TaxTMI 
TaxTMI 
2023 (11) TMI 1135
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.... for Respondent No. 12 Mr. Ameet Singh, Ms. Niharika Sharma and Shri Harsha Sri Nivas, Advocates for the DGAD Shri Shobh Nath, Deputy Director (Cost) for DGAD Shri Rakesh Kumar, Authorized Representative for the Central Government ORDER M/s. Reliance Industries Limited [the appellant], a domestic producer of 'Mono Ethylene Glycol [MEG]' in India, has filed this appeal to assail the Notification dated 27.10.2022 notifying that since the domestic industry had not suffered material injury in terms of the provisions contained in the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 [the 1995 Rules] it would not be appropriate to recommend levy of anti-dumping duty on the import of MEG. Accordingly, the designated authority terminated the investigation which was initiated by a Notification dated 28.06.2021. 2. The appellant with M/s. India Glycol Ltd., another Indian producer of MEG, had filed an application before the designated authority seeking imposition of anti-dumping duty on imports of MEG from Kuwait, Saudi Arabia and United States of America [the subject countries]. Th....
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....wardly integrated in as much as it captively produces ethylene at its Ethylene plant, which it then converts into ethylene oxide for producing MEG at its MEG plant. As ethylene is not sold in the market, it is for the purpose of its Cost Accounting records, considered as a cost centre, and the ethylene captively produced is transferred to MEG plant at cost without any return or profit. 6. During the course of the investigation, the appellant had submitted that it was facing price injury on account of MEG being imported at dumped price from 2019-20 onwards. It was also submitted by the appellant that even though earlier there were considerable imports of the subject goods in the country, such imports were at fair prices and were on account of demand-supply gap in India. However, once the domestic industry enhanced capacities in 2018-19, the imports into India declined. Thereafter, from 2019-20, the imports in excess of demand-supply gap increased significantly, on account of dumping. The domestic industry also claimed that the landed price of the subject imports declined steeply over the injury period and was the lowest during the period of investigation. Further, the decline in ....
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....44% in the first quarter of financial year 2022-23. The return on capital employed of the domestic industry had reduced by 41% and 147% during the same period. 10. The dumping and injury margin determined by the designated authority are as below: S. No. Country Injury margin range Dumping margin range I. Kuwait a. Participating exporters 20%-30% 0%-10% b. Others 30%-40% 0%-10 II. Saudi Arabia a. All exporters 20%-30% 10%-20% III. USA a. All exporters 35%-45% 10%-20% 11. It can be seen that both dumping and injury margins determined by the designated authority are positive and significant. Yet, the designated authority, in the final findings, concluded that though there is significant dumping, but there is no material injury to the domestic industry. 12. The determination of injury is governed by the provisions of article 3 to the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 [GATT], which is as under: "Part I: Article 3 Determination of Injury 3.1 A determination of injury for purposes of Article VI of GATT 1994 shall be based on p....
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....e dumped imports on prices in the domestic market for like article and (b) the consequent impact of these imports on domestic producers of such products. (ii) While examining the volume of dumped imports, the said authority shall consider whether there has been a significant increase in the dumped imports, either in absolute terms or relative to production or consumption in India. With regard to the affect of the dumped imports on prices as referred to in sub-rule (2) of rule 18 the designated authority shall consider whether there has been a significant price under cutting by the dumped imports as compared with the price of like product in India, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increase which otherwise would have occurred, to a significant degree. ***** (iv) The examination of the impact of the dumped imports on the domestic industry concerned, shall include an evaluation of all relevant economic facts and indices having a bearing on the state of the industry, including natural and [Potential] decline in sales, profits, output, market share, productivity, return on investments ....
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....19, consequent to increase in Indian capacities. However, from the financial year 2018-19, the subject countries started dumping MEG into India to capture the Indian market, and there was significant increase in imports in excess of demand-supply gap. 19. In this regard, reliance has placed upon the disclosure statement filed by the domestic industry and the relevant extract of the disclosure statement is reproduced below: 16. In addition to the above, the following factors demonstrate that the domestic industry has suffered injury due to the subject imports. a. While the subject imports have declined, the same is an account of increased capacities of the domestic industry. It would be seen that the imports declined in 2018-19, but increased again in 2019-20. However, the imports have declined again in the period of investigation, due to Covid-19. b. Further, the volume of imports exceeds the demand-supply gap in the country. In fact, the imports in excess of demand-supply gap have increased over the period. Particulars 2017-18 2018-19 2019-20 Period of investigation Total demand ***** ***** ***** ***** Capacity of Indi....
