* THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA WRIT PETITION No.22155 of 2009 % 22.01.2010 Between: M/s.Vuppalamritha Magnetic Components Limited … Petitioner AND Union of India through Ministry of Commerce and Industry, Department of Commerce, Directorate General of Anti-Dumping and Allied Duties, Udyog Bhavan, New Delhi And others. …Respondents Counsel for petitioners: Sri S.Ravi, Senior Counsel for Ch.Pushyam Kiran Counsel for Respondent No.1 2&3: Sri A.Rajasekhara Reddy (Not present) Counsel for Respondent No.4: Sri Arshad Hidaytullah Senior Counsel for Sri C.R.Sridharan Counsel for Respondent No.5: Sri S.Ganesh Senior Counsel for Sri. R. Raghunandan < Gist: > Head Note: ? CITATIONS: 1. 2002 (149) E.L.T. 45 (Raj.) 2. (2005) 11 SCC 482 3. 2005 (186) E.L.T. 3 (Raj) 4. (2006) 10 SCC 368 : (2006) 202 ELT 23 (SC) 5. (2009) 240 ELT 495 (Delhi) 6. (2002) 1 SCC 657 : 2001 (134) ELT 596 (SC) 7. 2008 (6) ALT 325 : (2009) 147 Comp Cas 559 (AP) 8. (1994) 4 SCC 711 9. (2004) 6 SCC 254 10. (2008) 3 SCC 456 11. AIR 1961 SC 372 12. AIR 1964 SC 72 13. (1971) 3 SCC 792 (293) 14. AIR 1974 SC 555 15. (1976) 1 SCC 800 16. (1976) 3 SCC 160 17. AIR 1978 SC 851 18. AIR 1996 Guj 54 19. (1998) 1 SCC 400 20. (2002) 5 SCC 167 21. 2002 (141) ELT 312 (Cal) 22. 2002 (149) ELT 45 (Raj) 23. 2002 (150) ELT 1349 (Mad) 24. 2003 (154) ELT 57 (Mad) 25. 2003 (155) ELT 226 (Mad) 26. 2003 (157) ELT 138 (Del) 27. (1989) 2 SCC 163: AIR 1989 SC 1239 28. (2007) 11 SCC 335 29. Council of Civil Services Union v Minister for Civil Services (1984) 3 All ER 935 : (1984) 3 WLR 1174 30. (1994) 6 SCC 651 : AIR 1994 SC 11 31. (2001) 2 SCC 386 : AIR 2000 SC 3689 32. (2004) 4 SCC 714 : AIR 2004 SC 3800 33. (1982) 3 All ER 141: (1982) 1 WLR 1155 (HL) 34. (1947) 2 All ER 680 (CA) : (1948) 1 KB 223 35. (2004) 2 SCC 130 36. AIR 1963 SC 791 : 1977 1 ELT 199 37. (1998) 1 SCC 400 38. (2002) 5 SCC 167 39. (2006) 10 SCC 386 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA WRIT PETITION No.22155 of 2009 22.1.2010 Between: M/s.Vuppalamritha Magnetic Components Limited ….Petitioner AND Union of India, and others …Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA WRIT PETITION No.22155 of 2009 ORDER: (per Hon’ble Sri Justice V.V.S.Rao) Introduction Tejas Network Limited (Tejas), a Bangalore based company lodged an application on 11.1.2009 with Designated Authority (DA), for imposition of anti dumping duty (ADD, for brevity) on SDH (Synchronous Digital Hierarchy) equipment. They alleged that the product is being dumped from China PR and Israel (hereafter, subject countries) that the price reduction is high and that it being a domestic industry their performance deteriorated in terms of profits, return on investment, cash-flow and growth besides leaving adverse impact on employment and wages. Acting on said application, DA issued initiation notification dated 21.4.2009 in terms of Rule 5 of the Customs Tariff (Identification, Assessment and Collection of ADD on Dumped Articles and Determination of Injury) Rules, 1995 (the Rules, for brevity) for investigation into the existence, degree and effect of alleged dumping of SDH equipment from the subject countries. M/s.Vuppulamritha Magnetic Components Limited, Hyderabad (VMCL), through their Counsel submitted preliminary objections on 16.6.2009 requesting DA to treat them as Indian producer, call for data/ information from other companies to determine whether Tejas is qualified to submit anti-dumping petition and reject the definition/criteria for classifying domestic producers as provided by Tejas in their petition. About three months thereafter DA published preliminary findings vide notification No.14/2/2009-DGAD, dated 07.9.2009. He came to conclusion that subject goods entered Indian market from subject countries at prices less than their normal values in the domestic markets of the exporting countries, that the dumping margins of subject goods are substantial and that the domestic industry suffered material injury caused by volume and price effect of dumped imports. The DA also invited comments on those findings from all interested parties for consideration in the exercise for recording final findings. Aggrieved by the initiation notification and preliminary findings, VMCL filed the instant writ petition seeking their invalidation. When the matters are pending, in exercise of powers under Rule 13 of the Rules, the Central Government issued a notification imposing provisional duty on the subject goods. The arguments in this writ petition are completed on 10.12.2009 and we reserved the matter for consideration. At that stage, senior counsel for VMCL informed the Court that miscellaneous application being W.P.M.P.No.35225 of 2009 has been filed seeking amendment of the writ petition to challenge the provisional ADD notification. As the same is consequential to the two impugned notifications in this writ petition, and as the said miscellaneous application is filed on the day the case is reserved, we decline to accept any miscellaneous application after the case is reserved. Background The brief factual background that follows is a summary of affidavits, counter affidavits, reply affidavits, rejoinder affidavits, the impugned orders and other documents available on record. VMCL statedly is one of the largest manufacturers of SDH[1] equipment especially STM-1 (155 Mbps), STM-4 (622 Mbps), STM-16 (2.5 Gbps), STM-64 (10 Gbps) and Dense Wavelength Digital Multiplexing (DWDM)[2] - Optical Transmission Equipment – especially DWDM 2.5G and DWDG 10G. It also manufactures other transmission equipment with technical specification DXC[3] and interface converter. Admittedly it has three running supply contracts with BSNL for supply of 2.5G DWDM, DXC and DTM 16 MADM equipments. Indisputably VMCL imports parts and components in completely knocked down/semi knocked down (CKD/SKD) form, carries out manufacturing and final testing activities in India before supplying to different telecommunication companies like BSNL. There is also no dispute that there would be considerable differences in design, physical properties, uses and markets for STMs and DWDMs depending on carrying capacity and functionalities of these optical transmission equipments. Tejas is also manufacturer of optical transmission equipments especially STM-1, STM-4 and STM-16. The fifth respondent M/s.Prithvi Information Solutions Limited (Prithvi, for brevity) is also one such enterprise which is sister concern of VMCL. The sixth respondent of M/s.Tata Teleservices Limited is one of many endusers of SDH equipment. In March 2007 and May 2008 BSNL called for tenders for supply of STM-16 MADM equipments. Tejas along with M/s.Odryn Technologies Private Limited became lowest tenderer in respect of March 2007 tender. Prithvi along with Huawei Technologies Limited (Huawei, for brevity) was declared as lowest tenderer in respect of second tender. Statedly Prithvi quoted 7% higher rates than Tejas but BSNL successfully negotiated with Prithvi for price reduction. Perhaps, this compelled Tejas to approach DA for imposition of protective duty on VMCL and others. As required under Rule 5(1) of the Rules, claiming themselves as major domestic industry/ manufacturer of SDH, Tejas made an application on 11.01.2009 before DA. In the said application, Tejas alleged that SDH, the product under consideration (PUC), is also known as Multiplexers, Add Drop Multiplexers (ADM), Multiple Add Drop Multiplexers (MADM) and digital cross-connects which can be imported freely from any country either as complete equipment or in CKD/SKD form, that number of accessories required for connecting/installing SDH equipment in the network like E1 cables, PCM cables, power cables, racks, workstations etc and the software forming integral part come within the scope of PUC. This transmission equipment is governed by international standard such as TL 9000 and technical specification in India are defined by Telecom Engineering Centre (TEC). PUC is classified under Chapter 85 of the Customs Tariff Act, 1975 with complete description therein and the basic customs duty is nil. Tejas stated that PUC is being imported from subject countries for quite some time and that though the market is witnessing price decline of PUC from Chinese producers every year, during April-December 2008, the dumping of PUC was intensified in high proportions. They alleged that foreign manufacturers dropped prices between 60-75% over their quoted prices in one year’s time and consequent material injury inflicted on domestic industry poses a threat. The price effect of imports allegedly caused substantial injury to domestic industry due to significant price depressing effect in the Indian market. Tejas asserted that they have enough capacity to meet the next ten years requirement and demand of India in manufacturing SDH equipment. Tejas requested DA to recommend ADD on SDH transmission equipment imported in India and requested to impose interim duty pending investigation. Be it noted that Tejas did not furnish any information in relation to (a) purchase policy including long term contracts for major materials; (b) sales policy indicating marketing/ distribution channels, commission/discount policy, credit terms; (c) store accounting and inventories/stock/WIP valuation; (d) quality control procedure and tests being conducted; (e) details of job work done or got done during the investigation period, and (f) process flow diagram. They claimed that details thereof form business