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CASE NO.:

Appeal (civil) 6371 of 2003

PETITIONER:

Shenyang Mastsushita S.Battery Co. Ltd.

RESPONDENT:

M/S. Exide Industries Ltd. & Ors.

DATE OF JUDGMENT: 23/02/2005

BENCH:

Ruma Pal, Arijit Pasayat & C.K. Thakker

JUDGMENT:

J U D G M E N T

RUMA PAL, J.

The appellant-company carries on the business of

manufacturing lead acid batteries in Shenyang, China. It is a

subsidiary of Mastsushita S. Electric Industries Corporation, a

multinational company registered in Japan.

The dispute in this appeal is whether the appellant-

company operated on Market Economy Principles during the

period 1st January 2000 to 30th September 2000 for the

purposes of the Customs Tariff Act and the Customs Tariff

(Identification, Assessment and Collection of Anti Dumping

Duty on Dumped Articles and for Determination of Injuries)

Rules, 1995. (referred to hereafter as 'the Rules').

The principle behind anti dumping laws is to protect the

domestic industry from being adversely affected by import of

goods at export prices which are below the normal value of the

goods in the domestic market of the exporter. Anti dumping

duty is leviable under Section 9A of the Customs Tariff Act,

1975 (referred to as 'the Act') read with the Rules which are

framed under Section 9A (6). The duty is calculated on the

margin of dumping which is the difference between the export

price and the normal value.

The phrase " 'normal value' in relation to an article has

been defined in clause (c ) to the Explanation to Section 9A (1)

as meaning: -

(i) "the comparable price, in the ordinary

course of trade, for the like article when

meant for consumption in the exporting

country or territory as determined in

accordance with the rules made under

sub-section (6); or

(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 of the

like article when exported from the

exporting country or (territory to) an

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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 in the country of origin along

with reasonable addition for

administrative, selling and general

costs, and for profits, as determined in

accordance with the rules made under

sub-section(6).

The Rules provide inter alia for the assessment of the anti

dumping duty by the Designated Authority. The principles to be

followed by the Designated Authority for determination of

normal value, export price and margin of dumping have been

set out in Annexure I to the Rules.

Initially paragraphs 1 to 6 of Annexure I provided for the

principles which relate generally to the determination of normal

value for all countries on the assumption that they operate on

market economy principles. A distinction was drawn in 1999 for

the first time between market economies and non-market

economies. Annexure I was amended by two notifications

referred to by the Tribunal which were dated 15.7.1999 and

31.5.2001. The first notification introduced paragraph 7 after

paragraph 6 in Annexure-I:

"In case of imports from non-market

economy countries, normal value shall

be determined on the basis of the price

or constructed value in a market

economy third country, or the price from

such a third country to other countries,

including India, or where it is not

possible, on any other reasonable basis,

including the price actually paid or

payable in India for the like product, duly

adjusted if necessary, to include a

reasonable profit margin. An appropriate

market economy third country shall be

selected by the designated authority in a

reasonable manner and due account

shall be taken of any reliable information

made available at the time of the

selection. Account shall also be taken

within time limits; where appropriate, of

the investigation if any made in similar

matter in respect of any other market

economy third country. The parties to

the investigation shall be informed

without unreasonable delay the

aforesaid selection of the market

economy third country and shall be

given a reasonable period of time to

offer their comments."

By this notification a separate procedure was prescribed

for determining the normal value of non-market economies.

Paragraph 7 to Annexure I now provides for the determination

of the normal value with reference to the price paid by a third

country with a market economy to India of a like product. If

such a third country is selected, the Designated Authority has to

inform the exporters of the selection and grant them a

reasonable period to offer their comments. It is only if this

procedure is not possible that the Designated Authority can act

on any other 'reasonable basis'. In other words, the

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Designated Authority must exhaust the first method before

moving to the alternative procedure.

