Anti-dumping duty imposed when no injury to domestic market

Case: M/s BRIDGE STONE TYRE MANUFACTURING (THAILAND) AND ORS Vs DESIGNATED AUTHORITY / MINISTRY OF FINANCE

Citation: 2011-TIOL-1141-CESTAT-DEL-LB

Issue:- Imposition of anti dumping duty – when there is no injury to domestic industry – anti-dumping duty cannot be levied.

Brief Facts:- Appellants consist exporters from Thailand/China PR as well as importers in India. The Anti-dumping investigation was initiated pursuant to an application from the Automotive Tyres Manufacturers Association (ATMA) submitted on behalf of the domestic industry. The product covered in investigation was "new/unused pneumatic radial tyres with or without tubes and flaps of rubber used in buses and lorries/trucks" originating in or exported from China and Thailand. The Anti-dumping investigation was initiated by issue of a Public Notice dated 21.10.2008.

The Designated Authority has conducted an elaborate exercise after taking into account responses and views from all concerned including the Appellants herein as well as the users and user associations in India. As indicated in the final findings, the D.A. has recommended imposition of final Anti-dumping duty at the specified rates so as to remove the injury to the domestic industry after making a determination regarding existence of dumping, injury and causal link between the two.

Accordingly, Notification No. 12/2010-Cus dated 19.2.2010 was passed imposing Anti-dumping duty on bus and truck radial tyres from China and Thailand. Such imposition is based on the final findings of the Designated Authority(D.A.) issued under Notification dated 1.1.2010 pursuant to Anti-Dumping Investigations initiated on 21.10.2008.

Seven appeals have been filed against the impugned Notification. The challenge is to the final findings as well as to the imposition of Anti-dumping duty based on such final findings.

Appellant’s Contention:- Appellant have challenged both the final findings as well as the Customs Notification imposing anti-dumping on the following various grounds: ‑

- The D.A. has failed to make available the data from DGCI&S on which it based its finding. This has adversely affected the right of defence of the first two appellants

- The import volume from Thailand was de minimis. Hence the anti-dumping investigation should have been terminated. Determination of anti-dumping duty rate for non-cooperative exporters from Thailand is excessive and unreasonable

- The dumping margin is calculated wrongly and no causal link has also been established between dumping and the alleged injury caused to the domestic industry justifying imposition of anti-dumping duty. The finding made on return on capital is inaccurate and unsubstantiated.

- The scope of product under consideration (PUC) is overly broad and the same is prejudicial to the interest of the exporters

- The final findings nowhere states whether the appellant at SI. No.5 has been granted the Market Economy Treatment (MET) or not. The normal value and dumping margin determined for appellant No. 5 are erroneous

- The analysis of injury parameters is erroneous and these have not been objectively examined in the light of improvement of the domestic industry.

- The D.A. has not considered the request of the Appellant No. 6 for redefining the product under consideration. The D.A. did not consider submissions from appellant No. 6 that prices for the OEM were not affected by the import prices as the same were fixed according to cost plus profit formula. The D.A. has not considered various submissions made on behalf of the appellants while giving the final findings and hence the same suffers from violation of principles of natural justice. For example, the D.A. did not consider that the domestic industry was unable to fulfil the growing domestic demand and that it failed to provide radial tyres to the market.

- The claims of material injury made by the domestic industry is without any basis and that the domestic industry has exorbitantly increased the prices of the radial tyres

- The D.A. has erred in granting NME status to appellant No. 7.

- One of the domestic manufacturers (Appollo Tyres) having imported radial tyres during the relevant period does not qualify to be included in 'domestic industry'.

- The radialization of tyre industry was necessary in the light of public interest. Imposition of anti-dumping duty on imports of radial tyres would seriously undermine the public interest

The Domestic industry representatives have extensively argued against the challenge to the final findings of the D.A. It is their contention that the imposition of anti-dumping duty is fully justified in view of the D.A's finding regarding existence of dumping, injury and causal relationship between the two.

