TaxTMI 
TaxTMI 
2021 (3) TMI 404
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by Metrod Malaysia Sdn Bhd [the appellant] 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 Limited [Hindalco] (respondent no. 3) and M/s Vedanta Industries (Sterlite Copper) [Vedanta] (respondent no. 4) had filed an application, as a Domestic Industry, under the provisions of the Customs Tariff Act, 1975 [5] and The Customs Tariff (Identification, Assessment and Collection of Countervaili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cope. 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 Number [PCN] 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 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ject 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 Authority, imposed CVD, as indicated in the table below: Sl. No. Heading Description of Goods Country of Origin Country of Export Producer Duty amount as % of landed value (1) (2) (3) (4) (5) (6) (7) 1. 7408 Continuous Cast Copper Wire Thailand Any Country including Thailand SEI Thai Electric Conductor Co. Ltd NIL 2. -do- -do- Thailand Any Country including Thailand ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave 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 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 Measures [SCM Agreement] as well as the 1995 Rules prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ountries 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 De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thority 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. 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 mechanis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticipated 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 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 firs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, 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 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 Authority [MIDA] 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re 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 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ibit 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ufacturing 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 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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 the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....23;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 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:- "5.12....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 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 i....