proprietary information. Designated Authority issued initiation notification dated 21.04.2009 proposing investigation into the alleged dumping and consequent injury to domestic industry in terms of Rule 5 of the Rules. By letter dated 18.05.2009, the exporters, importers in India and other domestic manufacturers and industrial users were requested to make submissions relevant to the investigation within 40 days from the date of letter addressed to them or the date of initiation notification dated 21.04.2009. In response thereto, ECI India Private Company Limited, Huawei Technologies Limited, Vodophone Essar Limited, VMCL, Prithvi and Measurement and Controls Limited inter alia sent communications objecting the investigation on the ground that Tejas have no locus of filing the application as they get significant parts/quantities of components outsourced to specialized producers called EMS abroad. Objections were also raised that Tejas did not provide required information regarding source of imports and period thereof, there is no bifurcation of sale to India and export sale, that imports of subject goods have no consequential negative impact on applicant’s performance and that Product Control Number (PCN) classification does not reflect the characteristics of PUC. The DA considered these objections and came to conclusion that the subject goods entered Indian market from the subject countries at price less than the normal values in the domestic markets of the exporting countries and that domestic industry suffered material injury both by volumes and price effect of dumped imports. Accordingly, DA recommended provisional ADD equal to the lesser of margin of dumping and margin of injury which is at 236% of the CIF value of imports. These preliminary findings were notified in accordance with Rule 5(5) of the Rules and DA communicated the procedure subsequent to such notification for the purpose of final findings. Submissions M/s.S.Ravi and S.Ganesh, senior counsel for VMCL and Prithvi respectively submit that assumption of jurisdiction by DA is erroneous because Tejas (i) is not a domestic industry; and (ii) is itself an importer which assembles and markets low end transmission products, and hence is a non-domestic industry/ manufacturer. Alternatively, they would urge that DA committed error in exercise of jurisdiction (i) in not applying the same tests for determining whether Tejas, VMCL, Prithvi and others are domestic industries or not; (ii) in incorrectly determining PUC and like article, in that DA failed to see glaring technology variations between the low end products (STM-1, STM-16 and MADM) manufactured by Tejas and high end products (STM-16, STM-64, DWDM 2.5G, DWDM 10G, other telecom equipment, power accessories etc) manufactured by VMCL and Prithvi; (iii) in evolving arbitrary, unfair and irrational PCN for the purpose of fair comparison of prices of various items included in PUC; (iv) in not applying mind properly; and (v) in violating principles of natural justice, in that DA did not afford hearing to Prithvi and did not consider preliminary objections of VMCL on an erroneous ground. Senior counsel for Tejas Sri Arshad Hidaytullah does not dispute reviewability of impugned orders, but raised a preliminary objection questioning territorial jurisdiction of this Court. In addition he also contends that enquiry by DA as to ‘domestic industry’, ‘like articles’, ‘PUC’, ‘PCN’ etc being fact finding enquiry interference by judicial review Court is not warranted. According to senior counsel, judicial review of fact finding conclusions especially at the stage of preliminary findings must be denied as the aggrieved persons can always raise objections before the same authority before he records final findings and also seek refund of the provisional duty paid along with interest under Section 9A(8) of the Customs Tariff Act and Rule 21 of the Rules. He also points out that VMCL has already submitted their detailed response before DA which shall have to be considered in final investigation. He commends to reject the argument that Tejas is also importer. He contends that Tejas imports from Thailand and Malaysia, and as per Rule 2(b) of the Rules imports from subject countries can alone be treated as dumped articles and not by his client. He also refutes the contentions of VMCL on their plea of jurisdictional errors and denies any mala fide exercise of power by DA. Statutory provisions Section 9A of the Customs Tariff Act 1975 (the Act, for brevity), was inserted by the Customs Tariff (Second Amendment) Act 1992, which was substituted by the Customs Tariff (Amendment) Act 1995, with effect from 01.01.1995, which again underwent several amendments. There are eight subsections. Section 