RELIANCE INDUSTRIES LTD. v. DESIGNATED AUTHORITY AND ORS

Citation: [2006] SUPP. 6 S.C.R. 1

Court: Supreme Court of India

Bench: ASHOK BHAN, MARKANDEY KATJU

Case summary

RELIANCE INDUSTRIES LTD. v. DESIGNATED AUTHORITY AND ORS.pdf

Judgment text

RELIANCE INDUSTRIES LTD. v. DESIGNATED AUTHORITY AND ORS. SEPTEMBER 11, 2006 [ASHOK BHAN AND MARKANDEY KATJU, JJ. ] Customs TariffAct, 1975/Customs Tariff (Identification, Assessment and Collection ofAnti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995: Ss. 9-A and 9-B/Rules 4, 7 and I7-Anti-dumping duty-Levy of- Computation of Non-Injurious Price (NIP)-Designated Authority taking into account actual cost of electricity captively produced and not its market price-D. A.

also computing NIP on the basis of best capacity utilization achieved in preceding three years-DA computing NIP much lower than computed by the company and claiming confidentiality in disclosing reasons and detailed calculations to company-Held, for determining NIP, DA is required to take into account market value of inputs and not their actual cost ofcaptive production-lnjw)' determination is for the domestic industry as a whole and not for individual companies-Apportionment offixed cost has to be done on basis ofactual production during the period ofinvestigation and not on optimum capacity utilization-Notification ofCentral Government uls 9-A is quasi-/udicial-Rule 7 does not contemplate any right in DA to claim confidentiality, particularly, regarding information which pertains to the party which has supplied the same-Failure of DA to provide detailed costing information to appellant was illegal. s. 9-A-Anti-dumping duty-Object of-discussed.

) Words and Phrases: "Margin of dumping", "margin of injWJ' ", "normal value"', "noninjurious price"(NJP), "Positive dumping margin"-Connotation of in the context of anti-dumping law. Appellant-company was, manufacturing inter alia, Pure Terophatalic Acid (PTA). It had a captive power plant from which it drew electricity for manufacturing PTA. For this purpose it also drew electricity from Grid. It transferred the electricity drawn from its captive power plant to its PTA unit at the market rate. The appellant filed an application seeking imposition of anti-dumping duty on PTA originated or exported to India from Japan, Malaysia, Spain and Taiwan. Resultantly, on the basis of the findings of the Designated Authority, the Central Government imposed anti-dumping duty on PTA originated in or exported to India from Spain. However, no such duty was imposed on exports from the other countries.

The appeal ofthe company filed before the CEGAT seeking enhancement of the duty in case of export from Spain and imposition of duty on exports from the said other countries was dismissed. Aggrieved, the company filed the present appeal. It was contended for the appellant that the findings of the Tribunal were erroneous in the context of certain imports because of an incorrect computation of the NIP for the domestic industry made by the Designated Authority. It was s11bmitted that while computing the NIP ofPTA, the DA ought •. to have taken the transfer price (market value) of electricity and other inputs captively produced by the company; and not the actual cost of production, in other words, the cost of inputs was to be seen not for an individual unit, but the market price of the inputs was to be seen in order to calculate the NIP.

It was further contended that the DA has not given any reasoning for coming to its conclusion with regard to NIP; and the Disclosure Statement issued by the DA does not state as to what was the element ofcost being disallowed and what was the reason for doing so. It was submitted that there was no requirement in the present case to keep any confidentiality from the appellant with regard to computation of NIP. Disposing of the appeal, the Court HELD: I. The purpose ofs. 9-A of the Customs TariffAct, 1975, which was inserted by the Customs Tariff (Second Amendment) Act, 1982, providing for imposition ofanti-dumping duty, was that our industries which had been built up after independence with great difficulties must not be allowed to be destroyed by unfair competition ofsome foreign companies. The purpose of the section is, therefore, to maintain a level-playing field and prevent dumping, while allowing for healthy competition.