The second notification dated 31.5.2001 inserted a further

paragraph after paragraph 7 as paragraph 8 in Annexure-I to

the following effect:-

" The term "non market economy

country" subject to the Note to this

paragraph means every country listed in

that note and includes any country

which the designated authority

determines and which does not operate

on market principles of cost of pricing

structures, so that sales of merchandise

in such country do not reflect the fair

value of the merchandise. While

making such determination, the

designated authority shall consider as to

whether:-

(i) the decisions of concerned firms in such

country regarding prices, costs and

inputs, including raw materials, cost of

technology and labour, output, sales

and investment, are made in response

to market signals reflecting supply and

demand and without significant State

interference in this regard, and whether

costs of major inputs substantially reflect

market values;

(ii) the production costs and financial

situation of such firms are subject to

significant distortions carried over from

the former non-market economy system,

in particular in relation to depreciation of

assets, other writ-offs, barter trade and

payment via compensation of debts;

(iii) such firms are subject to bankruptcy and

property laws which guarantee legal

certainty and stability for the operation

of the firms, and

(iv) the exchange rate inversions are carried

out at the market rate:

Provided that in view of the changing

economic conditions in Russia and in the

Peoples' Republic of China, where it is

shown on the basis of sufficient evidence

in writing on the factors specified in this

paragraph that market conditions prevail

for one or more such firms are subject to

anti-dumping investigations, the

designated authority may apply the

principles set out in paragraphs 1 to 6

instead of the principles set out in this

paragraph.

Note:- For the purposes of this

paragraph, the list of non market

economy countries is Albania, Armenia,

Azerbaijan, Belarus, Peoples' Republic of

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China, Georgia, Kazakstan, North Korea,

Kyrghyzstan, Moldova, Mongolia, Russia,

Tajikistan, Turkmenistan, Ukraine,

Uzbekistan and Vietnam. Any country

among them seeking to establish that it is

a market economy country as per criteria

enunciated in this paragraph, may provide

all necessary information which shall be

taken due account by the designated

authority".

China was expressly notified as a non market economy

by this Notification. However in recognition of the fact that the

economic conditions in China and Russia were rapidly

changing, paragraph 8 as introduced by the second notification

allows particular units of these two countries to show that the

four conditions mentioned in the paragraph were satisfied in

respect of that unit. If that is done the Designated Authority

would then apply the principles enunciated in paragraphs 1 to 6

of Annexure-I which as we have said are applicable to market

economy countries.

The respondent Nos.1 and 2 representing the domestic

industry which either manufactures or imports lead acid

batteries, filed a petition for initiation of anti dumping

investigation concerning import into India of lead acid batteries

from Japan, Republic of Korea, Peoples' Republic of China and

Bangladesh under Rule 5(1) of the Rules. On 12th January,

2001, an initiation notification was issued by the Designated

Authority of the Directorate General of Anti-dumping and Allied

Duties "being satisfied, prima facie that the normal value of the

lead acid batteries in the subject countries was significantly

higher than net export price indicating that the goods were

being dumped by the exporters from the subject countries" and

that as a result of the allegedly dumped imports, domestic

industry had suffered injury. The period for the purposes of the

investigation as indicated in the initiation notice was

1st January, 2000 to 30th September, 2000. The Designated

Authority sent a questionnaire to 31 companies situated in the

four named countries. Of the 11 companies located in China,

the appellant and two others responded to the initiation notice.

The other companies did not participate in the investigation.

On 21st March, 2001, the Designated Authority issued its

preliminary findings. As far as the appellant was concerned, it

was stated that the appellant had given no information on the

type/model of batteries being manufactured by them which

were not being exported to India. It was noted that on the basis

of available evidence, the profitability/loss from different types

of batteries varied significantly, which, according to the

Designated Authority, indicated the "possibility of existence of

cross subsidization among various models significantly

affecting pricing policy of the company regarding the different

models". It was noted that the information given by the

appellant was "selective, incomplete and hence not

acceptable". In the circumstances, the Designated Authority

decided not to take into account the information submitted inter

alia by the appellant on normal value and export price of the

lead batteries in China for the purpose of its preliminary findings

but to use information given by the domestic industry on the

constructed cost of production as the best information available

for the purpose of assessing such normal value and to calculate

the dumping margin. On the further prima facie finding that

the domestic industry had suffered material injury and was

facing further threat of material injury on account of the dumped

imports of the subject goods inter alia, from China, the

Designated Authority considered it necessary to impose anti

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dumping duty provisionally subject to a final determination on

