TMI Blog2023 (11) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... hough in the period of investigation there was a slight decline in subject imports as compared to financial year 2019-20, such decline was on account of Covid-19 pandemic and, therefore, cannot undo the previous increase - it can be concluded that there has been an increase in dumped imports in the period of investigation as compared to 2017-18 and 2018-19. The accepted position on record is that even in the absence of volume injury to the domestic industry during the period of investigation, the price effect of dumped imports by itself would be a sufficient factor for examining whether the dumped imports are causing material injury to the domestic industry. It is seen that with respect to the factors relevant for assessing the price injury of the domestic industry, the designated authority has relied only on the increase in profit and return on investment in the period of investigation as compared to 2019-20, and has ignored the fact that the profit and return on investment has remained significantly below 2017-18 and 2018-19 level. The designated authority, in the present case, has exclusively relied upon the marginal improvement in the period of investigation as compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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]. The designated authority issued a Notification dated 28.06.2021 initiating investigation under section 9A of the Customs Tariff Act, 1975 [the Tariff Act] read with rule 5 of the 1995 Rules to determine the existence, degree and affect of alleged dumping of the subject good from the subject countries and to recommend the amount of anti-dumping duty, which if levied, would be adequate to remove the alleged injury to the domestic industry. The period of investigation was considered to be from 01.01.2020 to 31.12.2020 and the injury analysis period was notified to be from 2017-18, 2018-19, 2019-20 and the period of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 landed price far outpaced the decline in the price of ethylene, i.e. the primary raw material. What was also submitted was that whereas the mark up of MEG import prices over Ethylene prices in the financial year 2017-18 was around Rs. 8,302/- metric ton, the same turned negative in the financial year 2019-20 and the period of investigation. 7. The appellant also submitted that since the subject goods require specialized storage capacities, prolonged storage is not viable. Consequently, it was forced to sell its product in the market at prices which were not remunerative. The same resulted in a significant decli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return on its capital employed. The profits of the domestic industry declined by 68% in financial year 2021-22, and by 344% 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 positiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciples for determinations of injury The designated authority while determining the injury or threat of material injury to domestic industry or material retardation of the establishment of such an industry, hereinafter referred to as injury and causal link between dumped imports and such injury, shall inter alia, take following principles under consideration (i) A determination of injury shall involve an objective examination of both (a) the volume of the dumped imports and the affect of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nificant quantum of import of dumped imports during the period of investigation: 2017-18 2018-19 2019-20 Period of investigation Dumped Imports 0 0 7,07,961 5,23,864 18. The appellant contends that prior to the domestic industry increasing its capacities in the financial year 2018-19, there was a considerable demand supply gap in India, which was being catered to by imports. The volume of imports came down in financial year 2018-19, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o needs to be noted is that though the imports in the period of investigation were almost at financial year 2018-19 level, undisputedly such imports have been at dumped prices, as against financial year 2018-19 imports, which were at fair prices. Thus, it can be concluded that there has been an increase in dumped imports in the period of investigation as compared to 2017-18 and 2018-19. 22. This apart, the contention of the appellant was that it had suffered price injury on account of the imports coming to India at dumped prices. When faced with cheap imports, any domestic industry has two options available. It can either retain its market by reducing prices to match imports, in which case there would be price injury but no volume injury, i.e. no decline in sales, market share, capacity utilization etc. The domestic industry may refuse to reduce prices which would result in volume injury but no price injury. In this context, it would be useful to reproduce paragraph 100 of the written submissions of the appellant and it is as follows: 100. When faced with dumped imports, any domestic producer has two options: a. It can either maintain its prices, in which case, the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, the factors relevant for determination of injury in the present case can be narrowed down to: (i) the affect of dumped imports on domestic market on prices for like article and (ii) consequent impact of these imports on producers of such products. Examination of price effect of dumping 26. Paragraph (ii) of Annexure II to the 1995 Rules provides the following guidance for examining the effect of the dumped imports on domestic prices: (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. 27. Thus, it can be seen that the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,737 72,109 62,005 Cost of ethylene consumed at prevailing price of ethylene 49,626 49,571 42,184 36,273 Landed price of subject goods 57,928 61,165 41,620 35,909 Mark-up over ethylene cost 8,302 11,594 -564 -364 Selling price of domestic industry ***** ***** ***** ***** Price undercutting ***** ***** ***** ***** 30. The confidential version has also been examined. Evidently there is positive undercutting. It also transpires that on account of cheap imports, the domestic industry was forced to offer discounts to bring its prices down to match the import prices. Thus, the imports have not only undercut the domestic prices but have in fact also depressed the prices of the domestic industry. 31. While examining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic industry was forced to reduce its prices substantially more than the quantum of decline in cost. 35. The designated authority has examined price suppression/ depression by taking factors such as domestic industry profitability and volume effect of imports into consideration which, as noticed above, were not relevant and has not appreciate the aforesaid facts. Price effect can be established by price-undercutting alone and there is no need to establish price suppression or depression 36. Learned counsel for the appellant also submitted that even otherwise, since there is positive price undercutting in the present facts, even assuming there is no price depression/suppression, price injury on account of dumped imports cannot be negated. From the use of disjunctive or between these three phenomena, namely price undercutting, price depression and suppression, in paragraph (ii) of Annexure II of the 1995 Rules, it is evident that they are independent lines of inquiry, and satisfaction of one criteria in itself is sufficient to determine price effect of dumped imports. 37. In this regard, reliance has placed on the recent panel report in United States Anti-Dumping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relevant economic factors 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 or utilisation of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories employment, wages, growth, ability to raise capital investments. 