Anti-dumping Duty on Indolinone for Circumventing DFS Anti-dumping Duty Recommended by DGAD with 2014 Retrospective Effect

[DGAD Final Findings F.No. 14/22/2014-DGAD dated 15th February 2017]

Subject: Investigation regarding Circumvention of Anti-Dumping Duty existing on Diclofenac Sodium (DFS) by imports of “Indolinone”, an unfinished form of “DFS”, originating in or exported from China PR.

Having regard to the Customs Tariff Act 1975, as amended from time to time (hereinafter also referred to as the Act) and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules 1995, as amended from time to time (hereinafter also referred to as the Rules) thereof;

A.  Background of the case

1.  Whereas, Designated Authority, on the request of M/s Aarti Drugs Ltd., M/s Amoli Organics Ltd. & M/s Kairav Chemicals Ltd., conducted an anti-dumping investigations on the imports of Diclofenac Sodium, the Product Under Consideration (PUC), and recommended a provisional Anti-Dumping Duty (ADD) vide notification no 44/1/2001-DGAD, dated 31st October, 2001 which was levied by Ministry of Finance Vide Customs Notification No. 76/2002-Customs dated 8th August, 2002. The Designated Authority recommended a definitive ADD vide notification no. 44/1/2001-DGAD, dated 21st June, 2002. Based on the recommendations, the Ministry of Finance imposed ADD on PUC vide Notification no. 76/2002-Customs dated 8th August, 2002, which continued for the period of five years from the date of provisional duty. No sunset review of the ADD was undertaken.

2.  Whereas, the applicants, M/s Aarti Drugs Ltd., M/s Amoli Organics Ltd. & M/s Kairav Chemicals Ltd., filed an application before the Authority to undertake fresh anti-dumping investigations. Pursuant to investigations, the Authority recommended imposition of provisional ADD vide notification no. 14/4/2007 dated 28th January, 2008 based on which Central Government imposed provisional ADD on the PUC vide notification no 46/2008 dated 10th April, 2008. Further, Designated Authority vide Notification No. 14/4/2007-DGAD dated 29th May, 2008, notified in final findings recommended definitive ADD on imports of Diclofenac Sodium or DFS originating in or exported from China PR pursuant to which the Central Government imposed definitive ADD on the PUC vide Customs Notification No. 91/2008-Customs dated 30th July, 2008.

3.  Whereas, on an application filed by M/s Amoli organics and M/s Aarti Drugs a sunset review investigation on the imports of the PUC was initiated vide Notification No. 15/3/2013-DGAD dated 9th April, 2013 to review the need for continued imposition of the duties in force. After detailed investigations, the Authority notified final findings vide Notification No. 15/3/2013-DGAD dated 2nd October, 2014 recommending extension of ADD. ADD was extended vide Customs Notification No. 44/2014-Customs dated 21st November, 2014. The duties so imposed are in force at present.

4.  Whereas in the ongoing Anti-Circumvention investigation, regarding imports of Indolinone, a penultimate stage of Diclofenac Sodium, M/s Amoli Organics Ltd (herein referred as "petitioner" or Applicant) filed an application before the Designated Authority (hereinafter also referred to as the Authority) in accordance with the Section 9A of the Act read with Rule 26(1) Customs Tariff (Identification, Assessment & Collection of Anti-Dumping Duty on the Dumped Articles & for Determination of Injury) Rules, 1995 (AD Rules) for initiation of Anti- Circumvention Investigation concerning imports of Indolinone (1-(2,6- DICHLOROPHENYL)-2-INDOLINONE CRUDE) (hereinafter also referred to as the Product under Investigation or PUI”), a penultimate stage of Diclofenac Sodium (hereinafter also referred to as the DFS or Product under considerationor PUC) originating in or exported from China PR (herein referred as subject country). The petition was supported by M/s Aarti Drugs Ltd. (herein referred as supporter”). Petitioner requested for extension of existing anti-dumping duties on the imports of the DFS to the PUI, the penultimate stage product of the PUC originating in or exported from the subject country.

