export financing is 
not per se more secure than domestic financing. In fact, it is usually perceived as being 
more  risky  and  the  extent  of  security  required  for  a  certain  credit,  regardless  of  the 
finance  object,  is  a  purely  commercial  decision  of  a  given  commercial  bank.  Rate 
differences with regard to different banks are the result of the methodology of the RBI 
to  set  maximum  lending  rates  for  each  commercial  bank  individually.  In  addition, 
commercial  banks  would  not  be  obliged  to  pass  through  to  borrowers  of  export 
financing any more advantageous interest rates for export credits in foreign currency.  

(64)  Despite the fact that the preferential credits under the ECS are granted by commercial 
banks, this benefit is a financial contribution by a government within the meaning of 
Article  2(1)(a)(iv)  of  the  basic  Regulation.  In  this  context,  it  should  be  noted  that 
neither Article 2(1)(a)(iv) of the basic Regulation nor the ASCM require a charge on 

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the  public  accounts,  e.g.  reimbursement  of  the  commercial  banks  by  the  GOI,  to 
establish a subsidy, but only government direction to carry out functions illustrated in 
points  (i),  (ii)  or  (iii)  of  Article  2(1)(a)  of  the  basic  Regulation.  The  RBI  is  a  public 
body  and  falls  therefore  under  the  definition  of  a  "government"  as  set  out  in  Article 
1(3)  of  the  basic  Regulation.  It  is  100  %  government-owned,  pursues  public  policy 
objectives,  e.g.  monetary  policy,  and  its  management  is  appointed  by  the  GOI.  The 
RBI  directs  private  bodies,  within  the  meaning  of  the  second  indent  of  Article 
2(1)(a)(iv)  of  the  basic  Regulation,  since  the  commercial  banks  are  bound  by  the 
conditions it imposes, inter alia, with regard to the maximum ceilings for interest rates 
on  export  credits  mandated  in  the  RBI  Master  Circular  and  the  RBI  provisions  that 
commercial  banks  have  to  provide  a  certain  amount  of  their  net  bank  credit  towards 
export  finance.  This  direction  obliges  commercial  banks  to  carry  out  functions 
mentioned in Article 2(1)(a)(i) of the basic Regulation, in this case loans in the form of 
preferential export financing. Such direct transfer of funds in the form of loans under 
certain conditions would normally be vested in the government, and the practice, in no 
real  sense,  differs  from  practices  normally  followed  by  governments,  within  the 
meaning of Article 2(1)(a)(iv) of the basic Regulation. This subsidy is deemed to be 
specific  and  countervailable  since  the  preferential  interest  rates  are  only  available  in 
relation  to  the  financing  of  export  transactions  and  are  therefore  contingent  upon 
export performance, pursuant to Article 3(4)(a) of the basic Regulation.  

(f)  Calculation of the subsidy amount 

(65)  The  subsidy  amount  has  been  calculated  on  the  basis  of  the  difference  between  the 
interest  paid  for  export  credits  used  during  the  RIP  and  the  interest  rate  that  would 
have  been  payable  for  ordinary  commercial  credits  used  by  the  sole  co-operating 
exporting producer. This subsidy amount (nominator) has been allocated over the total 
export turnover during the RIP as appropriate denominator in accordance with Article 
7(2)  of  the  basic  Regulation,  because  the  subsidy  is  contingent  upon  export 
performance  and  it  was  not  granted  by  reference  to  the  quantities  manufactured, 
produced, exported or transported.  

(66)  The  subsidy  rate  established  with  regard  to  this  scheme  for  the  RIP  for  the  sole  co-

operating exporting producer amounts to 1,3 %. 

5. 

Income Tax Schemes 

(a) 

Income Tax Exemption Scheme ('ITES') 

Section 80HHC of the Income Tax Act 1961 ('ITA') 

(67)  Under this scheme exporters could avail the benefit of a partial income tax exemption 
on  profits  derived  from  export  sales.  The  legal  basis  for  this  exemption  was  set  by 
Section 80HHC of the ITA.  

(68)  This provision was abolished for the assessment year 2005-2006 (i.e. for the financial 
year from 1 April 2004 to 31 March 2005) onwards and thus 80HHC of the ITA does 
not confer any benefits after 31 March 2004. The sole co-operating exporting producer 
did not avail of any benefits under this scheme during the RIP. Consequently, since the 
scheme has been withdrawn, it shall therefore not be countervailed, in accordance with 
Article 15(1) of the basic Regulation. 