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....in its prices, in which case, the customers would shift to the cheaper imports. In such a situation, the domestic producer would lose its customer base and its production, sales, capacity, utilization, etc. would suffer. Further, the producer would lose the benefits of economies of scale and its cost per unit would increase, which would result in a decline in profits. b. Alternatively, the producer may opt to retain its customers. In order to achieve that, it would have to reduce its prices to compete with the imports. Consequently, the imports would suppress or depress the prices of the domestic producer and its profits, cash profits, return on investment, etc. would suffer. Such an approach is usually adopted in a product like the present, as the producer would want to maintain its production, cannot hold material in store beyond storage limits and need to retain its market to ensure long term survival, utilize its capacities, labor and other resources." 23. The designated authority at paragraph 93 of the final findings also concluded that there is no requirement under the provisions to establish both volume and price injury, for making a determination of material inj....
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....icant degree." 27. Thus, it can be seen that the relevant parameters to determine whether there has been 'price injury' are: (i) 'Price undercutting', that is, whether subject imports are priced below domestic like products, or, otherwise, whether such imports cause: (ii) 'Price depression', that is, whether the prices of domestic like products have declined, due to the presence of subject imports. or (iii) 'Price suppression', that is, whether the prices of domestic like products have not increased as it should, due to the presence of subject imports. Price undercutting and Price Depression 28. Paragraphs 105 and 106 of the final findings note that there is price undercutting. During the course of hearing, the respondents have suggested that 'Price undercutting' alone cannot establish price effect of dumped imports and also that the price undercutting was not significant. 29. The final findings nowhere state that the price undercutting was not significant. In fact, the domestic industry consistently submitted that the price injury is evident as the imports are coming at prices not only below the prices of the domestic indust....
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.... Price Rs./MT ***** ***** ***** ***** Trend Indexed 100 106 72 62 32. The confidential version of the table has been provided by the domestic industry as per the data available with it. It has also given the selling price without factoring discount and the net selling price. 33. The submission that has been advanced is that the designated authority should have considered the net selling price (discounted price) and not the average selling price while examining price depression and suppression. It has also been pointed out that a comparison of the cost of sales, net selling price and the landed price clearly shows that the domestic industry was forced to reduce its prices to match the import prices. 34. From the trends recorded in the aforesaid Table, it is seen that while the cost of sales of the domestic industry has gone down from 100 to 87, i.e. by 13 indexed points over the injury examination period, selling price has declined by 35 indexed points. Thus, the decline in selling price is much more steep than the decline in cost. It would also be relevant to note that the landed value of subject imports declined by 38 indexed points. It is....
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....result in any of three phenomena, i.e. significant price undercutting, significant price depression, or significant price suppression. The use of the disjunctive 'or' between these three phenomena indicates that they are independent lines of inquiry. A view that only price depression and price suppression constitute price effects would read out of the text the option to consider price undercutting as an independent channel of inquiry. This would be inconsistent with the requirement that effect be given to all terms of a treaty. We thus interpret Article 3.2 and Article 15.2 to mean that a consideration of any of the three price effects can independently satisfy the requirement in Article 3.1 and Article 15.1 to examine the 'effect ***** on prices in the domestic market for like products'." 38. Thus, as there is positive price undercutting as well as the imports have depressed the domestic prices, the requirement of paragraph (ii) are met in the present case. Examination of impact of dumped imports on the condition of the domestic industry as per paragraph iv 39. In connection with the second limb, namely, the examination of impact of dumped imports on the domestic ....
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....profits, return on capital employed etc. may not show a decline, especially where the domestic industry has been able to maintain its production by exporting or by captive consumption. On the other hand, an industry which has continued competing with the imports by reducing its prices is not likely to show injury on volume parameters but its profitability, return on capital employed would register a decline. Thus, the factors relevant for assessing impact of dumped imports on the condition of domestic producers of like products would have to be determined on case-to-case basis. 43. In the present case, from the final findings, it does appear that all the factors relevant for examining impact of price injury on the condition of domestic industry clearly show a decline as compared to financial year 2017-18 and financial year 2018-19. The designated authority was required to return a finding of material injury only after examining all the relevant facts. 44. Some of the findings arrived at by the designated authority on the impact of the dumped imports on the state of domestic producers of like products are: Finding on profitability 45. From a perusal of the final findings....
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.... 47. The trend of profitability and return on investment recorded in the final findings is as follows: Particulars Unit 2017-18 2018-19 2019-20 Period of investigation Profit/(Loss) Rs./MT ***** ***** ***** ***** Trend Indexed 100 48 14 28 Profit/(Loss) Rs. Lacs ***** ***** ***** ***** Trend Indexed 100 81 25 44 Cash Profit Rs. Lacs ***** ***** ***** ***** Trend Indexed 100 94 51 60 Return on capital employed % ***** ***** ***** ***** Trend Indexed 100 108 45 61 48. It can be seen that both profit of the appellant as well as return of capital employed earned by it declined significantly as compared to the base year. 49. While examining profitability of the domestic industry, the designated authority placed excessive reliance on profits and has completely ignored the low return on investment. 50. In such Capital Intensive industry, the return on the capital employed is a true bench mark of the performance of the company. If the return on the capital employed is a meagre 9-10%, which is equal to the bank rate of re....
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....nly, without any return. As such, the cost of production of MEG factors in only bare cost of manufacturing of ethylene without any profit or return on the capital employed for setting up the ethylene facility. Accordingly, the cost of production of MEG in the books of the appellant is significantly low, whereas it's capital employed is very high as the appellant includes capital employed in ethylene plant (proportionate to ethylene used for MEG) in the total capital employed for MEG, which is evident from the data furnished by the appellant before the designated authority. 54. It is not the submission of the appellant that the cost or the capital employed as recorded in its books is incorrect. What has been submitted is that the cost accounting practice followed by the appellant has resulted in its cost being lower and capital employed being higher. Profit as % of capital employed would be a more relevant factor for determining the profitability of the appellant. 55. It is not possible to accept the submission of the learned counsel for the respondents that the domestic industry was earning abnormal per unit profits of around 60% in the financial year 2017-18, which reduced t....
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.... Profit % on cost 19% 3% 94% H Per unit Capital employed 100 800 800 I=F/H ROI 25% 1% 9% 58. Thus, while profit computed for Café 1 or Café 2 would give a reasonable indication of the health of the company, it does not give the accurate picture of viability of Café 3 as though profit as % of cost is 94%, the business is in fact able to generate only 9% return on investment, which the owner was even otherwise earning from the banks. As such, no return towards production or investor's risk is earned and, therefore, the business is not financially viable. 59. Profit as a % of cost of sales, or as a % of return on investment are two 'alternate' factors for examining the financial health of a company. It would have to be seen, basis facts of each case, which method would be more accurate and would correctly record the health of the company. In the present facts, considering that the appellant is a capital intensive unit, Return on Investment would be a more pertinent criterion for deciding financial viability of the appellant. 60. A comparison of cost of sales of the appellant and its capital employed, as verified an....
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....id article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in which case such producers shall be deemed not to form part of domestic industry: Provided that in exceptional circumstances referred to in sub-rule (3) of rule 11, the domestic industry in relation to the article in question shall be deemed to comprise two or more competitive markets and the procedures within each of such market a separate industry, if- (i) the producers within such a market sell all or almost all of their production of the article in question in the market, and (ii) the deemed in the market is not in any substantial degree supplied by producers of the said article located elsewhere in the territory;" 27. The provisions relating to injury analysis in Annexure II to the Antidumping Rules are also clear that the injury determination is always for the domestic industry as a whole and not for individual companies. 28. In our opinion, since the NIP is for the industry as a whole, it is immaterial if a....
