Council Regulation (EC) No 1010/2008 of 13 October 2008 imposing a definitive countervailing duty on imports of sulphanilic acid originating in India following an expiry review pursuant to Article 18 of Regulation (EC) No 2026/97 and a partial interim review pursuant to Article 19 of Regulation (EC) No 2026/97 and amending Regulation (EC) No 1000/2008 imposing a definitive anti-dumping duty on imports of sulphanilic acid originating in the People’s Republic of China and India following an expiry review pursuant to Article 11(2) of Regulation (EC) No 384/96

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 Community (1) (the basic Regulation), and in particular Articles 15, 18 and 19 thereof,

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

Whereas:

(1) In July 2002, by Regulation (EC) No 1338/2002 (2), the Council imposed a definitive countervailing duty (the existing measures) of 7,1 % on imports of sulphanilic acid falling within CN code ex 2921 42 10 (TARIC code 2921 42 10 60) originating in India. The measures imposed had been based on the findings of an antisubsidy proceeding initiated pursuant to Article 10 of the basic Regulation (the original investigation).

(2) At the same time, by Regulation (EC) No 1339/2002 (3), the Council imposed a definitive anti-dumping duty of 18,3 % on imports of the same product originating in India.

(3) Within the framework of the above-mentioned countervailing and anti-dumping proceedings, the Commission, by Decision 2002/611/EC (4) accepted a price undertaking offered by the Indian exporting producer, Kokan Synthetics and Chemicals Pvt. Ltd (Kokan).

(4) In December 2003, Kokan informed the Commission that it wished to withdraw its undertaking voluntarily. Accordingly, the Commission Decision accepting the undertaking was repealed by Decision 2004/255/EC (5).

(5) In April 2005, following a request lodged by Kokan, the Commission initiated (6) a partial interim review pursuant to Article 19 of the basic Regulation and Article 11(3) of Regulation (EC) No 384/96 (7) (the basic anti-dumping Regulation) respectively, limited in scope to the examination of the acceptability of an undertaking to be offered by the company.

(6) Following an investigation, in December 2005, by Decision 2006/37/EC (8), the Commission accepted an undertaking offered by Kokan in connection with the anti-dumping and countervailing proceedings concerning imports of sulphanilic acid originating in India.

(7) In January 2006, as a result of the investigation referred to above in recital 6, by Council Regulation (EC) No 123/2006 (9), Regulation (EC) No 1338/2002 imposing a definitive countervailing duty on imports of sulphanilic acid originating in India and Regulation (EC) No 1339/2002 imposing a definitive anti-dumping duty on imports of sulphanilic acid originating, inter alia, in India, were amended to take into account the acceptance of the said undertaking.

(8) Following a review in accordance with the provisions of Article 11(2) of Regulation (EC) No 384/96, the Council, by Regulation (EC) No 1000/2008 (10), imposed an anti-dumping duty on imports of sulphanilic acid originating in the People’s Republic of China and India.

(9) Following the publication of a notice of impending expiry (11) of the existing measures, the Commission, on 24 April 2007, received a request for an expiry review pursuant to Article 18 of the basic Regulation. This request was lodged by two Community producers (the applicants) representing 100 % of the Community production of sulphanilic acid.

(10) The request for an expiry review was based on the grounds that the expiry of the measures would be likely to result in the continuation or recurrence of subsidisation and injury to the Community industry.

(11) The Commission examined the evidence submitted by the applicants and considered it sufficient to justify the initiation of a review in accordance with the provisions of Article 18 of the basic Regulation. After consultation of the Advisory Committee, the Commission announced on 24 July 2007, by a notice of initiation published in the Official Journal of the European Union (12), the initiation of an expiry review pursuant to Article 18 of the basic Regulation.

