Custom, Excise & Service Tax Tribunal
Metrod Malaysia Sdn Bhd vs Designated Authority Directorate ... on 8 March, 2021
Author: Dilip Gupta
Bench: Dilip Gupta
1
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
ANTI DUMPING APPEAL NO. 50897 OF 2020
(Arising out of Customs Notification No. 1/2020-CVD dated 08.01.2020 vide Final Findings
Notification F.No. 6/17/2018-DGAD dated 05.11.2019)
Metrod (Malaysia) Sdn Bhd ..... Appellant
No. 3 LengkukKeluli 2
Bukit Raja Prime Industrial Park
41720 Klang, Selangor
Malaysia
VERSUS
Designated Authority ...... Respondents
Directorate General of
Antidumping & Allied Duties
4th Floor, Jeevan Tara Building, Parliament Street
New Delhi - 110 001
and
Others
WITH
ANTI DUMPING APPEAL NO. 50894 OF 2020
(Arising out of Customs Notification No. 1/2020-CVD dated 08.01.2020 vide Final Findings
Notification F.No. 6/17/2018-DGAD dated 05.11.2019)
Savli Copper Products Pvt. Ltd. ......... Appellant
161/162 Mittal Court, A-Wing, 16th Floor
Nariman Point
Mumbai - 400 021
VERSUS
Union of India ......... Respondents
Though Under Secretary,
Ministry of Finance, Department of Revenue,
North Block, New Delhi-110001
and
Others
WITH
ANTI DUMPING APPEAL NO. 50895 OF 2020
(Arising out of Customs Notification No. 1/2020-CVD dated 08.01.2020 vide Final Findings
Notification F.No. 6/17/2018-DGAD dated 05.11.2019)
Metrod Copper Products Sdn Bhd .......... Appellant
No. 3 LengkukKeluli 2
Bukit Raja Prime Industrial Park
41720 Klang, Selangor
Malaysia
2
VERSUS
Designated Authority ....... Respondents
Directorate General of
Antidumping & Allied Duties
4th Floor, Jeevan Tara Building, Parliament Street
New Delhi - 110 001
and
Others
AND
ANTI DUMPING APPEAL NO. 50896 OF 2020
(Arising out of Customs Notification No. 1/2020-CVD dated 08.01.2020 vide Final Findings
Notification F.No. 6/17/2018-DGAD dated 05.11.2019)
Metrod (OFHC) Sdn Bhd ....... Appellant
No. 3 LengkukKeluli 2
Bukit Raja Prime Industrial Park
41720 Klang, Selangor
Malaysia
VERSUS
Designated Authority ....... Respondents
Directorate General of
Antidumping & Allied Duties
4th Floor, Jeevan Tara Building, Parliament Street
New Delhi - 110 001
and
Others
APPEARANCE:
Mr. Vipin Kumar Jain, Mr. Vishal Agarwal and Ms. Tuhina Sharma, Advocates for
the Appellants
Mr. Ameet Singh and Ms. Alvina, Advocates for Respondent No. 1
Mr. Rakesh Kumar, Authorised Representative for Respondent No. 2
Mr. S. Seetharaman and Mr. Darpan Bhuyan, Advocates for Respondent No. 3
Ms. Reena Khair and Mr. Rajesh Sharma, Advocates, for Respondent No. 4
CORAM : HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL)
HON'BLE MR. P V SUBBA RAO, MEMBER (TECHNICAL)
DATE OF HEARING: January 08, 2021
DATE OF DECISION: March 08, 2021
FINAL ORDER NO. 51069-51072/2021
3
JUSTICE DILIP GUPTA
1. The notification dated January 08, 2020 that was issued by
the Government of India on the recommendation of the Designated
Authority imposing countervailing duty1 of 2.47% on Continuous
Cast Copper Wire produced by Metrod Malaysia Sdn Bhd2
originating in Malaysia and exported from any country, including
Malaysia, to India has led to the filing of these four appeals.
2. The appellant is a manufacturer of copper rods, wire rods,
drawn copper wires and strips. Metrod Copper Products Sdn Bhd
and Metrod(OFHC) Sdn Bhd are wholly owned subsidiaries of the
appellant and are inter alia engaged in marketing and selling
copper wires manufactured by the appellant. Savli Copper Products
Pvt Ltd. is an Indian related party of the appellant and has
imported copper wires manufactured by the appellant into India.
3. The impugned notification also imposes CVD on similar goods
manufactured/exported from Indonesia, Vietnam, Thailand and
other manufactures in Malaysia, but no appeal has been filed by
any other manufacturer/exporter/importer of the subject goods.
4. M/s Hindalco Industries Limited3 (respondent no. 3) and M/s
Vedanta Industries (Sterlite Copper)4 (respondent no. 4) had filed
an application, as a Domestic Industry, under the provisions of the
Customs Tariff Act, 19755 and The Customs Tariff (Identification,
Assessment and Collection of Countervailing Duty on Subsidized
1 CVD
2 the appellant
3 Hindalco
4 Vedanta
5 the Tariff Act
4
Articles and for Determination of Injury) Rules, 19956 before the
Designated Authority for imposition of CVD on imports of
Continuous Cast Copper Wire Rods from Indonesia, Malaysia,
Thailand and Vietnam. It needs to the noted that where any
country bestows any subsidy upon the manufacture or production
of any article, then, upon the importation of such article into India,
the Central Government may impose a CVD not exceeding the
amount of such subsidy.
5. The Designated Authority, by a notification dated September
10, 2018, initiated investigation to determine the existence, degree
and effect of the alleged subsidy and to recommend the amount of
countervailing duty, which if levied, would be adequate to remove
the alleged injury to the Domestic Industry. The product under
consideration in the investigation was described Continuous Cast
Copper Wire Rods classifiable under customs sub-headings 7407.
1010, 7407.1020, 7408.1990, 7408.1920, 7408.1990, 7409.11
and 7409.19. The period of investigation was notified to be from
April, 2017 to March, 2018.
