Two issues have been addressed: 1. Mere simultaneous emergence of two products from the same process would make them joint products? 2. Can the anti-dumping duty be imposed in terms of USD instead of ₹?

PJ/Case Law/2016-17/3441

Case:-DR. REDDY’S LABORATORIES LTD.VERSUS DESIGNATED AUTHORITY, DGAD, MOF

Citation:- 2016 (342) E.L.T. 561 (Tri. - Del.)

Issue:- Two issues have been addressed:
1.    Mere simultaneous emergence of two products from the same process would make them joint products?
2.    Can the anti-dumping duty be imposed in terms of USD instead of ₹?
Brief facts:- The appeal had been filed against final finding of the Designated Authority (DA), Directorate of Anti-Dumping and Allied Duties, Ministry of Commerce and Industry and Ministry of Finance. Through these proceedings, Anti-Dumping Duty (AD duty) was imposed on Methylene Chloride (subject goods) originating in or exported from E.U., USA and Korea RP.

Appellant’s contention:- Ld. Counsel for the appellant submitted that the appellant is a domestic user of the subject goods suffering AD duty. They mainly contested the imposition of AD duty on the following grounds:

(a)   The domestic demand was more than the full production capacity of the Domestic Industry (DI) even when operating with full capacity.
(b) During the manufacture of subject goods other two products, namely, Chloroform and Carbon Tetrachloride (CTC) also emerged. While constructing the cost of the subject goods the DA failed to recognize the importance of CTC as a co-product. Erroneous calculation was made on cost allocation between various final products.
(c)   The AD duty should not have been imposed in terms of US $. Subsequent to the levy the dollar had strengthened resulting in much higher incidence of AD duty. Also different rates should have been fixed for loose and packed form of subject goods.

Respondent’s contention:- Ld. Counsel for the Domestic Industry (DI) submitted that in spite of specific request, the user industry did not provide the data regarding impact of downstream product on AD duty investigation. No detailed comments were also given regarding treatment of various products simultaneously emerging during the production of subject goods.
Ld. Counsel submitted that methylene chloride, chloroform and CTC emerged during the manufacture. Based on sales realisation the economic importance of these products are at the ratio of 50:45:5. It is apparent that CTC can never be considered as a joint or co-product for cost analysis. Further, CTC is an ozone depleting substance which is controlled for use in agrochemical industry. The said product is governed by Montreal Protocol. It was further submitted that “production value ratio” method of cost analysis has been challenged by the appellant. It was clear that the said analysis was based on sales realisation of various products emerging during the manufacture of subject goods. She further submitted that the costing of subject goods and subsequent determination of non-injurious price were all done as per the accepted standards of accounting.
Regarding imposition of duty in terms of US $ it was submitted that the same is an accepted practice and the injury margin is calculated covering POI. The subject goods are considered for injury analysis. The manner of packing is not directly relevant in such investigation.
Also, Ld. Counsel for the DA supported the findings of the DA. He submitted that after careful consideration, the DA concluded that even though the performance of DI had improved in various parameters, there had been a decline in profits, return on investment and cash flows. The DA noted that low priced imports had caused injury to the DI who could sell its product only when the same was done at the price comparable to that of import price.

Reasoning of judgement:- The appellants challenged the imposition of AD duty only on the ground that the costing of subject product in the DI had not been properly made. This allegation was on the ground that the CTC which was co-produced along with the subject goods should have been treated as a co-product and not as a by-product. It was noted that it was not correct to assume that all products co-produced (simultaneously emerging during process) should be considered as co-products for accounting purposes. In other words, simultaneous emergence of a product does not make it a joint product or a co-product for cost accounting purposes. For this, one has to consider the economic importance of various co-produced products. In the present case, it is clear that CTC contributes only 5% of sales realisation when compared to the other two main products which contribute 50% and 45% in sales realisation. When asked specifically as to how a product of such least economic importance can be considered as a joint product, the ld. Counsel for the appellant only reiterated that since this product is co-produced and accordingly should be considered as a co-product. Such argument was found as misleading and wrong. Ld. Counsel could not point out any legal provision or specific cost accounting standards applying to the relevant time to treat the CTC as a joint product. No merits were found in the appellant’s arguments challenging the costing of subject goods on these grounds.

Also, merits were found in submissions made by the ld. Counsels for the DI and DA regarding other issues raised in the appeal like fixing of AD duty in US $ term and treatment of subject goods without reference to manner of packing. The comparison during analysis had been made with like goods only and hence no merit was found in the appeal on these grounds.
Decision:- Appeal rejected.

Comment:- Products emerging from the same process can’t be treated as co-products merely because of the fact that they emerge from the same process. Their economic importance in terms of monetary value is an important factor to determine their classification as co-products or by-products.
Also, objection cannot be raised in context of levying duty in terms of USD instead of INR, if the same is in accordance with the accepted practice and the injury margin is calculated covering POI.

Prepared By:- Sharad Bang

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PJ/Case Law/2016-17/3441

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