The purpose is not protectionism in the classical sense but to prevent unfair trade practices. The 1995 ! ? Amendment to Section 9A was apparently made in pursuance to Article VI of the General Agreement on Tariffs and Trade 1994 (GATT 1994) which permitted anti-dumping measures as an instrument of fair competition. [12-C-Fl RELIANCE INDUSTRIES LTD. 1•. DESIGNATED AUTHORITY 'National System ofPolitical Economy' published in 1841 and General Agreement on Tariffs and Trade 1994, referred to. 2. 1.

In order to levy anti-dumping duty it is essential in terms of Rules 4 and 17 of the Customs Tariff(ldentification, Assessment and Collection of ~ Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 to establish: (i) Dumping, which is reflected by a "Margin of Dumping" - which is undisputed in this case; (ii)"lnjury"-which is also undisputed in this case; and (iii) Causal link between dumping and injury to the domestic industry to establish that injury to the domestic industry is caused by dumping. (12-G-H; 13-A-B) 2. 2. The margin of dumping is the difference between the "Normal Value" (viz. price in the domestic market of the foreign exporter, or if there are no domestic sales, the price at which it is exported to another country or the constructed cost of production) and the "export price" at which goods are exported to India. Ifgoods are exported to India at prices below the "Normal Value", there is a positive dumping margin. (13-8-C) 2. 3.

On the determination of a positive margin, the Determining Authority has to ascertain whether the dumping ofgoods is causing injury to· the domestic industry by analyzing various injury parameters mentioned in Annexure II to the Rules. The "Margin of Injury" is the difference between the landed value ofexports and the fair selling (notional) price of the domestic manufacturer, which is usually called the Non-Injurious Price. The NIP is determined by the DA on the basis of cost of production (less interest), Selling General and Administrative Expenses (SG&A), and a fixed rate of return on the capital employed of the domestic industry. (13-C-D) 3. 1.

In the present case, the DA has clearly erred in law because the Authority was required, as is apparent from the definition of "domestic industry" under Rule 2(b) of the Anti Dumping Rules, to carry out the determination of injury and computation of NIP for the domestic industry as a whole, and not in respect of any particular company or enterprise. The provisions relating to injury analysis in Annexure II to the Anti-dumping Rules are also clear that the injury determination is alwaysfor the domestic industry as a whole and/10tfor individual companies. (16-G-H; 17-A; E( 3. 2. Since the NIP is for the industry as a whole, it is immaterial if a particular company produces some of its inputs captively. For the purpose of determination of NIP, the DA is always required to take into consideration 4 SUPREME COllRT REPORTS [2006[ SUPP. 6 S. C. R. the transfer price (market value) of the inputs and not their actual cost of captive production.

This is because the entire investigation, analysis, recommendation and imposition are for the product under consideration for the whule domestic industry and not for the individual companies and inputs captively manufactured which may be involved in the production and sales of the goods. [17-F-G) 4. 1. Both normal value and NIP are not exporter or domestic industry specific respectively but exporting country specific and importing country specific (India). Once dumping ofspecific goods from a country is established, dumping duty can be imposed on all exports of those goods from that country to India under Section 9A, irrespective of the exporter. The rate of duty may vary from exporter to exporter depending upon the export price. (18-G[ *Designated Authority (Anti-Dumping) Directorate v. Haldor Topsoe AIS. , (2000) ti SCC 626, relied on. 4. 2.

The purpose of imposition of duty is both to redress injury and to prevent material retardation of the establishment or growth of the domestic industry, as is in:ticated in s. 9-B(i)(ii), Rule I 7(a)(ii) and Annexure II. In the pres~nt case by fixing an NIP based upon specific advantages in the matter of electricity that the appellant company processed, and permitting dumping of the PTA into India, the DA has ensured that no other company can set up PTA manufacturing facilities without also being in a positio\i to generate its own electricity at a price less than the price of electricity generally available in the domestic market. This is surely not tenable, as it will result in discrimination. fl 9-B-C) 4. 3. The DA has clearly ignored the purpose for which the NIP is • computed.