6. The Designated Authority provided an opportunity to all the
interested parties to present their views 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
6 the 1995 Rules
5
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. Continuous
Cast Copper Wire Rods produced by the Domestic Industry
is a like article to the Continuous Cast Copper Wire Rods
imported from the subject countries;
(ii) A Product Control Number7 methodology would be
adopted;
(iii) Vedanta imported the subject goods during the period of
investigation. It is, therefore, ineligible to be a part of the
Domestic Industry. Vedanta has also not submitted the
requisite information to the Designated Authority for
considering it to be a part of the Domestic Industry.
However, Hindalco constitutes Domestic Industry; and
(iv) Subsidy program no. 24 in relation to Malaysia provides for
import duty exemption to qualified manufacturer on raw
material that is not locally available. Further, the program
provides financial contribution in the form of revenue
foregone, which is otherwise due and benefit is thereby
conferred. The program is also specific because it is limited
7 PCN
6
to enterprises that use raw material that are not locally
available.
8. The comments were submitted by the parties to the
disclosure statement and ultimately the final findings were notified
by the Designated Authority on January 8, 2020. The gist of the
final findings are as follows:
(i) The finding in regard to the Vedanta not being a Domestic
Industry remains the same. Hindalco would constitute the
Domestic Industry;
(ii) However, the scope of the product under consideration is
narrowed down to Continuous Cast Copper Wire falling
under Tariff Heading 7408. The product would include
Copper Wire of which maximum cross-sectional dimension
exceeds 6mm as well as 6mm and below;
(iii) It had inadvertently been noted in the disclosure statement
that subsidy benefit had been availed by the appellant
under program No. 24, though the benefit had been
obtained under "other program" that provided financial
contribution in the form of revenue foregone, which is
otherwise due through exemption from import duty on raw
materials and thereby conferring a benefit to the appellant;
(iv) The import of raw material for use in the production of
exported goods cannot be considered as countervailable
subsidy if there is sufficient evidence to demonstrate that
there is a verification mechanism to ensure that there is no
excess remission;
(v) The appellant had merely claimed existence of a
mechanism and absence of excess remission, without
providing sufficient evidence or step-by-step explanation of
such verification mechanism;
7
(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 Brief Description/ Comment Subsidy Subsidy
program margin margin
% Range %
Program No. 12 Accelerated Capital Accelerated deduction of capital *** 0-1%
Allowance expenditure from taxable
income.
Program No. 23 Exemption from Import The program involves import *** 0-1%
Duty and Sales Tax on duty exemption on machinery
Machinery and and equipment to qualified
Equipment manufacturer.
Program No. 35 International Full Income Tax exemption on *** 0-1%
Procurement Centre statutory income.
(IPC status)
Other program Exemption from Import The program involves *** 0-5%
Duty on Raw exemption of import duties on
Materials/Components the imported raw materials
which are used in the
production of export goods.
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
Thai Electric Conductor Co. Ltd., Thailand;
(ii) the domestic industry has suffered material injury due to
subsidization of the subject goods;
(iii) material injury has been caused by the subsidized imports
of the subject goods originating in or exported from the
subject countries; and
(iv) Thus, definitive CVD should be imposed which would be
equal to the lesser of margin of subsidy and margin of
injury for a period of five years from the date of
notification to be issued by the Central Government so as
to remove the injury to the domestic industry.
10. The Government of India, by a notification dated January
8, 2020, after considering the final findings of the Designated
8
Authority, imposed CVD, as indicated in the table below:
12
Sl. Heading Description Country of Origin Country of Producer Duty
No. of Goods Export amount
as % of
landed
value
(1) (2) (3) (4) (5) (6) (7)
1. 7408 Continuous Thailand Any Country SEI Thai NIL
Cast Copper including Electric
Wire Thailand Conductor
Co. Ltd
2. -do- -do- Thailand Any Country Any producer 3.46%
including other than
Thailand producer
mentioned in
S. No. 1
3. -do- -do- Any country other Thailand Any 3.46%
than Thailand,
Indonesia,
Malaysia and
Vietnam
4. -do- -do- Indonesia Any country PT. 3.75%
including Tembaga
Indonesia Mulia
Semanan. Tbk
5. -do- -do- Indonesia Any country PT. Karya 4.98%
including Sumiden
Indonesia Indonesia
6. -do- -do- Indonesia Any country Any producer 7.94%
including other than
Indonesia producer
mentioned in
S. Nos. 4 and
5
7. -do- -do- Any country other Indonesia Any 7.94%
than Thailand,
Indonesia,
Malaysia and
Vietnam
8. -do- -do- Malaysia Any country Metrod 2.47%
including Malaysia
Malaysia Sdn Bhd
9. -do- -do- Malaysia Any country Any producer 10.27%
including other than
Malaysia mentioned in
S. No. 8
10. -do- -do- Any country other Malaysia Any 10.27%
than Thailand,
Indonesia,
Malaysia and
Vietnam
11. -do- -do- Vietnam Any country Any 7.13%
including
Vietnam
12. -do- -do- Any country other Vietnam Any 7.13%
than Thailand,
Indonesia,
Malaysia and
Vietnam
11. It is the imposition of 2.47% CVD at serial no.8 of the
aforesaid table on Continuous Cast Copper Wire produced by
the appellant and originating in Malaysia and exported from any
9
country, including Malaysia, to India that has been 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 immediate termination of the
investigation if the subsidy margin for a particular exporter is less
than de minimis level and so if the appellant succeeds in his
10
challenge under issue (A), the other factual aspect as to whether
the drawn Copper Wire comes within the purview of "product under
consideration" and whether Hindalco qualifies as a domestic
industry for drawn Copper Wire would be only academic in nature
and may not be necessary to be decided.
14. In connection with the challenge under issue (A), learned
counsel for the appellant made the following submissions:
(i) The appellant did not avail any inadmissible subsidy under
the said "other program" as the appellant was granted
exemption from payment of customs duty on the import of
inputs required for manufacturing goods for export. The
World Trade Organisation Agreement on Subsidies and
Countervailing Measures8 as well as the 1995 Rules provide
that exemption of import charges (which include customs
duty payable at the time of import) on inputs for
manufacturing goods for export are permissible duty
remission and, therefore, not countervailable. In this
regard, reference has been made to section 9(B) of the
Tariff Act read with Annexure III, Part 1 clause (i) of the
1995 Rules as also Footnote 1 to Article 1 read with
Annexures I, II and III of the SCM Agreement;
(ii) Thus, only the 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 subsidy. This position clearly emerges
from Annexure III, Part 1 to the 1995 Rules, which in
8
. SCM Agreement
11
clauses (g), (h) and (i) lays down this principle. The
aforesaid clauses (g), (h) and (i) of Annexure III, Part 1 to
the 1995 Rules also form a part of Annexure I to the SCM
Agreement;
(iii) Under the "other program", the appellant was granted
exemption of import duties on the imported raw material
(i.e. Copper Rod) which are used in the production of
export goods (i.e. Copper Wire). The exemption was
granted subject to the condition that imported inputs are
directly used in manufacturing product for exports. Thus,
in terms of the approval letter, the appellant was granted
full import duty exemption on import of Copper Rods to be
used in producing Copper Wire for the export market;
(iv) Further, 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
12
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 subsidy to the appellant by way of excess
remission of import duty, the Designated Authority was
required to compute such "excess" amount and the entire
exemption received by the appellant could not have been
countervailed. In this regard, reliance has been placed on
the finding of WTO Appellate Body decision in European
Union - Polyethylene Terephalate from Pakistan;
(viii) The only reason assigned in the impugned order for
rejecting the claim of the appellant regarding there being
no excess remission is that the appellant failed to
demonstrate step by step mechanism to verify excess
remission. Apart from the fact that the appellant was at no
stage put to notice to demonstrate step by step
mechanism to verify whether there was an excess
remission, there was no scope for any excess remission
and consequently no adverse inference could have been
drawn against the Appellant on this count;
(ix) Even if the Designated Authority was to take a view that
there was no adequate system or procedure in place, then
too as per paragraph II of Part 2 of Annexure III, it was
obligatory on the part of the Designated Authority to
13
request the Government of Malaysia to conduct a further
examination, as stipulated in paragraph 1(2) of Part 2 of
Annexure III, based on the actual inputs involved for
determining whether an excess payment occurred;
(x) Though the Government of Malaysia was not called to
conduct such examination, but still even a refusal by the
exporting country to conduct such "further examination"
does not give the Designated Authority a right to consider
the entire exemption availed by the exporter to be a
subsidy, and to deviate from the principle of "excess
remission". Rule 7(8) of the 1995 Rules clearly provides
that where requisite information is not provided by the
interested parties, the Designated Authority is required to
record its findings based on facts available to it. Reliance
has been placed on the decision of the WTO Appellate Body
in European Union- Polythylene Terephalate from
Pakistan;
(xi) Neither in the Verification Report nor in the Disclosure
Statement or confidential subsidy computation statements
issued thereafter, the Designated Authority mentioned or
examined any "other program" or even made a suggestion
that the appellant failed to provide any
document/information regarding any program or that the
appellant received any excess remission 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
14
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 Wire of CTH 74081990, i.e. Copper Wire of
thickness less than 6mm.
CONTENTIONS OF THE DESIGNATED AUTHORITY
(RESPONDENT NO.1)
15. Shri Ameet Singh learned counsel appearing for the
Designated Authority made the following submissions:
(i) The Designated Authority mentioned „other program‟ as
program 24 inadvertently while issuing the disclosure
statement, which fact was also clarified in the Final Findings.
15
No prejudice has been caused to the appellant as it had
adequate opportunity to meet the said subsidy program and
detailed and extensive views were submitted in their
comments to the disclosure statement;
(ii) The appellant did not provide adequate evidence before the
Designated Authority to substantiate that inputs were used
exclusively for manufacturing goods for exports on which
duty remission/ exemption was availed by the appellant and
that an adequate verification mechanism existed and was
being implemented by the Government of Malaysia;
(iii) Even otherwise, there is no prescription in the 1995 Rules
that the Designated Authority cannot examine the existence
of subsidy schemes that have not been specifically alleged
to exist by the Domestic Industry;
(iv) The scope of product under consideration was neither
enlarged nor modified in the Final Findings. Product Control
Number wise information was sought as per the request of
the interested parties and it did not result in enlargement of
the scope of the product under consideration. Therefore,
the factum that other tariff headings were mentioned in the
initiation notice, whereas the product scope was described
with greater precision and clarity in the Final Findings,
cannot be said to have resulted in modification or
enlargement of the scope of the product. The Domestic
Industry produces Copper Wire that is both below 6mm as
well as above and, therefore, is a like article to the imported
product under consideration; and
16
(v) The appellant is not justified in contending that Hindalco
cannot represent the Domestic Industry for "Copper Wire",
which is a separate industry.
CONTENTIONS BY HINDALCO (RESPONDENT NO.3)
16. Shri S. Seetharaman learned counsel appearing for Hindalco
assisted by Shri Atul Sharma, Shri T.D Satish and Shri Darpan
Bhuyan made the following submissions:
(i) The appellant failed to respond to the questions put to them
with regard to verification mechanism;
(ii) 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,
17
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 facto establish that a proper verification
mechanism existed. There was nothing on record to
suggest that the conditions imposed in the said letter were
actually enforced;
(vi) The allegation of excess remission was made by the
Domestic Industry specifically under program 24. There is
no prescription in the 1995 Rules that the Designated
Authority cannot examine the existence of subsidy schemes
that have not been specifically alleged to exist by the
Domestic Industry;
(vii) The WTO decision quoted by the appellant may only have a
persuasive value before this Tribunal and the Tribunal ought
not to be persuaded by the said WTO decision;
(viii) Reliance should be placed on cases where investigation
authorities from other WTO member countries have
countervailed the entire amount of duty remission on inputs
in the absence of a proper and reliable verification
mechanism;
(ix) The appellant failed to provide the information sought by
the Designated Authority and, therefore, the Designated
Authority was correct in arriving at a decision based on
„facts available‟;
(x) The scope of the product under investigation was examined
and decided by the Designated Authority through a
transparent process during the investigation by providing
18
adequate opportunity to all interested parties. After
considering the views of the interested parties, the
Designated Authority arrived at the product description in
the final findings and there has been no violation of the
principles of natural justice; and
(xi) The Designated Authority has only reworded the text from
"continuous cast copper wire rods‟ to „continuous cast
copper wires‟ covered under tariff heading 7408 of the
customs tariff.
