Anti Dumping Duty

top

In trade parlance, Dumping is said to have taken place, when an exporter sells a product in a foreign country at a price less than the price prevailing in its domestic market. However, the phenomenon of dumping is per se not condemnable as it is recognized that producers sell their goods at different prices to different market depending upon the supply and demand conditions. It is also recognized that price discrimination in the form of dumping is a common international commercial practice. Therefore, from the point of view of anti-dumping practices, there is nothing inherently illegal or immoral about the practice of dumping.

 

However, where dumping causes or threatens to cause material injury to the domestic industry of the importer country, it can initiate necessary action for investigations and subsequent imposition of anti-dumping duties.

 

Legal Framework on Anti-Dumping in India:

 

  • The principle of imposition of anti-dumping duties was propounded by the Article VI of General Agreement on Tariffs & Trade (GATT) 1994 - Uruguay round
  • Indian legislation in this regard is contained in Section 9A and 9B (as amended in 1995) of the Customs Tariff Act, 1975
  • Further regulations are contained in the Anti-Dumping Rules [Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995]
  • The Designated Authority for conducting investigations pertaining to Anti-Dumping issues and on basis thereof, for forwarding its recommendations is the Ministry of Commerce, Government of India.
  • The responsibility for Imposition and Collection of duties as imposed / recommended by the Adjudicating authority is imposed upon the Ministry of Finance, Government of India.

When Dumping takes place?

Dumping occurs when the export price of goods imported into India is less than the Normal Value of ‘like articles’ sold in the domestic market of the exporter. Imports at cheap or low prices do not per se indicate dumping.

 

It is very important to understand what is “Normal Value”?
The normal value is the comparable price at which the goods under complaint are sold, in the ordinary course of trade, in the domestic market of the exporting country or territory.

 

If the normal value cannot be determined by means of domestic sales, the Act provides for the following two alternative methods:

 

  • Comparable representative export price to an appropriate third country.
  • Cost of production in the country of origin with reasonable addition for administrative, selling and general costs and for profits.

Export Price:

The export price of goods imported into India is the price paid or payable for the goods by the first independent buyer.

 

If there is no export price or the export price is not reliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported articles are first resold to an independent buyer.

 

Who can file an Application

Anti-dumping action can be taken only when there is an Indian industry which produces “like articles” when compared to the allegedly dumped imported good. The article produced in India must either be identical in all respects or one having characteristics closely resembling to the dumped goods.
A dumping investigation can normally be initiated only upon receipt of a written application by or on behalf of the “Domestic Industry” to the Designated Authority in the Ministry of Commerce for an investigation of any alleged dumping. The designated Authority may initiate an investigation when there is sufficient evidence that dumped imports are causing or are threatening to cause material injury to the Indian industry producing like articles or are materially retarding the establishment of an industry.

 

In order to constitute a valid application, the following two conditions have to be satisfied:

 

  • The domestic producers expressly supporting the application must account for not less than 25% of the total production of the like article by the domestic industry in India; and
  • The domestic producers expressly supporting the application must account for more than 50% of the total production of the like article by those expressly supporting and those opposing the application.

Relief to Domestic Industry

Relief can be provided to the domestic industry in the form of anti-dumping duties or price undertakings.

 

Duties are imposed on a source specific basis and can be expressed either on ad valorem or specific basis. The Designated Authority may suspend or terminate investigation, if the exporter concerned furnishes an undertaking to revise his price to remove the dumping or the injurious effect of dumping as the case may be. No undertaking can however be accepted before preliminary determination is made.

 

Transfer Pricing

As per the Income Tax Act, 1961 any income (expenses) arising from an international transaction (or specified domestic transaction) with an Associated Enterprise (defined below) shall be computed having regard to arm’s length price.

 

Introduction

Commercial transactions between the different parts of the multinational groups may not be subject to the same market forces shaping relations between the two independent firms. One party transfers to another goods or services, for a price. That price is known as “transfer price”. This may be arbitrary and dictated, with no relation to cost and added value, diverge from the market forces. Transfer price is, thus, a price which represents the value of good; or services between independently operating units of an organization. But, the expression “transfer pricing” generally refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It refers to the value attached to transfers of goods, services and technology between related entities. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.

 

Suppose a company A purchases goods for 100 rupees and sells it to its associated company B in another country for 200 rupees, who in turn sells in the open market for 400 rupees. Had A sold it direct, it would have made a profit of 300 rupees. But by routing it through B, it restricted it to 100 rupees, permitting B to appropriate the balance. The transaction between A and B is arranged and not governed by market forces. The profit of 200 rupees is, thereby, shifted to the country of B. The goods are transferred on a price (transfer price) which is arbitrary or dictated (200 hundred rupees), but not on the market price (400 rupees).

 

Thus, the effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction. For instance, profits accruing to the parent can be increased by setting high transfer prices to siphon profits from subsidiaries domiciled in high tax countries, and low transfer prices to move profits to subsidiaries located in low tax jurisdiction. As an example of this, a group which manufactures products in high tax countries may decide to sell them at a low profit to its affiliate sales company based in a tax haven country. That company would in turn sell the product at an arm's length price and the resulting (inflated) profit would be subject to little or no tax in that country. The result is revenue loss and also a drain on foreign exchange reserves.