The DA has failed to appreciate that once dumping and injury is established, the existence of an unfair trade practice by the exporters is undisputed and a restrictive view in computing an unduly low NIP would lead to granting a premium to the erring exporters at the cost of the domestic industry, which is suffering injury. [19-D-Ef 5. 1. The DA's determination of NIP was arbitrary and misguided, as it has not considered the actual production achieved by the domestic industry for the purpose of apportionment of fixed costs. On the contrary, it was ~ , revealed during the hearing that the DA computes the NIP on the basis of the best capacity utilization achieved in the preceding three years. In fact, there is no established practice of the DA in this regard, aud the level of capacity RELIANCE INDUSTRIES LTD. i-. DESIGNATED AUTHORITY 5 utilization taken into account by the DA varies from case to case leading to .. total arbitrariness and unguided use of power.

There is no basis to adopt the best capacity utilization achieved in the past period as the industry is generally bound to achieve higher capacity utilization if it is not affected by injurious dumping. (19-E-GI 5. 2. The apportionment of the fixed costs has to be necessarily done on the basis of actual production during the period of investigation and not an assumed level of capacity utilization to avoid all arbitrariness. Thus, the DA's approach is clearly incorrect inasmuch as it is not the determination of optimum capacity utilization of the domestic industry, but the actual capacity utilization which would be the correct approach. The NIP needs to be revised by taking the market price ofelect:icity and the actual capacity utilization during the period of investigation. (19-G-H; 20-A; E( 6. t.

The nature ofthe proceedings before the DA are quasi-judicial, and it is well-settled that a quasi-judid~I decision, or even an administrative decision which has civil consequences, must be in accordance with the T) principles of natural justice, and hence reasons have to be disclosed by the authority in that decision. (20-FI S. N. Mukherjee v. Union ofIndia, I19901 4 SCC 594, relied on. 6. 2. The Tribunal was not right in holding that the notification of the Central Government under Section 9A is a legislative Act. It is clearly quasijudicial. The proceedings before the DA is to determine the /is between the domestic industry on the one hand and the importer of foreign goods from the foreign supplier on the other. The determination of the recommendation of the DA and the Government notification on its basis is subject to an appeal before the CESTAT. This also makes it clear that the proceedings before the DA are quasi-judicial. (20-G-H; 21-AI 6. 3.

In the present case, the NIP computed by the DA was much lower than that computed by the appellant, and the reasons for such variance and detailed calculations were not disclosed by the DA to the appellant. No good reasons were given for reducing the cost price of electricity supplied by the appellant produced in its captive power_ plant. This was clearly illegal. (21-A-BI 6. 4. The DA claimed confidentiality from the appellant about its finding on the data supplied by the appellant itself. There was nothing confidential in the matter, and hence reasons for not accepting the appellant's version should have been stated in the order of the DA. Rule 7 does not contemplate any right in the DA to claim confidentiality. Rule 7 specifically provides that the right of confidentiality is restricted to the party who has supplied the information, and that party has also to satisfy the DA that the matter is really confidential.

Nowhere in the rule has it been provided that the DA has the right to claim confidentiality, particularly regarding information which pertains to the party which has supplied the same. 121-B-C; 22-A-BI 6. 5. Excessive and unwarranted claim ofconfidentiality defeats the right to appeal. In the absence of knowledge of the consequenc~s, grounds, reasoning and methodology by which the DA has arrived at its decision and made its recommendation, the parties to the proceedings cannot effectively exercise their right to appeal either before the Tribunal or this Court. The Anti Dumping Law is extremely important for the country's industrial progress and hence there should be total transparency and fairness in its implementation. (23-C-El Sterlite Industries (India) Ltd v. Designated Authority, (2003),158 ELT 673, relied on. "India" by Rajni Palme Duu. referred to. CIVIL APPELLAT JURISDICTION: Civil Appeal No. 1294 of200 I. From the Order No. 44/2000-AD dated 29. 11.