CONTENTIONS ON BEHALF OF VEDANTA (RESPONDENT NO.4)
17. Ms. Reena Khair, learned counsel appearing for Vedanta
assisted by Shri Rajesh made the following submissions:
(i) The description of the product should be sufficient to identify
the article liable to duty, for customs purposes. The words
„continuous cast copper wires‟ are descriptive of the article
under investigation. It denotes that the product is made of
copper and is in wire form. The term „continuous cast‟ has
been used to describe one of several processes, in the
production of copper wire. The findings as also the
notification mention only the description and not the name.
It is not the case of 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;
19
(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
submitted to the jurisdiction of the Authority and have
furnished information for the program availed by them
under program 24;
(v) The scheme availed by the exporter is countervailable and
subsidy was required to be restricted to the extent of excess
remission;
(vi) The Appellant Body Report in European Union-
Countervailing Measures on Certain Polyethylene
Terephthalate from Pakistan has no relevance to the
present dispute; and
(vii) There is no bar to the quantification of the subsidy amount
as the benefit foregone by the Government of the exporting
Country. In this regard reliance has been placed on certain
20
decisions of the investigating authorities in other
jurisdictions, like USA, Brazil, and Canada.
18. The submissions advanced on behalf of the parties have been
considered.
19. The challenge to the imposition of 2.47% CVD is on two
grounds. The first is that if the "other 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. The second is that "Copper Wire"
manufactured by the appellant is not akin to "Continuous Cast
Copper Wire Rods" and, therefore, no CVD could have been imposed
on drawn "Copper Wire" manufactured by the appellant. Learned
counsel for the appellant also stated that in case the first contention
is accepted, it may not be necessary to decide the second
contention.
20. In this view of the matter the first contention is being
examined and only if it is not accepted, it would become necessary
to examine the second contention.
21. The Designated Authority, in the final findings, determined
that the appellant had received benefits under program 12, 23, 35
and "other program". The challenge in this appeal is restricted to the
"other program", on which subsidy margin of 0-5% has been
computed against the appellant, as is clear from the table contained
in paragraph 8 (vi) of this order. The main contention of the learned
counsel of the appellant is that if the subsidy margin attributed to
"other program" is excluded, the subsidy margin for the appellant
would fall below the de minimis level as a result of which 2.47%
CVD duty imposed on exports to India would have to be set aside.
21
22. To examine this contention, it would be pertinent to refer to
rule 16 of the 1995 Rules which deals with termination 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 2%.
25. It has now to be determined whether the appellant has availed
any inadmissible subsidy under the "other program". The appellant
claims that under the said program it was granted exemption from
payment of customs duty on import of inputs required for
manufacturing goods for export, which is an admissible subsidy.
According to the appellant, it had imported Copper Rods as the raw
22
material and this was used in the production of Copper Wires which
were exported. To consider this aspect it would be necessary to
examine the approval letter issued by Malaysian Investment
Development Authority9 to the appellant in connection with the
grant of exemption of import duties on raw material. The translated
version of the approval letter issued by MIDA with Appendix A and
Appendix I is reproduced below:-
"MIDA Ref. : 320/36101/033028/000026JPC2
Messrs.
METROD (M) SDN BHD
Dear Sir,
Exemption of import duties on raw materials/ components for the manufacture
of finished products by METROD (MALAYSIA) SDN BHD
Your application on the above is kindly referred.
2. Kindly be advised that the Government of Malaysia through the Malaysian
Investment Development Authority (MIDA) in accordance with the provisions of the
Section 14 (2) of the Custom Act 1967 has agreed to exempt import duties on raw
material/components parts for finished products as in Appendix I. The exemption is
subject to the conditions as in Appendix A.
3. Exemption period, import stations and manufactures / storage of raw materials /
part components and market are set out in Appendix I as per enclosed. If the market
is not specified, your company is free to sell the relevant finished product at local /
export / FIZ / LMW market if the product is an input to the FIZ / LMW.
APPENDIX A
Name of Company: METROD (MALAYSIA) SDN BHD
MIDA Ref. : 320/36101/033028/000026JPC2
DUTY EXCLUSION REQUIREMENT ON RAW MATERIALS / COMPONENTS
FOR MANUFACTURING PUROPSE
I. The refund of duty paid from the commencement date of the exemption
of up to two (2) weeks after the date of the approval letter may be made
to the appropriate customs station. The Company is given a period of
three (3) months from the date of the approval letter to submit a claim
for the return of the duty.
II. The exemption shall be claimed by submitting the prescribed customs
form and enclosing the original approval letter from 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
9 MIDA
23
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 stores / factories may only be
made upon the prior written permission of the Royal Malaysian Customs
who control the company.
VI. If exempt raw materials/components are used to manufacture finished
goods on the export market, the company must record the following
declaration on each customs export form (K2):
'I (Name)............. (Designation) ............... at address ................
Acknowledge that item Completed in this export is made of raw
materials / components imported under the exemption of duty by letter
* (original) Identification Card ............ Company Cop.......... Date ...........'
VII. The Company is allowed to export its finished product through a third
party (trader) after obtaining approval from the Royal Malaysian
Customs.
VIII. Company must:
(a) provide records of the use of raw materials/components including
waste/refined, manufactured finished products and marketed quantities;
(b) prepare the statement every three (3) months on (a) above as per format
agreed upon in writing by the senior officer of customs/company and shall
be signed and verified by the company's accountant or authorized officer
of the company. It must be submitted to the customs station within the
one (1) months; and
(c) obtain written approval from the Royal Malaysian Customs for the transfer
including the sale, destruction and export of the raw materials/component
waste/waste. For the sale of waste/manufactured waste and raw
material/components in the local market, the duty involved is to be paid
first and for the quantity destroyed, the duty involved will be remitted.
