Proposal for a Council Regulation amending Regulation (EC) No 74/2004 of 13 January 2004 imposing a definitive countervailing duty on imports of cotton-type bedlinen originating in India
Date: 2008-11-25
Institutions: European Commission
Subjects: India, anti-subsidy proceeding, import, originating product, textile product

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 25.11.2008 
COM(2008) 792 final 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 74/2004 of 13 January 2004 imposing a definitive 
countervailing duty on imports of cotton-type bedlinen originating in India  

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

CONTEXT OF THE PROPOSAL 

Grounds for and objectives of the proposal 

This  proposal  concerns  the  application  of  Council  Regulation  (EC)  No  2026/97  of 
6 October 1997 on protection against subsidized imports from countries not members 
of  the  European  Community  ('the  basic  anti-subsidy  Regulation')  in  the  anti-subsidy 
proceeding concerning imports of cotton-type bedlinen originating in India. 

General context 

This  proposal  is  made  in  the  context  of  the  implementation  of  the  basic  anti-subsidy 
Regulation and is the result of an investigation which was carried out in line with the 
substantive and procedural requirements laid out in the basic Regulation. 

Existing measures in the area of the proposal 

Council  Regulation  (EC)  No  74/2004  imposing  a  definitive  countervailing  duty  on 
imports of cotton-type bedlinen originating in India. 

Consistency with the other policies and objectives of the Union 

Not applicable. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

Consultation of interested parties 

Interested parties concerned by the proceeding have had the possibility to defend their 
interests during the investigation, in line with the provisions of the basic Regulation. 

Collection and use of expertise 

There was no need for external expertise. 

Impact assessment 

This proposal is the result of the implementation of the basic Regulation. 

The basic Regulation does not provide for a general impact assessment but contains an 
exhaustive list of conditions that have to be assessed. 

LEGAL ELEMENTS OF THE PROPOSAL 

Summary of the proposed action 

On  2  October  2007,  the  Commission  initiated  on  its  own  initiative  a  partial  interim 
review limited to the level of subsidisation of the countervailing measures applicable to 
imports  into  the  Community  of  cotton-type  bedlinen  originating  in  India,  since  there 
was sufficient prima facie evidence available to the Commission that the circumstances 

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with  regard  to  subsidisation  on  the  basis  of  which  measures  were  established  had 
changed and that these changes were of a lasting nature. 

The  enclosed  Commission  proposal  for  a  Council  Regulation  contains  the  definitive 
findings on subsidisation. 

It is therefore proposed that the Council adopt the attached proposal for a Regulation 
which should be published in the Official Journal of the European Union no later than 
1 January 2009. 

Legal basis 

Council  Regulation  (EC)  No  2026/97  of  6  October  1997  on  protection  against 
subsidized imports from countries not members of the European Community.  

Subsidiarity principle 

The proposal falls under the exclusive competence of the Community. The subsidiarity 
principle therefore does not apply. 

Proportionality principle 

The proposal complies with the proportionality principle because the form of action is 
described  in  the  aforementioned  basic  Regulation  and  leaves  no  scope  for  national 
decision. 

An  indication  of  how  the  financial  and  administrative  burden  falling  upon  the 
Community, national governments, regional and local authorities, economic operators 
and  citizens  is  minimized  and  proportionate  to  the  objective  of  the  proposal  is  not 
applicable. 

Choice of instruments 

Proposed instruments: regulation. 

Other means would not be adequate because the aforementioned basic Regulation does 
not provide for alternative options. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Community budget. 

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Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 74/2004 of 13 January 2004 imposing a definitive 
countervailing duty on imports of cotton-type bedlinen 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  members  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: 

1. 

PROCEDURE 

1.1. 

Previous investigation and measures in force 

(1) 

The  Council,  by  Regulation  (EC)  No  74/20042,  imposed  a  definitive  countervailing 
duty  on  imports  of  cotton-type  bedlinen  falling  within  CN  codes  ex  6302  21  00,  ex 
6302 22 90, ex 6302 31 00 and ex 6302 32 90 and originating in India. The rate of the 
duty  ranges  between  4.4%  and  10.4%  for  individual  sampled  companies,  with  an 
average cooperating company rate of 7.6% and a residual duty of 10.4%. 

1.2. 

Ex officio initiation of the 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)  had  changed  and  that  these  changes 
were  of  a  lasting  nature.  They  argued  that  the  level  of  subsidisation  was  therefore 
likely to have decreased and thus measures that had been established partly on these 
schemes should be revised.  

(3) 

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 

1 
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OJ L 288, 21.10.1997, p. 1. 
OJ L 12, 17.1.2004, p. 1. 

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Commission initiated an ex officio partial interim review of the measures in force by a 
notice published in the Official Journal of the European Union.3 

(4) 

The  purpose  of  this  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 allegedly changed subsidy schemes 
where sufficient evidence was provided in line with the relevant requirements of the 
notice  of  initiation.  Depending  on  its  findings  the  investigation  will  also  assess  the 
need  to  revise  the  measures  applicable  to  other  companies  that  cooperated  in  the 
original investigation and/or the residual measure applicable for all other companies. 

1.3. 

Review investigation period 

(5) 

The investigation covered the period from 1 October 2006 to 30 September 2007 ('the 
review investigation period' or 'RIP'). 

1.4. 

Parties concerned by the investigation 

(6) 

(7) 

(8) 

The Commission officially informed the Government of India ('GOI') of the initiation 
of the partial interim review investigation, along with those Indian exporting producers 
who co-operated in the previous investigation and that were found to benefit from one 
or  both  of  the  two  allegedly  changed  subsidy  schemes  and  who  were  listed  in  the 
notice of initiation of the partial interim review, as well as the representatives of the 
Community industry. 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 
for  the  investigation  of  subsidisation  was  proposed  in  accordance  with  Article  27  of 
the basic Regulation. 

In order to enable the Commission to select a sample, pursuant to Article 27(2) of the 
basic Regulation, exporters and representatives acting on their behalf were requested 
to make themselves known within three weeks of the initiation of the proceeding and 
to provide basic information on their export and domestic turnover, on some particular 
subsidy schemes, and the names and activities of all related companies. The authorities 
of India were also informed. 

(9)  More  than  80  companies  made  themselves  known  and  provided  the  information 
requested for the sampling. These companies represented 95% of the total exports of 
India to the Community during the sampling period. 

(10)  Given the large number of companies, a sample of 11 exporting companies and groups 
with  the  largest  export  volumes  to  the  Community  was  chosen,  in  consultation  with 
the Community industry, the Indian textiles association Texprocil and the GOI.  

(11)  The sample represented 64% of the total exports to the EU of the product concerned 
from  India  in  the  sampling  period  (1  April  2006  to  31  March  2007).  In  accordance 
with  Article  27  of  the  basic  Regulation,  the  selected  sample  covered  the  largest 

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OJ C 230, 2.10.2007, p. 5. 

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possible representative volume of exports that could reasonably be investigated within 
the time available. 

(12)  Requests  for  the  determination  of  an  individual  subsidy  margin  in  accordance  with 
Article 27(3) of the basic Regulation were submitted by four companies not selected in 
the sample. However, in view of the large number of requests and the large number of 
companies selected in the sample, it was considered that such individual examinations 
would  be  unduly  burdensome  within  the  meaning  of  Article  27(3)  and  would  have 
prevented  completion  of  the  investigation  in  good  time.  The  claims  for  the 
determination  of  individual  margins  by  the  four  non-sampled  companies  were 
therefore rejected. 

(13)  During the investigation it was identified that two related companies of two sampled 
exporting  companies  did  not  produce,  export  or  sell  domestically  the  product 
concerned produced during the RIP. They did not express any intention to do so in the 
future.  It  has  therefore  been  decided  to  exclude  those  related  companies  from  the 
sample and calculation of individual subsidy margins. 

(14)  Companies  not  selected  for  the  sample  were  informed  that  any  anti-subsidy  duty  on 
their  exports  would  be  calculated  in  accordance  with  Article  15(3)  of  the  basic 
Regulation,  i.e.  without  exceeding  the  weighted  average  amount  of  countervailable 
subsidies established for the companies in the sample. 

(15)  The  companies  that  did  not  make  themselves  known  within  the  deadline  set  in  the 

notice of initiation were not considered as interested parties. 

(16)  Questionnaire replies were received from all sampled exporting producers in India. 