2000 ofthe Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. D/267/2000- AD. Joseph Vellapally, K. R. Sasiprabhu, Ashvin Dave, Tarun Gulati and Chandrachud, Raghvesh for the Appellant. Nagendra Rai. Satyakam and Vijay Kr. Venna for Shreekant N. Terdal for the Respondents. The Judgment of the Court was delivered by MARKANDEY KATJU, J. This Appeal has been filed against the impugned final order dated 29. 11. 2000 passed by the (CEGAT) Customs Excise and Gold (Control) Appellate Tribunal, New Delhi. We have heard learned counsel for the paities. RELIANCE INDUSTRIES LTD. ''· DESIGNATED AUTHORITY [MARKANDEY KATJU. J. ] 7 The appellant is a multi-product company and has various business activities including manufacture of Pure Terephatalic Acid (for short 'PTA'), which is used for the manufacture of polyester yarn (which in turn is used for manufacture oftextiles). Apart from the manufacture of PTA. the appellant, inter a!

ia, has a captive power plant from which it draws electricity. The appellant also draws electricity from the Grid for the manufacture of PTA. The cost of electricity forms a significant part of the cost of production. For the electricity drawn from the Grid, the appellant has to pay a tariff rate at the market price of the electricity, while regarding electricity drawn from the captive power plant the appellant transfers electricity at the market rate to its PTA unit. The appellant, Mis. Rdiance Industries Ltd. filed an application dated 12. 10. 1998 seeking the imposition ofAnti- Dumping Duty on PTA originating in, or exported from Japan, Malaysia, Spain and Taiwan. The Designated Authority (hereinafter referred to as 'the DA') in the Ministry of Commerce initiated investigations on the said application in April 1999. The investigations culminated in the findings of the DA dated 20. 4. 2000, and on that basis :here was imposition by the Central Government of anti-dumping duty O!

l PTA originating or exported from Spain at the rate of Rs. 521 per M. T. vide Customs Notification No. 82/2000 dated 30th May, 2000 of the Department of Revenue. However, no duty was imposed on exports from the other countries. The appellant filed an appeal before the CEGAT under Section 9C ofthe Customs Tariff Act, 1975 against this Notification seeking enhancement of duty in the case ofthe exporter from Spain and imposition of duty on exports from the other countries mentioned in their petition.

The grievance of the appellant was that while the DA had reached its findings in the final finding dated 20th April, 2000 upholding the appellant's contention that exports from Japan and Malaysia were also at dumped prices and that the domestic Industry had suffered injury, yet no anti-dumping duty was recommended in respect of imports from Japan and Malaysia on the ground that the imports from these countries were above the non-injurious price and, therefore, there was no causal link between the dumped imports from these countries and the injury to the domestic industry. The appellant submitted that this finding was inconsistent with the determination that imports were at dumped prices and that domestic industry had suffered injury.

They also submitted that the finding that imports from Japan and Malaysia were at non-injurious prices was also incorrect and was the result of faulty determination of the fair landed value in respect of the imported goods and non-injurious price in respect of the domestic manufacturer. The appellants submitted that they had placed the cost of production data in respect of PTA manufactured by them but the designated authority incorrectly determined the non-injurious price at a lower amount and this led to the incorrect finding that there was no causal link between injury to domestic industry and imports from these countries. With regard to the determination of landed value their submission was that the landed value had been determined at an inflated amount and that was the reason for the incorrect determination that the landed value of imports was more than the non-injurious price.