IX. The relevant raw materials/components cannot be removed from the
approved factory stores and premises for sub-contract work except with
the written approval of the Royal Malaysian Customs.
Appendix I
MIDA Ref. : 320/36101/033028/000026JPC2
24
METROD (M) SDN BHD
The following raw materials are granted full import duty exemption to issue
finished products for the export market at the company's plant at
3 Lengkuk Keluli 2, Bukit Raja Prime Industrial Park,
41720 Klang, Selangor"
No. Raw Tariff
Code Ratio Quantity Exemption Finished
Material No. Input/Output Through Period Goods
(:1MT) Port
Klang
1. EC Grade 7408.11.1000 1MT ***MT 21/06/2017 EC
Copper Rod till Grade
20/06/2019 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. According to
the appellant, this condition is even more stringent than what the
Indian Government has imposed in similar situations, as in terms of
25
the Indians Standard Input Output Norms notified for manufacturing
1 MT of Copper Wire, import of 1.01 MT of Copper Rod is allowed.
Thus, according, to the appellant there is no scope of excess
remission under the "other program" availed of by the appellant, as
it was permitted to import 1 MT of Copper Rod for the manufacture
and export of 1 MT of drawn Copper Wire. The appellant claims that
neither could drawn Copper Wire be manufactured from an input
other than Copper Rod nor could 1 MT of drawn Copper Wire be
manufactured using less than 1 MT of Copper Rod. The contention,
therefore, is that in the absence of any excess remission, no part of
exemption from import duty availed by the appellant could have
been considered as a countervailable subsidy.
28. The contention of the respondents, however, is that the issue
involves determination regarding the existence and operation of a
verification mechanism by the Government of Malaysia to ensure
that there is no excess remission of import duties. In this
connection, it has been pointed out that the appellant did not
provide complete information in response to the questions asked by
the Designated Authority with regard to the verification mechanism
and that the questionnaire filed by the Government of Malaysia also
did not provide any answer to the several specific questions. What
has been contended by the learned counsel of the respondents is
that the appellant had only provided documents relating to grant of
exemption but no documents were filed relating to the verification
mechanism employed by the Government of Malaysia to ensure that
there is no remission. Thus, no fault can be found in the findings
recorded by the Designated Authority.
26
29. To appreciate the aforesaid contentions, it would be necessary
to refer to the relevant provisions of the Tariff Act, the 1995 Rules
and the SCM Agreement.
30. Section 9 of the Tariff Act deals with countervailing duty on
subsidized articles and the relevant portion is reproduced below:-
"Section 9. Countervailing duty on subsidized articles. -
(1) Where any country or territory pays, bestows, directly or
indirectly, any subsidy upon the manufacture or production
therein or the exportation therefrom of any article including 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 countervailing duty or
anti-dumping duty -
(i) under section 9 or section 9A by reason of exemption of such
articles from duties or taxes borne by the like article when meant for
consumption in the country of origin or exportation or by reason of
refund of such duties or taxes.
32. Rule 6 of the 1995 Rules deals with initiation of investigation
and the relevant portion is reproduced below:-
Rule 6. Initiation of investigation. - (1) Except as provided in sub-rule (4)
the designated authority shall initiate an investigation to determine the
27
existence, degree and effect of alleged subsidy only upon receipt of a written
application by or of behalf of the domestic industry.
(2) An application under sub-rule (1) shall be in the form as may be specified
by the designated authority in this behalf and the application shall be
supported by evidence of-
(a) subsidy and, if possible, its amount,
(b) injury where applicable, and
(c) where applicable, a causal link between such subsidized imports and
alleged injury.
(3) The designated authority shall not initiate an investigation pursuant to an
application made under sub-rule (1) unless-
(a) it determines, on the basis of an examination of the degree of
support for, or opposition to the application expressed by domestic
producers of the like article, that the application has been made by or
on behalf of the domestic industry:
Provided that no investigation shall be initiated if domestic producers
expressly supporting the application account for less than twenty-five percent
of the total production of the like product by the domestic industry, and
(b) it examines the accuracy and adequacy of the evidence provided in
the application and satisfies itself that there is sufficient evidence
regarding-
i. subsidy,
ii. injury, where applicable; and
iii. where applicable, a causal link between such subsidized imports
and the alleged injury, to justify the initiation of an investigation.
33. Rule 7 of the 1995 Rules deals with principles governing
investigation and the relevant portion is reproduced below:-
Rule 7. Principles governing investigation-
(1) xxxxxx
(2) xxxxxxx
(3) xxxxxxx
(4) The designated authority may issue a notice calling for any
information in such form as may be specified by it from the exporters,
foreign producers and governments of interested countries and such
information 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
28
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 designated authority while
determining the subsidy shall ascertain as to whether the subsidy under
investigation.
(a) Relates to export performance including those illustrated in
Annexure III to these rules, or
35. Rule 11 of the 1995 Rules makes a mention of Annexure III of
the rules. The said Annexure consists of Part-1 which deals with
illustrative list of export subsidy and Part-2 which deals with
guidelines on consumption of inputs in the production process.