(17)  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: 

Government of India ('GOI') 

–  Ministry of Commerce, New Delhi 

Exporting producers in India 

–  Anunay Fab. Limited, Ahmedabad 

–  Brijmohan Purusottamdas, Mumbai and Incotex Impex Pvt. Limited, Mumbai  

–  Divya Global Pvt. Ltd., Mumbai 

–  Intex Exports, Pattex Exports and Sunny Made-ups, Mumbai 

–  Jindal  Worldwide  Ltd,  Progressive  Enterprise  and  Texcellence  Overseas, 

Ahmedabad and Mumbai 

–  Madhu Industries Limited and Madhu International, Ahmedabad 

–  Mahalaxmi Exports and Mahalaxmi Fabric Mills Pvt. Ltd, Ahmedabad 

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–  Prakash Cotton Mills Pvt., Ltd, Mumbai 

–  Prem Textiles, Indore 

–  The  Bombay  Dyeing  and  Manufacturing  Co.  Ltd.,  N W  Exports  Limited  and 

Nowrosjee Wadia & Sons Limited, Mumbai 

–  Vigneshwara Exports Limited, Mumbai 

1.5. 

Disclosure and comments on procedure 

(18)  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  rates 
applicable  and  continue  application  of  existing  measures.  They  were  also  given  a 
reasonable  time  to  comment.  All  submissions  and  comments  were  taken  duly  into 
consideration as set out below. 

2. 

Product concerned 

(19)  The product under review is bedlinen of cotton fibres, pure or mixed with man-made 
fibres or flax (flax not being the dominant fibre), bleached, dyed or printed, originating 
in India ('the product concerned'), currently classifiable within CN codes ex 6302 21 
00, ex 6302 22 90, ex 6302 31 00 and ex 6302 32 90, and as defined in the original 
investigation. 

3. 

SUBSIDIES 

3.1. 

Introduction 

(20)  On  the  basis  of  the  information  available  and  the  replies  to  the  Commission's 

questionnaire, the following schemes allegedly granting subsidies were investigated: 

Subsidy schemes investigated in the original investigation: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

Duty Entitlement Passbook ('DEPB') scheme 

Duty  Free  Replenishment  Certificate  ('DFRC')  scheme/  Duty  Free  Imports 
Authorisation ('DFIA') scheme 

Export Promotion Capital Goods ('EPCG') scheme 

Advance Licence Scheme ('ALS')/ Advance Authorization Scheme ('AAS') 

Export Processing Zones/Export Oriented Units ('EPZs/EOUs') 

Income Tax Exemptions scheme ('ITES') 

Subsidy schemes not investigated in the original investigation: 

(7) 

(8) 

Duty Drawback Scheme ('DDS') 

Technology Upgradation Fund Scheme ('TUFS') 

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(9) 

Export Credit Scheme (pre-shipment and post-shipment) ('ECS') 

(21)  The  schemes  (1)  to  (5)  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. 

(22)  The Income Tax Exemptions Scheme is based on the Income Tax Act of 1961, which 

is amended yearly by the Finance Act. 

(23)  The Duty Drawback Scheme is based on Section 75 of the Customs Act 1962, Section 
37(2)(xvi) of the Excise Act 1944 and Sections 93A and 94 of the Finance Act 1994. 
This is a new scheme that has not been previously investigated. 

(24)  The Technology Upgradation Fund Scheme is based on a Resolution of the Ministry 
of  Textiles,  Government  of  India,  published  in  the  Official  Gazette  of  India 
Extraordinary Part I Section I on 31 March 1999. This is  a new scheme that has not 
been previously investigated. 

(25)  The Export Credit Scheme 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. 

(26) 

In accordance with Article 11(10) of the basic Regulation, the Commission invited the 
GOI for additional consultations with respect to changed and unchanged schemes, as 
well  as  those  not  previously  investigated,  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 of them in the investigation of 
subsidisation. 

3.2. 

Specific schemes 

3.2.1.  Duty Entitlement Passbook (DEPB) scheme 

3.2.1.1.  Legal basis 

(27)  The  detailed  description  of  the  DEPB  scheme  is  contained  in  paragraph  4.3  of  the 

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

3.2.1.2.  Eligibility 

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

3.2.1.3.  Practical implementation 

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(29)  An eligible exporter can apply for DEPB credits which are calculated as a percentage 
of  the  value  of  products  exported  under  this  scheme.  Such  DEPB  rates  have  been 
established  by  the  Indian  authorities  for  most  products,  including  the  product 
concerned. They are determined on the basis of standard input-output norms ('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.  

(30)  To  be  eligible  for  benefits  under  this  scheme,  a  company  must  export.  The  exporter 
must declare that the export is taking place under DEPB to the Indian authorities at the 
time  of  export.  In  order  for  the  goods  to  be  exported,  the  Indian  customs  authorities 
issue  an  export  shipping  bill  during  the  dispatch  procedure.  This  document  declares 
the  amount  of  DEPB  credit  which  is  to  be  granted  for  that  export  and  therefore  the 
exporter knows the benefit it will receive at that time. 

(31)  Once the customs authorities issue an export shipping bill, the GOI has no discretion 
over the granting of a DEPB credit. The relevant DEPB rate to calculate the benefit is 
that which applied at the time the export declaration is made. An unusual retroactive 
increase of the DEPB rates took place during the RIP, increasing the DEPB benefit for 
exports from 1 April 2007 to 12 July 2008. However, it is not possible to assume that a 
retroactive decrease of DEPB rates could be implemented under the principle of legal 
certainty as a negative administrative decision. Therefore it can be concluded that the 
ability of the GOI to retroactively amend the level of the benefit is limited. 

(32)  DEPB credits are freely transferable  and valid for 12  months from the date  of issue. 
They can be used for payment of customs duties on subsequent imports of any goods 
without import restriction, except capital goods. Goods imported against such credits 
can be sold on the domestic market (subject to sales tax) or otherwise used. 

(33)  Applications  for  DEPB  credits  are  electronically  filed  and  can  cover  an  unlimited 
amount  of  export  transactions.  De  facto  no  strict  deadlines  exist  to  apply  for  DEPB 
credits.  The  electronic  system  used  to  manage  the  DEPB  scheme  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 a minor penalty fee (10 % on the entitlement). 

(34)  While  the  DEPB  rates  for  exports  of  the  product  concerned  during  the  IP  of  the 
original  investigation  was  8%,  at  the  beginning  of  the  RIP  it  was  only  3.7%,  which 
was revised during the RIP to 6.7% (on 12 July 2007), which was unusually backdated 
to exports since 1 April 2007. 

3.2.1.4.  Disclosure comments 

(35)  GOI and Texprocil alleged that no excess remissions occurred in the application of the 
DEPB  scheme  and  argued  that  therefore  the  scheme  was  not  countervailable.  This 
argument  is  rejected  in  the  light  of  the  conclusion  in  recital  (38)  that  this  scheme 
cannot  be  considered  a  permissible  duty  drawback  system  or  substitution  drawback 
system  within  the  meaning  of  Article  2(1)(a)(ii)  and  Annexes  I  (i),  II  and  III  of  the 
is 
basic  Regulation.  Consequently, 
countervailable. 

the  whole  amount  of  duties 

foregone 

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3.2.1.5.  Conclusion 

(36)  The  DEPB  scheme  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and 
Article 2(2) of the basic Regulation. A DEPB credit is a financial contribution by the 
GOI, 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 DEPB credit 
confers a benefit upon the exporter, because it improves their liquidity. 

(37)  The  DEPB  scheme  is  contingent  in  law  upon  export  performance,  and  therefore 
deemed  to  be  specific  and  countervailable  under  Article  3(4)(a)  of  the  basic 
Regulation. 

(38)  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  DEPB  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 DEPB scheme. 

3.2.1.6.  Calculation of the subsidy amount 

(39) 

In  accordance  with  Articles  2(2)  and  5  of  the  basic  Regulation,  the  amount  of 
countervailable  subsidies  was  calculated  in  terms  of  the  benefit  conferred  on  the 
recipient  which  was  found  to  exist  during  the  RIP.  In  this  regard,  it  was  considered 
that the benefit is conferred on the recipient 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  DEPB  credit  which  is  to  be  granted  for  that  export 
transaction,  the  GOI  has  no  discretion  as  to  whether  or  not  to  grant  the  subsidy. 
Furthermore,  the  co-operating  exporting  producers  booked  the  DEPB  credits  on  an 
accrual basis as income at the time of the export transaction. 

(40) 

In order to take account of the impact of the backdated increase in rates, the value of 
the  DEPB  credit  booked  for  exports  made  between  1  April  to  12  July  2007  was 
increased where necessary, as the actual benefit the companies will be entitled to on 
receipt  of  the  credit  from  the  GOI  is  higher  than  formally  claimed  at  the  time  of 
exportation. 

(41)  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 numerator, 
pursuant to Article 7(1)(a) of the basic Regulation. In accordance with Article 7(2) of 

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the  basic  Regulation  this  subsidy  amount  has  been  allocated  over  the  total  export 
turnover  during  the  review  investigation  period  as  the  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. 

(42)  Several comments concerning certain details of calculation of benefit under the DEPB 
were submitted. Where it was found to be justified, the calculations were adjusted as a 
result 

(43)  Contrary  to  the  submission  of  some  exporting  producers,  even  DEPBS  credit 
generated by exporting products other than the product concerned had to be considered 
when establishing the amount of countervailable DEPBS credit. Under the DEPBS no 
obligation  exists  which  limits  the  use  of  the  credits  to  the  importation  of  duty-free 
input material linked to a specific product. On the contrary, DEPBS credits are freely 
transferable, 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. 

(44)  Five companies in the sample benefited from the DEPB scheme during the RIP with 

subsidy margins ranging from 0.15% to 3.96%.  

3.2.2.  Duty  Free  Imports  Authorisation  (DFIA)  scheme/  Duty  Free  Replenishment 

Certificate (DFRC) scheme 

3.2.2.1.  Legal basis 

(45)  The detailed description of the DFIA is contained in chapter 4 of the EXIM policy 04-
09 and in chapter 4 of the HOP I 04-09. The scheme was introduced in 1 May 2006 
and replaced the DFRC scheme, which was countervailed by the original Regulation. 

3.2.2.2.  Eligibility 

(46)  The DFIA is issued to any merchant-exporter or manufacturer-exporter for the imports 
of  inputs  used  in  the  manufacture  of  goods  for  exports  free  of  basic  customs  duty, 
additional customs duty, education cess, anti-dumping duty and safeguard duty, if any. 

3.2.2.3.  Practical implementation 

(47)  The DFIA is a post- and pre-export scheme which allows imports of goods determined 
according to SION norms, but which, in case of transferable DFIA, do not have to be 
necessarily used in the manufacture of the exported product. 

(48)  The  DFIA  only  covers  the  import  of  inputs  as  prescribed  in  the  SION.  The  import 
entitlement  is  limited  to  the  quantity  and  value  mentioned  in  the  SION,  but  can  be 
revised by regional authorities on request. 

(49)  The export obligation is subject to the minimum value addition requirement of 20%. 
The exports may be performed in anticipation of a DFIA authorisation, in which case 
the import entitlement is set in proportion of the provisional exports. 

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(50)  Once  the  export  obligation  is  fulfilled,  the exporter  can  request  the  transferability  of 
the  DFIA  authorisation,  which  in  practice  means  a  permission  to  sell  the  duty-free 
import licence on the market. 

3.2.2.4.  Disclosure comments 

(51)  The  GOI  and  Texprocil  alleged  that  that  the  DFRC  is  a  legitimate  substitution 
drawback scheme, since the scheme provides for replenishment of inputs used in the 
exported product and was considered reasonable, effective and based on the generally 
accepted  commercial  practices  in  India.  Because  the  quantity,  quality  and  technical 
characteristics  and  specifications  match  with  inputs  used  in  the  export  product,  the 
scheme  would  be  in  the  view  of  the  GOI  and  Texprocil  permissible  under  the 
Agreement  on  Subsidies  and  Countervailing  Measures  (ASCM).  The  GOI  and 
Texprocil  also  argued  that,  when  assessing  whether  it  is  a  legitimate  substitution 
drawback scheme, the relevant condition is to look at what is being imported and not 
who is importing. It was further argued that in so far as the Government is concerned, 
no  additional  benefit  is  granted.  It  was  argued  that  the  scheme  was  therefore  not 
countervailable  No  new  evidence  was  provided  to  support  these  arguments  and 
therefore these arguments are rejected in the light of the findings under recitals (52) to 
(55)  that  neither  of  the  sub-schemes  be  considered  as  permissible  duty  drawback 
systems or substitution drawback systems within the meaning of Article 2(1)(a)(ii) and 
Annexes  I(i),  II  and  III  of  the  basic  Regulation.  Consequently,  the  whole  amount  of 
benefit is countervailable. 

3.2.2.5.  Conclusion 

(52)  Though  there  are  some  differences  in  the  application  of  the  new  DFIA  scheme,  as 
compared  with  the  formerly  countervailed  DFRC  scheme,  the  new  DFIA  has  to  be 
considered  as  a  continuation  of  the  DFRC  scheme,  because  it  takes  over  the  main 
elements of the DFRC. 

(53)  Both DFRC and DFIA are subsidies within the meaning of Article 2(1)(a)(i) and (ii) 
and Article 2(2) of the basic Regulation, i.e. a financial contribution in form of a grant. 
They involve a direct transfer of funds, as they can be sold and converted into cash, or 
used to offset the import duties, causing the GOI to forego revenue which is otherwise 
due. In addition, the DFRC and DFIA confer a benefit upon the exporter, because they 
improve their liquidity. 

(54)  Both DFRC and DFIA are contingent in law upon export performance, and therefore 
deemed  to  be  specific  and  countervailable  under  Article  3(4)(a)  of  the  basic 
Regulation. 

(55)  Furthermore,  neither  of  the  schemes  can  be  considered  a  permissible  duty  drawback 
system or substitution drawback system within the meaning of Article 2(1)(a)(ii) of the 
basic Regulation. They do 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. In particular: (i) they allow for ex post 
refund or drawback of import charges on inputs which are consumed in the production 
process of another product; (ii) there is no verification system or procedure in place to 
confirm  whether  and  which  inputs  are  consumed  in  the  production  of  process  of  the 
exported product or whether excess benefit occurred within the meaning of point (i) of 

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Annex I and Annexes II and III to the basic Regulation; and (iii) the transferability of 
certificates/authorisations implies that an exporter granted a DFRC or DFIA is under 
no obligation actually to use the certificate to import the inputs. 

3.2.2.6.  Calculation of the subsidy amount 

(56)  For the establishment of the benefit it has been considered that, unlike in DEPB, the 
DFRC and DFIA licences have no notional value or credit rates. The licence indicates 
the total quantity of the permitted inputs to be imported and the maximum total CIF 
value of such imports. Consequently, the benefit is not known at the time of exports, 
and it can be determined and booked into accounts only when the licence is used for 
importation or sold. 

(57)  Therefore,  in  cases  where  the  licences  were  used  for  imports,  the  benefit  for  the 
companies was calculated on the basis of the amount of the import duties forgone. In 
cases  where  the  licences  were  transferred  (sold),  the  benefit  was  calculated  on  the 
basis of revenue on such sales during the RIP. 

(58)  The  investigation  established  that  five  companies  exporting  under  the  DFRC  and/or 

DFIA sold their authorisations/certificates to third parties. 

(59)  One  exporting  producer  argued  that  it  had  used  one  of  its  DFI  authorisations  as  a 
substitution drawback and that it did not have excess remissions of duties on imports 
under  the  particular  licence. The  investigation  established  that  the  import  and  export 
quantities under that particular licence were not exhausted and that the licence was not 
yet  closed  and  verified  according  to  the  rules  prescribed  by  the  EXIM  policy. 
Therefore,  and  taking  into  account  the  findings  under  recital  (55),  it  was  concluded 
that  the  company  could  not  prove  that  no  excess  remission  was  incurred  under  that 
particular licence. The whole amount of duties saved on the imports made under that 
licence are therefore deemed a subsidy, and the claim was therefore rejected. 

(60)  Where justified claims were made, fees necessarily incurred to obtain the subsidy were 
deducted from the benefits so established to arrive at the subsidy amount as numerator 
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. 

(61)  Several  comments  concerning  certain  details  of  calculation  of  benefit  under  the 
DFRC/DFIA were submitted. Where it was found to be justified, the calculations were 
adjusted as a result. 

(62)  Contrary  to  the  submission  of  some  exporting  producers,  even  DFRC/DFIA  credit 
generated by exporting products other than the product concerned had to be considered 
when  establishing  the  amount  of  countervailable  benefit.  No  obligation  exists  under 
DFRC/DFIA which limits the use of the credits to the importation of duty-free input 
material linked to a specific product. On the contrary, DFRC/DFIA credits are freely 
transferable, 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 

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capital goods. Consequently, the product concerned can benefit from all DFRC/DFIA 
benefit generated. 

(63)  Four  companies  in  the  sample  were  found  to  benefit  from  these  schemes  during  the 

RIP with subsidy margins ranging from 0.09% to 2.03%. 

3.2.3.  Export Promotion Capital Goods (EPCG) scheme 

3.2.3.1.  Legal basis 

(64)  The detailed description of the EPCG scheme is contained in chapter 5 of the EXIM 

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

3.2.3.2.  Eligibility 

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

service providers are eligible for this scheme. 

3.2.3.3.  Practical implementation 

(66)  Under the condition of an export obligation, the GOI will issue upon application and 
payment  of  a  fee  an  EPCG  licence.  This  licence allows a company  to import  capital 
goods (new and - since April 2003 - second-hand capital goods up to 10 years old) at a 
reduced rate of duty. 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. 
From  April  2000,  the  scheme  provided  for  a  reduced  import  duty  rate  of  5  % 
applicable to all capital goods imported under the scheme. 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.  On  9 May  2008,  i.e.  outside  the  RIP,  the  GOI 
announced that the duty payable on import under EPCG was lowered to 3%. 

