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TMI Blog2021 (3) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... dy margin determination, the appellant would fall below the de minimis level and, therefore, would be excluded from the purview of the impugned notification? - HELD THAT:- The appellant was granted exemption from import duty on raw materials used for the manufacture of finished products. The duty exclusion requirements on raw materials for manufacturing the finished product have been indicated in Appendix A, while the exemption period, storage of raw material and markets are set out in Appendix I. The conditions specified in Appendix I would indicate that the appellant had been granted full import duty exemption on import of Copper Rods to be used for producing Copper Wire for the export market. It also specifies that 1 MT : 1 MT input-output ratio has to be maintained, which means that for every 1 MT of Copper Rod imported duty free, 1 MT of Copper Wire is required to be exported. The Designated Authority was aware of claim made by the appellant that the subsidy on the import of raw material would not be countervailable, since the appellant had used the imported duty free Copper Rods for producing Copper Wire solely for export market but the Designated Authority did not raise any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, no CVD could have been imposed on drawn Copper Wire manufactured by the appellant - HELD THAT:- Such being the position, it would not be necessary to examine the submission raised on behalf of the appellant that the drawn Copper Wire manufactured by the appellant is not akin to Continuous Cast Copper Wire Rods . The imposition of 2.47% CVD on the appellant at serial no. 8 of the notification dated January 8, 2020 is set aside - Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... s orally in the hearing held on March 29, 2019 and the parties who attended the oral hearing were advised to file their written submission on the views expressed by them orally at the hearing. 7. The disclosure statement was issued to the interested parties on October 21, 2019. It consisted of four Annexures namely, Annexure I: General Disclosure; Annexure II: Assessment of Subsidy- Methodology, Parameters, Countervailability and Subsidy Margins; Annexure III: Assessment of Injury and Causal Link; and Annexure IV: Methodology for arriving at non-injurious price. It was stated that the aforesaid Annexures contained the essential facts under consideration of the Designated Authority, which would form the basis for the Final Findings. The interested parties were asked to offer their comments by October 29, 2019. The gist of the disclosure statement is as follows : (i) The product under consideration is Continuous Cast Copper Wire Rods falling under Tariff Heading 7408. The product includes Copper Wire of which the maximum cross-sectional dimension exceeds 6mm as well as 6mm and below. The Customs classification is indicative only and in no way binding upon the product scope. Conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence or step-by-step explanation of such verification mechanism; (vi) Name of the subsidy program and the corresponding subsidy margin is indicated in a table, which is reproduced below : Program No. Name of the grant program Brief Description/ Comment Subsidy margin % Subsidy margin Range % Program No. 12 Accelerated Capital Allowance Accelerated deduction of capital expenditure from taxable income. *** 0-1% Program No. 23 Exemption from Import Duty and Sales Tax on Machinery and Equipment The program involves import duty exemption on machinery and equipment to qualified manufacturer. *** 0-1% Program No. 35 International Procurement Centre (IPC status) Full Income Tax exemption on statutory income. *** 0-1% Other program Exemption from Import Duty on Raw Materials/Components The program involves exemption of import duties on the imported raw materials which are used in the production of export goods. *** 0-5% Total *** 0-5% 9. The Designated Authority, accordingly, came to the following conclusions: (i) the subject goods have been exported to India from the subject countries at subsidized price, except from M/s SEI T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assailed in the four appeals. CONTENTIONS OF THE APPELLANTS 12. Shri Vipin Kumar Jain, learned counsel assisted by Shri Vishal Agarwal and Ms. Tuhina Sharma submitted that the challenge to the imposition of 2.47% CVD is mainly on two counts: A. Subsidy was incorrectly computed for "other program", which was not countervailable as it granted exemption only in respect of import of that quantity of raw material which was required for export production. If this program is excluded from the subsidy margin determination, the appellant would fall below the de minimis level and, therefore, would be excluded from the purview of the impugned notification; and B. Drawn "Copper Wire" manufactured by the appellant is not akin to "Continuous Cast Copper Wire Rods", for which Hindalco is a majority producer (Domestic Industry) and in respect of which complaint was filed and investigation was initiated. As such, no CVD could have been imposed on drawn Copper Wire manufactured by the appellant i.e. Copper Wire of less than 6mm manufactured by using drawing process and falling under CTH 74081990. 