36. The relevant portions of Part-1 and Part-2 of Annexure III are
reproduced below : -
ANNEXURE III
PART - 1
Illustrative list of export subsidies
a. xxxxxxxx
to
f. xxxxxxxx
g. The exemption or remission, in respect of the production and
distribution of exported products, of indirect taxes in excess of
those levied in respect of the production and distribution of like
products when sold for domestic consumption.
h. The exemption, remission or deferral of prior-stage
cumulative indirect taxes on goods or services used in the
production of exported products in excess of the exemption,
remission or deferral of like prior-stage cumulative indirect
taxes on goods or services used in the production of like
products when sold for domestic consumption; provided,
however, that prior-stage cumulative indirect taxes may be
exempted, remitted or deferred on exported products even
when not exempted, remitted or deferred on like products when
sold for domestic consumption, if the prior-stage cumulative
indirect taxes are levied on inputs that are consumed in the
production of the exported product (making normal allowance
29
for waste) 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. This paragraph
does not apply to value-added tax system and border-tax
adjustment in lieu thereof; the problem of the excessive
remission of value-added taxes is exclusively covered by
paragraph (g).
i. The remission or drawback of import charges in excess of
those levied on imported inputs that are consumed in the
production of the exported product (making normal allowance
for waste); provided, however, that in particular cases a firm
may use a quantity of home market inputs equal to, and having
the same quality and characteristics as, the imported inputs as
a substitute for them in order to benefit from this 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 product, the designated authority should first
determine whether the government of the exporting
country has in place and applies a system or procedure
to confirm which inputs are consumed in the production
of the exported product and in what amounts. Where
such system or procedure is determined to be applied,
the designated authority should then examine the
system or procedure to see whether it is reasonable,
effective for the purpose intended, and based on
30
generally accepted commercial practice in the country of
export. The designated authority may, if he considers
necessary carry out certain practiced tests in order to
verify information or to satisfy themselves that the
system or procedure is begin effectively applied.
(2) Where there is no such system or procedure, where it
is not reasonable, or where it is instituted and considered
reasonable but is found not to be applied or not to be
applied effectively, a further examination by the
exporting country based on the actual inputs involved
would need to be carried out in the context of
determining whether an excess payment occurred. If the
designated authority considers it necessary, a further
examination would be carried out in accordance with
sub-paragraph (1) above.
2. The designated authority should treat inputs as
physically incorporated, if such inputs are used in the
production process and are physically present in the
product exported. An input need not be present in the
final product in the same form in which it entered the
production process.
37. It would also be pertinent to refer to the relevant portion of
the SCM Agreement.
38. Article 1 deals with definition of a subsidy and is reproduced
below :-
Article 1
Definition of a Subsidy
1.1 For the purpose of this Agreement, a subsidy shall be deemed to
exist if:
(a)(1) there is a financial contribution by a government or any
public body within the territory of a Member (referred to in this
Agreement as "government"), i.e. where:
(i) xxxxxxx
(ii) government revenue that is otherwise due is foregone or
not collected (e.g. fiscal incentives such as tax credits);
(iii) xxxxxxx
(iv) xxxxxxx
or
(a)(2) xxxxxxx
and
(b) a benefit is thereby conferred.
31
39. It would be seen that the same principle is contained in
section 9 of the Tariff Act.
40. Footnote to Article 1, which deals with the exemption or
remission of duties or taxes 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 subsidy. This position
clearly emerges from Annexure III, Part 1 to the 1995 Rules, which
in clauses (g), (h) and (i) lays down this principle. The aforesaid
clauses (g), (h) and (i) of Annexure III, Part 1 to the 1995 Rules
also form part of Annexure I to the SCM Agreement.
44. At this stage, it would be useful to reproduce that part of the
order of the Designated Authority contained in the final findings that
relates to " other program" dealing with exemption on import duties
32
on raw materials used in the production of exported goods and they
are as follows:-
"(xxxiii) Other Program used by Metrod Group: Exemption
on import duties on raw material which are used in
production of exported goods.
Authority notes that Metrod Malaysia has received benefit in the
form of exemption on import of raw material for export
production 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 has inadvertently noted in the
disclosure statement that this benefit availed by Metrod is a
benefit under program no. 24.
311. The Authority notes that program provides for financial
contribution in the form of revenue forgone which is otherwise
due through exemption from import duty on raw material and
benefit is thereby conferred. The program is also specific because
it is contingent on export performance. The Authority notes
that import raw material for use in the production of
exported goods cannot be considered as countervailable
subsidy only if there is sufficient evidence to demonstrate
that there is a verification mechanism to ensure that there
is no excess remission. Metrod group has merely claimed
existence of a mechanism and absence of excess remission
without providing sufficient evidence or step by step
explanation of such verification mechanism. Metrod group
has not provided any instance of duty imposition by the
Government on the company where it was unable to meet the
export obligation."
Claims concerning Malaysia subsidy programs
Metrod Group has wrongly stated that program no. 24 was
countervailed by the Authority by stating 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
33
position that Metrod has availed this benefit and the same is
countervailable. The Authority has now categorized this
benefit availed by Metrod under "other program".
As regards the submission that export contingent exemption of
import duty on raw material by the Government of Malaysia cannot
be considered as countervailable subsidy because it is compliant
with specific provision of Annex I of the SCM Agreement, the
Authority notes that import of raw material for use in the
production of exported goods cannot be considered as
countervailable subsidy only if there is sufficient evidence to
demonstrate that there is verification mechanism to ensure that
there is no excess remission have merely claimed existence of a
mechanism and absence of excess remission without providing
sufficient evidence or step by step explanation of such verification
mechanism. Interested parties have not provided any instance of
duty imposition by the Government on the company where it was
unable to meet the export obligation. There is also no explanation
by the exporter and especially by the Government of Malaysia to
demonstrate how the amount of import quantity eligible for import
duty exemption was fixed generally by the Government and
especially in the case of raw material used for the production of
product under consideration.
(emphasis supplied)
45. A perusal of the aforesaid final findings of the Designated
Authority would indicate that:
(i) The appellant has received benefits in the form of
exemption on import of raw material for export production
but the Designated Authority had inadvertently noted in the
disclosure statement that this benefit was availed by the
appellant under program 24. The Designated Authority,
therefore, in the final findings categorized this benefit under
"other program";
(ii) The import of raw material for use in the production of
exported goods can be considered as countervailable
subsidy only if there is lack of sufficient evidence to the
demonstrate that there is a verification mechanism to
ensure that there is no excess remission but the appellant
merely claimed existence of a mechanism without providing
34
sufficient evidence or step by step explanation of such
verification mechanism.
46. Each of the aforesaid two findings recorded by the
Designated Authority shall be considered separately.