(67)  The  EPCG  licence  holder  can  also  source  the  capital  goods  indigenously.  In  such  a 
case,  the  EPCG  licence  holder  applies  for  invalidation  of  its  EPCG  licence.  The 
indigenous manufacturer of capital goods specified in the invalidation letter becomes 
eligible for deemed export benefit and is entitled for the benefit of duty free import of 
components  required  to  manufacture  such  capital  goods.  However,  the  excise  duty 
payable on a domestic purchase of the capital good by the EPCG licence holder can be 
refunded  or  is  exempted.  The  EPCG  licence  holder  stays  liable  to  fulfil  the  export 
obligation,  which  is  set  with  reference  to  the  notional  customs  duties  saved  on  FOB 
value of the import goods. 

3.2.3.4.  Disclosure comments 

(68)  The GOI argued that no benefit occurred in cases where EPCG licence holder applies 
for invalidation of its EPCG licence and purchases the capital goods indigenously, as 
no corresponding government regulation was issued granting exemption from payment 
of excise duties for such purchases. However, it was also confirmed by the GOI that 
under  certain  circumstances,  the  EPCG  licence  holder  could  purchase  capital  goods 
without payment  of  excise duty, i.e. in cases where this  duty  would not  been set off 
under the Indian Central Value Added Tax (CENVAT) credit system. Moreover, the 
domestic  supplier  of  capital  goods  is  eligible  in  such  cases  for  fiscal  benefits  which 
will  be  reflected  in  the  price  of  the  capital  goods  supplied.  As  this  is  a  benefit  that 

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could  be  obtained  on  condition  of  export,  as  there  are  no  changes  in  the  export 
obligation of the EPCG licence holder in case of invalidation, it has been considered 
that the argument has to be rejected and the findings remain unchanged. 

3.2.3.5.  Conclusion 

(69)  The  EPCG  scheme  provides  subsidies  within  the  meaning  of  Article  2(1)(a)(ii)  and 
Article  2(2)  of  the  basic  Regulation.  The  duty  reduction,  or  in  case  of  domestic 
sourcing,  the  refund  of  the  taxes  or  exemption  therefrom,  constitute  a  financial 
contribution  by  the  GOI,  since  this  concession  decreases  the  GOI’s  revenue,  which 
would be otherwise due. 

(70) 

In addition, the duty reduction confers a benefit upon the exporter, because the duties 
saved upon importation improve its liquidity. In case of excise duty refund/exemption, 
the refund or exemption from excise duty confers a benefit to the exporter, because the 
duties saved on purchase of the capital goods improve its liquidity. 

(71)  Furthermore, the EPCG scheme is contingent in law upon export performance, since 
such  licences  can  not  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. 

(72)  This  scheme  cannot  be  considered  a  permissible  system  for  remission  of  prior-stage 
cumulative  indirect  taxes  or  a  permissible  duty  drawback  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, items 
(h) and (i), of the basic Regulation, because they are not consumed in the production 
of the exported products. In case of remission of prior-stage cumulative indirect taxes 
it should be noted that the exporters would not be entitled to the same remission if they 
were not bound by the export obligation. 

3.2.3.6.  Calculation of the subsidy amount 

(73)  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  or 
unpaid/refunded  excise  duty  on  domestically  purchased  goods,  as  applicable,  spread 
across a period which reflects the normal depreciation period of such capital goods. 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. 
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 
numerator.  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. 

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(74)  Several comments concerning certain details of calculation of benefit under the EPCG 
were submitted. Where it was found to be justified, the calculations were adjusted as a 
result. 

(75)  Contrary  to  the  submission  of  some  exporting  producers,  even  EPCG  benefit 
generated by exporting products other than the product concerned had to be considered 
when  establishing  the  amount  of  countervailable  benefit.  No  obligation  exists  under 
EPCGS  which  limits  the  use  of  the  benefit  to  the  importation  of  duty-free  input 
material linked to a specific product. Consequently, the product concerned can benefit 
from all EPCG benefit generated. 

(76)  Four companies in the sample benefited from this scheme during the RIP with subsidy 
margins ranging up to 1.45%, for one company the benefit was found negligible. 

3.2.4.  Advance Licence Scheme (ALS)/ Advance Authorization Scheme ('AAS') 

3.2.4.1.  Legal basis 

(77)  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 of the definitive countervailing duty currently in force. 

3.2.4.2.  Eligibility 

(78)  The  AAS  consists  of  six  sub-schemes,  as  described  in  more  detail  in  recital  (79). 
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.  Finally,  intermediate  suppliers  to  manufacturer-
exporters  are  eligible  for  "deemed  export"  benefits  under  the  sub-schemes  Advance 
Release Order ('ARO') and back to back inland letter of credit. 

3.2.4.3.  Practical implementation 

(79)  Advance authorizations can be issued for: 

(1) 

(2) 

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. Import allowance and export obligation including the type of export 
product are specified in the licence. 

Annual requirement: Such an authorization is not linked to a specific export 
product, but to a wider product group (e.g. chemical and allied products). The 
licence  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 

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(3) 

(4) 

(5) 

(6) 

resultant  product  falling  under  the  product  group  using  such  duty-exempt 
material. 

supplies:  This 

sub-scheme  covers  cases  where 

Intermediate 
two 
manufacturers  intend  to  produce  a  single  export  product  and  divide  the 
production  process.  The  manufacturer-exporter  produces  the  intermediate 
product.  It  can  import  duty  free  input  materials  and  can  obtain  for  this 
purpose an AAS for intermediate supplies. The ultimate exporter finalizes the 
production and is obliged to export the finished product.  

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').  

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  Authorizations  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.  

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

(80) 

It was established that during the RIP two co-operating exporters  availed of  benefits 
from two of the sub-schemes above, linked to the product concerned, i.e. (i) ALS/AAS 
physical exports and (ii) ALS for intermediate supplies. It was therefore not necessary 
to establish the countervailability of the remaining sub-schemes. 

(81)  Following the imposition of the definitive countervailing  duty currently in  force, the 
GOI  modified  the  verification  system  applicable  to  ALS/AAS.  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 

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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). 

(82) 

In regard to the sub-schemes used during the RIP by the two exporting producers in 
the sample, 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  licences.  In  addition,  at  the  time  of  import  and  of  export,  the 
corresponding  transactions  are  to  be  documented  by  Government  officials  on  the 
licence. 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. 

(83) 

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

3.2.4.4.  Disclosure comments 

(84)  The GOI alleged that it had a proper verification system for the scheme according to 
Appendix  23  of  the  HOP  I  04-09,  and  that  no  excess  remissions  occurred  in 
application  of  ALS/AAS.  It  was  argued  that  therefore  the  scheme  was  not 
countervailable.  No  new  evidence  was  provided  support  these  allegations  and 
therefore this argument is rejected in the light of the findings that neither of the sub-
schemes be considered as permissible duty drawback systems or substitution drawback 
systems within the meaning of Article 2(1)(a)(ii) and Annexes II and III of the basic 
Regulation, as there was no proper verification system.  

(85)  Furthermore,  according  to  Annex  II(II)(5)  and  Annex  III(II)(3)  of  the  basic 
Regulation,  where  it  has  been  found  that  there  is  no  proper  verification  system,  this 
may  be  overcome  by  carrying  out  a  further  examination  by  the  exporting  country  to 
prove whether an excess payment occurred. As no such examinations were carried out 
before  the  verification  visits,  as  well  as  it  was  not  proven  that  no  excess  payments 
were received, the arguments are rejected. 

3.2.4.5.  Conclusion 

(86)  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 exporters. 

(87) 

In  addition,  ALS/AAS  physical  exports  and  ALS  for  intermediate  supply  are  clearly 
contingent in law upon export performance, and therefore deemed to be specific and 

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countervailable  under  Article  3(4)(a)  of  the  basic  Regulation.  Without  an  export 
commitment a company cannot obtain benefits under these schemes. 

(88)  Neither of the two sub-schemes used in the present case, ALS/AAS physical exports 
and  ALS  for  intermediate  supply,  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  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. 

(89)  As regards the exporting producer that used AAS, the investigation established that the 
new  verification  requirements  stipulated  by  the  Indian  authorities  had  not  yet  been 
tested in practice since the licenses had not been closed by the time of verification, and 
therefore had not been verified according to the rules prescribed by the EXIM policy. 
Therefore, that company could not prove that no excess remission was incurred under 
that particular licence. The whole amount of duties saved on imports made under that 
licence shall therefore be deemed a subsidy. 

(90)  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.  

(91)  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).  

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

3.2.4.6.  Calculation of the subsidy amount 

(93) 

In the absence of a permitted duty drawback system or substitution drawback system, 
the countervailable benefit is the amount of total remitted 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 

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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. 

(94)  The  subsidy  amount  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. 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. 