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(b) 

Income Tax Incentive for Research and Development ('ITIRAD') 

(i) 

Legal basis 

(69)  The detailed description of the ITIRAD is set out in section 35(2AB) of the ITA.  

(ii)  Eligibility 

(70)  Companies engaged in the business of bio-technology or manufacture or production of 
computers, 
drugs, 
telecommunication  equipments,  chemicals  or  any  other  article  or  thing  as  may  be 
notified are eligible for benefits under this scheme. 

pharmaceuticals, 

equipments, 

chemicals, 

electronic 

(iii)  Practical implementation 

(71)  For  any  expenditure  (other  than  cost  of  land  or  building)  on  in-house  research  and 
development  facilities  as  approved  by  the  Department  of  Scientific  and  Industrial 
Research  of  the  GOI,  a  deduction  of  a  sum  equal  to  150  %  of  the  costs  de  facto 
incurred is permitted for income tax purposes. Thus, by means of a 50 % deduction of 
fictional  expenses  (i.e.  expenses  not  actually  incurred),  the  income  tax  base  and 
subsequently the income tax burden decreases artificially 

(iv)  Disclosure comments 

(72)  No comments with respect to ITIRAD were submitted upon disclosure.  

(v)  Conclusion on ITIRAD 

(73)  The ITIRAD provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 
2(2)  of  the  basic  Regulation.  The  artificial  income  tax  base  reduction  under  section 
35(2AB)  of  the  ITA  constitutes  a  financial  contribution  by  the  GOI,  since  this 
decreases the GOI’s income tax revenue which would be otherwise due. In addition, 
the income tax reduction confers a benefit upon the company, because it improves its 
liquidity. 

(74)  The  wording  of  section  35(2AB)  ITA  proves  that  ITIRAD  is  de  jure  specific  in  the 
meaning  of  Article  3(2)(a)  of  the  basic  Regulation  and  therefore  countervailable. 
Eligibility  for  this  scheme  is  not  governed  by  objective  criteria,  which  are  neutral 
within  the  meaning  of  Article  3(2)(b)  of  the  basic  Regulation.  Benefits  under  this 
scheme are only available to certain industries since the GOI has not made this scheme 
available  to  all  sectors.  Such  limitation  constitutes  specificity,  since  the  category 
"group of industries" in Article 3(2) of the basic Regulation synonymously describes 
sector  restrictions.  This  restriction  is  not  economic  in  nature  and  horizontal  in 
application such as a restriction on the number of employees or size of enterprise. 

(vi)  Calculation of the subsidy amount 

(75)  The  subsidy  amount  has  been  calculated  on  the  basis  of  the  difference  between  the 
income tax due for the review investigation period with and without the application of 
the  provision  of  section  35(2AB)  of  the  ITA.  This  subsidy  amount  (nominator)  has 
been  allocated  over  the  total  turnover  during  the  RIP  as  appropriate  denominator  in 
accordance with Article 7(2) basic Regulation, because this subsidy relates to all sales, 

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domestic  and  export,  and  it  was  not  granted  by  reference  to  the  quantities 
manufactured, produced, exported or transported. 

(76)  The subsidy rate established with regard to this scheme during the RIP for the sole co-

operating exporting producer amounts to 0,1 %. 

6. 

Focus Market Scheme ('FMS') 

(a)  Legal basis 

(77)  The  detailed  description  of  the  FMS  is  contained  in  chapter  3.9  of  the  EXIM-policy 

04-09 and in chapter 3.20 of the HOP I 04-09.  

(b)  Eligibility 

(78)  Any manufacturer-exporter or merchant-exporter is eligible for this scheme.  

(c)  Practical implementation 

(79)  Under this scheme exports of all products to countries notified under Apprndix-37-C 
of  HOP  I  04-09  are  entitled  to  duty  credit  equivalent  to  2,5  %  of  the  FOB  value  of 
products  exported  under  this  scheme.  Certain  type  of  export  activities  are  excluded 
from  the  scheme,  e.g.  exports  of  imported  goods  or  transhipped  goods,  deemed 
exports, service exports and export turnover of units operating under special economic 
zones/export  operating  units.  Also  excluded  from  the  scheme  are  certain  types  of 
products, e.g. diamonds, precious metals, ores, cereals, sugar and petroleum products.  

(80)  The duty credits under FMS are freely transferable and valid for a period of 24 months 
from the date of issue of the relevant credit entitlement certificate. They can be used 
for payment of custom duties on subsequent imports of any inputs or goods including 
capital goods.  

(81)  The credit entitlement certificate is issued from the port from which the exports have 
been  made  and  after  realisation  of  exports  or  shipment  of  goods.  As  long  as  the 
applicant provides to the authorities copies of all relevant export documentation (e.g. 
export  order,  invoices,  shipping  bills,  bank  realisation  certificates),  the  GOI  has  no 
discretion over the granting of the duty credits.  

(d)  Disclosure comments 

(82)  Upon  disclosure  the  sole  co-operating  exporting  producer  submitted  comments  on 
FMS. The company argued that the scheme is geographically related to other countries 
and cannot be countervailed by EC. Nevertheless, it was not able to dispute neither the 
practical implementations of the scheme nor the way the FMS benefit is used, as stated 
under  recitals  (79)  to  (81).  Therefore,  this  claim  had  to  be  rejected.  Finally,  the 
company  provided  comments  on  a  computation  error  which  was  considered  warrant 
and was acknowledged in the calculation of the subsidy amount. 

(e)  Conclusion on FMS 

(83)  The FMS provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) 
of  the  basic  Regulation.  A  FMS  duty  credit  is  a  financial  contribution  by  the  GOI, 

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since  the  credit  will  eventually  be  used  to  offset  import  duties,  thus  decreasing  the 
GOI’s duty revenue which would be otherwise due. In addition, the FMS duty credit 
confers a benefit upon the exporter, because it improves its liquidity. 

(84)  Furthermore,  the  FMS  is  contingent  in  law  upon  export  performance,  and  therefore 
deemed  to  be  specific  and  countervailable  under  Article  3(4)(a)  of  the  basic 
Regulation.  

(85)  This scheme cannot 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 item (i), Annex II (definition 
and rules for drawback) and Annex III (definition and rules for substitution drawback) 
of  the  basic  Regulation.  An  exporter  is  under  no  obligation  to  actually  consume  the 
goods imported free of duty in the production process and the amount of credit is not 
calculated in relation to actual inputs used. There is no system or procedure in place to 
confirm which inputs are consumed in the production process of the exported product 
or whether an excess payment of import duties occurred within the meaning of item (i) 
of Annex I and Annexes II and III of the basic Regulation. An exporter is eligible for 
the FMS benefits regardless of whether it imports any inputs at all. In order to obtain 
the  benefit,  it  is  sufficient  for  an  exporter  to  simply  export  goods  without 
demonstrating  that  any  input  material  was  imported.  Thus,  even  exporters  which 
procure all of their inputs locally and do not import any goods which can be used as 
inputs  are  still  entitled  to  benefit  from  the  FMS.  Moreover,  an  exporter  can  use  the 
FMS  duty  credits  in  order  to  import  capital  goods  although  capital  goods  are  not 
covered  by  the  scope  of  permissible  duty  drawback  systems,  as  set  out  in  Annex  I, 
item (i), of the basic Regulation, because they are not consumed in the production of 
the exported products. 

(f)  Calculation of the subsidy amount 

(86)  The  amount  of  countervailable  subsidies  was  calculated  in  terms  of  the  benefit 
conferred on the recipient, which is found to exist during the RIP as booked by the co-
operating  exporting  producer  on  an  accrual  basis  as  income  at  the  stage  of  export 
transaction.  In  accordance  with  Article  7(2)  and  7(3)  of  the  basic  Regulation  this 
subsidy  amount  (nominator)  has  been  allocated  over  the  export  turnover  during  the 
RIP  as  appropriate  denominator,  because  the  subsidy  is  contingent  upon  export 
performance  and  it  was  not  granted  by  reference  to  the  quantities  manufactured, 
produced, exported or transported. 

(87)  The subsidy rate established with regard to this scheme during the RIP for the sole co-

operating exporting producer amounts to 0,1 %. 

III.  Amount of countervailable subsidies 

(88) 

It  is  recalled  that  in  Council  Regulation  (EC)  No  713/2005  the  amount  of 
countervailable subsidies, expressed ad valorem, was found to be 35,1 % for the sole 
exporting producer co-operating with the present partial interim review.  

(89)  During  the  present  partial  interim  review  the  amount  of  countervailing  subsidies, 

expressed ad valorem, was fount to be 11,9 %, as listed hereunder:  

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SCHEME→  AAS 

DEPBS  EPCGS 

ECS 

ITIRAD  FMS  Total 

COMPANY
↓ 

Ranbaxy 
Laboratorie
s Ltd.  

 % 

%  

%  

%  

%  

%   %  

8,2 

2,1 

0,1 

1,3 

0,1 

0,1 

11,9 

(90)  Account taken of the above it is concluded that the level of subsidisation with regard 

to the sole co-operating exporting producer has decreased.  

IV. COUNTERVAILING MEASURES 

(91) 

(92) 

In line with the provisions of Article 19 of the basic Regulation and the grounds of this 
partial interim review stated under point 3 of the notice of initiation, it is established 
that  the  level  of  subsidisation  with  regard  to  the  sole  co-operating  producer  has 
decreased  from  35,1  %  to  11,9  %  and,  therefore,  the  rate  of  countervailing  duty, 
imposed to this exporting producer by Council Regulation (EC) No 713/2005 has to be 
amended accordingly.  

In  this  respect,  it  is  recalled  that  under  Council  Regulation  (EC)  No  713/2005  the 
subsidy rate of Ranbaxy Laboratories Ltd. was higher than the injury elimination level. 
In accordance with Article 15(1) of the basic Regulation, the lesser duty reflecting the 
injury elimination level was considered adequate to remove injury to the Community 
industry and thus the rate of countervailing duty applicable to imports from Ranbaxy 
Laboratories Ltd. was set to 30,3 %.  

(93)  Account  taken  of  the  above  and  given  that  the  subsidies  rate  is  now  lower  than  the 
injury elimination level, the individual company countervailing duty rate applicable to 
the sole co-operating exporting producer, Ranbaxy Laboratories Ltd., is set at 11,9 %.  

(94)  With  regard  to  all  other  companies  that  did  not  co-operate  with  the  present  partial 
interim review, it is noted that the actual modalities of the investigated schemes and 
their  countervailability  have  not  changed  with  respect  to  the  previous  investigation. 
Thus there is no reason to re-calculate the subsidy and duty rates of the companies that 
did not co-operate with the present partial interim review. Consequently, the rates of 
the  duty  applicable  to  all  other  parties  except  Ranbaxy  Laboratories  Ltd  mentioned 
under Article 1(2) of Council Regulation (EC) No 713/2005 remain unchanged.  

(95)  The individual company countervailing duty rates specified in this Regulation reflect 
the situation found during the partial interim review. Thus, they are solely applicable 
to  imports  of  the  product  concerned  produced  by  these  companies.  Imports  of  the 
product concerned manufactured by any other company not specifically mentioned in 
the  operative  part  of  this  Regulation,  including  entities  related  to  those  specifically 
mentioned,  cannot  benefit  from  these  rates  and  shall  be  subject  to  the  duty  rate 
applicable to “all other companies”.  

(96)  Any claim requesting the application of these individual countervailing duty rates (e.g. 
following  a  change  in  the  name  of  the  entity  or  following  the  setting  up  of  new 

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production or sales entities) should be addressed to the Commission4 forthwith with all 
relevant information, in particular any modification in the company’s activities linked 
to  production,  domestic  and  export  sales  associated  with,  for  instance,  that  name 
change  or  that  change  in  the  production  and  sales  entities.  If  appropriate,  and  after 
consultation  of  the  Advisory  Committee,  the  Commission  is  hereby  empowered  to 
amend the Regulation accordingly by updating the list of companies benefiting from 
individual duty rates, 

HAS ADOPTED THIS REGULATION: 

Article 1 

Paragraph 2 of Article 1 of Regulation (EC) No 713/2005 shall be replaced by the following: 
"The  rate  of  duty  applicable  to  the  net  free-at-Community-frontier  price,  before  duty  for 
imports produced in India by the companies listed below, shall be as follows: 

– 

– 

– 

– 

– 

– 

– 

17,3 % for KDL Biotech Ltd., Mumbai (TARIC additional code: A580), 

28,1 % for Nectar Lifesciences Ltd., Chandigarh (TARIC additional code: A581), 

25,3 % for Nestor Pharmaceuticals Ltd., New Delhi (TARIC additional code: A582), 

11,9 % for Ranbaxy Laboratories Ltd., New Delhi (TARIC additional code: 8221), 

28,1  %  for  Torrent  Gujarat  Biotech  Ltd.,  Ahmedabad  (TARIC  additional  code: 
A583), 

28,1 % for Surya Pharmaceuticals Ltd., Chandigarh (TARIC additional code: A584), 

32 % for all other companies (TARIC additional code: 8900)." 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

Article 2 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, […] 

For the Council 
The President 

4 

European  Commission  –Directorate  General  for  Trade-  Directorate  B  –J-79  4/23  –Rue  de  la 
Loi/Wetstraat 200- B-1049 Brussels. 

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