PROGRAM 24/ OTHER PROGRAM
47. It needs to be noted that the "other program" was not
specified in the application filed by the Domestic Industry or in the
initiation 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 used exclusively for
35
manufacturing goods meant for export, which was a permissible
duty remission under the 1995 Rules and the SCM Agreement. It
needs to be noted that under the "other program", exemption from
duty on import of raw material was provided only if raw material
was exclusively used in the manufacture of products which are
exported, whereas under program 24 the imported raw material
can be used in all kinds of manufacturing activity. This fact
assumes importance because the appellant was not confronted
with the subsidy availed by the appellant under this program. All
that has been stated in the final findings is that this happened
because of an inadvertent error.
48. The contention advanced by learned counsel appearing for
the respondents is that reference to a wrong program in the
disclosure statement would be of no consequence as no prejudice
has been caused to the appellant. This submission cannot be
accepted for the reason that the Designated Authority in the
disclosure statement, as is contemplated in rule 18 of 1995 Rules,
has to inform all the interested parties of the essential facts under
consideration which would form the basis of its decision and
permits the interested parties to defend their interest. Prejudice
was caused because the appellant was not concerned with Program
24. The "other program" was different and subsidy was granted
under it on fulfilment of the conditions stipulated therein.
Step by Step Verification Mechanism for No Excess
Remission
49. It would be pertinent to refer to the approval letter issued by
MIDA in connection with the exemption granted to the appellant on
36
import of raw material for the manufacture of finished products. A
perusal of the approval letter clearly shows that import duty on raw
material was exempted subject to the conditions indicated in
Appendix A. Appendix A provides that the exemption shall be
claimed by submitting the prescribed customs forms when the
goods are imported with a pledge that duty exemption is being
claimed under the exemption powers approved by the Government
of Malaysia. It also provides that all the raw materials exempted
from duty shall be stored in accordance with the Regulations of the
Royal Malaysian Customs. A declaration has also to be recorded on
each customs export that the item is made of raw material
imported under duty exemption and details of the letter under
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
37
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 Authorities. The appellant
also claims that during the onsite verification it had submitted a
summary of all imports and exports made under the Authorization
as also the corresponding papers with the Malaysian Customs to
substantiate its claim that the imported duty free raw material was
used for manufacturing the goods that were exported.
51. The records also indicate that the Designated Authority had
earlier, by email dated September 3, 2019, informed the appellant
that the appellant should furnish information regarding each
program in a format marked as Exhibit 1 for the purpose of the
verification visit to be undertaken by the Designated Authority
since it transpired from the Questionnaire Response that the
appellant had received certain benefits under various schemes. The
relevant extract of the said email is as follows:-
"In this regard, please make available the following
documents for verification:
1. List of subsidies received by the Metrod Companies as per
the enclosed format in Exhibit
1.
.......
5. For majority of the subsidy schemes alleged in the initiation notice, it has been stated that no benefit has been availed. Provide evidence, if possible, to demonstrate that the subsidy schemes mentioned in Initiation notification have not been availed by Metrod Companies and Metrod Holding Berhad.
6. Reconciliation of sales to India from annual report or any other documentary evidence.
7. Reconciliation statement matching the subsidies reported by your company in the questionnaire response with the figures reported in the Annual Report.
......
38
9. Legal/Policy documents evidencing the existence of Exemption/Reduction of Import Duties on raw materials in Malaysia.
.......
15. Provide list of main raw materials as per Exhibit 4. The letter indicates the primary set of documents required for on-spot verification. The DGTR may request for further information, if required."
52. The appellant submitted details of the raw material imported under the authorisation and also stated that the all the goods manufactured from the said raw material were exported. The appellant also stated that during the visit of the Designated Authority for verification, the appellant had also submitted documentary proof to reconcile the imports and exports made under the duty free authorization. The relevant potion of the email 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 39 "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 products. It also transpires from the records that the appellant made submissions in the comments to the disclosure statement regarding its claims that the duty free raw material imported was exclusively used for the production of goods that were exported but the Designated Authority, without seeking any further clarification from the appellant on the comments, determined the said program to be countervailable on the ground that the appellant failed to give sufficient evidence or step by step explanation of the verification mechanism followed by the Government of Malaysia for determining whether there was "excess remission" or not.
55. In this connection it would be useful to revert to the letter sent to the appellant by the MIDA regarding exemption of import duties on raw materials for the manufacture of finished products. Appendix A provides for a detailed procedure for claiming exemption. Apart from providing a pledge on each customs form, the appellant was also required to strictly follow the procedures prescribed from clause iii to vi contained in the said Appendix. These clauses have been reproduced in the earlier paragraph. It clearly, among others, requires that all invoices and bills of lading in respect of the import should be in the name of the company that has been granted exemption and the raw material duty exempted should be stored in accordance with the Regulations specified in writing by the Royal Malaysian Customs. The appellant has also to record a declaration on each customs export that the exempted 40 raw material was used to manufacture the finished goods in the export market. Clause(viii) specifically requires the appellant to:
(a) provide records of the use of raw material including waste, manufactured finished products and marketed quantities;
(b) prepare a statement every three months on (a) above as per the format agreed upon in writing by the senior officer of customs and shall be signed and verified by the authorized officer of the company. It must be submitted to the customs station within one month; and
(c) obtain written approval from the Royal Malaysian Customs for the transfer including the sale, destruction and export of the raw material/waste. For the sale of waste/manufactured waste and raw material/components in the local market, the duty involved is to be paid first and for the quantity destroyed, the duty involved 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 41 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 consumption of input in the production process. The same have been reproduced above. Paragraph II of Part-2 provides that in examining whether inputs are consumed in the production of the exported product as a part of countervailing duty investigation, the Designated Authority should, in a case where there is an allegation of excess remission, first determine whether the government in the exporting country has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported product and in what amount. The appellant had demonstrated that there was no excess remission and even otherwise, there was no allegation of any excess remission so as to warrant an examination of the process contemplated in the aforesaid paragraph.