(95)  Several  comments  concerning  certain  details  of  calculation  of  benefit  under  the 
ALS/AAS  were  submitted.  Where  such  comments  were  found  to  be  justified,  the 
calculations were adjusted accordingly 

(96)  Contrary  to  the  submission  of  some  exporting  producers,  even  ALS/AAS  benefit 
generated by exporting products other than the product concerned had to be considered 
when  establishing  the  amount  of  countervailable  benefit.  No  obligation  exists  under 
ALS/AAS  which  limits  the  use  of  the  benefit  to  the  importation  of  duty-free  input 
material linked to a specific product. Consequently, the product concerned can benefit 
from all ALS/AAS benefit generated 

(97)  Two  companies  in  the  sample  benefited  from  ALS  or  AAS  with  the  benefit  ranging 

from 0.17% to 1.74%. 

3.2.5.  Export Processing Zones/Export Oriented Units (EPZs/EOUs) 

(98) 

It was found that none of the cooperating exporting producers was located in an SEZS 
or in an EPZS, or had a status of EOU. Therefore, it was found not necessary to further 
analyse this scheme in this investigation. 

3.2.6. 

Income Tax Exemptions scheme (ITES) 

(99)  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.  

(100)  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.  None  of  the  co-operating  exporting 
producers  availed  benefits  under  this  scheme  during  the  RIP.  It  was  therefore  not 
found necessary to further analyse this scheme in this investigation. 

3.2.7.  Duty Drawback Scheme (DDS) 

3.2.7.1.  Legal basis 

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(101)  The scheme is based on Section 75 of the Customs Act 1962, Section 37(2)(xvi) of the 

Excise Act 1944 and Sections 93A and 94 of the Finance Act 1994. 

3.2.7.2.  Eligibility 

(102)  Any exporter is eligible for this scheme. 

3.2.7.3.  Practical implementation 

(103)  There  are  two  types  of  duty  drawback  rates  set  by  the  GOI  –  "all-industry"  rates 
applied on a lump sum basis to all exporters of a specific product, and "brand" rates 
applied on a company basis for products not covered by "all industry" rates. The first 
type (all-industry rate) is the one relevant to the product concerned. 

(104)  The all-industry drawback rates are calculated as a percentage of the value of products 
exported under this scheme. Such all-industry drawback rates have been established by 
the Indian authorities for various products, including the product concerned. They are 
determined  on  the  basis  of  presumed  indirect  taxes  and  import  charges  charged  on 
goods  and  services  used  in  the  manufacturing  process  of  the  export  product  (import 
duties,  excise  duty,  service  tax  etc.),  including  presumed  indirect  taxes  and  import 
charges charged on goods and services for manufacturing the inputs, and regardless of 
whether those taxes have actually been paid or not. The amount of DDS is subject to a 
maximum value cap of the export product per unit. If the company can reclaim some 
of these duties from the CENVAT system then the drawback rate is lower. 

(105)  The  duty  drawback  rates  on  the  product  concerned  have  been  revised  several  times 
during  the  RIP.  Until  1 April  2007  the  applicable  rates  were  from  6.4%  to  6.9% 
depending  on  the  product  type,  until  1  September  2007  from  9.1%  to  9.8%.  On  13 
December  2007,  i.e.  after  the  end  of  the  RIP,  the  drawback  rates  were  increased  to 
10.1%  to  10.3%  and  the  increase  backdated  to  imports  from  1  September  2007,  i.e. 
within the RIP. 

(106)  To be eligible for benefits under this scheme, a company must export. A declaration 
must be made by the exporter to the authorities in India indicating that the export is 
taking  place  under  the  DDS  at  the  time  of  export.  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 DDS which is to 
be  granted  for  that  export  transaction.  The  exporter  then  knows  the  benefit  it  will 
receive  and  books  it  into  accounts  as  an  amount  receivable.  Once  the  customs 
authorities issue an export shipping bill, the GOI has no discretion over the granting of 
DDS. The relevant DDS rate to calculate the benefit is generally that which applied at 
the time the export declaration is made. A retroactive increase of the drawback rates 
took  place  during  the  RIP,  which  was  taken  into  account  in  the  calculation  of  the 
subsidy amount. 

3.2.7.4.  Disclosure comments 

(107)  Several  parties  argued  that  the  DDS  could  not  be  countervailed  in  this  investigation 
because it was not specifically mentioned in the anti-subsidy questionnaires issued at 
the beginning of the investigation. This argument is rejected for the following reasons. 
The  purpose  of  this  review  according  to  the  notice  of  initiation  is  the  'level  of 

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subsidisation', which has conferred benefit on the exporting producers of the product 
concerned, i.e. it includes all subsidy schemes operated by the GOI. 

(108)  It  was  argued  that  the  DDS  was  not  contingent  on  export  performance  because  the 
benefit  under  this  scheme  did  not  relate  to  the  level  of  exports  performed  by  the 
exporters. This argument is rejected, because the benefit of DDS can be claimed only 
if  the  goods  are  exported,  which  is  sufficient  to  fulfil  the  criterion  of  export 
contingency  laid  down  in  Article  3(4)(a)  of  the  basic  Regulation.  In  the  light  of  this 
conclusion, it is not necessary to analyse the argument that the DDS is not specific in 
the meaning of Article 3 (2) and (3) of the basic Regulation. 

(109)  The GOI submitted that DDS is a drawback system compatible with the provisions of 
the basic Regulation, and that the procedure for setting the all-industry drawback rates 
was reasonable, effective and based on generally accepted commercial practices in the 
country of export according to Annex II (II)(4) and Annex III (II)(2). As set out also in 
recital (104) above, this procedure involved an industry-wide estimation of the inputs 
used  in  production  and  import  duties  and  indirect  taxes  incurred.  However,  this 
procedure was not sufficiently precise even according to the GOI submission. Indeed, 
the GOI confirmed that there was an element of averaging, which would imply that the 
actual drawback  paid  was more than  the actual duties paid. 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), nor did it prove that no 
excess  remission  took  place.  The  alleged  parallel  of  the  verification  to  the  sampling 
techniques set out in the basic Regulation is considered irrelevant, as they clearly refer 
to  the  anti-subsidy  investigations  and  do  not  form  part  of  the  criteria  laid  down  in 
Annexes II and III. Therefore, these arguments are rejected. 

(110)  It was also submitted that no existence of excess remissions could be presumed from 
the fact that in the DDS the GOI did not include all indirect taxes payable in India into 
the  DDS,  but  only  the  central  indirect  taxes.  This  argument  is  rejected,  because 
according  to  Annex  II  (II)  (4)  and  Annex  III  (II)  (2)  excess  remissions  need  to  be 
assessed in the framework of a particular subsidy scheme. 

3.2.7.5.  Conclusion 

(111)  The DDS provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) 
of  the  basic  Regulation.  The  duty  drawback  amount  is  equivalent  to  government 
revenue  forgone  that  would  otherwise  have  been  collected  and  paid  to  the  GoI.  In 
addition, the DDS on exportation confers a benefit upon the exporter.  

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

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

(113)  Several  parties  to  the  proceeding  argued  that  DDS  is  a  drawback  system  compatible 
with  the  provisions  of  the  basic  Regulation  and  therefore  the  benefit  conferred 
according to it should not be countervailed. 

(114)  The investigation has established that this scheme cannot be considered a permissible 
system  for  remission  of  prior-stage  cumulative  indirect  taxes  or  a  permissible  duty 
drawback or substitution drawback system within the meaning of Article 2(1)(a)(ii) of 

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the basic Regulation. It does not conform to the strict rules laid down in Annex I item 
(h) and (i), Annex II (guidelines on consumption of inputs) and Annex III (definition 
and rules for substitution drawback) of the basic Regulation. An exporter is under no 
obligation  either  (i)  to  keep  an  account  of  the  duties  and  taxes  paid  on  the 
imported/domestically  purchased  goods  or  incorporated  services  or  (ii)  to  actually 
consume those goods and services in the production process, and (iii) the amount of 
drawback  is  not  calculated  in  relation  to  actual  inputs  used  by  the  exporter  and  the 
duties and taxes actually paid. 

(115)  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 
refund  of  domestic  indirect  taxes  within  the  meaning  of  item  (h)  of  Annex  I  and 
Annex II of the basic Regulation or of import duties occurred within the meaning of 
item (i) of Annex I and Annexes II and III of the basic Regulation. 

(116)  Finally, an exporter is eligible for the DDS benefits regardless of whether it imports or 
purchases  domestically  any  inputs  at  all,  and  has  paid  duties  or  taxes  on  those 
purchases.  In  order  to  obtain  the  benefit,  it  is  sufficient  for  an  exporter  to  simply 
export goods without demonstrating that any input material was imported or that any 
input  material  or  service  was  purchased  domestically,  and  import  duties  or  domestic 
indirect  taxes  have  been  paid.  Consequently,  there  is  no  difference  in  the  drawback 
rate  whether  a  company  owns  all  stages  of  production  of  the  inputs  and  the  product 
concerned or is a mere exporting trader. 