The D.A's finding on injury to the domestic industry has been challenged by the appellants. They have pointed out that the domestic industry is doing quite well and has shown increased production, sale and profits etc. It has been specifically challenged by one of the appellants that the D.A. has allowed 22% return on capital employed without any justification. Acceptance of such high return is incorrect and against industry average and unheard of for most of the manufacturing companies operating in the sector according to the appellants. It has been pointed out that the appellants target on return on capital is only 10% and a top German tyre manufacturer which is the fourth largest tyre manufacturing company in the world has only a return capital of 11%. It has also been argued on behalf of one of the appellants that they operate in the quality tyre market and hence they sell tyres in India at higher prices compared to the price in the domestic industry and they have the highest mrp in India.

One of the appellants it has been pointed out that examination of the injury indices show no material injury to the domestic industry. In this regard, the following Tabulation compiled from the final finding was submitted before the Larger Bench.

It has been further pleaded that analysis of injury parameters by the D.A. is patently erroneous and is not based on an objective examination. The conclusion of the D.A. that there was an increase in inventory is contradicted to by the data presented in the final findings which shows that sales to production ratio was significantly higher. It has also been alleged by the appellants that the D.A. failed to examine as to whether the alleged injury suffered by the domestic industry arose out of factors such as inability of the industry to cater to the exponential demand for the subject goods in the Indian market. That the D.A. has not examined as to whether the alleged injury was a result of decrease in export sales by the domestic industry.

Submissions made by two of the appellants that MRF, JK Tyres and Apollo Tyres constituting domestic industry are listed companies and have reported overall growth, profitability and expansion plans in the financial records, it has been stated by the domestic industry that all the three companies are multi-product companies and that better performance of these companies does not mean better performance of the product under consideration. Within various products produced by these companies, the impugned product (radial tyres) forms only part of the total operations of these companies. The domestic industry has argued that the performance of these companies as reflected in the respective Annual Reports is wholly irrelevant. It has also been stated on behalf of the domestic industry that 22% return on investment for the purpose of determination of injury margin is not unreasonable considering the radial tyre industry is a new industry and it is required to pay higher interest cost and corporate taxes on the return.

One of the appellants which is an automobile manufacturer has specifically stated that despite an agreement with the domestic industry, they are not able to supply the required volume of tyres for which the appellant was compelled to import the impugned goods. It has been stated that the appellants are importing subject goods from China at prices that were significantly higher than the price at which they were procuring from the domestic market and that such high price imports were necessitated due to non-availability of material in required quantities from the domestic industry. Such high price imports cannot cause any injury to the domestic industry. It was also stated that the radial tyres produced by the domestic industry was of poor quality. It has been pointed out by one of the appellants that during the POI the capacity utilization has increased to 74%. The cash profit has shown fourfold increase over the injury period and the return on capital employed was a healthy 11% in the POI. The submissions made by one of the appellants, it has been submitted on behalf of the domestic industry that there is no legal justification for excluding imports meant for original equipment from the consideration by the D.A. nor he has any discretion vested in him to do so. The charge of making poor quality of tyres has been denied by the domestic industry stating that tyres made by the domestic industry is for sale in India as well as for export market including Europe. It has also been stated that during the POI though the sales volume have increased, the sales price have not increased resulting in erosion of profits. It is the case of the domestic industry that it is facing potential decline in sales on account of the fact that its market share is declining. It has also been argued that demand supply gap is totally irrelevant for imposition of anti-dumping duty and that when the demand increased between 2006-07 and the POI as a result of significant efforts undertaken by the domestic industry, the same was taken away by dumped import