(12) It should be noted that prior to the initiation of the expiry review, and in accordance with Articles 10(9) and 22(1) of the basic Regulation, the Commission notified the Government of India (hereinafter referred to as GOI) that it had received a properly documented review request and invited the GOI for consultations with the aim of clarifying the situation as regards the contents of the complaint and arriving at a mutually agreed solution. The GOI did not react to this offer of consultations. Consultations were likewise offered and held with the Indian authorities in the context of the partial interim review referred to below. These consultations did not arrive at a mutually agreed solution that would have warranted that the review not be initiated.

(13) By a notice of initiation published in the Official Journal of the European Union on 29 September 2007 (13) (the Article 19 notice of initiation), the Commission, pursuant to Article 19 of the basic Regulation, initiated on its own initiative a partial interim review limited to the level of subsidisation, since there was sufficient prima facie evidence available to the Commission that the circumstances with regard to subsidisation on the basis of which measures had been established have changed and that these changes were of a lasting nature.

(14) The review was limited to the level of subsidisation of the company Kokan listed in the Annex to the Article 19 notice of initiation as well as to other exporters that were invited to make themselves known under the conditions and within the time limit set out in the notice of initiation.

(15) The investigation of continuation or recurrence of subsidisation covered the period from 1 April 2006 to 31 March 2007 (review investigation period or RIP). This period was also used for the examination of the alleged changed circumstances that led to the initiation of the partial interim review. The examination of the trends relevant for the assessment of a likelihood of a continuation or recurrence of injury covered the period from 2003 to the end of the review investigation period (the period considered).

(16) The Commission officially advised the exporting producers, importers and users known to be concerned and their associations, the representatives of the exporting country, the applicant and the Community producers of the initiation of the expiry review and the partial interim review. Interested parties were given the opportunity to make their views known in writing and to request a hearing within the time limit set out in the notice of initiation.

(17) All interested parties, who so requested and showed that there were particular reasons why they should be heard, were granted a hearing.

(18) Questionnaires were sent in the expiry review to all parties known to be concerned, namely to the two Community producers, to the exporting producer in India and to the known importers and users and to the GOI. In regard to the partial interim review, questionnaires were sent to the exporting producer in India and to the GOI.

(19) Replies to the questionnaires were received from the GOI, both of the Community producers and the exporting producer from the country concerned, as well as from four users. None of the importers replied to the questionnaire and no other importers supplied the Commission with any information or made themselves known in the course of the investigations.

(21) The product under review is sulphanilic acid originating in India (the product concerned), currently classifiable within CN code ex 2921 42 10 (TARIC 2921 42 10 60). There are basically two grades of sulphanilic acid, which are determined according to their purity: a technical grade and a purified grade. In addition, the purified grade is sometimes commercialised in the form of a salt of sulphanilic acid. Sulphanilic acid is used as a raw material in the production of optical brighteners, concrete additives, food colourants and speciality dyes. While there are different uses of sulphanilic acid, all grades and forms are perceived by users to be reasonably substitutable, are used interchangeably in most applications and are therefore, treated, as was the case in the original investigation, as one single product.

(22) As established in the original investigation, these review investigations confirmed that sulphanilic acid and its salts are pure commodity products, and their quality and basic physical characteristics are identical whatever the country of origin. The product concerned and the products manufactured and sold by the exporting producer concerned on its domestic market and exported to third countries, as well as those manufactured and sold by the Community producers on the Community market have thus been found to have the same basic physical and chemical characteristics and essentially the same uses and are therefore considered to be like products within the meaning of Article 1(5) of the basic Regulation.

(24) The schemes (a), (b), (c) and (e) specified above are based on the Foreign Trade (Development and Regulation) Act 1992 (No 22 of 1992) which entered into force on 7 August 1992 (Foreign Trade Act). The Foreign Trade Act authorises the GOI to issue notifications regarding the export and import policy. These are summarised in ‘Export and Import Policy’ documents, which, since 1 September 2004, has been named ‘Foreign Trade Policy’, and are issued by the Ministry of Commerce every five years and updated regularly. One Export and Import Policy document is relevant to the review investigation period of this case, i.e. the five-year plan relating to the period 1 September 2004 to 31 March 2009 (EXIM-policy 2004-2009). In addition, the GOI also sets out the procedures governing the EXIM-policy 2004-2009 in a ‘Handbook of Procedures — 1 September 2004 to 31 March 2009, Volume I’ (HOP I 2004-2009).