3.2.7.6.  Calculation of the subsidy amount 

(117)  In  accordance  with  Articles  2(2)  and  5  of  the  basic  Regulation,  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 when an export transaction is made under this 
scheme.  From  that  moment,  the  GOI  is  liable  to  pay  the  drawback  amount  to  the 
respective exporters, which constitutes a financial contribution within the meaning of 
Article 2(1)(a)(i) of the basic Regulation. Once the customs authorities issue an export 
shipping bill which shows, inter alia, the amount of DDS which is to be granted for 
that  export  transaction,  the  GOI  has  no  discretion  as  to  whether  or  not  to  grant  the 
subsidy.  Furthermore,  the  co-operating  exporting  producers  booked  DDS  on  an 
accrual basis as income at the time of each export transaction. 

(118)  In order to take account of the impact of backdated increase in rates, the value of the 
DDS credit booked for exports made between 1 September to 30 September 2007 was 
increased  where  necessary  as  the  actual  benefit  the  companies  will  be  entitled  to 
receive from the GOI is higher than formally claimed at the time of exportation. 

(119)  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. 

(120)  Seven companies in the sample submitted claims that although they benefited from the 
DDS, they did not incur any excess remissions, as the taxes or import duties they have 

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accrued exceeded the drawback amounts. It has been decided to reject these claims. In 
recitals  (113)  and  (115)  it  was  concluded  that  the  GOI  did  not  have  an  adequate 
verification system as provided in Annexes I, II and III  of the basic Regulation. The 
investigation  also  showed  that  companies  did  not  keep  any  consumption  registers  or 
any  other  internal  reporting  system  to  account  for  possible  excess  remissions.  Such 
reports were created by the companies during the verification visits and largely include 
the taxes paid by the companies in general. 

(121)  In the absence of permitted duty drawback systems or substitution drawback systems, 
the countervailable benefit is the remission of total amount of drawback accrued under 
the  DDS.  Contrary  to  the  disclosure  submissions  made  by  the  GOI,  Texprocil  and 
some exporters, 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 
verification procedure is established, the above exception for drawback schemes is not 
applicable and the normal rule of the countervailing of the amount of drawback, 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.  It  should  further  be  noted,  that  an  additional 
examination  by  the  Indian  authorities  in  the  absence  of  an  effectively  applied 
verification system needs to be done in a  timely manner,  i.e. normally  before the  on 
the spot verification in a countervailing duty investigation. 

(122)  Contrary to the submission of some exporting producers, even DDS benefit generated 
by  exporting  non-product  concerned  had  to  be  considered  when  establishing  the 
amount  of  countervailable  benefit.  No  obligation  exists  under  DDS  which  limits  the 
use  of  the  benefit  to  a  specific  product.  Consequently,  the  product  concerned  can 
benefit from all DDS benefit generated. 

(123)  All  companies  in  the  sample  benefited  from  the  DDS  scheme  during  the  RIP  with 

subsidy margins ranging from 1.45% to 7.57%. 

3.2.8.  Technology Upgradation Fund Scheme (TUFS) 

3.2.8.1.  Legal basis 

(124)  TUFS  was  introduced  by  a  Resolution  of  the  Ministry  of  Textiles,  Government  of 
India,  published  in  the  Official  Gazette  of  India  Extraordinary  Part  I  Section  I  on 
31 March 1999 ('Resolution'). The scheme was approved to be in effect from 1 April 
1999  to  31 March  2004.  It  was  extended  up  to  31 March  2007  and  subsequently 
extended again until the end of the RIP. 

3.2.8.2.  Eligibility 

(125)  Existing or new producers in the sector of cotton processing, textile and jute industry 

are eligible for benefits under this scheme. 

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3.2.8.3.  Practical implementation 

(126)  The  aim  of  the  scheme  is  to  provide  support  for  modernisation  of  technology  in  the 
textile  and  jute  industry,  including  units  for  processing  of  fibres,  yarns,  fabrics, 
garments and made-ups. The scheme provides for various kinds of benefit in the form 
of  a  capital  subsidy,  interest  subsidy  or  coverage  of  exchange  rate  fluctuation  in 
foreign  currency  loans.  The  programmes  under  the  scheme  differentiate  between  the 
textile and jute sectors, and the powerloom and handloom sector. TUFS includes the 
following programmes: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

5%  reimbursement  of  the  normal  interest  charged  by  the  lending  agency  on 
rupee term loan, or 

Coverage  of  5%  exchange  fluctuation  (interest  and  repayment)  from  the  base 
rate on foreign currency loan, or 

15% credit linked capital subsidy for the textile and jute sector, or 

20% credit linked capital subsidy for the powerloom sector, or 

5% interest reimbursement, plus 10% capital subsidy, for specified processing 
machinery, and  

25% capital subsidy on purchase of the new machinery and equipment for pre-
loom  and  post-loom  operations,  handlooms/  up-gradation  of  handlooms  and 
testing and quality control equipments, for handloom production units. 

(127)  The investigation established that two companies in the sample obtained benefit under 
the  TUFS  for  purchase  of  machinery  used  in  production  of  the  product  concerned. 
Those  companies  used,  respectively,  the  interest  reimbursement  loans  (scheme  (a)) 
and  the  10%  capital  subsidy  for  processing  machinery  combined  with  5%  interest 
reimbursement (scheme (e)). 

(128)  The  Resolution  provides  a  list  of  the  type  of  machinery  the  purchase  of  which  is 
subsidised  under  the  TUFS.  To  receive  benefit  from  the  TUFS,  companies  apply  to 
commercial banks or other lending agencies, which grant the loans to the companies 
based  upon  their  own  independent  assessment  of  the  credit  worthiness  of  the 
borrowers.  If  the  borrower  is  eligible  for  an  interest  subsidy  under  the  scheme,  the 
commercial banks refer the claim to a "nodal agency" who subsequently releases the 
benefit amount to the commercial bank involved. The commercial banks finally credit 
the  funds  so  received  to  the  account  of  the  borrower.  The  nodal  agencies  get 
reimbursement from the Ministry of Textiles, Government of India. The Government 
of India places the required funds at the disposal of the nodal agencies on a quarterly 
basis. 

3.2.8.4.  Disclosure comments 

(129)  No comments were received from interested parties regarding this scheme. 

3.2.8.5.  Conclusion 

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(130)  The TUFS constitutes a subsidy under the provisions of Article 2(1)(a)(i) as it involves 
a  direct  transfer  of  funds  by  the  government  in  the  form  of  a  grant.  The  subsidy 
confers a benefit by decreasing the financing and interest costs for the purchase of the 
machinery. 

(131)  The  subsidy  is  deemed  to  be  specific  and  therefore  countervailable  according  to 
Article 3(2)(a) of the basic Regulation since it is specifically provided to an industry or 
a group of industries, including the manufacture of the product concerned. 

3.2.8.6.  Calculation of the subsidy amount 

(132)  The  capital  subsidy  amount  was  calculated,  in  accordance  with  Article  7(3)  of  the 
basic Regulation, on the basis of the amount saved by the recipient companies on the 
purchased  machinery,  spread  across  a  period  which  reflects  the  normal  depreciation 
period of such capital goods. 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.  In accordance  with  Article  7(2)  of  the  basic 
Regulation, this subsidy amount has been allocated over the total turnover of textiles 
during  the  RIP  as  appropriate  denominator,  because  the  subsidy  is  not  granted  by 
reference to the quantities manufactured, produced, exported or transported. 

(133)  The  interest  subsidy  amount  was  calculated,  in  accordance  with  Article  7(3)  of  the 
basic  Regulation,  on  the  basis  of  the  amount  actually  repaid  during  the  RIP  to  the 
companies concerned linked to the interest paid on the commercial loans taken out for 
the purchase of the machinery concerned. In accordance with Article 7(2) of the basic 
Regulation, this subsidy amount has been allocated over the total turnover of textiles 
during  the  RIP  as  appropriate  denominator,  because  the  subsidy  is  not  granted  by 
reference to the quantities manufactured, produced, exported or transported. 

(134)  Two companies in the sample benefited from this scheme during the RIP with subsidy 

margins ranging from 0.01% to 0.31%. 

3.2.9.  Export Credit Scheme (pre-shipment and post-shipment) (ECS) 

3.2.9.1.  Legal basis 

(135)  The  details  of  the  scheme  are  set  out  in  the  Master  Circular  IECD  No 
02/04.02.02/2006-07 (Export Credit in Foreign Currency), the Master Circular IECD 
No  01/04.02.02/2006-07 
the  Master  Circular 
DBOD.DIR(Exp.)No.01/04.02.02/2007-08  (consolidated  for  both  Rupee  and  Foreign 
Currency export credit) of the Reserve Bank of India (‘RBI’), which was addressed to 
all  commercial  banks  in  India  during  the  RIP.  The  Master  Circulars  are  regularly 
revised and updated. 