Respondent’s Contention:- The Designated Authority (D.A.) supports the final findings and the impugned Customs Notification imposing anti-dumping duty. It also placed on record submissions refuting challenges to the final findings of the D.A. The D.A's finding is that the productivity of the domestic industry has declined from 100 to 93.16% between the base period and the POI. The D.A. has also come to the conclusion that the landed price of the imports is significantly below the selling price and non-injurious price of the domestic industry resulting in significant price under-cutting and under-selling as recorded in paragraph 140 to 144 of the final finding. As regards the inventories of finished goods with the domestic industry, the D.A. has recorded an increase in the inventories during the POI compared to the base year. As regards the ability to raise investments, the domestic industry has claimed that if the dumping continues they would have difficulty in raising capital but D.A. does not appear to have examined this claim as seen from paragraph 147 of the final finding. The cash profits (indexed) rose from 100 in the base year to 423.36 in the POI. As regards growth of domestic industry, the D.A. has noted that the production and sales volume have shown growth between the base period and the POI but the rate of growth has declined despite growth in absolute terms.

After considering various factors, the D.A. has given assessment on injury in paragraph 160 of the final finding as following: ‑

"a. There has been increase in the volume of dumped imports from the subject countries, both in absolute terms as also in relation to total production and market demand of the subject goods in India. As a result, market share of the domestic industry has declined.
b. The imports are causing significant price undercutting resulting in price suppressing effect on the domestic industry. The injury margins are significant during POI.
c. Even though production and sales volumes of the domestic industry increased, the profitability has shown a decline after improvement, whereas market share of the domestic industry has declined.
d. In spite of the increase in production and sales, profitability of the domestic industry per unit of sales declined after increasing in 2006 - 07. As a result of deterioration in profits, cash profits and return on capital employed declined.
e. Decline in the market share resulted in increase in inventories with the domestic industry in spite of higher capacity utilization."

It has been submitted that after examining all the relevant parameters, the D.A. has arrived at the final finding that domestic industry has suffered material injury. In particular, the representative of the D.A. has referred to decline in the market share of the domestic industry, price undercutting caused by imports, deterioration in profits and increase in inventories and it has also been stated that due to price undercutting and consequent price suppression, the domestic industry faced deterioration in profits, cash flow and return on investments. It has been further stated that it is not necessary that the performance of the domestic industry should have deteriorated over the entire four year period of assessment. The performance of the domestic industry has deteriorated during the POI and that reflects injury to the domestic industry.

In this connection, reliance has been placed on the Supreme Court's decision in the case of Rishiroop Polymers Pvt. Ltd. Vs. Designated Authority - 2006 (196) ELT 129 (SC) wherein it was observed that: ‑ "Having gone through the confidential records produced before us and the data for the years 1995 - 96 and 1996 - 97, we are satisfied that the domestic industry suffered drastic decline in all the relevant parameters during the period of investigation compared to those of the immediately preceding financial years has been taken by the Designated Authority and the Tribunal. Accordingly, the findings recorded by the Designated Authority as well as by the Tribunal on this point are confirmed. "

In written submissions, it was stated that acceptance of significant price undercutting and consequent decline in market share of domestic industry resulted in a situation where the domestic industry was unable to increase its sales and production volumes in spite of higher market demand and unutilized capacities. Consequently, profitability also suffered. It has also been stated on behalf of the D.A. that the inability of Indian producers to meet the demand for the product in the country cannot be held against them and the domestic industry cannot be denied anti-dumping duties on the ground of its inability to meet the demand. It has also been stated that quality was not relevant consideration particularly when the claim for poor quality was not quantified. The D.A. has also referred to exports by the domestic industry evidencing acceptability of domestic tyres in the export market.