40. Paragraph (iv) gives the broad guideline on the factors that the designated authority is required to consider while assessing the impact of dumped imports on the health of the domestic producers of like products. It may be noted that for a conclusion that material injury exists, it is not necessary that all the aforesaid illustrative factors must show deterioration. Infact, it means that on a holistic examination of data, it should be apparent that the performance of the domestic producers of like products has been adversely impacted by the imports. Whether a particular factor is relevant or not for assessing impact of dumped imports would have to be decided basis the facts and circumstances of each case. It is not necessary for the designated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be seen that the designated authority has based its finding of absence of material injury solely on the fact that the profits and return on investments in the period of investigation of the domestic industry had increased from financial year 2019-20 level. The designated authority has brushed aside the low return on investment earned by the appellant during the period of investigation, on the basis that the same was on account of extensive capacity expansion done by the appellant in a fixed market size. The relevant finding of the designated authority are as follows: 120. The domestic industry has claimed that there is a significant decline in profitability parameters during the POI as compared to the base year. However, it is seen that the profits of domestic industry reduced till 2019-20 but have increased during the POL. The percentage of profit earned during the POI on the cost of sales is about *****% (as compared to during 2019-20). Although, the selling price has reduced during the POI as compared to 2019-20, but the reduction in cost of sales is much higher during the same period. Further, cash profits have increased significantly during the POI as compared to 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ***** 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 return, no entrepreneur will invest in creating manufacturing capacities, as the entrepreneur can without any risk and effort earn a bank rate return. It is for this reason that while computing the fair selling price [NIP], the Trade Notice issued by the office of the designated authority provides for a Return on Investment of 22%. 51. Thus, while examining financial viability of the domestic industry, which is highly capital intensive, the designated authority should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployed 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 to 20% during the period of investigation, but the domestic industry does not have a vested right of earning abnormal profits. 56. Learned counsel for the appellant further submitted that even otherwise, its cost of sales is significantly depressed as it does not factor in any interest on the capital invested by the company in itself. In this connection learned counsel pointed out that the appellant is primarily a self-financed capital intensive unit, and has very li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75 G=F/D 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 Caf 1 or Caf 2 would give a reasonable indication of the health of the company, it does not give the accurate picture of viability of Caf 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, considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64. In the aforesaid matter, it was held by the Supreme Court that since the determination of injury is made for the entire domestic industry and not just one company, it is the market price of the inputs that should be considered for injury determination. The relevant paragraphs of the said judgment are reproduced below: 26. In our opinion, the DA has clearly erred in law because the Authority was required 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 above is apparent from the definition of domestic industry under Rule 2(b) of the Anti Dumping Rules. Rule 2(b) states: 2(b) domestic industry means the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy increased capacity. From the examination of facts on record, it cannot also be considered that the ability of the domestic industry to raise further capital investment has been hampered. 68. From the above, it can be seen that seemingly for the reason that the domestic industry had already increased its capital, the authority concluded that its ability to raise future capital has not been hampered. 69. The contention of learned counsel for the appellant is that the designated authority should have appreciated that the capacities were increased by the domestic industry in September 2017 itself, when admittedly there was no dumping. Learned counsel also pointed out that since 2019-20, consequent to increase in dumped imports, the financial condition of the domestic industry has significantly declined and it was in cash losses post period of investigation 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eril of the smaller plants with no backward integration (backward integration means a factory which also produces its own raw materials etc). In such situations, the result will be that the companies with no backward integration will suffer adversely. In our opinion, this was neither envisaged under the law nor can be considered as a desired result. The Antidumping legislation is meant for protection of the domestic industries as a whole against unfair practice of dumping, irrespective of whether they are backwardly integrated or not. No finding on threat of injury and post period of investigation data 76. Learned counsel for the appellant also submitted that the designated authority completely ignored the submissions made by the domestic industry with respect to threat of material injury as also the post period of investigation data, which 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal employed, which is profit/per unit capital employed, would become significantly depressed. 83. It has, therefore, to be examined whether the appellant has been able to increase its production and sales after capacity expansion. 84. In cases where there is an increase in the capacity but the utilization is not commensurate with the increase, there can be a situation where return on investment reduces due to increase in capital employed. The contention advanced on behalf of the appellant is that the decline in the return of capital employed (i.e. profit/per unit capital employed) is not on account of increase in capital employed but on account of decrease in profits and so the reasoning given by the designated authority that the low return on investment is on account of new investment made is not correct. 85. Learned counsel for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earning to be not in injury, then the designated authority should have considered whether 9% return of capital employed was sufficient. 93. Learned counsel for the designated authority also submitted that Reliance Industries Ltd., is otherwise also earning a company level return of capital employed of 10%. Thus, return of capital employed of 9% cannot be considered insignificant. 94. The final findings do not suggest that the return of capital employed earned by the domestic industry is significant. On the contrary, in paragraph 120 of the final findings, the designated authority noted that 9% return of capital employed earned by the domestic industry is on account of new investment made in a fixed sized market. Thus, even according to the designated authority the return of capital employed was low. In any case, since the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o subject imports since 2019-20. Such injury has continued into the period of investigation. c. It is a settled law that for injury examination the trends over previous three years and the POI is required to be viewed as a whole to ascertain the existence of injury. Referring only to one particular year, and ignoring the overall trend for the entire period chosen for trend analysis would be incorrect. 99. The respondents have also relied upon the findings of the WTO Panel in Russian-Commercial Vehicles (WT/DS479/R), to submit that examination of intervening trend holds more significance over the end point to end point analysis. 100. The submission of the appellant is that a selective examination with respect to only one period cannot be made basis for determination of injury. 101. In the present case, 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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