(Rupee  Export  Credit)  and 

3.2.9.2.  Eligibility 

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

3.2.9.3.  Practical implementation 

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(137)  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 
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. 

(138)  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 purely set under market conditions. 

3.2.9.4.  Disclosure comments 

(139)  The  GOI  claimed  that  with  regard  the  ECS  the  Commission  failed  to  examine  the 
scheme  in  the  light  of  the  provisions  of  Annex  I  point  (k)  of  the  Agreement  on 
Subsidies and Countervailing Measures (ASCM) and argued that export credits, both 
in  Indian  rupees  or  in  foreign  currency,  were  not  countervailable,  especially  as  in 
foreign  currency  loans  the  banks  were  allowed  to  borrow  funds  at  "internationally 
competitive rates". 

(140)  It should be noted that the export credit schemes referred to under recital (135) do not 
fall  within  the  application  of  Annex  I  point  (k)  of  the  ASCM,  because  only  export 
financing  with  a  duration  of  two  years  or  more  can  normally  be  regarded  as  "export 
credits"  in  the  meaning  of  that  provision  since  this  is  the  definition  of  the  OECD 
Arrangement  on  Guidelines  for  Officially  Supported  Export  Credits.  Therefore  this 
argument is rejected. 

3.2.9.5.  Conclusion 

(141)  The  preferential  interest  rates  of  an  ECS  credit  set  by  the  RBI  Master  Circulars 
mentioned in recital (135) 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. 

(142)  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  WTO  Agreement  on 
Subsidies  and  Countervailing  Measures  ("ASCM")  require  a  charge  on  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), 

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(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, 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. 

(143)  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. 

3.2.9.6.  Calculation of the subsidy amount 

(144)  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  amount  that  would  have 
been  payable  if  the  rates  for  ordinary  commercial  credits  had  been  applied.  This 
subsidy  amount (numerator)  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. 

(145)  Several comments concerning certain details of calculation of benefit under the ECS 
were submitted. Where it was found to be justified, the calculations were adjusted as a 
result 

(146)  All companies and groups in the sample obtained subsidies  from this  scheme during 

the RIP with rates up to 1.05%, for one company the benefit was found negligible. 

3.3. 

Amount of countervailable subsidies 

(147)  The amount of countervailable subsidies in accordance with the provisions of the basic 
Regulation,  expressed  ad  valorem,  for  the  investigated  exporting  producers  ranged 
between 5.2 % and 9.7 %. 

(148)  In  accordance with Article 15(3) of the  basic  Regulation, the subsidy margin  for  the 
cooperating  companies  not  included  in  the  sample,  calculated  on  the  basis  of  the 
weighted  average  subsidy  margin  established  for  the  cooperating  companies  in  the 
sample,  is  7.7 %.  Given  that  the  level  of  the  overall  cooperation  for  India  was  high 
(95 %), the residual subsidy margin for all other companies was set at the level for the 
company with the highest individual margin, i.e. 9.7 %. 

EN 

28 

   EN 

 
Subsidy scheme 
→ 

DEPBS  DFRC/ 

DFIA 

EPCGS  ALS/ 
AAS 

EPZs/ 
EOUs 

ITES  ECS 

DDS 

TUFS  Total 

Company/Group↓ 

Anunay Fab. Ltd 

0.15% 

2,03% 

1.05%  4.58% 

7.8% 

1.65% 

1.45% 

1.74% 

0.11%  4.15%  0.31%  9.4% 

0.94%  7.39% 

8.3% 

0.94% 

0.04%  7.26% 

8.2% 

0.08%  7.57% 

7.6% 

1.44% 

1.25% 

0.76%  4.57% 

8% 

The Bombay 
Dyeing and 
Manufacturing 
Co. Ltd 

N W Exports 
Limited 

Nowrosjee Wadia 
& Sons Limited 

Brijmohan 
Purusottamdas 

Incotex Impex 
Pvt. Ltd 

Divya Global Pvt. 
Ltd 

Intex Exports 

Pattex Exports 

Sunny Made-Ups 

Jindal Worldwide 
Ltd 

Texcellence 
Overseas 

Madhu Industries 
Ltd. 

3.96% 

Mahalaxmi Fabric 
Mills Pvt. Ltd 

negl. 

1.45% 

5.4% 

0.07%  7.41%  0.01%  7.5% 

Mahalaxmi 
Exports 

Prakash Cotton 
Mills Pvt., Ltd 

Prem Textiles 

Vigneshwara 
Exports Ltd. 

1.41% 

1.17% 

0.34%  6.78% 

9.7% 

0.5% 

0.09% 

negl. 

0.17% 

0.61%  3.84% 

0.88%  7.48% 

8.3% 

5.2% 

4. 

Countervailing measures 

EN 

29 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(149)  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  cooperating  producers  has  changed 
and,  therefore,  the  rate  of  countervailing  duty,  imposed  by  Council  Regulation  (EC) 
No 74/2004 has to be amended accordingly. 

(150)  The  definitive  duty  currently  in  force  was  established  on  the  basis  of  the 
countervailing  margins,  as  the  injury  elimination  level  was  higher.  As  the  subsidy 
margins established in this review also did not exceed the injury elimination level, in 
accordance with Article 15 (1) of the basic Regulation the duties are determined on the 
basis of the subsidy margins. 

(151)  The  subsidy  margin  for  company  Pasupati  Fabrics,  which  did  not  form  part  of  this 
review,  was  maintained  at  the  level  established  in  the  original  investigation,  as  they 
were  found  to  benefit  from  a  subsidy  scheme  which  was  not  reviewed  in  this 
investigation. 

(152)  The  companies  that  were  found  to  be  related  have  been  regarded  as  a  single  legal 
entity  (group)  for  duty  collection  purposes  and  hence  submitted  to  the  same 
countervailing duty. The export quantities of the product concerned during the RIP of 
those groups were used in order to ensure a proper weighting. 

(153)  The  sampled  company  Prem  Textiles  submitted  information  during  the  review 
investigation  showing  that  it  had  changed  its  name  to  'Prem  Textiles  (International) 
Pvt. Ltd.' After examining this information and concluding that the change of name in 
no way affects the findings of the present review, it was decided to grant this request 
and refer to them as 'Prem Textiles (International) Pvt. Ltd.' in this Regulation. 

(154)  Given that the level of the overall cooperation for India was high (95 %), the residual 
countervailing duty for all other companies was set at the level for the company with 
the highest individual margin, i.e. 9.7 %. 

(155)  The following duties therefore apply: 

Company/group 

Rate of duty (%) 

Anunay Fab. Limited, Ahmedabad 

The Bombay Dyeing and Manufacturing Co. 
Ltd., Mumbai 

N W Exports Limited, Mumbai 

Nowrosjee Wadia & Sons Limited, Mumbai 

Brijmohan Purusottamdas, Mumbai 

Incotex Impex Pvt. Limited, Mumbai 

Divya Global Pvt. Ltd., Mumbai 

7.8% 

9.4% 

8.3% 

8.2% 

EN 

30 

   EN 

 
Intex Exports, Mumbai 

Pattex Exports, Mumbai 

Sunny Made-Ups, Mumbai 

Jindal Worldwide Ltd, Ahmedabad 

Texcellence Overseas, Mumbai 

Madhu Industries Limited, Ahmedabad 

Mahalaxmi  Fabric  Mills  Pvt.  Ltd., 
Ahmedabad 

Mahalaxmi Exports, Ahmedabad  

Prakash Cotton Mills Pvt., Ltd, Mumbai 

Prem Textiles, Indore 

Vigneshwara Exports Limited, Mumbai 

Cooperating companies not in the sample 

All other companies 

7.6% 

8% 

5.4% 

7.5% 

9.7% 

8.3% 

5.2% 

7.7% 

9.7% 

(156)  The  individual  company  countervailing  duty  rates  specified  in  this  Regulation  were 
established  on  the  basis  of  the  findings  of  the  present  investigation.  Therefore,  they 
reflect  the  situation  found  during  that  investigation  with  respect  to  these  companies. 
These duty rates (as opposed to the average duty applicable to Annex I companies and 
the  country-wide  duty  applicable  to  'all  other  companies')  are  thus  exclusively 
applicable to imports of products originating in India and produced by the companies 
and thus by the specific legal entities mentioned. Imported products produced by any 
other company not specifically mentioned in the operative part of this Regulation with 
its name and address, 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'. 

(157)  Any claim requesting the application of these individual company countervailing duty 
rates (e.g. following a change in the name of the entity or following the setting up of 
new  production  or  sales  entities)  should  be  addressed  to  the  Commission  forthwith 
with all relevant information, in particular any modification in the company's activities 
linked  to  production  and  export  sales  associated  with  e.g.  that  name  change  or  that 
change in the production and sales entities. The Commission, if appropriate, will, after 
consultation  of  the  Advisory  Committee,  amend  the  Regulation  accordingly  by 
updating the list of companies benefiting from individual duty rates. 