Reasoning of Judgement:- The Larger Bench noted that for the purpose of determining demand and consumption of the impugned goods in the country, the D.A. has relied on the sum of domestic sales of Indian producers and imports from all sources. As such, the D.A. has actually computed the quantities supplied in the domestic market indigenously as well as from abroad. The actual demand could be much more as there may be a gap in supply. Therefore, the figures computed under paragraph 119 of the impugned final findings can be more appropriately called quantity consumed or consumption rather than demand. This figure shows that the sale by domestic industry increased from 9999 MTs in 2004 - 05 to 24159 MTs during the POI. The imports from subject countries have also increased during the same period from 1361Mts to 28386 MTs. No doubt the increase is more in respect of imports from the subject countries than the increase in respect of the domestic industry. If there had been only an increase in respect of imports and there was no increase in respect of domestic sales or there was a decline in domestic sales, it could be concluded safely that the imports showed an adverse volume effect over the domestic sales. But when the domestic sales have also grown by about 142%, it is difficult to conclude that the imports have given rise to an adverse volume effect on sale of subject goods domestically produced. From paragraph 128 of the D.A.'s report, it is revealed that the domestic industry is producing much more than what it is selling domestically and the production has gone up from 18622 MTs in 2004 - 05 to 27364 MTs in the POI. Presumably, the domestic industry is exporting the excess quantity. The capacity utilization of the domestic industry as seen from paragraph 128 of the final findings was 70.89% in 2004-05 which became 67.55% in 2005-06, 67.42% during 2006 - 07 but increased to 72.71% in the POI. As such, when the production, domestic sales and the capacity utilization of the domestic industry has increased, it is difficult to say that the increase in import volumes has adversely affected the domestic industry. Despite such growth in production, sales and capacity utilization by the domestic industry, the D.A. seems to have concluded an adverse volume effect of imports merely by looking at the rate of growth of the domestic industry. For example, the domestic industry increased its production from 21895 MTs in 2005 - 06 to 25190 MTs in 2006 - 07. Thus there was an increase in production by 3295 MTs which translates to a growth of 15.5%. But the D.A. looks at this adversely because in the previous year the growth has been to the extent of 17.58%. Such a view is debatable.

It was held that when there is continuous growth by the domestic industry over the period selected as injury period, the D.A.'s conclusion on injury is based on consideration that domestic industry is not growing at a higher rate.

The Larger Bench have heard appellant No. 6 pleading that they have an agreement with some of the domestic manufacturers to supply the subject goods for use in the original equipment and the price is determined by the cost plus agreed amount of profit. As such, supply under such agreements is not affected by the alleged dumped prices at which the imports have been made. Yet, according to the appellant No.6, the domestic industry has failed to make supplies at such pre-determined prices to the extent of required quantity and the appellants had to source their requirement from abroad. Under such a circumstance, the domestic industry cannot claim injury on the ground of potential decline in sales apart from the fact that there has not been any decline in sales, rather the sales volume has grown from year to year. The D.A. has noted in paragraphs 148 & 149 of his final findings that the cash profits for the domestic industry has increased from Rs.260.17 lakhs in 2004 - 05 to Rs.1101.45 lakhs in the POI, the latter amount is only Rs.7.44 lakhs less than the cash profits of Rs.1108.89 in the year 2006 - 07, but the growth during the injury period is quite high from the level of Rs.260.17 lakhs in the base year 2004 - 05. As seen from the final finding in paragraph 130, the domestic industry has increased its capital employed from Rs.12,923 lakhs in 2004 - 05 steadily during the injury period to Rs.27,159 lakhs. The percentage return on investment has been indicated for 2004 - 05 as (0.62), for 2005 - 06 as (1.04), for 2006 - 07 as 1.80 and for the POI as 0.40. Despite increase in the capital employed, the return on investment has turned positive during 2006-07 and during POI. This cannot be taken as injury indicator especially considering the submissions by the All India Tyre Dealers' Federation before the D.A. that rate of return of capital in case of tyre industry world over is known to be low as a historical truth. The D.A. has attributed increase in inventories from 1161 MT to 2846 MT in the POI as an indicator of injury to the domestic industry. However, the increase in inventories can also be due to increase in sales volume which the D.A. has not examined. For example, when the sales volume of domestic industry was 9999 MTs in 2004 - 05, the inventory was 1161 MT which was about 11.6%. In the POI the sales volume was 24159 MTs and the inventory was 2846 MT which comes to about 11.8%. Compared to increase in sales volume, the level of inventory has almost remained the same percentage-wise and this cannot therefore be straightaway considered to be an injury indicator.