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....igation and in any case, the designated authority should have appreciated that the domestic industry was earning a meagre return of capital employed of 8-9% in the period of investigation, which otherwise can be easily earned from more secured sources as well. The ability of the domestic industry to raise future investments had been significantly hampered. 70. These are factors which were required to be considered by the designated authority. Finding on factors affecting prices and magnitude of dumping margin 71. The designated authority concluded that there is no conclusive evidence to show that imports have adversely affected the price of domestic industry. 72. The submission of learned counsel for the appellant is that such a conclusion has been drawn without appreciating that there is not only positive price undercutting but also positive price depression, and the dumped imports have forced the domestic industry to reduce its prices by offering significant discounts. Learned counsel also submitted that even though the designated authority concluded that the magnitude of dumping margin is 'positive and significant', no reason whatsoever has been given to support the ....
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.... clearly shows material injury. According to the learned counsel for the appellant the final findings are cryptic. 77. The decision of the Tribunal in Bridge Stone Tyre Manufacturing (Thailand) vs. Designated Authority [2011 (270) E.L.T. 696 (Tri. - Del.)], has to be read and interpreted in the context of judgment of Supreme Court in the Reliance Industries, where it has been clearly laid down that the impact of the industry has to be examined in the context of the industry existing today as a whole as also that, which may be set up in the future and not with reference to the integrated domestic industry on a standalone basis. 78. Learned counsel for the respondent also submitted that notional interest cost cannot be added to cost of sales. 79. It is not the contention of the appellant that a notional interest cost is required to be added to the cost of sales of the domestic industry to compute the profit. What was submitted by the appellant is that in the present case, since the capital employed by the domestic industry is largely self-financed, the cost of sales of the appellant does not factor in any interest cost and is, therefore, significantly depressed. It was, ther....
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.... the respondent also submitted that return on investment of 9% being earned by the domestic industry is sufficient. 86. The domestic industry earned a return of 9% during the period of investigation and it is submitted on behalf of the appellant that a 9% return cannot be considered as sufficient to cover for interest, tax and profit. 87. It is also the contention of the appellant that the designated authority has consistently considered 22% of return of capital employed as a benchmark for computing the non injurious price of an industry. Non-injurious price is determined as per Annexure III read with the rule 17 of the 1995 Rules to determine the price at which injury of domestic industry would be considered removed. 88. In this regard, reliance can be placed by the learned counsel for the appellant on decisions of the Tribunal in M/s SI Group India Pvt. Ltd vs. Designated Authority [2020-TIOL-849-CESTAT-DEL] and Qingdao Doublestar Tire Industrial & Co. Ltd. and Ors. vs. Designated Authority [2018(364) E.L.T. 852 (Tri. - Delhi)], where the 22% benchmark has been considered for determination of injury under Annexure II. 89. In Qingdao Doublestar Tire, the Tribunal obser....
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....he final findings do not rely on the overall return of capital employed of the appellant, a now ground cannot now be taken to supplement the findings. 95. The respondents have relied upon the decision of the Gujarat High Court in Nirma Limited vs. Union of India [2017 E.L.T. 146 (Guj.)] to submit that determination of injury margin is required to be made only after it is found that the domestic industry is facing material injury. As such, it has been submitted that a determination as to whether there is material injury or not cannot be based on the fact that the injury margin is positive. 96. The decision of the Gujarat High Court in Nirma Limited was rendered in the context of a mid-term review conducted by the designated authority at the insistence of importers therein, seeking withdrawal of duties already imposed on the imports of Soda Ash (PUC therein). The designated authority in that case had held absence of positive injury margin as one of the factors to conclude that the domestic industry was not facing any injury warranting continuation of duties. Unlike original investigation, where the designated authority examines existence of material injury or threat of material....
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....ase, evidently all price parameters have been evaluated only with reference to the preceding year. In other words, whereas the designated authority considers that the comparison cannot be limited only between the base year and period of investigation, the comparison has been limited between the period of investigation and the preceding year. The base year has been completely ignored. 102. In this regard, reference may be made to the 'overall assessment of injury' made in paragraph 130 of the final findings, which is reproduced below: "J. OVERALL ASSESSMENT OF INJURY 130. On the basis of information on record and detailed analysis conducted hereinabove, the Authority concludes the following as regards injury to the domestic industry a. There is decline in volume of imports of subject goods in absolute terms and in relation to production and consumption in India. b. The landed price of the subject imports as well as cost of sales of the domestic industry have declined during the injury investigation period. c. There is no conclusive evidence to show that the imports have had a significant depressing effect on the prices of the domestic ....