all imports of lead acid batteries from China, Korea and Japan

in order to remove the injury to the domestic industry. The

rates of anti-dumping duty were specified in a chart appended

to the order. The Designated Authority, however, invited

comments on these findings from "all interested parties for the

purposes of being considered in the final finding".

It is the appellant's case that pursuant to this preliminary

finding the appellant paid the anti dumping duty at the rate

specified after the same was notified by the Central

Government. The appellant also submitted further material to

the Designated Authority.

In the course of the investigation two officers of the

Directorate General of Anti Dumping of Allied Duties visited the

appellant's manufacturing facilities in China. A disclosure

statement was furnished by the authority to all the parties. After

investigation and verification, the Designated Authority noted

that the appellant had furnished the required information which

had been verified. It was held that anti dumping duty was not

applicable to the appellant as the dumping margin was

negative. A notification was issued to this effect by the Central

Government.

The respondent No.1 challenged the final order of the

Designated Authority dated 7th December, 2001 before the

Customs Excise and Gold (Control Appellate Tribunal)

(CEGAT). One of the points raised by the respondent Nos.

1and 2 before the Tribunal was that the Peoples' Republic of

China was a non-market economy and, therefore, the normal

value should be determined on the basis of the amendments

effected to the Rules relating to non-market economies.

During the pendency of the respondent's appeal before

the Tribunal on 25th November, 2002, an order was passed by

the Designated Authority which reads as follows.

"\005As per the Appellants the designated

authority failed to proceed as per the

Rules\005.

The Ld. Counsel appearing on behalf of

Chinese exporters would submit that

they are entitled to an opportunity to

produce data to rebut any presumption

against the country as non market

economy. They further submit that the

data made available to designated

authority would be sufficient to rebut any

presumption against the country or

individual exporter as one following one

marketing conditions. They would

further contend that inspite of their

providing such data, the designated

authority had failed to consider the

same for which they should not be

visited with adverse consequences.

After hearing both the sides, we feel in

the interest of justice certain directions

are to be issued to the designated

authority before we come to final

decision in the matter. We therefore,

direct the designated authority to

examine the data made available by the

Chinese exporter & file a statement

before this Tribunal as to have satisfied

the tests under Rule 8 as amended by

notification 31.5.2001. Since, the matter

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has been hanging fire for some time &

the appellants are complaining that they

are facing irreparable injury by

continuing dumping by Chinese

exporter, we further direct that the report

shall be filed by designated authority on

or before 2.12.2002. The matter to

come up for hearing on 3.12.2002."

The Designated Authority submitted a report on the

available data on 2nd December, 2002 in compliance with the

order of the Tribunal reiterating the stand taken by it earlier and

stating that the appellant had complied with all the criteria set

out in paragraph 8 in Annexure-1 to the Rules. In other words

the conclusion of the Designated Authority was that the

appellant operated on market economy principles therefore

market economy principles contained in paragraphs 1 to 6

would apply. The final finding submitted earlier was therefore

supported and reaffirmed.