5.  Whereas, in view of the duly substantiated application filed by the petitioner under Rules 26 (1), the Authority initiated the investigation vide notification no 14/22/2014-DGAD sated 17th February, 2016 to determine the existence and effect of the alleged circumvention of the ADD levied and to consider recommendation of extension of ADD on imports of DFS to imports of Indolinone.

B.  Procedure

6.  The procedure described below has been followed with regard to the investigation:

i.   The Authority issued notification vide notification no. 14/22/2014-DGAD dated 17/02/2016 initiating anti-circumvention investigation, which was published in the Gazette of India.

ii.  The Authority sent copy of the initiation notification to the Embassy of China in India, known exporters of PUI from China and known importers of PUI in India, as per information available in the petition.

iii.  The Authority wrote to the exporters/producers of the PUI and requested them to file their responses in the prescribed questionnaire and make their views known in writing within the time limit prescribed. Copies of the letter and questionnaires sent to the exporters were also sent to embassy of China along with a list of known exporters/producers, with a request to advise the exporters/producers from China to respond to the Authority within the prescribed time.

iv.  A copy of the non-confidential version of the application filed by the petitioner was sent to the Chinese producer/exporters, and Government of China. A copy of the non-confidential version of the application was also made available to the interested parties, on request, through public file.

v.  The Authority forwarded a copy of the public notice initiating the anti- circumvention investigations to the following known producers/exporters in China and gave them opportunity to make their views known in writing within forty days from the date of the letter in accordance with the AD Rules:

a)  Shandong Yibao Biologics Co., Ltd

b)  Shenzhen Zhijun Pharmaceutical Co., Ltd

c)  Comfortcomms Group Co. Limited

d)  Shanxi Haizheng Scientific Tech. and Trade Co., Ltd.

e)  GBB Group Co., Ltd.

f)   Skyrun International Group Sunshine Corporation

g)  Hebei Jiheng(Group) Pharmaceutical Co., Ltd.

h)  Shandong Reyoung Pharmaceutical Co., Ltd.

i)   Hebei Veyong Animal Pharmaceutical Co., Ltd.

j)   Wuhan Lihua International Trade Corporation

k)  Medico (Shijiazhuang) Industries & Trade Co., Ltd.

l)   The TNN Development Limited

vi.  None of the producers/exporters of the PUI from China responded to the Authority, nor any producer/exporter filed response to the questionnaire in the form and manner prescribed.

vii. Questionnaires were sent to the following known importers/users of subject goods in India calling for necessary information in accordance with the Rules:

a)  Natco Pharma Limited

b)  Unibios Labs Ltd.

c)  Marksans Pharma Ltd.

d)  Sunrise Chemicals

e)  Alka Laboratories Pvt. Ltd.

f)   Medi Pharma Drug House

g)  Para Products Pvt. Ltd.

h)  Sara Exports Ltd.

i)   Stride Industries

j)   Anju Drug Chem Pvt. Ltd. k) Pan Drugs Limited

l)   Dpb Antibiotics

m) Gpt Pharmaceutical Private Limited

viii.     In response to the initiation of the subject investigation, none of the importers of the PUI have responded, nor filed response to the questionnaire.

ix.  In accordance with Rule 6(6) of the Anti-dumping Rules, the Authority provided opportunity to the interested parties to present their views orally in a public hearing held on 20th December, 2016. The oral hearing on 20th December, 2016 was attended by the domestic industry and one of the importer of PUI (namely Magma Industries Ltd.). However, Magma Industries Ltd. has not submitted any information in writing. The parties, who presented their views in oral hearing, were requested to file written submissions of the views expressed orally.

x.    Exporters, importers other domestic producers and other interested parties who have not responded to the Authority nor supplied information relevant to this investigation, have been treated as non-cooperating.

xi.   Details of imports of subject goods for 2007-08, 2008-09, 2009-2010,

2010-2011, 2011-12, 2012-13, 2013-14, 2014-15, including the period of investigation April, 2014 - September, 2015, were requested from DGCIS and DG Systems, for above mentioned period/year/years.

xii.  The submissions made by the interested parties during the course of this investigation have been considered by the Authority, wherever found relevant, in this finding.

xiii. Verification to the extent deemed necessary was carried out in respect of the information & data submitted by the petitioner as well as the supporter company.

xiv. Information provided by the interested parties on confidential basis was examined with regard to sufficiency of the confidentiality claim. On being satisfied, the Authority has accepted the confidentiality claims wherever warranted and such information has been considered as confidential and not disclosed to other interested parties. Wherever possible, parties providing information on confidential basis were directed to provide sufficient non-confidential version of the information filed on confidential basis.

xv.  Wherever an interested party has refused access to, or has otherwise not provided necessary information during the course of the present investigation, or has significantly impeded the investigation, the Authority has considered such parties as non-cooperative and recorded the findings on the basis of the facts available.

xvi. In accordance with Rule 16 of the Rules Supra, the essential facts were disclosed by the Authority on 2nd February, 2017 to the concerned interested parties. Comments were requested by 10th February, 2017. Comments received on the disclosure statement to the extent considered relevant by the Authority have been considered in this final finding.

xvii.  *** represents information furnished by an interested party/any other party on a confidential basis and so considered by the Authority under the Rules.

xviii. The average exchange rate of 1US$ = Rs 62.65 prevailing during the POI has been adopted by the Authority in this finding.

C.  Product under Investigation and Like Article

7.  The product under consideration in the present investigation is Indolinone (1- (2,6-DICHLOROPHENYL)-2-INDOLINONE CRUDE)”, (referred to as the Product under investigationor PUI” or subject goods) which is a penultimate stage product of Diclofenac Sodium (also referred to as the subject product or the Product under Considerationor PUC”). Indolinone already contains the molecular structure of Diclofenac Sodium.

C.1.     Views of Exporters, Importers, Consumers and other Interested Parties

8.  None of the interested parties have made any submission in this regard.

C.2.     Views of Domestic Industry

9.  The domestic industry has made the following submissions with regard to the PUI-

i.   The product forming the object of circumvention is Diclofenac Sodium originating from China PR in its intermediate or upstream form, Indolinone (1-(2, 6-DICHLOROPHENYL)-2-INDOLINONE CRUDE).

ii.  The subject goods are classified under Chapter 29 of the Customs Tariff Act, 1975 under the Sub-heading 29420090. The customs classification is indicative only and in no way binding on the scope of investigation.

iii.  ADD imposed earlier on imports of PUC originating in China PR is being circumvented and imported into India in its intermediate form, PUI, from China PR.

iv.  Circumvention of ADD on PUC started after the imposition of ADD; however, the same has now intensified. The exporters from China PR are exporting PUI into India which is then simply being converted into PUC without much value addition. The process involved in converting Indolinone to Diclofenac Sodium is the process of hydrolysis. Indolinone to Diclofenac Sodium that the value addition from the stage of Indolinone to Diclofenac Sodium in India is much below the limits prescribed under the relevant circumvention provisions.

v.  Production of Indolinone is a step before in the manufacturing process of Diclofenac Sodium. Because of the imposition of ADD, the producers from China have found it advantageous to stop at Indolinone, the unfinished DFS and dump the same into India. The process involved in converting Indolinone to Diclofenac Sodium is the process of hydrolysis.


INDOLINONE

Molecular Formula: C14H9ONCl2


DICLOFENAC SODIUM

Molecular Formula: C14H10Cl2NNaO2


Indolinone in presence of sodium hydroxide & purified water yields Diclofenac Sodium.

vi.  The production process of producing DFS from Indolinone involves the process of hydrolysis and the cost of converting Indolinone to Diclofenac Sodium, i.e., the value addition from the stage of Indolinone to Diclofenac Sodium in India is much below the limits prescribed under the relevant circumvention provisions.

C.3.  Examination of the Authority

10.   The Authority noting the submissions made by the interested parties proposes to hold that the product under investigation i.e. Indolinone (1-(2, 6-DICHLOROPHENYL)-2-INDOLINONE CRUDE), is a penultimate product of the product under consideration i.e. Diclofenac Sodium (DFS). Indolinone is an unfinished form of Diclofenac Sodium which is further finished into DFS in India, and is marketed in India in the name of Indolinone (1-(2, 6-DICHLOROPHENYL)-2-INDOLINONE CRUDE). The subject goods or the PUI does not have a dedicated customs classification. Indolinone is classified under Chapter 29 of the Customs Tariff Act, 1975 and is being imported under various Sub-heading viz. 29142990, 29214490, 29224990, 29337900, 29339900, 29081900, 29147090, 29420090, 29333990. The customs classification is however indicative only and in no way binding on the scope of investigation.

D.    Scope of Domestic Industry and Standing

D.1. Views of Exporters, Importers, Consumers and other Interested Parties

11.         one of the parties raised any submissions with regard to domestic industry.

D.2. Views of domestic industry

12. Following submissions have been made by the domestic industry

i.      The petition has been filed by Amoli Organics Ltd. The petition has been supported by M/s Aarti Drugs Ltd.

ii.     The Petitioner Company has neither imported nor is related to any exporter/ producers of subject goods in subject countries or importers in India.

iii.    The petitioner is a major producer of the subject goods in India. Further, the petitioner company constitutes “domestic industrywithin the meaning of the Anti-Dumping Rules.

iv.    The application has subsequently been supported by Indian Drug

Manufacturer Association.

v.     Whereas earlier only M/s. Sara Exports / Meditech was producing Diclofenac Sodium by importing Indolinone, now M/s. Alka Drugs, Pan Drugs, NutraPlus, Pragna Dye Chem, DPB Antibiotics, Disha Enterprises, MediPharma Drug House are also importing Indolinone and selling Diclofenac Sodium. In fact, so significant is the dilution of the ADD imposed that the domestic industry is hardly having any protection because of ADD imposed.

D.3. Examination of the Authority

The Authority notes that the petition for anti-circumvention investigation and extension of existing ADD on imports of DFS to the imports of Indolinone is filed by M/s Amoli Organics Ltd as per Rule 26(1) which reads as under;

(1) Except as provided herein below, the designated authority may initiate an investigation to determine the existence and effect of any alleged circumvention of the anti-dumping duty levied under section 9A of the Act, upon receipt of a written application by or on behalf of the domestic industry.

The petition is supported by M/s Aarti drugs and Indian Drugs manufacturers association.

M/s Amoli organics and M/s Aarti Drugs collectively were considered as the Domestic Industry as per Rule 2(b) in the SSR investigation on the basis of which ADD on PUC has been notified on 21st November 2014 . Rule 2(b) of the Anti-Dumping Rules defines domestic industry as under:-

domestic industry” means the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in such case the term domestic industrymay be construed as referring to the rest of the producers.

13.  The petitioner is not related (either directly nor indirectly) to any exporter of Indolinone or DFS in China or an importer in India. The Authority notes that the petitioner or the supporter have not imported DFS from China during period of investigation. However the petitioner has imported **** MT of Indolinone i.e. PUI during POI.

14.  The Authority notes that Rule 26 (1) requires an Anti-Circumvention petition to be filed by the Domestic Industry of the ADD already levied. In this investigation, the Domestic Industry of the existing ADD considered in SSR comprised of M/s Aarti Drugs Ltd. and M/s Amoli Organics Pvt. Ltd as stated above. The Applicant M/s Amoli Organics is a major producer of the PUC and further the petition is supported by M/s Aarti Drugs. As the imports made by M/s Amoli Organics are of PUI and not PUC in POI, the standing of petitioner and its eligibility as DI of PUC as required under Rule 26(1) is not compromised.

15.  However in view of the imports of PUI by the applicant in POI the Authority in order to ensure objective and undistorted evaluation of key parameters like quantity and value of imports of PUI , shift in trade pattern, undermining of remedial effects due to PUI imports, and value addition of PUC from PUI has excluded imports of PUI by applicant and thereafter undertakes injury assessment for M/s Aarti Drugs separately as well who was a part of Domestic Industry in earlier SSR investigation and is a supporter in the present Anti- Circumvention investigation..

E.   Evidence of Circumvention

E.1 Submissions made by exporters, importers and other interested parties/other parties

16.  None of the parties raised any submissions in this regard.

E.2. Submissions made by Domestic Industry- Pl include submissions on circumvention practice

17.  Following submissions have been made by the domestic industry with regard to circumvention are as follows-

i.     Exports of the intermediate product, Indolinone increased after the imposition

of anti-dumping duties on DFS and the same has intensified.

ii.    Because of the imposition of ADD, the producers from China have found it advantageous to export Indolinone, a penultimate intermediary product and dump the same into India.

iii.   There is a change in the pattern of trade. The volume of imports from subject country has shifted from DFS from Indolinone. Whereas imports of Indolinone have increased significantly imports of DFS have declined.

iv.   The significant increase in imports of Indolinone post imposition of duties supports the contention that Indolinone is being exported from China to circumvent the ADD earlier imposed on DFS.

E.3. Examination of the Authority

18.     The Authority has examined the aforesaid submissions and alleged circumvention phenomena under relevant Act/Rules i.e. section 9 A (1) of the Customs Tariff Act, 1975 and Rule 25 of the AD Rules which state as follows–

Section 9A(1A) of the Customs Tariff Act Where the Central Government, on such inquiry as it may consider necessary, is of the opinion that circumvention of anti-dumping duty imposed under sub-section (1) has taken place, either by altering the description or name or composition of the article subject to such anti- dumping duty or by import of such article in an unassembled or disassembled form or by changing the country of its origin or export or in any other manner, whereby the anti-dumping duty so imposed is rendered ineffective, it may extend the anti-dumping duty to such article or an article originating in or exported from such country, as the case may be.

Rule 25 of AD Rules. Circumvention of anti-dumping duty. - (1) Where an article subject to anti-dumping duty is imported into India from any country including the country of origin or country of export notified for the purposes of levy of anti-dumping duty, in an unassembled, unfinished or incomplete form and is assembled, finished or completed in India or in such country, such assembly, finishing or completion shall be considered to circumvent the anti-dumping duty in force if,-

(a) the operation started or increased after, or just prior to, the anti dumping investigations and the parts and components are imported from the country of origin or country of export notified for purposes of levy of anti-dumping duty; and

(b) the value consequent to assembly, finishing or completion operation is less than thirty-five percent of the cost of assembled, finished or complete article.

Explanation I. Valuemeans the cost of assembled, complete or finished article less value of imported parts or components

Explanation II. - For the purposes of calculating the value, expenses on

account of payments relating to intellectual property rights, royalty, technical know- how fees and consultancy charges, shall not be taken into account. (2)….

(3) ….

Explanation.- For the purposes of this sub-rule, it shall be established that there has been a change in trade practice, pattern of trade or channels of sales if the following conditions are satisfied, namely:-

(a) absence of a justification, economic or otherwise, other than imposition of anti-dumping duty;

(b) evidence that the remedial effects of the anti-dumping duties are undermined in terms of the price and or the quality of like products.

The Authority notes that Rule 25 (1) (a) requires to establish the onset and increase in phenomena of circumvention and further the Rule 25 (1) (b) requires to establish that value additionassociated with the said phenomena is in accordance with the stipulated threshold in this sub Rule.

The Authority’s notes ADD was earlier imposed on imports of the PUC from the subject country vide notification no. 46/2008 dated 10th April, 2008. Sunset review investigations were initiated on the imports of the PUC and after determination, ADD was extended on by the Central Government vide Customs Notification N