13. Learned Counsel for the appellant submitted that rule 16 of the 1995 Rules provides for imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, it was prescribed in the approval letter that 1MT: 1MT input-output ratio has to be maintained, i.e. for every 1 MT of Copper Rod imported duty free, 1MT of Copper Wire is required to be exported. Thus, there was no scope for excess remission under the "other program" availed of by the appellant, as it was permitted to import only 1 MT of input (Copper Rod) for the manufacture and export of 1MT of drawn Copper Wire; (v) Neither could drawn Copper Wire be manufactured from an input other than Copper Rod nor could 1MT of drawn Copper Wire be manufactured using less than 1MT of input i.e. Copper Rod; (vi) If the subsidy margin on account of "other program" is excluded from the computation of subsidy margin in paragraph 317 of the Final Findings, the subsidy margin would fall to below 1%, which is the de-minimis level prescribed in cases of developed countries, while the de-minimis level for developing countries like Malaysia is 2%.; (vii) The Designated Authority has considered the entire import duty exemption on raw material received by the appellant as a subsidy. Even if the Designated Authority was of the view that the Government of Malaysia has granted inadmissible sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of import duty on its duty free imports of Copper Rods. It is only in the final findings that for the first time the Designated Authority re-classified the import duty exemption availed by the Appellant as "other program", claiming earlier classification as "program 24" as an inadvertent error. The determination of subsidy margin for "other program" in the final findings, without disclosing the essential facts based on which the said program was held to be countervailable and subsidy margin computed thereunder, is in gross violation of rule 18 of the 1995 Rules; (xii) In any event, the Designated Authority as also the Union of India have gone beyond the scope of law while recommending or imposing 1995 Rules on Copper Wire, when the investigation was initiated only in respect of Copper Rods; (xiii) There is no product known in trade or commerce as "Continuous Cast Copper Wire". The Designated Authority has also failed to take note of the various differences between Copper Rods and Copper Wire, which were highlighted by the appellant; and (xiv) Hindalco has a very minimal Copper Wire drawing facility. As such, it cannot be considered as a Domestic Industry for drawn Copper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The response to the Government Questionnaire filed by Government of Malaysia also does not provide any answer to several specific questions. The Government of Malaysia only made a self-declaration that the program complies with the requirements of relevant Annexures of the SCM Agreement, without answering the questions posed to them; (iii) The contention of the appellant that the Designated Authority verified all the information during the verification visit is a bald statement without any supporting evidence; (iv) The appellant only provided documents relating to grant of exemption and no document was provided in connection with the verification mechanism employed by Government of Malaysia to ensure that there is no excess remission. No evidence was filed before the Designated Authority during the investigation to substantiate the fact that the inputs were used exclusively for manufacturing goods for exports on which duty remission/ exemption was availed by the appellant. The onus was on the Government of Malaysia, but the Malaysian Government did not bother to respond to the question posed to them; (v) The exemption letter provided by the Malaysian Authorities does not ipso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant, either in the appeal or in the oral arguments, or during the course of investigations that its exports to India do not fall within the scope of the description mentioned in the final findings or the customs notification; (ii) The scope of product under consideration as defined in the notice of initiation, has not been enlarged in the final findings; (iii) The applicant has standing as "domestic industry‟ under rule 6 read with rule 2(b) of the 1995 Rules; (iv) The investigations have not been conducted in violation of the principles of natural justice and no prejudice has been caused to the appellant. The grievance of the appellant that the Designated Authority failed to conduct verification or issue disclosure statement qua the "other program" and hence there is violation of rule 17 of the 1995 Rules is without justification as it participated in the investigations without demur. At no stage of the investigation, either the Government of Malaysia or the appellant claimed that they have not availed program 24 and that the entire investigation, that is the initiation, verification or disclosure are inapplicable to them. On the contrary, they have submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of investigation and the relevant portion is reproduced below:- Rule 16. Termination of investigation. - (1) The designated authority shall, by issue of a public notice terminate an investigation immediately if- (a) xxxxxxxx (b) xxxxxxxx (c) it determines that the amount of subsidy is less than one percent ad valorem or in the case of a product originating from a developing country the amount of subsidy is less than two percent. 23. Rule 16 provides that the Designated Authority shall terminate an investigation immediately if it determines that the amount of subsidy is less than 1% ad valorem or in the case of a product originating from a developing country, the amount of subsidy is less than 2%. 