Before dealing with the contention ofthe learned counsel for the parties, we may usefully refer to Section 9A of the Customs Tariff Act, 1975, which was inserted by the Customs Tariff(Second Amendment) Act, 1982. Section 9A was substituted by the Customs Tariff (Amendment) Act, 1995 with effect from 1. 1. 1995, and now it reads as follows:- "SECTION 9A - Anti-dumping duty on dumped articles. - (I) Where any article is exported from any country or territory (hereinafter in this section referred to as the exporting country or territory) to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article.

Explanation - For the purposes of this section, - (a) "margin of dumping", in relation to an article, means the difference between its export price and its normal value; (b) ''export price", in relation to an article means the price of article exported from the exporting country or territory and in cases where there is no export price or where the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported articles are first resold to an independent buyer or ifthe article is not resold to an independent buyer, or not resold in the condition as imported, on such reasonable basis as may be determined in accordance with the rules made under sub-section (6); (c) "normal value", in relation to an article, means- RELIANCE INDUSTRIES LTD. 1•. DESIGNATED AUTHORITY [MARKANDEY KATJU, J.

] 9 (i) The comparable price, in the ordinary course of trade, for the like article when meant for consumption in the exporting country or terrifory as determined in accordance with the rules made under subsection (6); or t( (ii) when there are no sales of the like article in the ordinary course of trade in the domestic market of the exporting country or territory.

or when because of the particular market situation or low volume of the sales in the domestic market of the exporting country or territory, such sales do not permit a proper comparison, the normal value shall be either - (a) comparable representative price ofthe like article when exported from the exporting country or territory or an appropriate third country as determined in accordance with the rules made under sub-section (6); or (b) the cost of production of the said article iii the country of origin along \vith reasonable addition for administrative, selling and general costs, and for profits, as determined in accordance with the rules made under sub-section (6) : Provided that in the case of import of the article from a country other than the country or origin and where the article has been merely transshipped through the country of export or such article is not produced in the country of export or there is no comparable price in the country of export, the no;mal value shall be determined with reference to its price in the country of origin.

... (2) The Central Government may, pending the determination in accordance with the provisions·of this section and the rules made thereunder ofthe normal value and the margin ofdumping in relation · to any article, impose on the importation of such article into India an anti-dumping duty on the basis of a -provisional estimate of such value and margin and if such anti-dumping duty exceeds the margin as so determined :- ,. (a) the Central Government shall, having regard to such determination and as soon as may be after such determination, reduce such anti-dumping duty; and (b) refund shall be made of so much of the anti-dumping duty which has been collected as in excess of the anti-dumping duty as so reduced. (2A) Notwithstanding anything contained in sub-section (I) and subsection (2).

a notification issued under sub-section (I) or any antidumping duty imposed under sub-section (2), unless specifically made applicable in such notification or such imposition, as the case may be, shall not apply to article imported by a hundred per cent exportoriented undertaking or a unit in a free trade zone or in a special economic zone. Explanation. - For the purpose of this section, the expressions "hundred per cent export-oriented undertaking", "free trade zone" and "special economic zone" shall have the meaning assigned to them in explanation 2 to sub-section (I) ofSection 3 of the Central Excise Act, 1944 (I of 1944).

(3) If the Central Government, in respect of the dumped article under inquiry, is of the opinion that - (i) there is a history of dumping which caused injury or that the importer was, or should have been, aware that the exporter practices dumping and that such dumping would cause injury; and (ii) the injury is caused by massive dumping of an article imported in a relatively short time which in the light of the timing and the volume of imported article dumped and other circumstances is likely to seriously undermine the remedial effect of the anti-dumping duty liable to be levied, the Central Government may, by notification in the Official Gazette, levy anti-dumping duty retrospectively from a date prior to the date of imposition of anti-dumping duty under sub-section (2) but not beyond ninety days from the date of notification under that sub-section, and notwithstanding anything contained in any law for the time being in force.