On 3rd June, 2003 the Tribunal allowed the appeals filed

by the Respondent No.1 accepting its submission and holding

that the Designated Authority had failed to conduct the normal

value investigation in accordance with the Rules applicable to

non-market economy units. It was said that the applicable

notifications for the determination of normal value and in

particular notification dated 31.5.2001 provided that even in non

market economy countries, market driven units could prove that

they were operating according to market principles. It was

noted that pursuant to the interim order of the Tribunal, the

Designated Authority had examined the matter from the

perspective of requirements under the amended provisions for

non market economy countries and had placed a statement

before the Tribunal. But the Tribunal rejected the report of the

Designated Authority on the ground that it was incumbent on

the appellant and the other two units excluded from anti

dumping duty to establish that they are run according to market

principles and that no verification had been carried out at the

premises of the exporters to satisfy itself that the data summary

filed in the questionnaire responses correctly reflected the

transaction as per the books of account of the individual units

and that the accounts satisfied Generally Accepted Accounting

Standards (GAAS) of the country. The exclusion of the

appellant from the purview of anti-dumping duty, had, according

to the Tribunal been done without the necessary scrutiny and,

therefore, it was unsustainable. The Tribunal therefore came to

the conclusion that the appellant and the other two units had to

be treated in the same manner as other manufacturers located

in the Peoples Republic of China. In conformity with the

provisions of Section 9-A(1)( c) of the Customs Tariff Act. The

Tribunal, however, made it clear that if the units (including the

appellant) were convinced about the merits of their claim that

they are run according to market economy principles they could

seek a review of their cases before the Designated Authority.

In the circumstances the exemption from anti dumping duty

granted to the three Chinese exporters including the appellants

by the Designated Authority was set aside and the three units

including the appellant were subjected to anti dumping duty.

There is no dispute that the first notification was operative

before the initiation notice was issued. The second notification

was issued during the investigation proceedings.

There is also no dispute that the Designated Authority

followed paragraphs 1 to 6 of Annexure I not only in connection

with the investigation but also with regard to the final finding.

The appellant's grievance is that the Designated Authority not

having followed the procedure prescribed either under

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paragraph 7 or paragraph 8 its case could not subsequently be

considered according to those paragraphs as neither any notice

was given by the Designated Authority that the appellant would

be treated according to non market economy principles nor was

any specific issue raised in this regard. This is admitted in the

counter affidavit filed on behalf of the respondent No.1 where it

is said that the respondent No.1 did not raise the issue of non

market economy in its written submissions because the

domestic industry was not aggrieved by the preliminary finding

which imposed anti-dumping duties on exports from China.

However, it is stated that the respondent No.1 had mentioned in

its petition and rejoinder that China was a non market economy.

In fact it was the respondent No. 1's stand in its appeal from the

final finding of the Designated Authority that the Designated

Authority had failed to apply the principles applicable to non-

market economy countries to the Chinese exporters including

the appellant as introduced by the two notifications.

Learned counsel appearing on behalf of the respondent

No. 1 submitted strenuously that China was in fact a non-

market economy and there was no question of applying

paragraph 8 as introduced by the second notification on

31.5.2001 as the period of investigation was prior to the

issuance of that notification. It is submitted that since non-

market economy had to be decided on a country wise basis,

individual concerns could not be separately represented.

According to the Respondent No. 1 in the decision of this

Court Designated Authority Vs. Haldar Topsoe A/S (2000) 6

SCC 626 it has been held that the normal value of a non-

market economy is country specific. Therefore a uniform rate

was to be taken for all Chinese exporters and it was not open to

an individual unit to claim that it was run according to market

economy principles. It is submitted that the preliminary finding

of the Designated Authority was in the circumstances correct.

According to the respondent No.1, the verification conducted by

the Designated Authority at the appellant's unit in China was

questionable.

