1. LEGAL PROVISIONS

 

The scope and need for verification of information is contained in Rule 8 and Rule 9 of the Anti-Dumping Rules, which read as under:

 

“Rule 8. Accuracy of the information. - Except in cases referred  to in sub-rule (8) of rule 6, the designated authority shall during the course of investigation satisfy itself as to the accuracy of the information supplied by the interested parties upon which its findings are based.”

 

“Rule 9. Investigation in the territory of other specified  countries.

 

- The designated authority may carry out investigation in the territories of other countries, if the circumstances of a case so warrant.

 

Provided that the designated authority obtains the consent of   the person concerned and notifies the representatives of the concerned government and the concerned government does not object to such investigation”

 

It is also pertinent to reproduce Rule 6(8) which states as follows:

 

“Rule 6(8) In a case where an interested party refuses access      to, or otherwise does not provide necessary information within    a reasonable period, or significantly impedes the investigation, the designated authority may record its findings on the basis of the facts available to it and make such recommendations to the Central Government as it deems fit under such circumstances”

 

Section 9A (6A) of the Act also provides for the same detailed as under:

 

“(6A) The  margin  of  dumping  in  relation  to  an  article,  exported  by   an exporter or producer, under inquiry under sub-section (6) shall be determined on the basis of records concerning normal value and export price maintained, and information provided, by such exporter or producer.

 

Provided that where an exporter or producer fails to provide such records or information, the margin of dumping for such exporter or producer shall be determined on the basis of facts available”.

 

The need of Sampling and the process thereof are provided in Rule 17(3) of AD Rules as detailed below:

 

“The designated authority shall determine an individual margin of dumping for each known exporter or producer concerned of the article under investigation:

 

Provided that in cases where the number of exporters, producers, importers or types of articles involved are so large as to make such determination impracticable, it may limit its findings either to a reasonable number of interested parties or articles by using statistically valid samples based on information available at the time of selection, or to the largest percentage of the volume of the exports from the country in question which can reasonably be investigated, and  any  selection,  of  exporters,  producers, or types of articles, made under this proviso shall preferably be made in consultation with and with the consent of the exporters, producers or importers concerned:

 

Provided further that the designated authority shall, determine an individual margin of dumping for any exporter or producer, though not selected initially, who submit necessary information in time, except where the number of exporters or producers are so large that individual examination would be unduly burdensome and prevent the timely completion of the investigation”

 

2. OPERATING PRACTICES

 

The Investigating Team shall always jointly conduct verification of DI, supporters, Foreign Producers / Exporters or importers/users if the case so requires. Further, the verification would mean verification of facts/figures/data in a table study and/or on the spot physical verification.

 

3. PRE-INITIATION VERIFICATION

 

The verification of the DI can sometimes be done at the pre-initiation stage mainly with a view to understand the proposed product, its processes,and operations of the applicant producer(s). A confirmation must be obtained from DI that all details pertaining to production and sale of PUC have been furnished and no unit/related entity manufacturing PUC has been left out. This becomes more important when the Applicants consist ofa small scale industry or belong to the unorganized sector. Rule 5(3)(b) of the Anti-Dumping Rules, inter alia enables the Authority to satisfy itself on the accuracy and adequacy of the evidence provided in the application. In fact, there are instances, where ADD investigations were initiated only after physical verification2 of the Applicants. Further, in the case of safeguard investigations, which are in the nature of emergency measures requiring immediate relief where deemed fit, it is necessary that accuracy and adequacy is checked prior to the decision on initiation of an investigation to avoid subsequent delays.

 

4. POST-INITIATION VERIFICATION

 

It is important to verify the information provided in the application as well as the responses filed by applicants (petitioners), producers and exporters along with their related entities and importers. There is no bar on post initiation verification even if pre-initiation verification has been done. The verification has to be done for all the responding parties by way of on-the-spot verification or table study except where it is decided to undertake verification on a sampling basis in view of large responses.

 

TABLE STUDY/VIDEO CONFERENCING

 

The verification through the method of table study means verification of original documents and supporting evidence in the Directorate either by verifying physical documentation or through Video Conferencing. The producer or exporter directly or through their legal representative, is required to get the sample (as directed by the Team) documents verified. The exporter’s or producer’s information can also be verified from their information system like SAP (a stepwise guide for ERP system based verification is attached herewith), Oracle or any other reliable system which allows the Exporter to access and show his records to the team in DGTR office. The verification process can also be set up through Video Conferencing.

 

SAMPLING

 

In case there are large number of responses, it is impractical to verify and examine each response individually, therefore it is advisable with a view to having more accurate verification, to resort to sampling as per the methodology described herein:

 

(i) Generally, sampling must be resorted to where the number of applicants or cooperating producer-exporters from a subject country are three or more.

 

(ii) It should be notified to all the stakeholders within 80 days from the date of initiation that the Authority is resorting to sampling and the sampling methodology must be specified therein.

 

(iii) The export volume of PUC by the producer-exporter and presence of a cross section of data are the primary factors to be kept in mind while designing samples to be verified.

 

(iv) In case of multiple subject countries in an investigation, where there are only one or two responses from each subject country, it may not be advisable to select a sample from the responding exporters from respective subject countries. An attempt should be made to undertake verification of all, even if in a table verification, for determination of individual dumping and injury margin.

 

(v) The outcome of sampling for a subject country would be the sampled producer-exporters having individual duty margin, followed by the un- sampled producer-exporters who will be given a weighted average duty margin determined for sampled producers,followed by a residual margin for non-responding producers-exporters and non-cooperative producer- exporters on account of incomplete response.

 

PHYSICAL VERIFICATION

 

Where the team decides to undertake on-the-spot physical verification of the plant and data/documents of DI (herein after also referred as the applicant) or producer-exporters (herein after also referred as respondent), then the following methodology may be adopted:

 

(i) It must be kept in mind that the domestic verification can be done by the Investigation Team only after obtaining the concurrence of DI or the supporters of the application, as the case may be. If any constituent of the DI refuses to co-operate, the respective unit can be disregarded for investigation purposes. The investigation can even be terminated, if it affects the standing of the DI.

 

(ii) Further, foreign verification can be undertaken by the Investigation Team only if: (a) the foreign entity agrees for verification, and (b) the team notifies the Government of the concerned subject country and that Government does not object.

 

(iii) If the entity or the Government objects to verification, the Investigation Team cannot conduct verification and may regard/disregard any or all of the information submitted by the concerned entity on the face of the documents and use the facts available under Rule 6(8) of Anti-Dumping Rules.

 

(iv) The guidelines for streamlining of the Verification process for foreign producers, exporters and DI, during the course of anti-dumping investigations, are contained in an Internal Circular No. 04/01/2018-O/o DGAD dated 23.01.2018, the gist of the same is provided in subsequent paragraphs.

 

(v) The tour program should be planned much in advance such that the companies would get sufficient advance notice and the team could also process the documentation for the tour with ease. The domestic verification should at least be planned 3 weeks in advance so that the company can prepare for the forth coming visit. The foreign tour should be planned 6 weeks in advance as the documentation requirement pertaining to approval of competent authority, financial approvals and screening committee clearance,information to embassy, application for political clearance, application for visa, issue of tickets, issue of sanction order, booking for accommodation and transportation etc. are lengthy and tedious.

 

(vi) In case the verification is in non-English speaking countries, and the team requires the services of an interpreter, then Embassy/Consulate of India should be requested to make the necessary arrangements. The Embassy/ Consulate should also be requested to join the investigation team during the process of verification at the premises of the producer exporter.

 

(vii) As neither the Act nor the Rules provide for the timing or the format of the Verification Report, a tentative format of the Domestic Verification Report and Exporter’s Verification Report suggesting contents of the report is attached herewith, in Annexure-I and Annexure-II.

 

(viii) It must be borne in mind that the purpose of verification is to confirm the accuracy of information/data submitted by the applicant/respondent and to verify that no relevant information/data was omitted in the application/ response.

 

(ix) It is necessary that all the data in the application/questionnaire response should be verified. However, if due to time constraints, it is not possible for the team members to verify every topic on the verification outline, team members should select items which are most critical and crucial.

 

(x) Team members should always ask for invoices during actual verification in addition to the invoices already mentioned in the verification outline.

 

This shall ensure the integrity of the verification process is maintained, the applicant and respondent must always be prepared to verify all the information relevant to the case.

 

(xi) Team members must first verify the data as submitted by the applicant/ respondent and unless they are absolutely certain, such data shall not be used in the final determination.

 

(xii) Prior to verification, the team should internally/independently identify specific sales transactions for detailed examination at the time of verification.

 

(xiii) Similarly, the team should also identify the high cost items or related party transactions, which may need examining complete details to check the authenticity of the reported costs. The team should aim at finding out the triggers for cost variations amongst several constituents of DI and Co- operative Exporters.

 

(xiv) To the extent possible, the specific sales transactions selected should cover the full spectrum of terms of sales, costs, adjustments, product models, etc., as well as sales with unusual characteristics. Data analysis prior to verification will provide some direction in choosing these sales. Similarly, issues regarding costing should also be pre-selected to ensure comprehensive verification.

 

(xv) Even if the team members suspect that some or all of the information that was provided is inaccurate or does not reflect the actual facts of the case, the investigation team should collect as much documentation and other information as possible about the items in question. The record of such adverse evidence is important when making the determination which could lead to termination of investigation or imposition of the duty, as the case may be, and also at the time of defending its stand before the court in legal proceedings.

 

(xvi) Team members should not solely rely on the applicant’s/respondent’s worksheets as the source documents for verification of a particular topic. Worksheets should be first tested for accuracy to determine if the formula, calculations, and assumptions yield the results claimed in the worksheet (if these documents are already on the record, this test should be done before verification). Further, team members should not simply accept the applicant/respondent’s methodology/assumptions as presented.  If the team members use a prepared worksheet as a verification exhibit, sample source documents used to support the exhibit should be attached to that exhibit.

 

(xvii) An important issue in verification of cost details is the basis adopted for allocation or apportionment of common expenses or joint costs. This is very critical as any change in the basis of allocation may result in drastic changes in cost figures. It needs to be ensured that the basis of allocation is appropriate or reasonable. If more than one product is coming out of any manufacturing process, where costs cannot be identified, it may be more prudent to allocate costs on the basis of production value (sales value of production during POI) or other reasonable basis instead of production quantities or any other arbitrarily selected method. However, if all the products emerging out of any process have almost similar value, production quantity method could also be adopted.

 

(xviii) It is equally important that verification is carried out to confirm that no relevant information/data was omitted in the application/response. In other words, completeness of the submission should be verified with respect to the reported cost details and sales transactions as well as charges and adjustments.

 

(xix) Team members should keep in mind that their purpose is to verify all the relevant facts pertaining to the case, including identifying any relevant information that has not been reported.

 

(xx) The team members should conduct themselves in an impartial manner at all times and avoid acceptance of hospitality offered by the parties.

 

(xxi) If the applicant’s/ respondent’s counsel or outside consultants are present at verification, the officials and employees of the company should be encouraged to participate in the verification process. It is essential that the applicant’s/ respondent’s officials and employees be the direct sources of information.

 

(xxii) Where the producer is exporting through other exporters and traders, who have submitted a complete response and are willing to co-operate during verification, such entities should preferably be invited at the producer’s premises if they exist in the same city. The process of verification of documents of such unrelated entities should be undertaken in the presence of the producer so that cross verification can be done and any double adjustments be avoided.

 

Preparation and planning for verification

 

(xxiii) The plan of verification, first entities to be verified and dates of the verification should be scheduled in advance. The verification agenda should be prepared and shared with the entities to be verified. Preparation for verification should be done in advance for the actual verification of the response data as discussed below:

 

Examination  of  application/questionnaire responses

 

(xxiv) Team members should examine the submissions in detail. The submissions made therein should be understood with regard to:

 

(a) All the formats are being duly signed and complete information is available. Name and designation of the concerned senior officer must be mentioned, where documents are signed by the Company Officials.

 

(b) The documents as per format should be certified by a practicing accountant in the exporting country, where our required. It may be added here that Indian Chartered Accountants may not be competent to certify the statements from books of accounts of the exporters, which have been prepared as per applicable statute and accounting standards in that exporting country.

 

(c) Peruse the supporting documents evidencing installed capacity and production etc. For example, installed capacity can be verified from various returns filed with the respective Government Authorities. It may be added here that certain polluting industries, especially chemical industries, file a return with the Pollution Board regarding installed capacity.

 

(d) The different segments, different plants and the various products being manufactured by the company, including any joint products or by-products.

 

(e) The details regarding captive consumption and the basis of its pricing. This information is necessary during allocation of expenses between PUC and Non-PUC. Even if the basis of captive transfer is market price, the team should verify the duly authenticated cost sheet of the captive inputs. The cost sheet would also help in ascertaining the reasonability of market price.

 

(f) Annual Reports including Director’s Report to find out relevant information, if any, mentioned therein like installed capacities, various segments and their separate profitability, business challenges, related parties and details of transactions with them including pricing policy, comments of the Auditor on arm’s length pricing etc.

 

(g) Peruse the Auditor’s Report to understand qualifications, if any, by the Auditors. If there are certain qualifications, the estimated impact on the findings must also be noted

 

(h) Check details of related party entities and the comments of Statutory Auditors must also be examined to ensure reasonability of costs and net sales realizations.

 

(i) Check and prepare a comparative chart of cost sheets for all the entities to find out the outliers, which may need special attention during verification.

 

(j) Identify those products or models with the highest and lowest consumption of inputs or costs which generated the highest and lowest margins and try to identify any inputs or cost elements causing these results for special attention during verification.

 

(k) Team members should sort the data, for example, by the customers, groups of customers, customer categories, quantity and value, rebates, discounts, channels of distribution, and commissions. Team members should also sum up the totals for all quantifiable data fields and break it out by reported variables within that field. These totals may be useful in determining the significance of certain variables or for checking allocations.

 

(l) If the respondent has been verified previously and the verification reports from earlier verifications are available, then team members should examine them to understand the DI as well as the producer exporter.

 

(m) eficiencies, if any, should be intimated before verification. Rejection of response at the last moment for minor deficiency should be avoided. If no satisfactory clarification is received within a reasonable period, the investigation may be proceeded further based on available facts

 

Verification Agenda

 

(xxv) The verification agenda (or outline) is an important tool of verification, as it serves the purpose of advance instructions to the applicant/respondent as to what it must prepare, for the verification. It provides a description of the structure of the verification; what will be verified, what documents will be reviewed, in what order items will be verified, etc. In essence, the outline is a script for the verification. The Investigation Team, however, should feel free to go out of order of the agenda, if needed (e.g., due to time constraints or the need for spontaneity.)

 

(xxvi) The outline should be presented to the applicant/respondent at least two weeks before the verification begins, but in no case should it be provided less than one week prior to the verification.

 

(xxvii) The investigation team should attempt to follow the verification agenda but should not be bound by it. The team members may want to discuss the order of the topics to be reviewed at the beginning of the verification, particularly if part of the verification needs to take place at another site, such as a factory or affiliated party at another location. In the course of the verification, when the opportunity arises to pursue another topic that was not anticipated in the agenda, the team members need to make a judgment call on whether to deviate from the defined agenda. This situation frequently occurs when the team members see the opportunity to conduct a completeness test or need to have the applicant/respondent collect certain types of data. [Another example would be the opportunity to verify a topic spontaneously].

 

Electronic files and laptop computers

 

(xxviii) The questionnaire responses and related documents are required at the time of verification;therefore, a soft copy of the information should be carried. The team should carry a laptop computer (provided by the Directorate) for verification.

 

Dealing with revisions (errors/discrepancies) and new information

 

(xxiv) Investigation Team should confirm whether any errors need to be rectified in the previously submitted information by the Applicant / Respondent.

 

(xxx) Investigation team should ask the applicant/respondent to describe the nature of each clerical error. This will help them understand whether or not the error can be accepted as a minor correction. If the investigation team determines that the clerical errors and minor omissions are acceptable as such, it will take the corrected version on record as a verification exhibit.

 

(xxxi) If the team senses that the applicant/respondent is presenting substantially new information, either prior to or during the verification, they should not make any commitment to accept the new information, as it will have to be brought to the notice of the DG and then accepted or rejected. However, the new information must be verified and all the relevant details based on the revised new information must be collected as exhibits.

 

(xxxii) Although minor discrepancies can be allowed to be rectified, major discrepancies are serious flaws in the data base which call into question the very integrity of certain sections of the response or the complete response itself. In case of major discrepancies, the team should document the existence of the discrepancy and collect complete information as it will require to be dealt with during the post-verification decision making process. It is important that team members make it very clear to the respondent that collection of such information does not constitute acceptance or verification of the new information.

 

Corporate organization and structure

 

(xxxiv) Team members should also make sure that they have information regarding the organizational structure of the respondent in effect for the POI. Further, even if the response is clear on corporate organization and structure, the industry should be asked to make a detailed presentation to enable the team to understand all the players. This will provide a better overview of the entire company and not just the unit involved with the merchandise under investigation or review. Such information may lead to the discovery of unreported sales distribution channels or affiliated customers and suppliers.

 

Product information

 

(xxxiv) It is essential that team members understand about all the products the company produces, where they are produced and how individual products are accounted for in the respondent’s accounting system. The verification should focus primarily on accounting of PUC.

 

(xxxv) Investigation Team should review products produced by the respondent and its affiliates that are both inside and outside of the scope of the proceeding. Team members should ask for a product code list covering all products produced by the company as well as codes for larger product groupings. Team members may then examine how this product coding system is integrated into the accounting system. This procedure will provide an understanding of what types of product-specific information is available.

 

(xxxvi) The company should explain how it segregates PUC from all other products produced. Where applicable, team members should review the computer program used to identify PUC.

 

(xxxvii) The investigation team should understand the production process and also take the plant tour.

 

(xxxviii) During a plant tour, observe the flow of the product through the production process, incoming raw materials, packaging of finished goods, shipping, etc. If they are verifying cost-related elements, team members should identify those areas where cost differences between grades/models may occur and consider whether the production differences appear consistent with the reported magnitude of cost differences. The team should feel free to talk to factory personnel, especially in packing, shipping and inventory control.

 

Production Quantity

 

(xxxix) The investigation team should first verify the production quantity. It is important because it constitutes the denominator in most or all of the respondent’s calculations. As they would with a sales quantity verification, team members should use financial statements, production records, and/or inventory ledgers to verify the production quantity.

 

(xl) As regards domestic verifications in chemical industries, usually this information can be found also in Excise Records/Returns filed with the Pollution Board (Mostly in case of Chemical Industries needing Pollution Board Approval). In some of the cases, it may be possible that the Pollution Control Certificate may have been taken for higher quantity for future expansion but installed capacity may be less. In such cases, appropriate documents in its support may be collected.

 

(xli) Investigation Team should ensure that the production quantity they are verifying refers to the product as sold. In some cases, a producer will maintain its production records based on a standard that may be different from the product that is actually sold. For example, a chemical producer may sell its product at a 90% concentration level, but maintain its records on a 100% concentration level standard. Where such differences exist, the investigating team should make sure that all reported factors are appropriately and consistently adjusted, and discuss any inconsistencies in the report. Similarly, as they examine both production and factor inputs, team members should be sure that the respondents have reported, and they are verifying, actual and not standard, production figures. If production yield is relevant in the case, the team members will also verify the net yield in this step.

 

Related parties or  affiliations

 

(xlii) In the application/questionnaire responses, companies are required to report related parties or affiliates involved in the production or sale of the PUC in the investigation. The purpose of verifying affiliations is to confirm that reported affiliations between companies through investment or interlocking board members and officers are accurate and complete. Sometimes applicant/respondents will limit this reporting to affiliated companies that have a direct role in the production or sale of Product Under Consideration in the investigation. In those instances, where there are affiliated companies, team members must also consider the affiliate’s relationships with its customers and suppliers. Verification of affiliations in large multinational companies is much more difficult than for smaller companies. The process can be greatly facilitated by pursuing the verification as below:

 

(a) Verification of the respondent’s shareholders can be accomplished through a variety of documents. The notes to the financial report will often list all, or at least the major, shareholders. Team members can also verify using the ‘shareholders equity’ section of the balance sheet. Other documents include shareholders’ reports, government registration documents or published security reports of public companies.

 

(b) Verification of company share holdings and investments is primarily accomplished using the asset section of the balance sheet. Asset accounts, such as ‘marketable securities’, ‘investment in securities’, ‘investment in subsidiaries and affiliates’, and ‘loans to  affiliates’ should be traced through the general ledger and sub-ledgers. If percentages of investments and holdings are not observable from the ledgers, the company should be required to compute the percentage for selected investments of interest.

 

(c) Verification of holdings and investments by reported affiliates is generally more difficult because team members may not have that company’s financial statement on record or the company may be distant from the verification site. In these instances, team members may use the respondent’s verified company data to check for sales, expenses, charges or production activity between the two companies or they may rely on faxed copies of source documents or require an express delivery of the documents from the distant affiliate.

 

(d) It is compulsory and necessary for all entities to co-operate and be willing to participate in the process of verification. In the case of multiple producers in a group, the team may decide to undertake plant verification of only one producer if there are no claimed differences in the various plants.

 

Accounting Review

 

(xliii) The team must have a basic, but a very clear, understanding of the respondent’s accounting system in order to adequately conduct a verification of the facts as presented and to verify the gaps in the data. In the verification agenda, the respondent should be asked to:

 

(a) Identify and describe the data systems used to record production and sales data; and

To review the manner in which source documents for production, sales and expenses flow into the financial statements via accounting vouchers, journals, subsidiary ledgers, and general ledger accounts. If the respondent has not already done so, investigation team should ask the respondent to provide a flow chart that clearly shows how production costs, sales revenues, and sales expenses are tracked in the respondent’s accounting system and identify the different stages of each of these accounting records by the names actually used in the respondent’s accounts with accurate translations. Furthermore, since verification focuses on reconciling the various information with the financial statement, the team must ensure that they possess the audited financial statement for the POI and the previous financial period. During the accounting review, the team should:

 

- Ask for an explanation of the internal accounting system which describes how, when and where the financial and sales accounting systems tie together. While verifying the factors of production, look for how the production and/or inventory accounting system ties to the financial records. Given the limited time of verification, focus on the essential and relevant information for verification.

- The team should verify financial statements submitted in a response and contents thereof, against the original audited financial statement. If the Respondent has failed to file financial statements for affiliate companies along with their questionnaires responses, they should be asked to do the needful during verification.

 

Computer Database Review

 

(xliv) Most businesses involved in international trade today maintain much of their basic sale and costs records and formal accounts in electronic form using some form of integrated accounting software. Therefore, much of the response material can be directly procured from the on-line documentation maintained by the respective company. In some cases, no hard copies of typical accounting source documents are kept. Therefore, for most companies, team members will need to scrutinize the integrity of the computer databases in order to complete the verification. Below are some useful tips for such verifications. (Note that some of these documents may have been submitted as part of the questionnaire responses or in a separate filing  prior  to verification):

 

(a) Investigation Team should ask to meet with the person in charge of computer operations and have this person provide a complete list of the types of computer reports generated and/or available in the ordinary course of business.

 

(b) Team members should review samples of the computer-generated reports and select those that could be of interest during the verification. Wherever necessary, ask that certain reports be produced for the POI.

 

(c) As part of the introduction to the respondent’s accounting system and request the IT person to demonstrate how data from a specific sale flows through the system and have them generate reports that can be linked to the financial statement. For cost verifications, team members should do the same with electronic records of purchases and input consumption. This procedure will give team members a good idea of what is involved in retrieving the information that is needed to match to response data.

(d) The verification agenda letter should state that the databases used to generate the response should be made available at the time of verification. In addition, wherever possible, the investigation team should ask that the database used for sales listing should also be loaded and that a programmer be available to run that database. If necessary, team members should ask that certain programs be run. This procedure will give a good idea of what is involved and how long it will take.

 

Reconciliation of Quantity and Value of Sales

 

(xIv) The total quantity and value of sales is simply the sum of the quantity and value of individual transactions in each of the respondent’s transaction databases. Thus, verification of total quantity and value is accomplished by typing selected individual sales transactions into the financial statement and by testing the ledgers and worksheets.

 

(xIvi) The team should bear in mind that it is not always possible to tie sales transactions directly into the financial report using records and ledgers kept in the ordinary course of business. This situation occurs because our definition of the product, POI and date of sale often do not coincide with the company’s accounting procedure. Also, the sales figures from the respondent’s accounting records may include other amounts (e.g., taxes, fees for services reported elsewhere). Worksheets will be needed to bridge the gap between accounting records and the sales data submitted by the respondent.

 

( xlvii) In case the quantity and value of sales total from the original sales transaction database differ from the original questionnaire quantity and value of sales figures, an explanation to this discrepancy must be sought. Regardless, the team should check the methodology used to calculate the original quantity and value and any subsequent corrections or revisions

 

Date of Sale/Sales Reporting

 

(xlviii) Generally, the date of the invoice, as recorded in the exporter’s or producer’s records kept in the ordinary course of business is considered as the date of sale. Team Members should discuss with appropriate personnel as to how the respondent records sales in the ordinary course of business and how changes to material terms of sales prior to shipping are taken into account.

 

(xlix) The Team should examine original copies of selected sample documents that had been submitted and are on the record. If appropriate, they should select additional sample sales, bearing in mind that they will be examining similar documentation in the course of the sales trace verification.

 

(a) Once it is clear as to which date of sale methodology was used by the respondent, the team members need to know the procedure used by the company to extract the POI sales transactions from its database. The actual procedure may range from manually reviewing sales and shipment records to examining complicated computer programming.

 

(b) As part of the quantity and value reconciliation, the company should provide copies of all files or worksheets used in arriving at the sales transactions reported. If team members are concerned, they may ask the company to re-run the program in their presence. If they do this, the team should take careful note of how the actual records that are accessed are linked to the company’s normal books and records. Also, observe the retrieval parameters (for dates and product classifications) that are used.

The purpose of the sales trace verification is to verify the factual information reported for the pre-selected sales identified in the agenda as well as those sales identified during verification (i.e., on-site sales). The sales tracing is a two-part process (that includes reviewing corresponding accounting entries). First, a sale is traced through the customer records from the initial inquiry/order to payment by the customer. Second, charges and adjustments that represent the actual charges and adjustments for that sale are examined and verified.

 

(C) During the sales tracing, the team should be able to verify the following basic sales transaction data:

- invoice date;

- sale date;

- shipment date;

- payment date;

- product code and control number;

- quantity sold;

- unit price;

- customer information and customer relationship;

- channel of distribution;

 - destination; and

- some price adjustments, such as on-invoice discounts.

 

(d) If certain charges and adjustments (typically credit days, rebates, discounts, commissions, and freight) are the actual expenses (as opposed to allocations) for that sale, then those items should also be verified in that sales tracing. Otherwise, charges and adjustments should not be included in the sales tracing but should be verified as separate, stand-alone topics.

 

Sales Tracing Source Documents

 

(lv)     Typical sales tracing source documents include:

 

(a) Customer contracts and purchase orders;

(b) Order confirmations and/or pro-forma invoices;

(c) Purchase order logs or pending shipment files;

(d) Production control records;

(e) Invoice to the customer;

(f) Shipping documents such as bills of lading, airway bills and delivery receipts;

(g) Factory shipping logs;

(h)Inventory records;

(i) Base-lined internal sales reports and worksheets;

(j) Sales ledgers;

(k) Accounts  receivable records;

(l) Records of payment, such as canceled checks, letters of credit, debit/ credit memos, promissory notes, bank deposit slips and/or bank statements;

(m) Credit insurance;

(n) Debit/credit memos for the post-sale price and/or quantity increases or decreases; and

(o) Wherever appropriate, invoices, expense ledgers, journal entry slips and records of payment for actual charges and adjustments.

 

Allocations of Expenses

 

(lvi) The respondent should describe the calculation and supporting documents it has prepared in accordance with the instructions in the verification agenda. The team must first verify the data as presented in the response. Afterward, they should pursue any concerns they may have with the methodology or the calculation.

 

(a) Whenever verifying an allocation methodology, the team should be sure that they are verifying the source documents and the financial accounting system rather than simply a worksheet. Worksheets are useful, but they are not, in themselves, source documents.

 

(b) Team members should look into the reasonability of allocation basis adopted by the company and if possible, also compare with the comparable basis adopted by the other units, if available.

 

(c) Attention must be paid to the basis of allocation of expenses to NPUC especially to ensure that expenses have been allocated to all the products/activities carried out by the company.

 

(d) The team should also see the quantitative average consumption of raw materials per unit to ensure that there is not much variation from year to year. All major variations need explanation.

 

(e) The prices of raw materials to be seen and compared amongst different constituents of DI and producer/exporters to the extent possible or feasible. This is desirable especially if the DI is also using the imported raw material.

 

(f) The basis of pricing of captive inputs consumption should also be seen and the costs compared with market price, if available.

 

(g) The form of packing used by producer/exporter for exports to India is very relevant, particularly when it is observed that packing for domestic sale and export sale is different. It is,therefore, necessary that the costing of producer/exporter/DI is worked out for the relevant packing to ensure a fair comparison.

(h) The team should take verification exhibits which support their findings. The exhibits may include the following source documents:

 

- Sample calculations;

- Allocation  worksheets;

- Invoices to the respondent;

- Expense ledger entries;

- Journal entry slips;

- Records of payments;

- Accounts receivable and payable ledgers;

- General ledger entries; and

- Other ledgers and records, which may be used to support such items as calculation of credit days, interest rates, inventory carrying time, duty drawbacks.

 

(lvii) Environment Costs: The investigation team should verify the expenses booked by the different units under the head “Environment Costs” and compare the costs with estimated requirements under the Environment Law of the country. This is especially required in case of industries falling under Red Category or Orange Category. It may be added here that all units have been broadly classified under the following categories:

 

S.No.	Category	Colour
1	Industrial Sectors having Pollution Index score of 60 and above	Red
2	Industrial Sectors having Pollution Index score of 41 to 59	Orange
3	Industrial Sectors having Pollution Index score of 21 to 40	Green
4	Industrial Sectors having Pollution Index score of incl. & upto 20	White

 

(lviii) There shall be no necessity of obtaining the consent to operate for white category of industries. An intimation to concerned SPCB/PCC shall suffice.

 

(lix) The inter-unit comparison with other units in the sector or part of DI may also be done and compared with provisions in other countries during verification.

 

(lx) The aforesaid information especially incremental costs and their impact on injury may be relevant during investigations while taking the final decision.

 

Exhibits

 

(lxi) Exhibits are copies of the source documents that the investigation team views at the time of verification and support the response and/or verification findings. Team members should take exhibits on record and put them in a file at the time of finalizing the verification report, which is considered confidential. Generally, team members should incorporate documents as formal verification exhibits if the document supports a particular point in the verification findings. In other cases, team members may simply take a sample of what they have seen. In some cases, applicant/respondent will create worksheets, especially for the verification to facilitate understanding of how the response data ties to the original source documents. Although these worksheets are not part of the applicant’s/ respondent’s regular books and records, the team should include them in the appropriate exhibits if they contribute to the understanding of the source documents.

 

(lxii) Formal verification exhibits should be given numbers. A list of exhibits along with detailed description of each exhibit should be annexed to the verification, for ease and convenience of reference.

 

Verification Reports

 

(lxiii) A standard format has been formulated which provides detailed guidance on the form of the verification report (annexed herewith). Even though the verification report should be modeled on the standard format, team members should keep in mind that the case-specific contents may be incorporated in the actual verification report.

 

(lxiv) Investigation Team should bear in mind that the verification report is the document to report on the accuracy of the questionnaire response (both submitted and omitted). The report is not an analytical decision memorandum, and verifiers must avoid drawing conclusions about the use or application of data from the questionnaire response.

 

(lxv) If possible, the investigation team should begin to write the report during the verification or in the first few days after verification. Verifications proceed at a hectic pace, requiring verifiers to absorb vast amounts of material, so writing each item as the verification proceeds, or immediately afterward, gives verifiers the opportunity to ensure that they fully understand & incorporate what was just verified. Furthermore, writing the report immediately generates new questions and clarifications, which investigation team are then able to pursue immediately or the next day.

 

Source: Manual Of Operating Practices For Trade Remedy Investigations