24. The contention of the appellant that if the subsidy computed under "other program" is excluded from the computation of the subsidy margin, the subsidy margin would fall below 1% is well founded as is clear from a perusal of the records submitted by the learned counsel for appearing for the Designated Authority. It would, therefore, not be necessary to examine whether Malaysia is a developing country, in which case the requirement would be for the subsidy to be less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MIDA. This claim shall be made when the goods are imported / released from customs control or obtained from the Licensed Warehouse under section 65 / 65 A of the Customs Act 1967. A pledge shall be made on each customs form as follows; "I (Company Name) of the Company (Company Name) now pledge and apply for the applicable duty exemption on the above items under the exemption powers approved by the Government of Malaysia via letter of MIDA Ref. (specify) dated (specify) which is effective from (specify date) until (specify date)." III. All invoices and "bill of lading" in respect of this import shall be in the names of the company granted an exemption. IV. If import / purchase must through customs other than an approved station, written authorization must be obtained from the approved customs station. If the company wants to get supplies from GBP / GB, the company is required to obtain approval from the customs station that controls the company. V. (a) All raw materials/ components duty exempted shall be stored by the company's factory in accordance with the regulations specified in writing by the Royal Malaysian Customs; and (b) Any changes of address or additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7408.11.1000 1MT ***MT 21/06/2017 till 20/06/2019 EC Grade Copper Wire 26. A perusal of the aforesaid approval letter clearly shows that the appellant was granted exemption from import duty on raw materials used for the manufacture of finished products. The duty exclusion requirements on raw materials for manufacturing the finished product have been indicated in Appendix A, while the exemption period, storage of raw material and markets are set out in Appendix I. The conditions specified in Appendix I would indicate that the appellant had been granted full import duty exemption on import of Copper Rods to be used for producing Copper Wire for the export market. It also specifies that 1 MT : 1 MT input-output ratio has to be maintained, which means that for every 1 MT of Copper Rod imported duty free, 1 MT of Copper Wire is required to be exported. 27. The appellant has explained that Copper Wire is produced from Copper Rod by the process of drawing of wire and that Copper Wire can be drawn only from Copper Rods and no other inputs go into the product and that it is also technically not possible to produce 1 MT of drawn Copper Wire from less than 1 MT of Copper Rod. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding any subsidy on transportation of such article, then, upon importation of any such article into India, whether the same is imported directly from the country of manufacture, production or otherwise, and whether it is imported in the same condition as when exported from the country of manufacture or production or has been changed in condition by manufacture, production or otherwise, the Central Government may, by notification in the Official Gazette, impose a countervailing duty not exceeding the amount of such subsidy. Explanation - For the purpose of this section, a subsidy shall be deemed to exist, if- (a) There is financial contribution by a Government, any public body in the exporting or producing country or territory, that is where - (i) xxxx (ii) Government revenue that is otherwise due is foregone is or not collected (including fiscal incentives); (iii) xxxx (iv) xxxx (emphasis supplied) 31. The relevant portion of section 9B of the Tariff Act is reproduced below:- 9B. No levy under section 9 or section 9A in certain cases (1) Notwithstanding anything contained in section 9 or section 9A,- (a) xxxxxxx (b) the Central Government shall not levy any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall be furnished by such person in writing within thirty days from the date of receipt of the notice or within such extended period as the designated authority may allow on sufficient cause being shown. Explanation - xxxxxxxxxx (5) xxxxxxxxxxxx (6) The designated authority may allow an interested country or an interested party or its representative to present information relevant to the investigation orally also, but such oral information shall be taken into consideration only when it is subsequently reproduce in writing. (7) The designated authority shall make available the evidence presented by one party to other interested parties participating in the investigation. (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, designated authority may record its finding on the basis of facts available to it and make such recommendations to the Central Government as it deems fit under circumstances. 34. Rule 11 of the 1995 Rules deals with nature of subsidy and the relevant portion is reproduced below :- Rule 11. Nature of subsidy. - (1) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision if the import and the corresponding export operations both occur within a reasonable time period, not to exceed two years and the item shall be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Part-2 of this Annexure and the guidelines in the determination of substitution drawback system as export subsidies contained in Part-3 of this Annexure. PART- 2 Guidelines on consumption of inputs in the production process I xxxxxx II 1. Inputs consumed in the production process are inputs physically incorporated, energy, fuels and oil used in the production process and catalysts which are consumed in the course of their use to obtain the exported product. In examining whether inputs are consumed in the production of the exported product, as part of countervailing duty investigation pursuant to these rules, the designated authority should proceed on the following basis namely :- (1) Where it is alleged that an indirect tax rebate scheme, or a drawback scheme, conveys a subsidy by reason of over-rebate or excess drawback of indirect taxes import charges on inputs consumed in the production of the exported produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on exported products, is reproduced below:- "In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy." 41. Annexure I of the SCM Agreement contains "Illustrative List of Export Subsidies" as does Annexure III - Part-1 of the 1995 Rules. Annexure II of the SCM Agreement deals with "Guidelines on Consumption of Input in the Production Process". This is contained in Part-2 of the Annexure III of the 1995 Rules. 42. It is clear from the aforesaid Footnote that only excess remission or exemption of duties can be considered as subsidy. This principle also finds place in section 9B of the Tariff Act. 43. Thus, only remission or drawback of import charges in excess of those that are levied on imported inputs consumed in the production of the export goods, after making allowance for wastage, alone can be considered as a countervailable subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it involves exemption of import duties on the imported raw material used in the production of export goods. Authority has clearly noted in paragraph 253 of disclosure statement that the program No. 24 provides financial contribution in the form of revenue foregone and is also specific because it is limited to enterprise that use raw material that are not locally available. * Authority has noted that Metrod Malaysia has received benefit in the form of exemption on import of raw material used in the production of export goods because Metrod Malaysia specifically admitted in its questionnaire response in Exhibit 14 that "Grant of exemption of import duty on the raw material meant for export goods is covered under the exemption [of import duty on raw material]. No duty exemption under the scheme is available for goods which are imported for production of finished products destined for the domestic market." Authority had inadvertently noted in the disclosure statement this benefit availed by Metrod is benefit under program no. 24. This does not change the admitted position that Metrod has availed this benefit and the same is countervailable. The Authority has now categorized thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation notification or the verification report or the disclosure statement issued by the Designated Authority. In fact, it is only in the final findings that the Designated Authority realised the mistake and stated that it had inadvertently noted in the disclosure statement that the benefit had been availed by the appellant under program 24, whereas subsidy was granted to the appellant under "other program". The Domestic Industry had identified program 24 in their application under which exemption was granted on import of raw material which was not locally available and used in all kinds of manufacturing activity. Under the authorisation letter, the appellant had been granted duty exemption on import of Copper Rods to be used for producing Copper Wire for export market, which program is different from program 24. The exemption under "other program" is only on raw material imported for manufacturing export product. The records do indicate that the appellant had disclosed the subsidy scheme in Exhibit 14 to the Questionnaire as it clearly stated that it had not received any inadmissible subsidy under this program since it had been granted exemption of duty on import of raw materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er which it is granted have to be provided. Appendix I requires that 1 MT : 1 MT input-output ratio has to be maintained, meaning thereby that for every 1 MT of Copper Wire imported duty free, 1 MT of Copper Wire is required to be exported. Copper Wire can be drawn only from Copper Rods and no other input goes into this product. Thus, there can possibly be no scope for any excess remission under the "other program" availed by the appellant without attracting the attention of the Government or the Custom Authorities. 50. It also transpires that the appellant had disclosed the subsidy received by it in Exhibit 14 to the Questionnaire Response. In Exhibit 14A, the appellant had also submitted details of all the imports made by the appellant under the said duty exemption Authorization and had also submitted the import Form K1 filed with the Malaysian Customs under which it was declared that the import was being made under the duty free import authorization. The appellant is also required to file regular returns as provided in Annexures K, J, K2 regarding imports made and exports made under the Approval Letter. The appellant is also subjected to regular audit by the Malaysian Custom A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il is reproduced below:- "The entire raw material was used for production of finished goods meant for export market as per condition given in approval letter. Copy of return filed with authority to complete the requirement is attached." 