It was noted that while determining the injury to the domestic industry, the D.A. has assumed a profit margin of 22% which has been challenged by the appellants. Calculations done by the D.A. applying 22% return on capital has coloured the injury determinations. As stated earlier, it has been submitted by appellant No.4 that their target return on capital is only 10% and that of Continental Tyres, a German entity which is the fourth largest tyre company in the world has a return on capital of 11% and Hangkok Tyres, which is in the top 10 league, has a capital return of 16% only. The domestic users of impugned products have also questioned the validity of assuming a high return of 22% on capital employed for the domestic tyre industry. Some of the determination which have been made by the D.A. is based on assumption of such a high level of return on investment and therefore they do not appear to be correct determinants of injury to the domestic industry. For example, determination of the non-injurious price assuming a high level of 22% return on investment gives an inflated picture of price underselling which cannot be a true indicator of injury. In fact, the levels of price undercutting and price underselling assumed by the D.A. does not explain how on the face of such price undercutting and price underselling, the domestic industry managed to increase its sale from 9999 MTs in 2004 - 05 to 24159 MTs in the POI. If there was really such price undercutting and price underselling as determined by the D.A., the domestic industry would have been hard put to maintain its sales volume rather show such an increase in sales as recorded in paragraph 119 of the final findings and also increase in cash profit as recorded in paragraph 148 of the final findings. On the other hand, the following submission made by appellant No. 4 regarding increase in profits earned by the domestic industry is significant: ‑

"The appellant submits that the motive behind any business operation is of earning profits and in the present case the impugned order holding that the domestic industry is suffering injury is based on facts that are pertinently contrasting from the findings and allegation in the investigation. The trend of cash profit shows that the domestic industry is in pink of health and its cash profit is multiplying. There is only marginal dip, which is not even one percent, in the POI, which can by no stretch of imagination be termed as injury."

The overall picture that emerges from examination of various injury parameters does not support the conclusion of injury drawn by the D.A. a number of parameters such as capacity, production, capacity utilization, sales, selling prices and profitability of return on investment, wages, employment, productivity etc. recorded an improvement during the periods chosen for injury analysis. It has also been submitted on behalf of the appellants that the domestic industry was suffering losses even before the period chosen for analysis and that the losses have in fact come down to the lowest level during the POI. Thus this case is in fact quite different from the kind of case dealt by the Supreme Court in the case of Rishiroop Polymers cited by the learned Advocate for the Domestic Industry, where there was a drastic decline in all the parameters during the POI. Imposition of anti-dumping duty is subject to a positive finding on (i) dumping, on (ii) injury as well as on (iii) causal link between the two. As examined by us above, the injury determination done by the D.A. for the domestic industry is faulty and not convincing. On that view of the matter, when the domestic industry cannot be said to have suffered injury, there cannot be any anti-dumping duty levied on the subject goods. In the absence of injury to the domestic industry, the anti-dumping duty merely increases the prices of the imported goods for the domestic consumer and also provides a cushion to the domestic industry to increase their prices. The ultimate sufferer is the domestic consumer and imposition of anti-dumping duty in such a scenario cannot be considered to be in the public interest. Since the Larger Bench have come to the conclusion that the injury determination done by the D.A. for the domestic industry is faulty and consequently there cannot be any anti-dumping duty on the subject goods, we do not feel it necessary to go into the other grounds raised by the appellants before us relating to determination of dumping etc. In view of the finding as above, the Final Findings dated 1.1.2010 issued by the Designated Authority, Ministry of Commerce and the Customs Notification No.12/2010 dated 19.2.2010 issued by the Government of India, Ministry of Finance, Department of Revenue, New Delhi imposing anti-dumping duty on the subject goods based on such finding are set aside.

Decision:- Appeal allowed.

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PJ/Case Laws/2012-13/1074

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