It is not necessary to decide whether China was to be

treated as a non-market economy during the period of

investigation or whether the normal value should be decided on

a country-wise basis, as we are not prepared to allow the

respondent No.1 to take up what is clearly an inconsistent

stand. Its submission before the Tribunal as recorded in the

Tribunal's order was that the final finding of the Designated

Authority could not be sustained because it was in clear

violation of the Rules as amended by the notifications dated

15th July, 1999 and 31st May, 2001. The stand has been

reiterated before this Court in the counter affidavit filed by the

respondent No.1 where it is categorically averred that the

notification dated 31st May, 2001 had been violated by the

Designated Authority and that the Tribunal had rightly come to

the conclusion that the Designated Authority had failed to

determine the normal value of the Appellants exports in

accordance with the Rules applicable to non-market economy

units as provided inter alia in the notification dated 31st May,

2001. Indeed that was the basis on which the respondent

No.1's appeal had been allowed by the Tribunal. If the Tribunal

was correct, then, even according to the Tribunal, under the

second notification dated 31st May, 2001, market driven units in

non-market economy countries could prove that they were

operating according to market principles. This exception has

been provided to the rule of uniform normal value for all

exporters in non-market economy countries. The decision in

Haldor Topsoe (supra) is inapplicable as it was not rendered

with reference to paragraphs 7 or 8 of Annexure I to the Rules.

The only ground on which the Tribunal upset the final

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finding of the Designated Authority that the appellant operated

according to market economy principles was that the

Designated Authority had not physically verified the information

given by the appellant. That was factually erroneous. It was

the clear case of the appellant that it had already produced

sufficient material before the Designated Authority to justify a

finding that the appellant was operating according to market

conditions. It must be remembered that the Designated

Authority had already visited the manufacturing units of the

appellant in China and verified the information produced by the

appellant. The Tribunal had only directed the Designated

Authority to consider the data already made available by the

appellant in the light of paragraphs 7 and 8 of Annexure I. That

is exactly what the Designated Authority did. Since the

Designated Authority had verified the data prior to submitting its

final finding, there was no question of the Designated Authority

re-verifying the information given by the appellant. That this

could not have been even within the contemplation of the

Tribunal is clear from the fact that the Tribunal had granted only

seven days time within which the Designated Authority was to

submit its report. The respondent No.1's contention that the

verification was improperly done cannot be gone into at this

stage. It is a question of fact, which should have been clearly

raised and proved. In fact it does not appear that such a

grievance was made before the Tribunal by the respondent

No.1.

Having found that the Designated Authority had

violated the notifications, the Tribunal chose to rectify the

situation by issuing the order dated 25th November, 2002 which

we have quoted earlier. Neither of the parties have impugned

that order by which the Designated Authority was directed to

comply with the notifications. It was then not open to the

Tribunal to proceed on the basis that there was a violation of

the notifications.

The Tribunal did not address itself to the question

whether there was sufficient evidence to support the

Designated Authority's finding that there was no dumping by

the appellant. It held that the appellant was liable to pay

dumping duty without considering the injury if any to the

domestic industry and the causal connection between the

alleged dumping and the injury.

While the matter was pending before this Court, on 26th

October, 2004 a mid term review was held by the Designated

Authority. The Designated Authority determined the normal

value of the export from China as per the Rules relating to the

non market economy contained in paragraph 7 of Annexure-1

to the Rules, but found that in fact there was a negative

dumping margin as far as the appellant was concerned and that

therefore it was not liable to pay anti dumping duty. This mid

term review which was carried on 26th October, 2004 is not the

subject matter of challenge in this appeal, but it has been

contended by the Respondent No.1 that the appeal has

become infructuous.

We think not. For one there may be a question of refund

of the anti dumping duty paid by the appellant pursuant to the

preliminary notification. For another we are of the firm view for

the reasons stated earlier that the decision of the Tribunal

cannot be allowed to stand. The only question that remains is

whether the matter should be remanded back to the Tribunal

after setting aside the order.

In our opinion no purpose would be served in remanding

the matter back to the Tribunal after setting aside the order at

this stage. Admittedly the Designated Authority had initiated,

conducted and concluded the proceedings under Rules 1 to 6.

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If non market economy principles have now to be applied then

the entire process would have to start from scratch. Indeed

whether China should have been treated as a non-market

economy for the period in question is itself in dispute. Under

Rule 17, the Designated Authority is required to submit its final

finding within one year from the date of initiation of the notice or

at the most by another six months if the Central Government is

satisfied that there are special circumstances. The period

has long since expired.

The appeal is accordingly allowed and the decision of the

Tribunal is set aside without any order as to costs.