53. It is, therefore, clear that the Designated Authority was aware of claim made by the appellant that the subsidy on the import of raw material would not be countervailable, since the appellant had used the imported duty free Copper Rods for producing Copper Wire solely for export market but the Designated Authority did not raise any doubts on this aspect, either in the verification report or in the disclosure statement. The Designated Authority did not at any point express any view that the appellant had exported lesser quantity of Copper Wire than the quantity of Copper Rods imported by it duty free. 54. In fact, in the verification report as also the disclosure statement, the Designated Authority took this subsidy program as "program 24" for which CVD has been recommended in the final findings as it provides exemption from import duty on raw material used for all kinds of manufacturing activity and not solely for the manufacture of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be remitted. 56. In such circumstances, it is not possible to accept the contentions advanced by the respondent that the appellant did not provide adequate evidence before the Designated Authority to substantiate that inputs were used exclusively for manufacturing goods and that adequate verification mechanism did not exist. The approval letter issued by MIDA did not merely mention that the imported goods, on which duty was exempted, were to be used exclusively for manufacturing products for exports but also provided a detail procedure to be adhered to in Appendix A and Appendix I to the letter. 57. The inevitable conclusion that follows from the aforesaid discussion is that there was a step by step verification in place for ensuring that no excess remissions take place. 58. It also needs to be noted that if during the course of investigation the Designated Authority found that some information had not been given by the appellant or it was not providing details, the Designated Authority could have informed the appellant for removal of such doubts. 59. It would also be pertinent to refer to Annexure III of the 1995 Rules. Part-2 of Annexure III deals with guidelines on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tervailing duties on imports of PET originating in Iran, Pakistan and the United Arab Emirates. Before the Panel, Pakistan claimed that the countervailing measures imposed by the European Union were inconsistent with several provisions of the SCM Agreement. The finding of the Panel, against which the European Union filed an appeal before the World Trade Organisation Appellate Body, is as follows: "5.62 The European Union appeals the Panel‟s interpretation of Article 1.1(a)(1)(ii), footnote 1, and Annexes I to III to the SCM Agreement, in connection with the Commission‟s finding that the MBS is a countervailable subsidy contingent upon export performance. In particular, the European Union challenges the Panel‟s finding that, in the context of duty drawback schemes, a subsidy exists only when an "excess" remission occurs representing government revenue foregone that is otherwise due within the meaning of Article 1.1(a)(1)(ii) and footnote 1 of the SCM Agreement. 5.63 The Panel considered that, in the context of duty drawback schemes, the financial contribution, in the form of government revenue foregone, is limited to the excess amount of the remission. The Pane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Member, or a verification system is in place but it is not fit for purpose, or it has not been applied effectively by the exporting Member. 5.122. Should an investigating authority determine that a "further examination" by the exporting Member needs to be carried out pursuant to the first sentence of Annex II(II)(2), it follows that the investigating authority has the responsibility of informing the exporting Member of this need. In our view, the investigating authority should inform the exporting Member of the need for a "further examination" in sufficient detail and in a timely manner. When an investigating authority provides this information to the exporting Member in a timely manner, it permits the exporting Member to carry out a "further examination", in accordance with the first sentence of Annex II(II)(2), before the conclusion of the authority's investigation. In so doing, this allows the exporting Member, and indeed the investigated company, the opportunity to defend effectively their interests in the remaining stages of the countervailing duty investigation. This is of particular importance bearing in mind that the further examina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In particular, Article 12.7 of the SCM Agreement allows an investigating authority to rely on the "facts available" on its investigation record to complete its inquiry into whether a duty drawback scheme conveys a subsidy by reason of excess drawback of import charges on inputs. 5.140. Accordingly, we find that the European Union has not demonstrated that the Panel erred in its interpretation of Article 1.1(a)(1)(ii), footnote 1, and Annexes I(i), II, and III to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994, as summarized at paragraph 7.56 of its Report." (emphasis supplied) 64. Shri Seetharaman, learned counsel appearing for Hindalco very fairly stated that this decision would only have a persuasive value but at the same time also stated that it will not have a binding effect on this Tribunal. The reasoning contained in the decision is in accordance with the 1995 Rules and the SCM Agreement and so there is no reason why the reasoning should not be followed. 65. Learned counsel appearing for the respondents have, however, placed reliance on certain decision rendered by the Designated Authority wherein a specific finding has been recorded tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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