(25) The Income Tax Exemption Scheme specified above under (d) is based on the Income Tax Act of 1961, which is amended yearly by the Finance Act.

(26) The scheme (f) is managed by the State of Maharashtra and is based on resolutions of the Government of Maharashtra Industries, Energy and Labour Department.

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

(28) It was found that the cooperating exporting producer was not located in an SEZS nor in an EPZS. However, the cooperating exporting producer had been set up under the EOUS and received countervailable subsidies in the RIP. The description and assessment below is therefore limited to the EOUS.

(29) The details of the EOUS are contained in chapter 6 of the EXIM-policy 2004-2009 and the HOP I 2004-2009.

(30) With the exception of pure trading companies, all enterprises which, in principle, undertake to export their entire production of goods or services may be set up under the EOUS. Undertakings in industrial sectors have to fulfil a minimum investment threshold in fixed assets (INR 10 million) to be eligible for the EOUS.

(31) EOUS can be located and established anywhere in India.

(32) An application for EOUS status must include details for the next five years of, inter alia, planned production quantities, projected value of exports, import requirements and indigenous requirements. Upon acceptance by the authorities of the company’s application, the terms and conditions attached to this acceptance will be communicated to the company. The agreement to be recognised as a company under the EOUS is valid for a five-year period. The agreement may be renewed for further periods.

(33) A crucial obligation of an EOUS as set out in the EXIM-policy 2004-2009 is to achieve net foreign exchange (NFE) earnings, i.e. in a reference period (five years) the total value of exports has to be higher than the total value of imported goods.

(35) Units operating under these schemes are bonded under the surveillance of customs officials in accordance with Section 65 of the Customs Act.

(36) These units are legally obliged to maintain a proper account of all imports, of the consumption and utilisation of all imported materials and of the exports made in accordance with section 6.11.1 of the HOP I 2004-2009. These documents should be submitted periodically to the competent authorities through quarterly and annual progress reports.

(37) However, ‘at no point in time [an EOU] shall be required to co-relate every import consignment with its exports, transfers to other units, sales in DTA (Domestic Tariff Area) or stocks’, as section 6.11.2 of the HOP I 2004-2009 states.

(38) Domestic sales are dispatched and recorded on a self-certification basis. The dispatch process of export consignments of an EOU is supervised by a customs/excise official, who is permanently posted in the EOU.

(39) In the present case, the cooperating exporting producer utilised the scheme to procure goods domestically free of excise duty, to obtain central sales tax reimbursement and to obtain partial reimbursement of duty paid on fuel procured from domestic oil companies. The investigation showed that the exporting producer concerned did not avail of benefits under the income tax exemption provisions of the EOUS.

(40) In the case of exemption from excise duty on goods procured from indigenous sources, it was found that the duty paid on purchases by a non-EOUS unit can be used as a credit for its own future duty liabilities, e.g. towards payment of excise duty on domestic sales (the so-called Cenvat mechanism). Therefore, the excise duty paid on purchases is not definitive. By the means of ‘Cenvat’-credit only an added value bears a definitive duty, not the input materials. Thus, by exempting excise duty on purchases by an EOUS unit, no additional government revenue is foregone and consequently no additional benefit accrues to the EOUS.

(41) The reimbursement of the central sales tax and the partial reimbursement of duty paid on fuel procured from domestic oil companies constitute subsidies within the meaning of Article 2(1)(a)(ii) of the basic Regulation. Government revenue which would be due in the absence of this scheme is forgone, thus conferring a benefit upon the EOUS within the meaning of Article 2(2) of the basic Regulation, because it improved its liquidity by obtaining reimbursements of the central sales tax and duties normally paid on fuel. The subsidies are contingent in law upon export performance and, therefore, deemed to be specific and countervailable under Article 3(4)(a) of the basic Regulation. The export objective of an EOUS as set out in paragraph 6.1 of the EXIM-policy 02-07 is a conditio sine qua non to obtain the incentives.