60. In any case, to examine whether the government in the exporting country has in place and applies a system or procedure to confirm which inputs are consumed and in what amount, it is seen that Copper Rods alone can be used in manufacture of drawn Copper Wire. In regard to the amount of inputs to be consumed, the Government of Malaysia has fixed a ratio of 1:1 that means that for every 1 MT of Copper Rod imported duty free, 1 MT of Copper Wire should be manufacture for export. Thus, both the requirements stand satisfied.
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61. Even otherwise, if the Designated Authority formed an opinion that there was no adequate system or procedure in place, then too it was obligatory on the part of the Designated Authority to make a request the Government of Malaysia to conduct a further examination as stipulated in Part-2 of Annexure III. However, there is nothing on the record to indicate that the Designated Authority required the Government of Malaysia to conduct a further examination. Even if the Government of Malaysia refused to conduct such a further examination, the Designated Authority was required to records it findings based on the facts available with it.
62. In this connection it would be pertinent to refer to a decision of the World Trade Organisation, Appellate Body between the European Union and Pakistan in the matter of countervailing measures on imports of Polyethylene Terephthalate10 from Pakistan. The European Commission investigated several schemes that allegedly involved grant of subsidies by the Government of Pakistan and ultimately issued a regulation imposing definitive countervailing 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 10 PET 43 "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 Panel referred to this as the "excess remissions principle". The Panel concluded that the excess remissions principle "provides the legal standard under which to determine whether remissions of import duties obtained under a duty drawback scheme constitute a financial contribution in the form of revenue forgone otherwise due under Article 1.1(a)(1)(ii) of the SCM Agreement"."
63. The Appellate Body examined whether the Panel erred in its interpretation of Article 1.1(a)(1)(ii), Footnote 1 and Annexures II and III to the SCM Agreement and the observations are as follows:-
"5.120. At the heart of the European Union's claim of error on appeal is its contention that Annex II(II)(2) does not prescribe what happens in the event that an exporting Member does not carry out the "further examination" prescribed in the first sentence of this provision, or where such "further examination"
is unsatisfactory. The European Union refers to this absence of prescription as a "silence", the consequence of which is that the remission of import duties no longer qualifies as a duty drawback scheme and the entire amount of duties refunded or not collected upon exportation can be countervailed by the investigating authority. Pakistan disagrees with the significance that the European Union attributes to this perceived "silence". Moreover, in response to questioning at the hearing, Pakistan opined that the investigating authority has a duty to give the exporting Member the opportunity to conduct a "further examination", as provided for in the first sentence of Annex II(II)(2), before proceeding to engage with the perceived "silence" that follows this provision. Before addressing this alleged "silence" highlighted by the European Union, we first examine what Annex II(II)(2) provides for and its relationship to the first step of the inquiry articulated in Annex II(II)(1), discussed in paragraph 5.116 above.
5.121. Pursuant to the first sentence of Annex II(II)(2), the need for a "further examination by the exporting Member"
prescribed therein does not arise in each countervailing duty investigation. Such need only arises in a situation where the investigating authority has determined, from its inquiry under Annex II(II)(1), that there is no verification system in place in the exporting 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 44 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 examination by the exporting Member is aimed at establishing whether "an excess payment occurred" - a crucial element in the investigating authority's determination of whether the duty drawback scheme under investigation "conveys a subsidy by reason of ... excess drawback of ... import charges on inputs".
5.2.4 Conclusion 5.138. A harmonious reading 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 confirms that duty drawback schemes can constitute an export subsidy that can be countervailed only if they result in a remission or drawback of import charges "in excess" of those actually levied on the imported inputs consumed in the production of the exported product. Thus, in the context of duty drawback schemes, the financial contribution element of the subsidy (i.e. the government revenue foregone that is otherwise due) is limited to the excess remission or drawback of import charges on inputs and does not encompass the entire amount of the remission or drawback of import charges.
5.139. Furthermore, the perceived "silence" in Annexes II and III to the SCM Agreement, referred to by the European Union, is not one that pertains to the definition of the subsidy, and in particular to what constitutes the financial contribution element of the subsidy, in the form of government revenue foregone. Instead, the perceived "silence" relates to a procedural step in the context of an investigating authority's inquiry into whether the excess remission or drawback of import charges occurred. As regards this procedural step, where an investigating authority determines that there is no verification system in place in the exporting 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, and where a further examination by the exporting Member has not been undertaken or is considered unsatisfactory by the investigating authority, it is true that Annexes II and III do not explicitly provide for what should happen next. Nonetheless, the SCM Agreement, as a whole, is not silent, and the perceived "silence" in Annexes II and III does not grant an investigating authority the liberty to depart from these other disciplines of the SCM Agreement. 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 45 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 that the concerned Government failed to provide evidence to demonstrate the mechanism followed by them while determining the nature and quantum of input which gets consumed in the production of exported goods. It transpires that in all such cases, repeated requests were made to the government. In the instant case, it is seen that the Designated Authority, at no point of time prior to final findings, suggested or alleged that the Government of Malaysia failed to provide the requisite information. The records indicate that the Government of Malaysia had filed the Questionnaire Response and if there was any doubt, the Designated Authority could have required the Government of Malaysia to provide the information.
66. Thus, for all the reasons stated above, it is not possible to sustain the CVD levied for "other program" and if this program is excluded from the subsidy margin determination, the appellant would fall below the de minimis level. The imposition of 2.47% CVD on the appellant at serial no. 8 of the notification dated January 8, 2020 is, therefore, liable to be set aside.
67. 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".
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68. In the result, the imposition of 2.47% CVD on the appellant at serial no. 8 of the notification dated January 8, 2020 is set aside and all the four Anti-Dumping Appeals, bearing numbers 50897 of 2020, 50894 of 2020, 50895 of 2020 and 50896 of 2020 are allowed.
(Pronounced in the open Court on March 08, 2021) (JUSTICE DILIP GUPTA) PRESIDENT (DR. D.M. MISRA) MEMBER (JUDICIAL) (P.V. SUBBA RAO) MEMBER (TECHNICAL) Rekha/Tejo/Jyoti/Archana/Shreya