such duty shall be payable at such rate and from such date as may be specified in the notification. (4) The anti-dumping duty chargeable under this section shall be in addition to any other duty imposed under this Act or any other law for the time being in force. (5) The anti-dumping duty imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of five years from RELIANCE INDUSTRIES LTD. 1·. DESIGNATED AUTHORITY [MAR KANDEY KAT. IU, .!. ] II the date of such imposition: Provided that if the Central Government, in a review, is of the opinion that the cessation ofsuch duty is likely to lead to continuation or recurrence . ofdumping and injury, it may, from time to time, extend ~ the period of such imposition for a further .

period of five years and such further period shall commence from the date or order of such extension: Provided further that where a review initiated before the expiry of the aforesaid period of five years has not come to a Conclusion before such expiry, the anti-dumping duty may continue to remain in force pending the outcome ofsuch a review for a further period not exceeding one year.

(6) The margin of dumping as referred to in sub-section (I) or sub- > section (2) shall, from time to time, be ascemined and determined by the Central Government, after such inquiry as it may consider necessary and the Central Government may, by notification in the O,fficial Gazette, make rules for the purposes cif this section, and without prejudice to the generality of the foregoing, such rules may provide for the manner in which articles liable for any anti-dumping duty under this section may be identified, and for the manner in which the export price and the normal value of, and the margin of dumping in relation to, such articles may be determined and for the assessment and collection of such anti-dumping duty. (7) Every notification issued under this section shall, as soon as may ... be after it is issued, be laid before each House of Parliament (8) The provisions ofthe Customs Act, 1962 (52of1962) and the rules and regulations.

made thereunder, relating to non-levy, short levy, refunds and appeais shall, as far as may be, apply to t. he duty chargeable under this section as they apply in relatiC'n to duties le"iable under the Act". Sub-section (8) of Section 9A was inserted by the Finance Act 2000 and . ,. , '. hat Act also inserted Section 9AA. Finance Act 2004 amended Section 9A(8). In this connection it may be mentioned that up to 1947 there was very little industrialization in India. 12 SUPREME COl'Rl REPORTS 120061 Sl;PP. 6 'i. t . R. After India became independent in 1947, the Government of lndcrc·n(knt India headed by Prime Minister Jawahar Lal Nehru decided to industrialize India as it was realized that the country cannot escape from p(•\ .. :rt}. unemployment and other social evils unless there is industrialization. It was also known to them that a country caimot be really independent in mod. :rn times unless it is industrialized.

Hence, the Industrial Policy Resolution was adopted by the Indian government in the early 1950s and encouragement was given to the growth of heavy indu-;tr} and other industries so that India ma: become economically independent and a prosperous nation. The result was that an industrial base was created in India after independence and this has definitely resulted in some progress. The purpoo. : of Section 9A can, therefore, easily be seen. The purpose was that our industries which had been built up after independence with great difficulties must not be allowed to be destroyed by unfair competition of some foreign companies. Dumping is a well-known method of unfair competition which is " adopted by the foreign companies. This is done by selling goods at a very low price for some time so that the domestic industries cannot compete and are thereby destroyed, and after such destruction has tak. ~n place. prices are again raised. The purpose of Section 9A is, therefore.

to maintain a level-playing field and prevent dumping, while allowing for healthy competition. The purpose is not protectionism in the classical sense (as proposed by the German economist Friedrich list in his famous book 'National System of Political Econumy' published in 1841) but to prevent unfair trade practices. The 1995 Am . The Anti Dumping Law is. therefore. a salutary measure which prevents destruction of our industries which wen: built up atier independrnce under the guidance of our patriotic. modern minded leaders at that time and it is the ' B task of everyone today to see to it that there is further rapid industrialization in our country. to make India a modern. po ,.. 1 . :rful. highly industrialized nation. With the above observations this appeal stands disposed of. There shall be no order a~ to costs. C RP. Appeal disposed of. ' .. .. '