EN 

31 

   EN 

 
HAS ADOPTED THIS REGULATION: 

Article 1 

Article 1 of Council Regulation (EC) 74/2004 is hereby replaced with the following: 

"Article 1 

1. A definitive countervailing duty is hereby imposed on imports of bedlinen of cotton fibres, 
pure  or  mixed  with  man-made  fibres  or  flax  (flax  not  being  the  dominant  fibre),  bleached, 
dyed  or  printed,  originating  in  India,  currently  classifiable  within  CN  codes  ex  6302  21  00 
(TARIC codes 6302 21 00 81 and 6302 21 00 89), ex 6302 22 90 (TARIC code 6302 22 90 
19), ex 6302 31 00 (TARIC code 6302 31 00 90) and ex 6302 32 90 (TARIC code 6302 32 90 
19). 

2.  The  rate  of  duty  applicable  to  the  net,  free-at-Community-frontier  price,  before  duty,  for 
products produced by the following companies shall be as follows: 

Company 

Rate of duty (%) 

TARIC 
additional 
code 

Anunay Fab. Limited, Ahmedabad 

The  Bombay  Dyeing  and  Manufacturing  Co.  Ltd., 
Mumbai 

N.W. Exports Limited, Mumbai 

Nowrosjee Wadia & Sons Limited, Mumbai 

Brijmohan Purusottamdas, Mumbai 

Incotex Impex Pvt. Limited, Mumbai 

Divya Global Pvt. Ltd., Mumbai 

Intex Exports, Mumbai 

Pattex Exports, Mumbai 

Sunny Made-Ups, Mumbai 

Jindal Worldwide Ltd, Ahmedabad 

Texcellence Overseas, Mumbai 

Madhu Industries Limited, Ahmedabad 

Mahalaxmi Fabric Mills Pvt. Ltd., Ahmedabad 

7.8 

9.4 

9.4 

9.4 

8.3 

8.3 

8.2 

7.6 

7.6 

7.6 

8 

8 

5.4 

7.5 

A902 

A488 

A489 

A490 

A491 

A903 

A492 

A904 

A905 

A906 

A494 

A493 

A907 

A495 

EN 

32 

   EN 

 
 
 
 
 
 
Mahalaxmi Exports, Ahmedabad  

Pasupati Fabrics, New Delhi 

Prakash Cotton Mills Pvt., Ltd, Mumbai 

Prem Textiles (International) Pvt. Ltd, Indore 

Vigneshwara Exports Limited, Mumbai 

7.5 

8.5 

9.7 

8.3 

5.2 

A908 

A496 

8048 

A909 

A497 

3.  The  rate  of  duty  applicable  to  the  net,  free-at-Community-frontier  price,  before  duty,  for 
products produced  by  the companies  listed in the Annex, shall  be 7.7 % (TARIC additional 
code A498). 

4.  The  rate  of  duty  applicable  to  the  net,  free-at-Community-frontier  price,  before  duty,  for 
products  produced  by  the  companies  not  specified  in  paragraphs  2  and  3,  shall  be  9.7 % 
(TARIC additional code A999). 

5. Unless otherwise specified, the provisions in force concerning customs duties shall apply." 

The Annex to Council Regulation (EC) 74/2004 is replaced by the Annex to this Regulation. 

Article 2 

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

Article 3 

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

Done at Brussels,  

For the Council 
The President 

EN 

33 

   EN 

 
 
 
 
ANNEX 

Taric Additional Code : A498 

Ajit Impex 

Alok Industries Limited 

Alps Industries Ltd 

Ambaji Marketing Pvt. Ltd 

Anglo French textiles 

Anjal Garments 

Anjani Synthetics Limited 

Aravali 

Ashok Heryani Exports 

At Home India Pvt. Ltd 

Atul Impex Pvt. Ltd 

Balloons 

Beepee Enterprise 

Bhairav India International 

Bunts Exports Pvt Ltd 

Chemi Palace 

Consultech Dynamics 

Cotfab Exports 

Country House 

Creative Mobus Fabrics Limited 

Deepak Traders 

Dimple Impex (India) Pvt Ltd 

Eleganza Furnishings Pvt. Ltd 

Emperor Trading Company 

Mumbai 

Mumbai 

Ghaziabad 

Ahmedabad 

Pondicherry 

Ghaziabad 

Ahmedabad 

Jaipur 

New Delhi 

New Delhi 

Dombivli 

New Delhi 

Mumbai 

Ahmedabad 

Mumbai 

Mumbai 

Mumbai 

Mumbai 

New Delhi 

Mumbai 

Mumbai 

New Delhi 

Mumbai 

Tirupur 

EN 

34 

   EN 

 
Estocorp (India) Pvt. Ltd 

Exemplar International 

Falcon Finstock Pvt. Ltd 

G-2 International export Ltd 

Gauranga Homefashions 

GHCL Ltd 

New Delhi 

Hyderabad 

Ahmedabad 

Ahmedabad 

Mumbai 

Gujarat 

Good Shepherd Health Education & Dispensary 

Tamilnadu 

Harimann International Private Limited 

Heirloom Collections (P) Ltd 

Hemlines Textile Exports Pvt. Ltd 

Himalaya Overseas 

Home Fashions International 

Ibats 

Indian Arts and Crafts Syndicate 

Indian Craft Creations 

Indo Euro Textiles Pvt. Ltd 

Kabra Brothers 

Kalam Designs 

Kanodia Fabrics (International) 

Karthi Krishna Exports 

Kaushalya Export 

Kirti Overseas 

La Sorogeeka Incorporated 

Lalit & Company 

Manubhai Vithaldas 

Marwaha Exports 

Mumbai 

New Delhi 

Mumbai 

New Delhi 

Kerala 

New Delhi 

New Delhi 

New Delhi 

New Delhi 

Mumbai 

Ahmedabad 

Mumbai 

Tirupur 

Ahmedabad 

Ahmedabad 

New Delhi 

Mumbai 

Mumbai 

New Delhi 

EN 

35 

   EN 

 
Milano International (India) Pvt. Ltd 

Mohan Overseas (P) Ltd 

M/s. Opera Clothing 

M/S Vijayeswari Textiles Limited 

Nandlal & Sons 

Natural Collection 

Oracle Exports Home Textiles Pvt. Ltd 

Pacific Exports 

Petite Point 

Pradip Exports 

Pradip Overseas Pvt. Ltd 

Punch Exporters 

Radiant Expo Global Pvt. Ltd 

Radiant Exports 

Raghuvir Exim Limited 

Ramesh Textiles India Pvt. Ltd 

Ramlaks Exports Pvt. Ltd 

Redial Exim Pvt. Ltd 

S. D. Entreprises 

Samria Fabrics 

Sanskrut Intertex Pvt. Ltd 

Sarah Exports 

Shades of India Crafts Pvt. Ltd 

Shanker Kapda Niryat Pvt. Ltd 

Shetty Garments Pvt Ltd 

Shivani Exports 

Chennai 

New Delhi 

Mumbai 

Coimbatore 

Mumbai 

New Delhi 

Mumbai 

Ahmedabad 

New Delhi 

Ahmedabad 

Ahmedabad 

Mumbai 

New Delhi 

New Delhi 

Ahmedabad 

Indore 

Mumbai 

Mumbai 

Mumbai 

Indore 

Ahmedabad 

Mumbai 

New Delhi 

Baroda 

Mumbai 

Mumbai 

EN 

36 

   EN 

 
Shivani Impex 

Shrijee Enterprises 

S.P. Impex 

Starline Exports 

Stitchwell Garments 

Sumangalam Exports Pvt. Ltd 

Summer India Textile Mills (P) Ltd 

Surendra Textile 

Suresh & Co. 

Synergy Lifestyles Pvt. Ltd 

Syntex Corporation Pvt. Ltd 

Texel Industries 

Texmart Import export 

Textrade International Private Limited 

The Hindoostan Spinning & Weaving Mills Ltd 

Trend Setters 

Trend Setters K.F.T.Z. 

Utkarsh Exim Pvt Ltd  

V & K Associates 

Valiant Glass Works Private Ltd  

Visma International 

VPMSK A Traders 

V.S.N.C. Narasimha Chettiar Sons 

Welspun India Limited 

Yellows Spun and Linens Private Limited 

Mumbai 

Mumbai 

Indore 

Mumbai 

Ahmedabad 

Mumbai 

Salem 

Indore 

Mumbai 

Mumbai 

Mumbai 

Chennai 

Ahmedabad 

Mumbai 

Mumbai 

Mumbai 

Mumbai 

Ahmedabad 

Mumbai 

Mumbai 

Tamilnadu 

Karur 

Karur 

Mumbai 

Mumbai 

EN 

37 

   EN