 

Associated Enterprise (AE)

Two companies can be said to be AEs when there is direct or indirect participation in management, control or capital by one enterprise in other enterprise or by the same person in two enterprises. The participation in management, control or capital can be through direct or indirect equity holding, control over the Board Of Directors, or appointment of one or more executive directors by one enterprise in other enterprise or by the same person in two enterprises. Situations like granting of loan more than 51% of the book value of assets, giving guarantee of more than 10% of the total borrowings of the other Company, complete dependence on know-how, patent, etc. of the other Company, or purchase of raw materials from the other Company greater than 90% of the total raw material purchased by the Company during the year, or one entity has more than 10% of the beneficial interest in a partnership firm, association of persons or body of individuals triggers the deemed fiction and the two entities will be deemed to be AE irrespective of the fact that there is no direct or indirect participation in management, control or capital within the enterprises.

 

International Transaction

An international transaction means a transaction between two or more AEs, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more AEs for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

 

Finance Act 2012 has now clarified that an international transaction shall also include the following:

 

  • capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;
  • provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service;
  • a transaction of business restructuring or reorganization, entered into by an enterprise with an AE, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date;
  • Further, Finance Act 2012 has also clarified that an intangible asset shall also include marketing related intangible such as trademarks, trade names, brand names, logos, etc; technology related intangible such as process patent, patent application, technical documents and know-how; artistic related intangible such as literary works and copyrights, musical compositions; data processing related intangibles such as proprietary computer software, software copyrights, automated databases; engineering related intangible such as industrial design, product patent, trade secrets, engineering drawings and schematics, blueprints; customer related intangible such as customer list, customer contracts; goodwill related intangible such as institutional goodwill; professional practice goodwill, celebrity goodwill, etc.

Specified Domestic Transaction

TP until now was applicable to companies having cross border transactions with their AE. However, Finance Bill 2012, honoring the supreme court ruling in case of CIT vs. M/S Glaxo Smithkline Asia (P) Ltd. (Special Leave to Appeal (Civil) No(s).18121/2007), expanded the ambit of TP to specified domestic transactions w.e.f 01 April 2013.

 

Transactions covered under the ambit of domestic transfer pricing:

 

    • Any expenditure in respect of which payment is made or is to be made to a person referred to in Section 40A(2)(b) of the IT Act;
    • Any transaction that is referred to in Section 80A;
    • Any transfer of goods or services referred to in Section 80-IA(8) i.e. applicable to companies operating as industrial undertaking or enterprises engaged in infrastructure development;
    • Any business transacted between the assessee and other person as referred to in section 80-IA(10);
    • Any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable;
    • Any other transaction, as may be prescribed by the board.
    • Provided that the aggregate value of the transaction entered into by the assessee with its domestic AE exceeds Rs. 5 crore.

Implication of such amendment by Finance Act, 2012

All the transactions entered into by the taxpayers operating in Special Economic Zones (‘SEZs’); taxpayers entering into transactions with certain related parties specified under section 40A(2) and all the taxpayers claiming profit based deductions for undertaking specified business activities (under section 80A, 80- IA, etc.) will be covered.

 

The most likely affected industries are industries operating in SEZs, infrastructure developers and / or infrastructure operators, telecom services industries, industrial park developers, power generations or transmission, etc. Apart from these industries, the business conglomerates having significant intra-group transactions would be impacted.

 

Most likely transactions under the scanner of the TP Authorities would be:

 

    • Interest Free Loans to group companies;
    • Granting of Corporate Guarantees / Performance Guarantees by Parent Company to its subsidiaries;
    • Intra-group purchase / sell / service transactions;
    • Payment made to key personnel of the group companies;
    • Payment made to relatives of key personnel of the group companies.

Arm’s Length Price

An arm’s length price, is a price at which a transaction is entered into by a Company with a third party under normal market / economic conditions, i.e. without the influence of the relation between the parties. The principle of arm’s length pricing requires a Company to enter into a transaction with its AE similar to a transaction it has entered into or would have entered into with a third party under uncontrolled conditions.

 

Contract Drafting and Negotiations

 

WLS aims to help its members with-

 

  • All type of corporate / commercial agreement, deed, document, pleading etc. for any corporate, commercial or civil matters.
  • Drafting and vetting of various commercial agreements, deeds and documents starting from simple lease deed, partnership deed, sale deed, family settlement deed, will, employment agreement, business understanding / MOU, agency agreement to a technical / complex JV agreements, takeover agreement, foreign collaboration agreement, international arbitration agreement, IPR & IT related agreements, non-disclosure / data protection agreement, stock exchange listing agreement, franchise agreement, aircraft purchase / security agreement, sale-purchase agreement, trust deed for venture capital fund or concept note and viability study for project establishment etc.
M&A and Takeovers

Although M&A is a mode of corporate restructuring and thus forms part of corporate litigation only, but it involves technical issues relating to Company Law, Capital issues and Taxation etc. Considering these technicalities, WLS  has created a separate team of professionals comprising advocates, taxation Consultants to handle local and transnational M&A matters including:

 

  • Complete guidance, drafting, documentation and litigation in relation to amalgamation, merger, de-merger, acquisition and takeover;
  • Complete due diligence of overall financial and legal structure of companies involved;
  • Preparation of strategy to effectuate the proposed amalgamation, merger, de-merger, acquisition and takeover (as the case may be) in an efficient, time saving and cost effective manner;
  • Follow up with the office of Registrar of Companies and Regional Director of the relevant jurisdictions for their approval and compliances, for the purpose of proposed arrangement;
  • Preparation of the documents relating to arrangement such as –
  • Scheme of amalgamation / de-merger;
  • Supportive documents such as No-objection certificate from members secured/unsecured creditors, Board resolutions, affidavits, applications etc.
  • Appearing before the Jurisdictional Hon’ble High Court, Registrar of Companies, Regional Director or any other authority.
Follow us on: