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INVESTIGATION 249

ALLEGED DUMPING OF CERTAIN ZINC COATED (GALVANISED) STEEL EXPORTED FROM INDIA AND THE SOCIALIST

REPUBLIC OF VIETNAM

VISIT REPORT – EXPORTER

ESSAR STEEL INDIA LTD

THIS REPORT AND THE VIEWS OR RECOMMENDATIONS CONTAINED THEREIN WILL BE REVIEWED BY THE CASE MANAGEMENT TEAM AND MAY NOT REFLECT THE FINAL POSITION OF THE ANTI-DUMPING COMMISSION

June 2015

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CONTENTS

CONTENTS ................................................................................................................................................................ 2

ABBREVIATIONS ........................................................................................................................................................ 4

1 BACKGROUND AND PURPOSE .......................................................................................................................... 5

1.1 BACKGROUND .................................................................................................................................................. 5 1.2 BACKGROUND TO MEETING ................................................................................................................................. 5 1.3 PURPOSE OF VISIT ............................................................................................................................................. 6 1.4 MEETING DETAILS ............................................................................................................................................. 6 1.5 INVESTIGATION PROCESS AND TIMEFRAMES ............................................................................................................. 6 1.6 VISIT REPORT ................................................................................................................................................... 7 1.7 COOPERATION ................................................................................................................................................. 7

2 COMPANY INFORMATION................................................................................................................................ 8

2.1 COMPANY BACKGROUND .................................................................................................................................... 8 2.2 RELATED PARTY TRANSACTIONS ............................................................................................................................ 9 2.3 ACCOUNTING STRUCTURE AND DETAILS OF ACCOUNTING SYSTEMS ............................................................................... 10

3 THE GOODS AND LIKE GOODS ........................................................................................................................ 11

3.1 DESCRIPTION ................................................................................................................................................. 11 3.2 PRODUCTION PROCESS ..................................................................................................................................... 13 3.3 PRODUCT RANGE ............................................................................................................................................ 13 3.4 LIKE GOODS – PRELIMINARY ASSESSMENT.............................................................................................................. 14

4 RECONCILIATION OF SALES TO FINANCIAL STATEMENTS ............................................................................... 15

5 SALES TO AUSTRALIA ..................................................................................................................................... 17

5.1 GENERAL ...................................................................................................................................................... 17 5.2 EXPORT SALES PROCESS .................................................................................................................................... 17 5.3 EXPORT SALES DATA PROVIDED ........................................................................................................................... 18 5.4 VERIFICATION OF AUSTRALIAN SALES TO SOURCE DOCUMENTS – ACCURACY ................................................................... 18 5.5 THE EXPORTER – PRELIMINARY ASSESSMENT .......................................................................................................... 21 5.6 THE IMPORTER – PRELIMINARY ASSESSMENT .......................................................................................................... 21 5.7 ARMS LENGTH................................................................................................................................................ 21 5.8 EXPORT PRICE – PRELIMINARY ASSESSMENT ........................................................................................................... 22

6 COST TO MAKE AND SELL ............................................................................................................................... 23

6.1 VERIFICATION OF PRODUCTION COSTS TO AUDITED FINANCIAL STATEMENTS ................................................................... 24 6.2 VERIFICATION OF PRODUCTION COSTS TO SOURCE DOCUMENTS .................................................................................. 25 6.3 VERIFICATION OF SG&A EXPENSES...................................................................................................................... 28 6.4 COSTS TO MAKE AND SELL – CONCLUSION ............................................................................................................. 29

7 DOMESTIC SALES............................................................................................................................................ 30

7.1 GENERAL ...................................................................................................................................................... 30 7.2 DOMESTIC SALES PROCESS................................................................................................................................. 30 7.3 LEVEL OF TRADE ............................................................................................................................................. 30 7.4 DOMESTIC SALES DATA PROVIDED ....................................................................................................................... 32 7.5 VERIFICATION OF DOMESTIC SALES TO SOURCE DOCUMENTS – ACCURACY ...................................................................... 33 7.6 ARM’S LENGTH............................................................................................................................................... 36 7.7 ORDINARY COURSE OF TRADE ............................................................................................................................. 36 7.8 VOLUME AND SUITABILITY OF SALES ..................................................................................................................... 37 7.9 DOMESTIC SALES - CONCLUSION ......................................................................................................................... 37

8 THIRD COUNTRY SALES .................................................................................................................................. 38

9 ADJUSTMENTS ............................................................................................................................................... 39

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9.1 CREDIT TERMS ............................................................................................................................................... 39 9.2 INLAND TRANSPORT, HANDLING AND OTHER .......................................................................................................... 40 9.3 DUTY DRAWBACK............................................................................................................................................ 41 9.4 COMMISSIONS ............................................................................................................................................... 43 9.5 PACKING ...................................................................................................................................................... 43 9.6 INVENTORY COSTS ........................................................................................................................................... 43 9.7 GUJARAT VAT ............................................................................................................................................... 43 9.8 TIMING ADJUSTMENTS ..................................................................................................................................... 44 9.9 ADJUSTMENTS – CONCLUSION ........................................................................................................................... 44

10 NORMAL VALUES ........................................................................................................................................... 46

11 DUMPING MARGIN ........................................................................................................................................ 47

12 APPENDICES AND ATTACHMENTS .................................................................................................................. 48

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ABBREVIATIONS

ACBPS Australian Customs and Border Protection Service

The Act Customs Act 1901

BlueScope BlueScope Steel Limited

BMT Base metal thickness

the Commission Anti-Dumping Commission

CTMS Cost to make and sell

E Cess Government Tax applicable to India

ESME Essar Middle East FZW

Essar Essar Steel India Ltd

FOB Free on board

INR Indian Rupee

the goods the goods the subject of the application (also referred to as the goods under consideration)

Investigation period 1 July 2013 to 30 June 2014

LC Letter of credit

OCOT Ordinary course of trade

PAD Preliminary Affirmative Determination

the Parliamentary Secretary the Parliamentary Secretary to the Minister for Industry and Science

SEF Statement of Essential Facts

VAT Value Added Tax

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1 BACKGROUND AND PURPOSE

1.1 Background

On 8 May 2014 an application was lodged with the Anti-Dumping Commission (the Commission) on behalf of BlueScope Steel Limited (BlueScope) requesting that the Parliamentary Secretary to the Minister for Industry (the Parliamentary Secretary)1 publish a dumping duty notice in respect of certain zinc coated (hereafter referred to as galvanised) steel2 exported to Australia from India and the Socialist Republic of Vietnam (Vietnam).

In this application, BlueScope alleges that the Australian industry has suffered material injury caused by galvanised steel exported to Australia from India and Vietnam at dumped prices.

BlueScope claims the industry has been injured through:

price suppression;

reduced profit and profitability;

reduced return on investment;

reduced employment numbers; and

reduced ability to raise capital for re-investment.

Public notification of initiation of the investigation was made on 11 July 2014 in The Australian newspaper and in Anti-Dumping Notice No. 2014/55.

1.2 Background to meeting

Following initiation of the investigation, a search of the Australian Customs and Border Protection Service’s (ACBPS’) import database indicated that Essar Steel India Ltd (Essar) exported galvanised steel to Australia from India during the period 1 July 2013 to 30 June 2014 (the investigation period).

The Commission notified Essar of the initiation of the investigation, and sought its cooperation with the investigation through the completion of an Exporter Questionnaire regarding galvanised steel.

The response to the Exporter Questionnaire included (where applicable) background to the company’s activities, details of exports to Australia, details of domestic sales, details of exports to third countries and cost to make and sell (CTMS) information. The response to the Exporter Questionnaire was supported by data contained in various attachments and appendices.

1 Responsibility for anti-dumping matters was transferred to the Minister for Industry on 25 September 2013. The Minister for Industry subsequently delegated responsibility for anti-dumping matters to the Parliamentary Secretary to the Minister for Industry.

2 Refer to the full description of the goods in Section 2.1 of this report.

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A non-confidential version of the Exporter Questionnaire is available on the Public Record for this investigation.

1.3 Purpose of visit

The purpose of the visit was to verify information submitted in the response to the Exporter Questionnaire. Information verified during the visit has been used to make preliminary assessments regarding:

who is the exporter and who is the importer;

export prices;

normal values; and

the dumping margin.

1.4 Meeting details

Company Essar Steel India Ltd

Address Essar Steel Middle East FZE,

Plot No. S 40402,

JAFZA South,

Dubai-261754, UAE.

Date of visit 8, 9, 10 and 11 March 2015

The following were present at various stages of the meeting:

Essar Shivramkrishnan Hariharan, Chief Commercial Officer

Chetan Jansari, General Manager, Finance & Accounts

Hitesh Shah, Senior Manager, Corporate Accounting

Aditi Moghe, Assistant Manager

Moulis Legal Mr Daniel Moulis - Principal

Mr Charles Zhan - Lawyer

the Commission Mr George Katsoulis – Senior Investigator – Operations 1

Mr Geoff Gleeson – Director – Operations 1

1.5 Investigation process and timeframes

The visit team advised the company of the investigation process and timeframes as follows:

the investigation period is 1 July 2013 to 30 June 2014;

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the injury analysis period is from 1 July 2008 for the purpose of analysing the condition of the Australian industry;

a preliminary affirmative determination (PAD) may at any time after 9 September 2014 (day 60 from the date of initiation);

provisional measures may be imposed and securities taken at the time of the PAD, or at any time after the PAD has been made;

the Commission will not make a PAD until it becomes satisfied that there appears to be, or that it appears there will be, sufficient grounds for the publication of a dumping duty notice;

the Parliamentary Secretary has granted an extension to the date for issuing the Statement of Essential Facts (SEF) for the investigation, in accordance with section 269ZHI of the Customs Act 1901 (the Act).3 At the time of the meeting, we explained that the SEF was due to be placed on the public record by 17 May 2015, or such later date as the Parliamentary Secretary allows under section 269ZHI. The Parliamentary Secretary has since granted another extension and the SEF is now due to be placed on the public record by 16 June 2015;

the SEF will set out the material findings of fact on which the Commission intends to base its recommendations to the Parliamentary Secretary, and will invite interested parties to respond, within 20 days, to the issues raised therein; and

following receipt and consideration of submissions made in response to the SEF, the Commissioner will provide his final report and recommendations to the Parliamentary Secretary; and

at the time of the meeting, we explained that the Commissioner’s final report was due no later than 1 July 2015, unless a further extension to the SEF or the final report is approved by the Parliamentary Secretary. The further extension provided by the Parliamentary Secretary means the final report is now due by 31 July 2015.

1.6 Visit report

The visit team explained to the company that it would prepare a report of the visit (this report) and provide it to Essar for review of its factual accuracy, and to identify those parts of the report that the company considers confidential.

The visit team explained that, in consultation with the company, it would prepare a non-confidential version of the report for the Public Record.

1.7 Cooperation

All parties at the meeting were well prepared and co-operative during the verification, and supplied requested documentation during the visit.

3 References to any section or subsection in this report relate to provisions of the Act, unless specifically stated otherwise.

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2 COMPANY INFORMATION

2.1 Company background

Essar is a fully integrated manufacturer of steel products with a market presence in India, Canada, USA, the Middle East and Asia. It has two manufacturing facilities in India at Hazira (Gujarat), and Pune (Maharashtra). The Hazira plant is fully integrated and capable of processing raw materials into finished products whereas the Pune facility is a downstream cold rolling processing plant.

Essar produces a range of flat steel products that are:

hot rolled or cold rolled and sold in either coil, sheet or in slit form;

galvanised coils, slits or sheets;

pre-painted galvanised sheets;

plates, pipes, factory welded beams.

The manufactured products are distributed to customers either: directly (to the customer); through the Hypermart or Expressmart market; or through service centres.

Essar advised that the Hypermart or Expressmart markets are a chain of retail outlets targeting [CONFIDENTIAL TEXT DELETED – type of customers]. Essar further explained that the service centres target [CONFIDENTIAL TEXT DELETED – type of customers]. The service centre has the capacity to uncoil, slit, cut to length and to manufacture plates sheets and beams.

In relation to the goods the subject of the investigation, the following table shows the proportion of the goods sold domestically and exported by Essar. Goods Domestic Australia Other exports

Galvanised steel [CONFIDENTIAL TEXT DELETED – number]

2.1.1 Essar Group

Essar is part of the Essar Global Fund Limited group of companies diversified across various industries ranging from:

Steel, Energy (oil, gas and power):

Infrastructure (managing ports, engineering, procurement and construction projects);

Services such as logistics (shipping); and

Communications such as consumer durables and mobile phone retail stores.

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The group is also establishing a presence in the publishing and agricultural industries. A listing of the companies that comprise the group can be viewed at confidential attachment GEN 1.

2.1.2 Distribution channels

As discussed under section 2.1, Essar has three distribution channels. They are:

Ex-factory;

Hypermart/Expressmart market; and

Service Centre.

Ex-factory sales are sold directly to customers from the production facility at Hazira or Pune based on the customer’s specifications. These specifications predominately relate to grade, thickness and coating.

Essar explained that its retail outlets under the brand name Hypermart or Expressmart allow customers to buy a wide range of steel products from small to large quantities of stock, at physical locations that are close to their premises. Essar advised that it has invested in over 375 retail outlets across India, Indonesia, Nepal and the Middle East for the purposes of maintaining and supporting this sales channel. Essar further explained that its Hypermarts [CONFIDENTIAL TEXT DELETED – marketing and sales procedure].

Essar explained that its Service centre outlets sell to [CONFIDENTIAL TEXT DELETED – marketing and sales procedure]. Each Service Centre has a small manufacturing capability and also acts as a hub for Hypermarts and Expressmarts that are in close proximity.

[CONFIDENTIAL TEXT DELETED – identification of sources of the goods for export and domestic markets].

2.1.3 Essar Middle East FZE

[CONFIDENTIAL TEXT DELETED – internal corporate arrangement]

2.2 Related party transactions

In addition to the transactions that Essar has with ESME, discussed under Section 2.1.3, Essar has the additional following related party arrangements:

some of Essar’s power requirements are supplied by Bhandar Power;

cargo handling for Essar’s raw materials and finished goods is provided by Essar Bulk Terminal Ltd; and

inwards and outwards transport services between the plants and the Hazira port are provided by Essar Logistics Limited.

A benchmark analysis of costs associated with cargo handling and inward / outward transportation against other Indian exporters that provided responses to the exporter

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questionnaire for this investigation suggests that the costs reported by Essar are reasonable in quantum (per tonne) and are costs incurred in transactions that are at arms length. In relation to the power supply by Bhandar Power, [CONFIDENTIAL TEXT DELETED – commercial arrangements]. Having regard to the proportion of costs represented by utilities supplied by Bhandar Power, we chose not to conduct further verification of this cost item.

Based on the company’s response to the Exporter Questionnaire and the information verified at the visit, the visit team found no evidence of any relationship, other than a commercial buyer/seller relationship, between Essar and its customers of galvanised steel.

2.3 Accounting structure and details of accounting systems

Essar’s financial year is from 1 April to 31 March.

Essar provided copies of the following documents in the exporter questionnaire response and at the verification meeting:

Chart of Accounts;

Cost centre listing; and

Annual reports for 2012 and 2013.

Essar advised that the accounting information system used is [CONFIDENTIAL TEXT DELETED – proprietary financial system software]. Revenues and expenditures are classified according to various profit and cost centres. Confidential Attachment GEN 2

lists Essar’s profit and loss centres and is supplemented by internal profit and loss reports detailing the results for various profit centres in the financial year ending 31 March 2014 and for the investigation period or year ending 30 June 2014.

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3 THE GOODS AND LIKE GOODS

3.1 Description

The goods the subject of the application (the goods) are defined as follows:

‘flat rolled iron or steel products (whether or not containing alloys) that are plated or coated with zinc exported to Australia from India and Vietnam’.

These goods are generically called galvanised steel. Galvanised steel of any width is included in this application.

Exclusions

These goods do not include painted galvanised steel, pre-painted galvanised steel, electro-galvanised steel, corrugated galvanised steel or aluminium zinc alloy coated or plated steel.

3.1.1 Additional information

BlueScope’s application also provided additional information to support its description of the goods, as follows:

The goods include the same categories of goods as identified in Trade Measures Report No. 190 and 193, however, this application also includes goods that are alloyed (i.e. with minor additions, e.g. boron, chromium, etc). The goods the subject of this application include all zinc coated product options, including all grades/models of zinc coated steel, all coating mass classes and all surface treatments.

Trade or further generic names often used to describe the goods the subject of the application include:

- “GALVABOND®” steel - “ZINCFORM®” steel - “GALVASPAN®” steel - “ZINCHITEN®” steel - “ZINCANNEAL”steel

- “ZINCSEAL”steel - Galv - GI - Hot Dip Zinc coated steel - Hot Dip Zinc/Iron alloy coated steel

- Galvanneal

The amount of zinc coating on the steel is described as its coating mass and is nominated in grams per meter squared (g/m2) with the prefix being Z (Zinc) or ZF (Zinc converted to a Zinc/Iron alloy coating). The common coating masses used for zinc coating are: Z350, Z275, Z200/Z180, Z100, and for zinc/iron alloy coatings are ZF100, ZF80 and ZF30 or equivalents based on international standards and naming conventions.

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Surface treatments can include but not be limited to; passivated or not passivated (often referred to as chromated or unchromated), oiled or not oiled, skin passed or not skin passed, phosphated or not phosphated (for zinc iron alloy coated steel only).

There are a number of relevant International Standards for zinc coated products that cover their own range of products via specific grade designations, including the recommended or guaranteed properties of each of these product grades. These relevant standards are noted below in Table A-3.1 “Relevant International Standards for zinc coated steel”.

Table A-3.1 - Relevant International Standards for zinc coated steel

International Standards Product Grade Names

AS/NZS 1397 G1, G2

ASTM A 653/A 653M CS type A, B and C

EN10346 DX51D, DX52D

JIS 3302 SGCC, SGHC

AS/NZS 1397 G3

ASTM A 653/A 653M FS, DS type A and B

EN10346 DX53D, DX54D

JIS 3302 SGCD, SGCDD,

AS/NZS 1397 G250, G300, G350, G450, G500, G550

ASTM A 653/A 653M 33 (230), 37 (255), 40 (275), 50 (340), 55 (380), 80 (550)

EN10346 S220GD, S250GD, S280GD, S320GD, S350GD, S550GD

JIS 3302 SGC340, SGC400, SGC440, SGC490, SGC570 SGH340, SGH400, SGH440, SGH490, SGH570

General and Commercial Grades

Forming, Pressing & Drawing Grades

Structural Grades

3.1.2 Tariff classification

The application states that galvanised steel is classified to the following tariff subheadings in Schedule 3 to the Customs Tariff Act 1995:

7210.49.00 (statistical codes 55, 56, 57 and 58);

7212.30.00 (statistical code 61);

7225.92.00 (statistical code 38); and

7226.99.00 (statistical code 71).

Based on the information provided in the application, it has been confirmed by the Trade Policy and Advice section of the ACBPS that galvanised steel is correctly classified to these tariff subheadings.

The general rate of duty is currently 5% for goods imported under these tariff subheadings. However, imports from India and Vietnam are subject to a DCS duty rate which is free for non-alloy steel under 7210.49.00 and 7212.30.00 and is 4% for ‘other alloy’ steel under 7225.92.00 and 7226.99.00.4

4 ‘DCS’ is a code applied to classes of countries and places in relation to which special rates apply as specified in Part 4 of Schedule 1 to the Customs Tariff Act 1995.

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3.2 Production process

3.2.1 Manufacturing

As outlined in Section 2.1 above, Essar manufactures galvanised steel at two sites in India (referred to as Hazira, Gujarat and Pune, Maharashtra).

As part of its response to the Exporter Questionnaire, Essar provided a summary of its production process (Confidential Attachment GEN 3 refers), which is outlined as

follows:

pelletisation of iron ore to produce pellets;

conversion into sponge / molten iron;

production of liquid steel from sponge/molten iron; and

conversion into finished flat steel products.

The Hazira plant is fully integrated and capable of processing iron ore into a finished product. It has hot rolling, cold rolling, pickling and galvanising capabilities whereas the Pune facility is a downstream cold rolling processing plant that has color coating and galvanising capabilities. In addition to these manufacturing plants, the Service Centres have the capacity to uncoil, slit, shear, cut to length and to manufacture plate sheets and beams.

3.2.2 Warehousing and inventory carrying

Essar stated in its response to the exporter questionnaire that [CONFIDENTIAL TEXT DELETED – cost information and differences between export sales and the various domestic sales channels].

3.3 Product Range

Essar manufactures and sells the goods in a wide range of grades, thicknesses, coating mass and widths. These ranges vary according to the end use as demonstrated by the company’s sales catalogue at Non-Confidential Attachment GEN 1. Confidential Attachment GEN 4 details the grades, specifications, strength, performance

characteristics and dimensions of Essar’s galvanised steel products.

3.3.1 Goods exported to Australia

During the investigation period, Essar exported non-alloy galvanised steel to Australia. These products had:

coatings thicknesses ranging [CONFIDENTIAL TEXT DELETED – range];

base metal thicknesses (BMTs) ranging [CONFIDENTIAL TEXT DELETED – range]; and

widths ranging [CONFIDENTIAL TEXT DELETED – range].

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The most commonly sold product had [CONFIDENTIAL TEXT DELETED – specification]. These products comprised approximately [CONFIDENTIAL TEXT DELETED – number]% of total Australian sales during the investigation period.

3.3.2 Domestic sales of like goods

Based on the sales data provided by Essar, the products sold during the investigation period had the following characteristics:

coatings thicknesses ranging [CONFIDENTIAL TEXT DELETED – range];

BMT’s ranging [CONFIDENTIAL TEXT DELETED – range]; and

widths ranging [CONFIDENTIAL TEXT DELETED – range].

The most commonly sold products were of [CONFIDENTIAL TEXT DELETED – specification]. These sales comprised [CONFIDENTIAL TEXT DELETED – number]%

of overall sales in the investigation period.

Notwithstanding the differences in common specifications outlined above, the visit team considers that the goods manufactured for domestic consumption are identical to, or have characteristics closely resembling, the goods exported to Australia, as they:

have similar physical characteristics;

[CONFIDENTIAL TEXT DELETED – production arrangement] during

production;

are produced [CONFIDENTIAL TEXT DELETED – production arrangement]

with the same raw material inputs and manufacturing processes; and

are functionally and commercially alike.

For the purpose of model matching, the visit team considers that it is appropriate to have regard to three characteristics – grade, coating thickness and BMT. These characteristics (expressed in ranges) were identified with simplified product classification codes, each comprising three alpha characters. For example, [CONFIDENTIAL TEXT DELETED –specification details of the most common model of products exported to Australia].

Essar’s product classification method is provided in a table at Annexure 14 to its response to the exporter questionnaire.

3.4 Like goods – preliminary assessment

The visit team considers that galvanised steel produced by Essar for domestic sale has characteristics closely resembling those of the goods under consideration and are therefore ‘like goods’ in accordance with subsection 269T(1).

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4 RECONCILIATION OF SALES TO FINANCIAL STATEMENTS

We asked Essar to demonstrate how the detailed domestic and export sales data provided in the response to the exporter questionnaire could be reconciled to audited financial statements.

Essar followed a ‘top-down’ approach to this exercise. It started by showing us how the “Revenue from Operations (Gross)” in the Statement of Profit and Loss for the year ending 31 March 2014 (from its 38th Annual Report 2013-14) matched up to the total operating revenues shown in the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] for that year. The [CONFIDENTIAL TEXT DELETED – proprietary financial system software] was demonstrated online, and selected hard copies were obtained to support the reconciliation.

In relation to the year ending 31 March 2014, Essar provided a quarterly breakdown of that year’s volumes and values by broad product categories, plant, and market (export and domestic). It also provided a more detailed sales report for that year for the Hazira and Pune plants and this report identified galvanised steel separately, and it again split the data between domestic and export sales. Essar explained that both of these reports were generated using the monthly sales downloads from [CONFIDENTIAL TEXT DELETED – proprietary financial system software], which are maintained in Excel

workbooks.

Using the same monthly sales data extracted from [CONFIDENTIAL TEXT DELETED – proprietary financial system software] to generate quarterly data, Essar ran the same two reports for the investigation period (ensuring data for April to June 2013 was removed, and data for April to June 2014 was added).

The export sales volumes and values of galvanised steel now matched the summary figures in the “turnover statement” provided at Essar’s Annexure 10 to its response to the exporter questionnaire. The domestic sales volumes and values did not match the turnover statements. Essar demonstrated that the differences for domestic sales were due to:

[CONFIDENTIAL TEXT DELETED – non-GUC sales]; and

adjustments for [CONFIDENTIAL TEXT DELETED – sales arrangement].

The volumes and values contained in the turnover statement for export sales to Australia and domestic sales matched the totals of the detailed transactional data contained in the “Australian Sales” (Annexure 12) and “Domestic Sales” (Annexure 16) workbooks respectively.

Copies of the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] screenshots, the sales reports and reconciliation workings are at confidential attachment GEN 5.

We concluded that the “Australian Sales” and “Domestic Sales” workbooks provided by Essar contained a reasonably complete and relevant list of export sales of the goods and domestic sales of like goods for the investigation period.

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5 SALES TO AUSTRALIA

5.1 General

During the investigation period, Essar exported galvanised steel to the following Australian customers:

[CONFIDENTIAL TEXT DELETED – customer identity]

Essar advised that its Australian customers are [CONFIDENTIAL TEXT DELETED – type of customers], all of which are unrelated to Essar.

5.2 Export sales process

5.2.1 Ordering, pricing and production

[CONFIDENTIAL TEXT DELETED – sales procedure and pricing policy]..

Production is scheduled upon [CONFIDENTIAL TEXT DELETED – ordering and production arrangements]. The goods are shipped by containers to the Australian ports, and most are shipped from [CONFIDENTIAL TEXT DELETED – identification of different ports of export].

All invoices are issued on a net weight basis and at [CONFIDENTIAL TEXT DELETED – shipping term] delivery terms.

5.2.2 Payment terms

Essar has [CONFIDENTIAL TEXT DELETED – number] payment terms that applied to its exports sales to Australia in the investigation period. They are: [CONFIDENTIAL TEXT DELETED – payment terms].

[CONFIDENTIAL TEXT DELETED – detailed payment arrangements].

Further discussion of the payment terms applicable to Essar’s export sales to Australia is set out in section 9.1 of this report.

5.2.3 Delivery

As stated at Section 5.2.1, Essar exports are sold at [CONFIDENTIAL TEXT DELETED – trading terms] terms.

Essar engages the services of its related entity Essar Logistics Ltd to deliver galvanised steel [CONFIDENTIAL TEXT DELETED – sales route] to the port of export. Essar advised that [CONFIDENTIAL TEXT DELETED – sales route] has access to an all-

weather deep draft port for berthing of large sea vessels.

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5.2.4 Discounts, rebates and commissions

[CONFIDENTIAL TEXT DELETED – commercial arrangements concerning discounts, rebates and commissions]

5.3 Export sales data provided

In its response to the Exporter Questionnaire, Essar provided a detailed spreadsheet listing its Australian export sales of galvanised steel on a line-by-line basis.

The export sales listing included the following information:

customer name;

level of trade;

product details (product classification, alloy/non-alloy steel, grade, BMT, coating mass, width, type, finish, slit)

invoice number, invoice date and date of sale;

order number;

shipping and payment terms;

quantity (tonnes);

invoice value (USD and INR);

ocean freight;

FOB invoice value;

packing costs;

inland transport;

[CONFIDENTIAL TEXT DELETED – commercial arrangements]; and

duty drawback.

Essar provided a revised Australian export sales spreadsheet that corrected errors in the product classification codes and revised its claim for duty drawback (discussed further in section 9.3). The Australian Revised export sales spreadsheet is at Confidential Attachment EXP 2.

5.4 Verification of Australian sales to source documents – accuracy

Prior to the verification visit, the visit team requested that Essar provide supporting documents for 8 selected export transactions (covering multiple products over each quarter of the investigation period) from the export sales listing.

Essar was requested to provide the following commercial documents in relation to each selected export sales transaction:

purchase order;

order confirmation;

commercial invoice (or other evidence of sale/transfer, if invoice not issued)

evidence of payment;

inland freight costs;

packing list;

bill of lading;

evidence of ocean freight;

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associated port, handling, FOB and clearance charges invoice(s);

evidence of payment for exportation costs; and

evidence of exchange rates.

These documents were provided and are at Confidential Attachment EXP 3.

5.4.1 Customer invoices

For the 8 selected sales from Essar to Australian customers, the visit team was able to match details in the export sales listing against the relevant source documents.

The visit team matched the invoice numbers and dates in the export sales listing to the corresponding invoices provided, as well as the customer names, product details (i.e. BMT, coating mass, grade, width), shipping terms, invoice values and quantity (tonnes).

The visit team observed that Essar’s Steel invoices to Australian customers were priced in [CONFIDENTIAL TEXT DELETED – currency].

5.4.2 [CONFIDENTIAL TEXT DELETED – sales involving internal corporate arrangement]

[CONFIDENTIAL TEXT DELETED – internal corporate arrangements concerning Australian sales].

5.4.3 Evidence of payment for the goods

The visit team requested that Essar provide evidence of payment for the selected export transactions.

Four payments were evidenced with general ledger extracts accompanied by bank account extracts detailing the invoice number and the invoice amount. The payments matched the invoice number and the invoiced total.

One of the payments was evidenced through a remittance notice that referenced a letter of credit (LC). The LC was examined and identified the beneficiary as Essar and the relevant Australian party to the LC matches the party named on the invoice.

For another two of the sampled invoices, Essar provided a LC for one invoice and a general ledger extract showing payment of the invoice for the other. Although Essar did not also provide bank account extracts as evidence, we found no evidence to suggest that Essar did not receive payment or that it received a different amount to that shown on the invoice.

The fourth sampled transaction involved [CONFIDENTIAL TEXT DELETED – detailed information regarding payment term arrangement]

The visit team is satisfied that the price paid for the goods is the amount shown on the commercial invoices.

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5.4.4 Exchange rates

Essar advised that they used the spot rate that is generated from the accounting system. A comparison of the spot rate used by Essar against the historical daily exchange rates published by OANDA Corporation5 confirms that the exchange rate used is reasonable.

5.4.5 Packing

According to Essar, [CONFIDENTIAL TEXT DELETED – number]% of the total goods exported to Australia were shipped in containers.

[CONFIDENTIAL TEXT DELETED – packing method].

Essar claimed an average cost in relation to export packing ([CONFIDENTIAL TEXT DELETED – number] INR/tonne). The average is based on actual costs and was supported by two internal documents. One document detailed the costs associated with different export packing types with a breakdown of the number of packing types undertaken during investigation period. The second internal spreadsheet demonstrated how the costs associated with the different packing types were contemporaneously captured and posted to the general ledger.

Confidential Attachment EXP 4 provides a diagram of a fully packaged coil and costs associated with different export packing types and the number of packing types undertaken during investigation period.

5.4.6 Inland Transport, Handling and Other

Inland transport, handling and other for goods exported to Australia is claimed as an average cost ([CONFIDENTIAL TEXT DELETED – number] INR/tonne). Essar demonstrated this with an internal report that covered the investigation period on a quarterly basis. A quarter listed in the internal report was cross checked against the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] general

ledger. In addition to this, two random invoices were selected and followed through into the general ledger to determine its posting. The denominator used in the calculation of the average cost was verified against a detailed income statement that included volume and value data. Details of inland transport, handling and other forms part of Confidential Attachment EXP 5. The cross checks demonstrated that the balances used to calculate the average cost is reasonable and appropriate.

5.4.7 Ocean freight

Noting that export sales are on [CONFIDENTIAL TEXT DELETED – shipping terms] basis, Essar has [CONFIDENTIAL TEXT DELETED – shipping term] ocean freight for each of its export transactions to Australia. [CONFIDENTIAL TEXT DELETED – shipping term], copies of which are at Confidential Attachment EXP 3.

5 OANDA Corporation provides internet-based foreign exchange trading and currency information services.

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5.4.8 Accuracy of export sales – preliminary assessment

After taking into account the adjustments to Essar’s Australian export sales listing (as discussed in the preceding sections), the visit team considers that the export sales listing is an accurate record of the sales of galvanised steel to Australia during the investigation period.

5.5 The exporter – preliminary assessment

The visit team considers Essar to be the exporter of galvanised steel to Australia from India, as Essar:

is the manufacturer of the goods;

sets price for the sale of the goods;

owns the goods at the time prior to export;

packed the goods ready for shipping to the Australian market;

[CONFIDENTIAL TEXT DELETED – shipping arrangement];

ownership of the goods transfers across to the importer at [CONFIDENTIAL TEXT DELETED – shipping arrangement]; and

sent the goods for export to Australia and was aware of the identity of the purchaser of the goods.

5.6 The importer – preliminary assessment

The visit team considers that the Australian customers listed in Section 5.1 are the beneficial owners of the goods at the time of importation and are therefore the importers of the goods exported by Essar during the investigation period. The visit team noted that the Australian customers are listed as the consignee on the bill of lading and are invoiced for those goods. The importers paid [CONFIDENTIAL TEXT DELETED – commercial arrangement] in accordance with the invoiced prices.

5.7 Arms length

In respect of all transactions involving Essar’s galvanised steel export sales to Australia during the investigation period, the visit team found no evidence that:

there was no consideration payable for, or in respect of, the goods other than their price

the price is influenced by a commercial or other relationship between the buyer, or an associate of the buyer, and the seller, or an associate of the seller; or

the buyer, or an associate of the buyer, will directly or indirectly be reimbursed, compensated or otherwise receive a benefit for, or in respect of, whole or any part of the price.

The visit team therefore considers that all export sales to Australia during the investigation period were arms length transactions.

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5.8 Export price – preliminary assessment

For all transactions the visit team considers that the goods have been exported to Australia otherwise than by the importer and the purchases of the goods by the importer were made in arm length transactions.

In relation to the direct transactions between Essar and the importers, the importer pays the exporter. [CONFIDENTIAL TEXT DELETED – sales involving internal corporate arrangement].

Therefore, in relation to direct transactions between Essar and the importers, the export price has been determined under paragraph 269TAB(1)(a) using the price paid or payable for the goods other than any part of the price that represents any matter arising after exportation.

In relation to transactions involving [CONFIDENTIAL TEXT DELETED – sales involving internal corporate arrangement], the export price has been determined under paragraph 269TAB(1)(c) having regard to all the circumstances of the exportation. Specifically the visit team has used the price paid or payable for the goods other than any part of the price that represents any matter arising after exportation.

Detailed export price calculations, and summary export prices by model by quarter, are contained in confidential appendix 1.

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6 COST TO MAKE AND SELL

In its response to the exporter questionnaire, Essar provided cost to make and sell (CTMS) data for goods exported to Australia and for like goods sold domestically in the investigation period. The CTMS data was reported separately for each model (as determined by reference to various combinations of grade category, coating mass category, and base metal thickness [BMT] category) for each quarter.

The CTMS data was further broken down into the following cost categories:

Material costs – steel;

Material costs – zinc;

Direct labour;

Manufacturing overheads;

Depreciation;

Packing costs;

Selling costs (and [CONFIDENTIAL TEXT DELETED – commercial arrangement] where appropriate)

Administration costs

Financial costs

Delivery expenses

Other costs Essar explained that its CTMS data was produced using information from [CONFIDENTIAL TEXT DELETED – proprietary financial system software]. Essar advised at the meeting that it wished to submit revised CTMS data, and it explained that the following changes were considered necessary to ensure the accuracy of the data:

Abnormal expenses – [CONFIDENTIAL TEXT DELETED – cost information];

Financial expenses – [CONFIDENTIAL TEXT DELETED – cost information];

and

Thickness – [CONFIDENTIAL TEXT DELETED – cost information].

Copies of the revised CTMS data were provided in Excel workbooks and in hard copy. The hard copies are at confidential attachment CTMS 1.

A detailed explanation of the reason for adjusting the CTMS data is contained at confidential attachment CTMS 2. The verification of the CTMS data was conducted with respect to the revised CTMS data. To assist in our understanding of the production process flow and the approach to process costing, Essar provided two schematic diagrams. One showed the production process of the fully integrated facilities for steel-making and the other showed the process flow particular to the plants ([CONFIDENTIAL TEXT DELETED – production facility information]). Copies of these diagrams are at confidential attachment CTMS 3.

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6.1 Verification of production costs to audited financial statements

We sought to verify the completeness and relevance of the production costs in the CTMS data by asking Essar to demonstrate how the detailed spreadsheet data can be reconciled up through management reports to the audited financial statements.

Essar undertook this exercise in a ‘top-down’ approach in documents provided at confidential attachment CTMS 4. Each of the steps is outlined below:

Essar commenced by providing a Statement of Profit and Loss for the financial year ending 31 March 2014 extracted from [CONFIDENTIAL TEXT DELETED – proprietary financial system software]. We noted the key data including net

revenue, cost of materials and loss before tax matched the data contained at page 39 of Essar’s 38th Annual Report 2013-14. Refer CTMS 4A.

Essar then provided a Statement of Profit and Loss for the year ending 30 June 2014, also extracted from [CONFIDENTIAL TEXT DELETED – proprietary financial system software]. The quarterly breakdown of this report and the one

mentioned in the step above showed that this was effectively removing the results of the April to June Quarter of 2013 and adding in the April to June Quarter of 2014 figures to arrive at results for the investigation period. In undertaking this step we confirmed that the revenue data matched that used for the exercise for sales reconciliation set out in section 4 of this report. Refer CTMS 4B.

Also in relation to the investigation period, Essar provided a more detailed [CONFIDENTIAL TEXT DELETED – proprietary financial system software] report that showed [CONFIDENTIAL TEXT DELETED – cost accounting information]. Refer CTMS 4B.

Essar provided copies of its bill of materials for HRC that was based on actual consumption and expenditure for slab ([CONFIDENTIAL TEXT DELETED –costing policy]). We noted that the bill of materials included the cost of [CONFIDENTIAL TEXT DELETED – cost accounting information] - to arrive at the materials cost for input to HRC. Refer CTMS 4C.

Essar provided cost sheets [CONFIDENTIAL TEXT DELETED – cost accounting information]. In these steps we observed how the cost elements of store and

spares; consumables; fuel; power; repairs and maintenance; salary; depreciation; administration expenses and indirect cost – utilities distribution were included. Refer to CTMS 4D and 4E.

Essar provided a separate report by cost centres [CONFIDENTIAL TEXT DELETED – cost accounting information]. Refer CTMS 4F.

To support the Hazira plant costs, Essar provided detailed quarterly costing sheets for galvanised coil and sheet, which separately identified costs by Hazira Domestic; Hazira Export (except Australia); and Hazira Exports Australia. [CONFIDENTIAL TEXT DELETED – cost accounting information].

[CONFIDENTIAL TEXT DELETED – cost accounting information]..

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Having regard to the exercise outlined above, we were satisfied that the costs of production reported by Essar in its revised CTMS data were a reasonably complete and relevant account of its actual costs of production incurred in the investigation period.

6.2 Verification of production costs to source documents

We selected the following cost items for verification to source documents:

Raw material - iron ore;

Raw material – zinc;

Fuel consumption - gas

Depreciation

We also sought to verify the production volumes to ensure the denominator used for calculating unit production costs was accurate.

To assist with the downwards verification to source documents, Essar provided copies of its detailed Income Statements. These were provided for the financial year 2013-14 and for each quarter of the investigation period. The Income Statements were also broken down by profit centre. Copies of the detailed Income Statements are at confidential attachment GEN 2.

6.2.1 Raw material – iron ore

We asked Essar to link the “Raw materials consumption” figure shown in the quarterly Income Statement for its Q4 FY1314 (quarter ending 31 March 2014) to source documents for the purchases of iron ore.

Using the information at confidential attachment GEN 2, Essar identified the amounts for “Raw materials consumption” in total and then identified the element of that pertaining specifically to Profit Centres 2075 and 2100 (VIZAG) for its Q4 FY1314, which it explained contained all costs for iron ore fines. Essar then demonstrated on [CONFIDENTIAL TEXT DELETED – proprietary financial system software] how the cost of “Other production costs - raw materials” (accounting for about [CONFIDENTIAL TEXT DELETED – number]% of the “Raw Materials consumption”) can be removed to show the balance of cost that relates specifically to the consumption of iron ore fines in the period.

Essar then provided a detailed report of “Issues to production” or “consumption”, which it explained as being based on a moving weighted average of costs calculated with reference to the value of stock consumed. We noted the total issues to production for iron ore, once added to costs of other raw materials, reconciled with the “Raw materials consumption” figure in the quarterly Income Statement.

Essar then demonstrated that by following the material code, it could trace the issues to production back to the purchase ledger for iron ore fines. We noted the weighted average cost of stock consumed was very similar to the prevailing purchase prices of iron ore fines. We selected the largest transaction for the month of January and asked for evidence of the purchase details.

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Essar provided a copy of the invoice for the selected purchase of iron ore fines and it also provided evidence of payment. We noted the details were (allowing for an on-invoice “adjustment to price for quality”) consistent with that showing in the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] records.

Copies of the source documents ([CONFIDENTIAL TEXT DELETED – proprietary financial system software] screenshots, invoice, payment evidence) supporting the cost of iron ore fines consumed are at confidential attachment CTMS 5.

6.2.2 Raw material – zinc

We sought to verify the link between the “Raw materials consumption” figure shown in the quarterly Income Statement for its Q4 FY1314 (quarter ending 31 March 2014) to source documents for the purchases of zinc.

Using the information at confidential attachment GEN 2, Essar identified the amounts for “Raw materials consumption” in total and then identified the element of that pertaining specifically to Profit Centre [CONFIDENTIAL TEXT DELETED – profit centre code] for its Q4 FY1314, which it explained contained all costs for zinc. Essar then demonstrated on [CONFIDENTIAL TEXT DELETED – proprietary financial system software] how the cost of “Other production costs - raw materials” (accounting for about [CONFIDENTIAL TEXT DELETED – proportion] of the “Raw Materials consumption”)

can be removed to show the balance of cost that relates specifically to the consumption of zinc in the period.

Essar then provided a detailed report of “Issues to production” or “consumption”, which it explained (as in the case with iron ore) as being based on a moving weighted average of costs calculated with reference to the value of stock consumed. We noted the total issues to production for zinc, once added to costs of other raw materials, reconciled with the “Raw materials consumption” figure in the quarterly Income Statement.

Using the material code, Essar traced the issues to production back to the purchase ledger for zinc. We noted the weighted average cost of stock consumed was very similar to the prevailing purchase prices of zinc. We selected the largest transaction for the month of January and asked for evidence of the purchase details.

Essar provided a copy of the invoice for the selected purchase of zinc and it also provided evidence of payment. We noted the details were consistent with that showing in the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] records.

Copies of the source documents ([CONFIDENTIAL TEXT DELETED – proprietary financial system software] screenshots, invoice, payment evidence) supporting the cost of zinc consumed are at confidential attachment CTMS 6.

6.2.3 Fuel consumption - gas

We sought to verify the link between the “Fuel consumption” figure shown in the quarterly Income Statement for its Q4 FY1314 (quarter ending 31 March 2014) to source documents for the purchases of gas.

Using the information at confidential attachment GEN 2, Essar identified the amounts for “Fuel consumption” in total and then identified the element of that pertaining specifically to

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Profit Centre [CONFIDENTIAL TEXT DELETED – profit centre code]for its Q4 FY1314,

which it explained contained all costs for gas consumed in the cost centres attached to [CONFIDENTIAL TEXT DELETED – profit centre code]. Essar then demonstrated on [CONFIDENTIAL TEXT DELETED – proprietary financial system software] how certain minor charges (accounting for about [CONFIDENTIAL TEXT DELETED – number]% of the “Fuel consumption”) can be removed to show the balance of cost that relates specifically to the consumption of gas in [CONFIDENTIAL TEXT DELETED – profit centre code] in the period.

Essar then provided a detailed report of “Issues to production” or “consumption”, which it explained (as in the case with iron ore and zinc) as being based on a moving weighted average of costs calculated with reference to the value of stock consumed. We noted the total issues to production for gas, once allowing for additional minor charges, reconciled with the “Fuel consumption” figure in the quarterly Income Statement.

Using the material code, Essar traced the issues to production back to the purchase ledger for gas. We noted the weighted average cost of stock consumed was very similar to the prevailing purchase prices of gas. We selected the largest transaction for the month of January and asked for evidence of the purchase details.

Essar provided a copy of the invoice for the selected purchase of gas and it also provided evidence of payment. We noted the details were consistent with that showing in the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] records.

Copies of the source documents ([CONFIDENTIAL TEXT DELETED – proprietary financial system software] screenshots, invoice, payment evidence) supporting the cost of gas consumed are at confidential attachment CTMS 7.

6.2.4 Depreciation

We sought to verify the link between the “Depreciation” figure shown in the quarterly Income Statement for its Q4 FY1314 (quarter ending 31 March 2014) to source documents for depreciation.

Using the information at confidential attachment GEN 2, Essar identified the amounts for “Depreciation” in total and then identified the element pertaining specifically to [CONFIDENTIAL TEXT DELETED – profit centre code]for its Q4 FY1314, which it

explained contained depreciation charges for all cost centres attached to [CONFIDENTIAL TEXT DELETED – profit centre code].

Essar provided an extract from [CONFIDENTIAL TEXT DELETED – proprietary financial system software] that set out the sub-ledger details for the types of

depreciation charges (building, plant and machinery, furniture and fixtures, office equipment, computer and IT) in the relevant quarter. The total of these amounts matched the figure shown in the quarterly Income Statement for [CONFIDENTIAL TEXT DELETED – profit centre code] in Q4 FY1314.

Essar also provided an extract from the asset register for [CONFIDENTIAL TEXT DELETED – profit centre code], which included the line-by-line calculations of

depreciation by asset. Essar identified the calculation of the total depreciation amount for the relevant quarter, and these details were also consistent with the Income Statement.

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Copies of the source documents ([CONFIDENTIAL TEXT DELETED – proprietary financial system software] screenshots including the asset register) are at confidential attachment CTMS 8.

6.2.5 Production volumes

We sought to verify the production volumes reported by Essar to ensure that the unit cost calculations were based on the correct denominators.

With reference to the cost sheets provided for the Hazira plant within confidential attachment CTMS 4, we selected the quarter ending June 2014 and asked for evidence of the production volumes of galvanised steel. Essar provided monthly production summary sheets for April, May and June 2014. It identified the production volumes for finished galvanised product form the Hazira plant that, in sum, agreed with the total production volume used for determining unit costs.

Copies of the monthly production summaries for the quarter ending 30 June 2014 are at confidential attachment CTMS 9.

6.3 Verification of SG&A expenses

In its cost to make and sell data (see revised data at confidential attachment CTMS 1), in relation to both domestic and export sales, Essar reported the following expense items that might often be characterised as selling, general and administration expenses:

Selling costs;

[CONFIDENTIAL TEXT DELETED – sales arrangement];

Administration costs;

Financial costs;

Delivery expenses; and

Other costs

Essar explained that it used the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] data to report the amounts for these expense items. It

demonstrated this with reference to the cost sheets (fully absorbed) at confidential attachment CTMS 4. We chose the full cost to make and sell data for Hazira plant for Q4 FY13-14 and asked Essar to show how the [CONFIDENTIAL TEXT DELETED – proprietary financial system software] fully absorbed unit cost reconciles with the hard

copy data provided. Essar did so without discrepancy, allowing for certain adjustments, as follows:

[CONFIDENTIAL TEXT DELETED – cost adjustments]

The calculations for the reconciliation exercise are contained at confidential attachment CTMS 4.

In relation to finance expenses, Essar explained (at confidential attachment CTMS 2) the following:

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[CONFIDENTIAL TEXT DELETED – detailed information regarding financial expenses contained in confidential document]

We sought evidence to support the re-allocation of financial costs with reference to the March 2014 quarter. Essar provided a worksheet and source documents to support the calculations. The supporting documents included [CONFIDENTIAL TEXT DELETED – proprietary financial system software] extracts as evidence of the relevant asset value for allocation bases (in total and for various plants) and as evidence of finance costs. It also provided copies of production reports for slab production to provide evidence of the denominator used in finally calculating a finance cost per unit.

Essar also provided a graph it described as a “Production trend analysis for slab and galvanized steel for Hazira” 6. [CONFIDENTIAL TEXT DELETED – production information at Hazira plant]

We were satisfied that the rationale and the calculation pertaining to re-allocations of finance costs were done in a manner that generated a finance cost per tonne that is reasonable. Copies of the documents supporting the calculation of Essar finance costs are at confidential attachment CTMS 10.

6.4 Costs to make and sell – conclusion

We verified Essar’s cost to make and sell data for galvanised steel produced and sold in the investigation period upwards through management reports to the audited financial statements. We also verified the data downwards to source documents. As a result, we are satisfied that the information provided is reasonably complete, relevant and accurate.

We consider that these verified costs to make and sell are suitable for:

determining a constructed normal value under section 269TAC(2)(c); and

assessing ordinary course of trade under section 269TAAD.

The calculation of Essar’s unit costs to make and sell for galvanised steel sold on the domestic market and sold to Australia are contained in Confidential Appendices 2 and 2A respectively.

6 An attachment to the Essar (MoulisLegal) email of 1 April 2015.

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7 DOMESTIC SALES

7.1 General

As discussed under Section 2.1 and 2.1.2 , Essar produces a range of flat steel products including slabs, hot rolled, cold galvanised, color coated as well plates and pipes.

The manufactured products are distributed to customers either: directly from the manufacturing plants; through the Hypermart or Expressmart; or through service centres.

7.2 Domestic sales process

Essar explained the domestic sales process in relation to galvanised steel as follows:

[CONFIDENTIAL TEXT DELETED – sales and pricing procedure]

[CONFIDENTIAL TEXT DELETED – sales and pricing procedure];

[CONFIDENTIAL TEXT DELETED – sales and pricing procedure]; and

The payment and delivery terms vary from customer to customer depending on the individual contracts.

7.2.1 Discounts, rebates and commissions

[CONFIDENTIAL TEXT DELETED – sales policy regarding discounts, rebates, and commissions].

7.2.2 Payment terms

Essar has [CONFIDENTIAL TEXT DELETED – number] payment terms that applied to

its domestic sales of galvanised steel in the investigation period. They are: [CONFIDENTIAL TEXT DELETED – payment terms]

Further discussion of the payment terms applicable to Essar’s domestic sales is set out in section 9.1 of this report.

7.3 Level of Trade

In its response to the exporter questionnaire, and in its “Australian sales revised” spreadsheet, Essar described its Australian customers in the investigation period as all being [CONFIDENTIAL TEXT DELETED – level of trade]. In relation to domestic sales, Essar described three distribution channels as follows7:

1 Ex-factory to customers – [CONFIDENTIAL TEXT DELETED – sales and

marketing procedure].

2 Hyper-mart/Express-mart - [CONFIDENTIAL TEXT DELETED – sales and

marketing procedure]

7 Essar response to the exporter questionnaire (for official use only), p. 18-19

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3 Service centres - [CONFIDENTIAL TEXT DELETED – sales and marketing

procedure]

Essar also explained8 that

[CONFIDENTIAL TEXT DELETED – identification of type of customers]. On

the domestic market, the sales are made through the three distinct channels of

ex-factory [CONFIDENTIAL TEXT DELETED – identification of type of

customers] , Hyper-mart/Express-mart and Service Center. [CONFIDENTIAL

TEXT DELETED – cost and price information].

The data that has been provided enables relevant cost or price-based

adjustments to be made [CONFIDENTIAL TEXT DELETED – cost

information]

To test the differences between selling prices that might be related to level of trade, the visit team compared Essar’s weighted average domestic prices according to product classification codes (eg. [CONFIDENTIAL TEXT DELETED – product code]) for each level of trade. The visit team did this for each of the [CONFIDENTIAL TEXT DELETED – number] variations of level of trade shown by Essar in its response to the exporter

questionnaire. To focus and present our analysis the visit team concentrated on only those models that were sold in volumes of more than [CONFIDENTIAL TEXT DELETED – number] Tonnes for the investigation period. In aggregate, sales of these [CONFIDENTIAL TEXT DELETED – number] models accounted for about [CONFIDENTIAL TEXT DELETED – number]% of all domestic sales of galvanised steel by Essar in the investigation period. The following chart shows the relationships in price for those models for the investigation period.

[CONFIDENTIAL CHART DELETED]

The chart demonstrates that for all those models that allow comparison of prices [CONFIDENTIAL TEXT DELETED – comparison between each level of trade].

To test whether these relationships were reasonably consistent over time (and not just a result of aggregation for the year), we examined the unit prices by quarter for domestic sales of model [CONFIDENTIAL TEXT DELETED – product codes. The following chart shows the relationship in prices for [CONFIDENTIAL TEXT DELETED – product code]:

[CONFIDENTIAL CHART DELETED]

We noted that the relationship was very similar for the equivalent analysis for product models [CONFIDENTIAL TEXT DELETED – product code].

The visit team also considered the volumes of galvanised steel sold to domestic customers within each level of trade. The following table shows the range of aggregate sales volumes for Essar’s domestic customers of galvanised steel for the investigation period in relation to each level of trade:

8 Essar response to the exporter questionnaire (for official use only), p. 28

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Individual customers

Ex-Hazira

Individual customers

Ex-Pune

Individual customers

Hypermart

Individual customers

Service Centres

Aggregate sales volumes for investigation period [CONFIDENTIAL TEXT DELETED –range and proportion]

Proportion of domestic sales

In summary, the visit team found that:

[CONFIDENTIAL TEXT DELETED – observation regarding domestic sales in different levels of trade]

The visit team also found that all exports of galvanised steel by Essar during the investigation period were [CONFIDENTIAL TEXT DELETED – information regarding level of trade and production]. The visit team considers it reasonable to use domestic sales of like goods from the [CONFIDENTIAL TEXT DELETED –information regarding level of trade].

Having regard to all of the above, the visit team considers it is most appropriate to [CONFIDENTIAL TEXT DELETED – comparison between domestic and export sales to be based on ex-factory domestic sales sales].

7.4 Domestic sales data provided

In its response to the Exporter Questionnaire, Essar provided a detailed spreadsheet listing of its domestic sales of galvanised steel on a line-by-line basis (also referred to as the original domestic sales listing).

The original domestic sales listing included the following information:

customer name;

level of trade;

product details (grade, alloy/non-alloy steel, BMT, coating mass, width, type, product code, slit/non-slit);

invoice number and date;

delivery and payment terms;

quantity (MT);

gross invoice value (INR);

discounts;

other charges (excise duty, E Cess, VAT etc);

net invoice value (including other charges);

packing;

inland transport;

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handling and other; and

inventory costs.

Essar provided a revised domestic sales spreadsheet to amend a number of errors in its original submission (Confidential Attachment DOM 1). The original spreadsheet had

errors in the:

product classification code which did not match the BMT and coating mass specifications;

the other charges column (excise duty, E Cess, VAT etc) and the discounts column had some incorrect values;

errors caused by the formatting of dates in the spreadsheet;

data entry errors in relation to quantity and gross invoice value;

errors in computational formula; and

amendments to the fixed duty drawback percentage.

7.5 Verification of domestic sales to source documents – accuracy

In order to verify the completeness and accuracy of Essar’s domestic sales listing, the visit team selected 9 domestic sales transactions for verification to source documents (covering multiple products over different quarters of the investigation period).

Essar provided the following documents in support of the selected domestic sales:

Invoice number and date;

Sales order and contract;

Billing document;

evidence of payment;

clearing document;

customer ledger extract; and

inland freight invoice (and evidence of related payment).

During the verification visit, these documents were provided and are at Confidential Attachment DOM 2.

7.5.1 Commercial invoices

For the 9 selected sales, the visit team was able to match details in the domestic sales listings against the relevant customer invoice for the selected transactions.

The visit team successfully matched the key items such as invoice numbers and dates, as well as certain product details (i.e. BMT coating mass, grade, width), invoice values and quantity (kilograms) except for one invoice where the coating mass could not be matched to the invoice. This discrepancy appeared to be an isolated one and there was no evidence to suggest any systemic data reporting problem.

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7.5.2 Evidence of payment for the goods

The visit team requested that Essar provide evidence of payment for the selected domestic transactions.

For six of the nine sales transactions sampled, the payments were verified through bank account statements and the customer’s general ledger account which showed the raised sales order and the respective payment. Payments for two sales transactions were evidenced using bank remittance notices as well as the associated general ledger detailing the order confirmation and the payment of the invoice. One invoice was supported by a spreadsheet that appears to be downloaded from a bank account but this cannot be confirmed. This transaction was also supported by general ledger extracts showing the posting of the order confirmation and the subsequent payment.

One payment amount is an exact match to the invoice. For the remaining 8 sales, the confirmed payment amounts are greater than the invoiced amount. This is due to other purchases made by that customer. This is consistent with the customers general ledger account that shows multiple order confirmations and credit balances. Having regard to the remittance notices, we were satisfied the invoiced amounts of the selected sales were paid as part of the greater payments that were made in respect of a group of invoices including the selected invoice.

Based on the comments outlined above, the visit team is satisfied that the price paid for the goods is the amount shown in the commercial invoices.

7.5.3 Packing

Essar advised that it packs galvanised steel with [CONFIDENTIAL TEXT DELETED – detailed packing method].

Essar claimed an average cost in relation to its packing cost. The average is based on actual costs and was supported by two internal documents. One document detailed the costs associated with different export packing types in association with a breakdown of the number of packing types undertaken during investigation period. The documents demonstrated that 99% of all items packaged for domestic deliveries involved the packing type that was the most expensive. The second internal spreadsheet demonstrated how the costs associated with the different packing types were contemporaneously captured and posted to the general ledger.

Based on the evidence provided by Essar, the average cost calculated for packing appears to be reasonable. Documents supporting packing costs are detailed in Confidential Attachment DOM 3 and EXP 4.

7.5.4 Inland transport

Essar advised that inland transport charges are incurred for transfers of galvanised steel from the production facilities at Hazira and Pune to the service centres and the Hypermart or Expressmart outlets. For sales made directly from the production facilities to customers, the freight is charged [CONFIDENTIAL TEXT DELETED – pricing basis]. Sales made from the service centre or the Hypermart/Expressmart, where delivered by Essar, are [CONFIDENTIAL TEXT DELETED – pricing basis].

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Essar’s first submission of the domestic sales listing had an error in the ‘Net Invoice Value (including tax)’ column for certain transactions. The total of this column is derived by adding the ‘gross invoice value’ column and the ‘other charges (excise duty, E Cess, VAT)’ column. The visit team noted that for [CONFIDENTIAL TEXT DELETED – number]% of the total ex-Hazira domestic sales the ‘net invoice value column’ had

incorporated inland transport cost. However, there were also ex-Hazira sales where the data indicated that inland transport cost was not included. The visit team noted that this inconsistent treatment of inland freight was also evident in domestic sales other than ex-Hazira.

Essar’s domestic sales revised spreadsheet rectified this computational error by eliminating the freight charge from the net invoice value. We compared the original domestic sales listing spreadsheet with the revised domestic sales listing and confirmed that the inland transport was removed from the ‘net invoice value’.

Four of the selected transactions used to verify the data related to ex-Hazira sales. The source documents relating to ex-Hazira confirmed that the sampled transactions did not incorporate the cost of inland transport into the ‘gross invoice value’ column.

In addition to the sampled transactions, we examined a freight charge for a specific sale, tracked the freight charge to an invoice from the logistics company and verified the payment of that particular freight charge using the general ledger. Copies of these source documents form part of Confidential Attachment DOM 4.

7.5.5 Handling & Other

Handling and other charges for domestic sales were calculated as an average cost. Essar demonstrated this with an internal report that covered the investigation period on a quarterly basis. Essar provided a copy of its selling and distribution expenses for each quarter of the investigation period and it highlighted the amounts for ‘handling expenses domestic’ for Hazira. Essar demonstrated how these amounts were divided by production volume of ex-Hazira plant to derive a [CONFIDENTIAL TEXT DELETED – number] per tonne. Essar advised it was calculated using the same methodology as ‘inland transport, handling and other’ claimed under export sales which was verified to the export source documents. Further to this, the amount claimed is not material and did not warrant further investigation. A copy of the selling and distribution expenses is at Confidential Attachment DOM 5.

7.5.6 Other charges (Excise duty, E Cess, VAT)

Essar has recorded a column in its domestic sales listing capturing the taxes applicable to domestic sales. The taxes are comprised of:

excise duties (12.36%) - this tax has not been included in CTMS data.

a central sales tax applies for sales made interstate - transactions involving inputs into the production process incorporate the tax paid into the CTMS data.

a value added tax is imposed on sales that occur in the state of Gujarat - this tax is not incorporated into the CTMS data.

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Some errors were identified in this column, including negative values and figures that appeared to be too high when measures as a percentage of invoice price. However, for normal value purposes, this column is disregarded as normal value calculations will be based on the gross invoice value that excludes all taxes. Details of these taxes are provided at Confidential Attachment GEN 6.

7.5.7 Discounts

[CONFIDENTIAL TEXT DELETED – discount policy].

7.6 Arm’s length

In respect of Essar’s domestic sales of galvanised steel during the investigation period (as provided in the revised domestic sales listing), the visit team found no evidence that:

there is any consideration payable for, or in respect of, galvanised steel other than its price; or

the price is influenced by a commercial or other relationship between the buyer, or an associate of the buyer, and the seller, or an associate of the seller; or

the buyer, or an associate of the buyer, will directly or indirectly, be reimbursed, compensated or otherwise receive a benefit for, or in respect of, whole or any part of the price.

The visit team therefore considers that all Essar’s domestic sales of galvanised steel during the investigation period were arms length transactions.

7.7 Ordinary course of trade

Section 269TAAD provides that if like goods are sold in the country of export in arms length transactions and in substantial quantities, and are sold at a price less than the cost of such goods and are unrecoverable within a reasonable period, they are taken not to have been paid in the ordinary course of trade.

A profitability analysis of the net invoice price for each domestic sale was calculated by comparing that price to the corresponding cost to make and sell for the respective model and corresponding quarter. A subsequent test was undertaken to determine the volume of sales at a loss. Eighty-five percent of the domestic models had a volume of sales at a loss that was greater than 20%. A test of the recoverability of costs was undertaken to determine if the loss making sales are recoverable. As such, sales not at a loss and sales at a loss but recoverable were considered in the ordinary course of trade.

The visit team noted that, in relation to export models sold in domestic sales [CONFIDENTIAL TEXT DELETED – level of trade information] in arms length transactions and at prices that were in the ordinary course of trade, the gross margin (selling general and administration expenses, plus profit) when measured as a percentage of cost to make was [CONFIDENTIAL TEXT DELETED – level of]%. The

use of this gross margin is discussed further in the normal value section later in this report.

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7.8 Volume and suitability of sales

Subsection 269TAC(2) provides that certain domestic sales may be unsuitable for use in determining normal value because of factors in the market. One such factor is where there is an absence, or low volume, of sales of like goods in the domestic market.

Low volume is defined in subsection 269TAC(14) as less than 5% of the total volume of the goods under consideration that are exported to Australia.

[CONFIDENTIAL TEXT DELETED – number] models were sold to Australia. [CONFIDENTIAL TEXT DELETED – number] of those models were also sold on the domestic market [CONFIDENTIAL TEXT DELETED – level of trade information] in arms length transactions at prices that were in the ordinary course of trade, in volumes greater than 5% of the export volume. [CONFIDENTIAL TEXT DELETED – number] remaining models were not sold in the domestic market, and the remaining model was sold domestically but the volume was less than 5% of export volume ([CONFIDENTIAL TEXT DELETED – number]%).

The visit team’s OCOT and sufficiency test calculations are at Confidential Appendix 3.

7.9 Domestic sales - conclusion

The visit team found that for [CONFIDENTIAL TEXT DELETED – number] exported

models there were domestic sales of the same model with prices that were paid in the ordinary course of trade and sold in a sufficient volume.

As discussed in the normal value section of this report, [CONFIDENTIAL TEXT DELETED – number] of these were considered suitable for establishing normal values

under s. 269TAC(1) of the Act, providing certain adjustments were made under s. 269TAC(8) of the Act to ensure proper comparison with the export prices.

The approach to normal value for the other eleven models is discussed in the normal value section of this report.

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8 THIRD COUNTRY SALES

In its exporter questionnaire response, Essar provided a summary of its galvanised steel export sales to third countries for the investigation period.

As we considered that we were in possession of enough verified information from the submission and our visit to calculate normal values using Essar’s domestic sales, or by using its costs and profit in a construction method, we did not undertake detailed verification of the third country sales data.

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9 ADJUSTMENTS

To ensure proper comparison of normal values with export prices we considered the adjustments discussed in this section of the report.

It is important to note that the comparison of export price and normal value was done on the basis of FOB delivery terms and [CONFIDENTIAL TEXT DELETED – payment term]

payment terms.

9.1 Credit terms

We noted that the payment terms applicable to Essar export sales of the goods to Australian importers in the investigation period comprised [CONFIDENTIAL TEXT DELETED – number] types. The [CONFIDENTIAL TEXT DELETED – number] types of

payment terms, and the volume and proportion of export sales sold in respect of each type of payment terms, are set out below:

Payment term types (Export sales)

Volume (Tonnes)

Proportion of export sales

[CONFIDENTIAL TEXT DELETED – payment terms]

[CONFIDENTIAL TEXT DELETED – number and proportion]

Total

The transactional data provided by Essar in its “Australian sales revised” spreadsheet (Annexure 12 to its response to the exporter questionnaire) did not contain dates of payment. We advised Essar that without the date of payment reported for each and every export transaction we would be unable to calculate and apply a potential downward adjustment to normal value to reflect advance credit terms for export sales. Essar understood this [CONFIDENTIAL TEXT DELETED – explanation regarding payment terms].

Furthermore, we noted that the payment evidence provided in relation to the selected export sales (discussed in section 5.4.3 above) indicated that payments were received after the invoice date. For the two transactions involving Essar and the importers directly, payment was received [CONFIDENTIAL TEXT DELETED – number] days post invoice date. [CONFIDENTIAL TEXT DELETED – observation regarding payment terms]..

In these circumstances, and noting that:

[CONFIDENTIAL TEXT DELETED – observation regarding different payment terms].

We consider it is reasonable to treat all Essar’s export sales to Australia in the investigation period as being sold with payment terms of [CONFIDENTIAL TEXT DELETED – payment term]

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In relation to Essar’s domestic sales in the investigation period, we noted that the payment terms applicable also comprised [CONFIDENTIAL TEXT DELETED – number] types, although these types were different to the types applying to export sales. The [CONFIDENTIAL TEXT DELETED – number] types of domestic payment terms, and the volume and proportion of domestic sales sold in respect of each type of payment terms, are set out below:

Payment term types (Domestic sales)

Volume (Tonnes)

Proportion of domestic sales

[CONFIDENTIAL TEXT DELETED – payment terms] [CONFIDENTIAL TEXT DELETED – number

and proportion] Total (excluding small negative volume of return sales)

The transactional data provided by Essar in its “Domestic sales revised” spreadsheet (Annexure 16 to its response to the exporter questionnaire) did not contain dates of payment. We noted that without the date of payment reported for each and every domestic transaction we would be unable to calculate and apply a potential upward adjustment to normal value to reflect advance credit terms for domestic sales.

In these circumstances, and noting that:

[CONFIDENTIAL TEXT DELETED – observation regarding payment terms]

Notwithstanding the observation of one transaction where payment date significantly exceeded the payment terms, we consider it is reasonable to treat all Essar’s domestic sales of like goods in the investigation period as being sold with payment terms of [CONFIDENTIAL TEXT DELETED – payment term]

Accordingly, we consider that it is not necessary to adjust the normal value for any differences in credit terms between those applying to export sales and domestic sales. Both sets of sales transactions have been treated as if all transactions in the investigation period were made at payment terms equivalent to [CONFIDENTIAL TEXT DELETED – payment term].

9.2 Inland transport, handling and other

Verification of expenses incurred by Essar for export inland transport, handling and other expenses ([CONFIDENTIAL TEXT DELETED – number] INR/Tonne) is discussed in section 5.4.6 of this report.

Verification of expenses incurred by Essar for:

domestic inland transport (for sales including delivery, these expenses ranged from INR[CONFIDENTIAL TEXT DELETED – number]/Tonne to INR [CONFIDENTIAL TEXT DELETED – number]/Tonne); and

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domestic handling and other charges (INR [CONFIDENTIAL TEXT DELETED – number]/Tonne)

are discussed in section 7.5.4 and 7.5.5 of this report.

We consider that the Essar calculations of these expenses are based on relevant and reliable information.

The evidence demonstrates that the inland transport, handling and other expenses incurred in relation to export sales and domestic sales are different. It is reasonable to expect that such variations will also have resulted in commensurate variations in price. We therefore consider that normal values should include adjustments for differences in domestic and export inland transport, handling and other expenses to ensure normal value is properly comparable with export price.

It is important to note, in relation to sales shown in the “Domestic sales revised” spreadsheet as [CONFIDENTIAL TEXT DELETED – type of sales], the amounts for

inland transport have not been deducted from the “gross invoice value (excluding taxes/other charges)” column to derive an ex-works value. [CONFIDENTIAL TEXT DELETED – observation regarding information contained in confidential attachment].

9.3 Duty drawback

Essar explained that import duty applied to all imported materials and that such costs are embedded in its CTMS data. Essar further explained that it is entitled to a duty drawback of duties on exportation of finished products that contain materials on which import duty has been paid.

In making a claim for a negative adjustment to normal value in relation to duty drawback, Essar explained the following:

Essar uses imported and locally supplied materials in manufacturing finished goods and there are not different proportions of the respective materials used in production of finished goods exported and finished goods sold domestically;

The Indian Government uses standard consumption ‘norms’ and the applicable duty to arrive at a duty drawback amount applicable to exports of finished products by all manufacturers. This is published and subject to revision each year;

[CONFIDENTIAL TEXT DELETED – raw material purchase arrangement];

Essar’s calculations indicate that [CONFIDENTIAL TEXT DELETED – import duty paid and duty drawback received].

The exported goods were not subject to import duties and the domestic goods are subject to import duties and this creates a difference between export and domestic prices that warrants an adjustment.

Essar had calculated the duty drawback adjustment in the “Australian sales revised” spreadsheet by multiplying the FOB export price by a percentage figure of

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[CONFIDENTIAL TEXT DELETED – number]% or [CONFIDENTIAL TEXT DELETED – number]% (depending on the period - the higher rate only applied in the first quarter of the investigation period). Essar explained that those two percentage figures were the rates at which the Government had determined using the standard consumption norms for the respective periods.

We expressed concern with this approach to a duty drawback adjustment claim. We explained that the Essar calculation only shows what rate of duty drawback applied to exported goods. It does not provide any measure of whether any ‘residual’ amount of import duty effectively remains embedded in the CTMS of the domestic goods and therefore provides no basis for suggesting there is any difference in cost that gives rise to a difference in prices.

Essar understood our concerns and indicated it would re-calculate the drawback claims. Later in the verification visit, Essar presented a new calculation that took account of our concerns with the original approach. It calculated the total import duty paid in the investigation period on [CONFIDENTIAL TEXT DELETED – raw material] and

compared that with the sum of the duty drawback amounts over the same period. The amount of import duty paid exceeded the duty drawback amount and Essar described the difference as the “effective import duty amount paid by Essar net of duty drawback”. [CONFIDENTIAL TEXT DELETED – quantification of import duty paid by reference to domestic sales] to arrive at an amount of [CONFIDENTIAL TEXT DELETED – number]INR/Tonne (original claim ranged from INR [CONFIDENTIAL TEXT DELETED – number]/Tonne to INR[CONFIDENTIAL TEXT DELETED – number]/Tonne.

We considered the revised Essar approach was a reasonable way of demonstrating a difference in costs that existed between goods sold for export and goods sold domestically in the investigation period so far as those costs relate to non-refunded import duties on materials. We consider it is reasonable to expect that such a difference will be reflected in price differences and therefore consider it is reasonable to make a negative adjustment within the calculation of normal value.

The evidence provided by Essar to support its original and revised calculations of amounts for a duty drawback included:

General ledger extracts showing monthly drawback amounts;

Custom duty paid at Hazira and Mumbai ports;

Fuel purchases and the rate of duty applicable;

Detailed lists of materials imported at Hazira;

Links of duty drawback calculation with selected export transactions to Australia;

Indian Customs EDI system extracts;

[CONFIDENTIAL TEXT DELETED – arrangement with supplier]

Government of India Ministry of Finance Notification 98/2013 for rates of duty drawback

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BDP’s “Standard input-output norms” Vol 2, 2013-2014, 21st edition, extracts.

Copies of these documents are at confidential attachment ADJ 1.

9.4 Commissions

[CONFIDENTIAL TEXT DELETED – commercial arrangement regarding export and domestic commission].

9.5 Packing

The costs incurred by Essar in relation to export and domestic packing, as detailed in sections 5.4.5 and 7.5.3 of this report respectively, indicate that the unit costs (of packing per tonne of galvanised steel) are very similar. We consider the magnitude of the difference in unit costs for export and domestic packing is immaterial and it does not suggest that any price difference between export sales and domestic sales would be expected or achieved. Accordingly, we consider it is not necessary to make any adjustment within normal value calculation to ensure that it is properly comparable with export price.

9.6 Inventory costs

In its “Domestic sales revised” spreadsheet, Essar included a column for calculating “inventory costs”, which was either [CONFIDENTIAL TEXT DELETED – number] or [CONFIDENTIAL TEXT DELETED – number], apparently depending on the level of trade. In its response to the exporter questionnaire, Essar noted that inventory cost differences will exist if we [CONFIDENTIAL TEXT DELETED – level of trade]sales data when assessing normal value.

We advised Essar that we were unlikely to adjust for differences in export and domestic inventory carrying costs in the absence of evidence to show the inventory turnover for export sales. That is, we cannot accept that the average inventory turnover for export sales is [CONFIDENTIAL TEXT DELETED – number]. Essar acknowledged this position

and advised that it would consider whether to submit further evidence to support such a claim. Essar indicated that it considered such a claim would be unnecessary if we focused on the domestic sales [CONFIDENTIAL TEXT DELETED – level of trade].

Based on the evidence presented Essar to date, we consider no adjustment for differences in inventory costs is warranted.

9.7 Gujarat VAT

Essar explained that a tax on transactions is imposed by the Gujarat state government and that this state tax applies to suppliers when they sell to Essar and it is collected by Essar on sales to customers in Gujarat. It is shown separately on invoices. Essar explained that it must pay to the government any excess of debits over credits but in the reverse it is not refunded by the Gujarat State Government. Essar also explained that it does not incur such a tax on the export sales.

Essar indicated that in the investigation period [CONFIDENTIAL TEXT DELETED –circumstances concerning tax liabilities regarding the Gujarat VAT].

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We agree with Essar that such a taxation scheme may create a differential that might be said to affect export and domestic price comparability. However, we consider that such an adjustment would not necessarily be an upward one when calculating normal value, particularly in the factual circumstances described by Essar. That is, to the extent the Gujarat VAT paid exceeds that collected and no refund is provided, this represents a cost to Essar. It is reasonable to expect that such a cost might affect domestic sales in that Essar might seek to recover such costs domestically whereas it does not need to recover such a cost with export sales. In this case, we may consider the excess Gujarat VAT paid might be grounds for a negative adjustment when calculating normal value.

However, in the absence of evidence to demonstrate a reasonably consistent pattern of trade, both on the supply side and in relation to sales of finished goods within Gujarat, it seems it would be difficult or perhaps impossible for Essar to anticipate and therefore price into its domestic sales (in Gujarat, or domestic sales generally) any differences in costs arising from different VAT expenses incurred.

We do not consider the domestic selling prices need to be adjusted for any difference in Gujarat VAT as it applies to export sales and domestic sales.

9.8 Timing Adjustments

In some cases where there were domestic sales of the same model exported to Australia that were sold in sufficient volumes for the investigation period, there were instances of no domestic sales in one or more particular quarters. This was the case for nine of the sixteen models for which there were sufficient volume of suitable sales to use under s. 269TAC(1). In these cases, a timing adjustment was necessary to calculate a normal value for the missing quarter(s). The visit team made this calculation based on the differences in the respective unit costs to make for the exported models.

9.9 Adjustments – conclusion

We are satisfied that there is sufficient and reliable information to justify the following adjustments, in accordance with s. 269TAC (8) or (9) as required, and we consider these adjustments are necessary to ensure a fair comparison of normal values and export prices:

Export and domestic expenses for inland transport, handling and other

deduct an amount for handling and other

expenses;

add an amount for export inland transport,

handling and other expenses

Duty drawback deduct an amount for import duty on

materials embedded in domestic CTMS

Commissions [CONFIDENTIAL TEXT DELETED – adjustment regarding commission]

Timing add/deduct amount to ensure fair comparison

between different periods

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At the conclusion of the verification meetings, Essar provided a document that outlines its views on the adjustments relevant to these proceedings (confidential attachment ADJ 3). With the exception of our approach to calculating [CONFIDENTIAL TEXT DELETED – commission], we understand the adjustments summarised by Essar in that

document to be reasonably consistent with our approach set out above.

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10 Normal Values

The visit team found that for seventeen models exported to Australia, there were sufficient volumes of domestic sales of galvanised steel by Essar that were sold in arms length transactions at prices that were in the ordinary course of trade. The price paid for the goods in those domestic sales was established satisfactorily and the visit team was satisfied that the Essar domestic sales data was reasonably complete, relevant and accurate.

The visit team are satisfied that prices paid in respect of domestic sales for [CONFIDENTIAL TEXT DELETED – number] models directly comparable to export

sales models are suitable for assessing normal values under s. 269TAC(1) of the Act. The visit team considers that those domestic selling prices require adjustments (in terms of s. 269TAC(8) of the Act), in relation to all of the factors contained in the table in the section above, to ensure proper comparison with export prices.

In relation to the other [CONFIDENTIAL TEXT DELETED – number] models the visit team constructed normal values in terms of s. 269TAC(2)(c) of the Act based on the cost to make the exported model in the particular quarter, plus an amount for selling, general and administration expenses and profit (gross margin) for domestic sales. The visit team used the gross margin of [CONFIDENTIAL TEXT DELETED – number]% as discussed

in section 7.7 of this report for this purpose. The visit team considers that constructed normal values should incorporate adjustments (in terms of s. 269TAC(8) of the Act), in accordance with all of the factors contained in the table in the section above, except for timing differences, to ensure proper comparison with export prices.

The visit team calculated weighted average normal values separately by quarter and by model.

Detailed normal value calculations, and summary normal values, are contained in confidential appendix 4.

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11 DUMPING MARGIN

We compared the quarterly weighted average of export prices for each product classification code, for each quarter, over the whole of the investigation period, with the corresponding quarterly weighted average normal values, over the whole of that period, in accordance with s. 269TACB(2)(a) of the Act.

The weighted average dumping margin for galvanised steel exported to Australia by Essar in the investigation period was 7.4%.

Details of the Essar dumping margin calculations are at confidential appendix 5.

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12 APPENDICES AND ATTACHMENTS

Confidential Appendix 1 Export Price Calculations

Confidential Appendix 2 CTMS Data - Domestic

Confidential Appendix 2A CTMS Data – Exports to Australia

Confidential Appendix 3 OCOT / Sufficiency Calculations

Confidential Appendix 4 Normal Value Calculations

Confidential Appendix 5 Dumping Margin calculations

Confidential Attachment DOM 1 Domestic Sales Revised Spreadsheet

Confidential Attachment DOM 2 Domestic Selected Transactions

Confidential Attachment DOM 3 Domestic Packing Costs

Confidential Attachment DOM 4 Domestic Inland Transport Costs

Confidential Attachment DOM 5 Domestic Handling & Other Costs

Confidential Attachment DOM 6 [CONFIDENTIAL TEXT DELETED – sales arrangement]

Confidential Attachment EXP 1 [CONFIDENTIAL TEXT DELETED – sales arrangement]

Confidential Attachment EXP 2 Export Sales Revised Spreadsheet

Confidential Attachment EXP 3 Export Selected Transactions

Confidential Attachment EXP 4 Packing type and associated costs

Confidential Attachment EXP 5 Inland Transport Handling & Other

Confidential Attachment GEN 1 Essar Group Structure

Confidential Attachment GEN 2 Profit/cost centre listing and supporting by internal profit and loss reports detailing various profit centres.

Confidential Attachment GEN 3 Production Process

Confidential Attachment GEN 4 Specifications of galvanised steel

Confidential Attachment GEN 5 Financial System Screen Shots

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Confidential Attachment GEN 6 Excise Duties/CVD, E Cess/Sec & Hr ED Cess, CST, VAT and duty paid / duty drawback

Confidential Attachment CTMS 1 Revised CTMS data

Confidential Attachment CTMS 2 Reason for adjusting CTMS

Confidential Attachment CTMS 3 Process flow diagrams

Confidential Attachment CTMS 4 and 4A to 4H

Includes Essar’s 38th Annual Report, cost sheets, cost centre reports, financial system reports.

Confidential Attachment CTMS 5 Cost of iron Ore Fines

Confidential Attachment CTMS 6 Cost of Zinc consumed

Confidential Attachment CTMS 7 Cost of gas consumed

Confidential Attachment CTMS 8 Depreciation

Confidential Attachment CTMS 9 Production volumes

Confidential Attachment CTMS 10 Finance cost calculation

Confidential Attachment ADJ 1 Copies of the documents supporting the calculation of the duty drawback adjustment

Confidential Attachment ADJ 2 Copies of documents supporting certain commissions

Confidential Attachment ADJ 3 Essar’s submission regarding Adjustments

Non-Confidential Attachment GEN 1 Company sales catalogue