(42) The subsidy amount was calculated on the basis of the central sales tax reimbursed on goods procured locally and the partial reimbursement of duties paid on domestically purchased fuel during the review investigation period. 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 the numerator. In accordance with Article 7(2) of the basic Regulation this subsidy amount was allocated over the appropriate export turnover generated during the RIP 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. The subsidy margin thus obtained was 3,2 %.

(43) A detailed description of the DEPBS is contained in section 4.3 of the EXIM-policy 2004-2009 and in section 4.37-4.53 of the HOP I 2004-2009.

(44) It was found that the cooperating exporting producer did not obtain any benefits under the DEPBS in the RIP. It was therefore not necessary to further analyse this scheme in this investigation.

(45) A detailed description of the EPCGS is contained in chapter 5 of the EXIM-policy 2004-2009 and in chapter 5 of the HOP I 2004-2009.

(46) It was found that the cooperating exporting producer did not obtain any benefits under the EPCGS in the RIP. It was therefore not necessary to further analyse this scheme in this investigation.

(47) It was found that the cooperating exporting producer did not obtain any benefits under the ITES in the RIP. It was therefore not found necessary to further analyse this scheme in this investigation.

(48) A detailed description of the scheme is contained in sections 4.1 to 4.1.14 of the EXIM-policy 2004-2009 and chapters 4.1 to 4.30 of the HOP I 2004-2009. The name of the scheme changed to the Advance Authorisation Scheme from 1 April 2006.

(49) It was found that the cooperating exporting producer did not obtain any benefits under the AAS in the RIP. It was therefore not found necessary to further analyse this scheme in this investigation.

(50) In order to encourage the establishment of industries in the State of Maharashtra to the less developed areas of the State, the GOM has been granting incentives to new-expansion units set up in developing regions of the State since 1964, under a scheme commonly known as the ‘Package Scheme of Incentives’ (PSI). The scheme has been amended many times since its introduction and the ‘2001 Scheme’ was operative from 1 April 2001 until 31 March 2006 after which it was extended for one year until 31 March 2007. The PSI of the GOM is composed of several sub-schemes amongst which the main ones are: (i) the refund of octroi tax/entry tax; (ii) the exemption from electricity duty; and (iii) the exemption from local sales tax/deferral of local sales tax. According to the GOM, the 2001 scheme does not include the latter tax scheme, i.e. neither sales tax exemption nor sales tax deferrals. However, the investigation established that a company’s entitlement to benefits under the scheme is stipulated in the ‘Eligibility Certificate’. The investigation revealed that the only sub-scheme used by the cooperating exporting producer during the RIP was, in fact, the one concerning sales tax deferrals (part of (iii) above).

(51) In order to be eligible, companies must as a rule invest in less developed areas of the State (which are classified according to their economic development into different categories, e.g. less developed areas, lesser developed areas and least developed areas) either by setting up a new industrial establishment or by making a large-scale capital investment in the expansion or diversification of an existing industrial establishment. The main criterion to establish the amount of incentives is the classification of the area in which the enterprise is or will be located and the size of the investment.

(52) The Eligibility Certificate issued by the GOM to the cooperating exporting producer provided that the company was, under the sales tax deferral sub-scheme, allowed to defer the payment of State sales taxes collected on its domestic sales for a period of 12 years from the year of collection.

(53) The sales tax deferral sub-scheme of the PSI of the GOM provides subsidies within the meaning of Article 2(1)(a)(ii) and Article 2(2) of the basic Regulation. The sub-scheme examined constitutes a financial contribution by the GOM, since this concession postpones the collection of the GOM’s revenue which would be otherwise due. This deferral confers a benefit upon the company as it improves the company’s liquidity.