9A (1) is a charging section and empowers the Central Government to impose ADD not exceeding the margin of dumping in relation to any article exported from any country or territory to India at less than its normal value. The explanation to subsection (1) defines the terms, “margin of dumping”, “export price”, and “normal value”. Subsection (6) mandates that the Central Government may determine and identify the articles liable for ADD, export price, the normal value and the margin of dumping in relation to such articles, after such enquiry made in accordance with the Rules made by them. Section 9B (2) of the Act gives Rule making power to the Central Government and such Rules may provide for the manner in which any investigation may be made and the factors which shall be considered in such investigation. Under Section 9B (1)(b)(ii) of the Act, the Central Government shall not levy ADD on any article imported into India from a member of World Trade Organisation (WTO) or from a most favoured nation unless the Central Government makes determination that import of such article causes material injury to any established industry in India. In addition there shall have to be preliminary findings of dumping and consequent injury to domestic industry. For ready reference, Section 9B (1)(b) of the Act with its three clauses is extracted hereunder. 9B. (1) Notwithstanding anything contained in section 9 or section 9A, - (a) omitted in this order (b) the Central Government shall not levy any countervailing duty or ADD - (i) under section 9 or section 9A by reasons of exemption of such articles from duties or taxes borne by the like article when meant for consumption in the country of origin or exportation or by reasons of refund of such duties or taxes; (ii) under sub-section (1) of either of section 9 and section 9A, on the import into India of any article from a member country of the World Trade Organisation or from a country with whom Government of India has a most favoured nation agreement (hereafter referred to as a specified country), unless in accordance with the rules made under sub-section (2) of this section, a determination has been made that import of such article into India causes or threatens material injury to any established industry in India or materially retards the establishment of any industry in India; and (iii) under sub-section (2) of either of section 9 and section 9A, on import into India of any article from the specified countries unless in accordance with the rules made under sub-section (2) of this section, a preliminary findings has been made of subsidy or dumping and consequent injury to domestic industry; and a further determination has also been made that a duty is necessary to prevent injury being caused during the investigation: Provided that nothing contained in sub-clauses (ii) and (iii) of this clause shall apply if a countervailing duty or an ADD has been imposed on any article to prevent injury or threat of an injury to the domestic industry of a third country exporting the like articles to India; (c) omitted in this order (2) omitted in this order In exercise of their powers under Sections 9A(6) and 9B(2) of the Act, the Central Government made the Rules. It is necessary to notice these Rules to the extent relevant. There are 24 Rules and two annexures. Rule 2 of the Rules defines various terms. Rules 3 and 4 of the Rules deal with appointment of DA and his duties. Rules 5 to 12 of the Rules deal with initiation of investigation and recording of preliminary findings with regard to the dumped articles and injury to domestic industry. The consequence of such preliminary findings is that it may lead to issue of notification by the Central Government imposing provisional ADD. Rules 14 and 15 of the Rules deal with suspension or termination of investigation. Rule 17 of the Rules deals with recording of findings. Rules 18 to 24 of the Rules contain the provisions that enable imposition of ADD and review thereof. In the scheme of things contemplated under Section 9A, 9B of the Act and the Rules made thereunder, the Central Government or the DA are not vested with suo motu powers to ascertain and determine the articles liable for ADD. Such exercise can be undertaken only at the instance and behest of the “domestic industry”. Indeed any investigation by DA into these matters can be started only with a request from the “domestic industry”. Therefore the essential and mandatory qualification for one to file an application before DA is to satisfy the requirements of being a “domestic industry”. As noticed supra, when an application is made by a “domestic industry”, the DA shall have to initiate investigation, determine the normal value, export price and margin of dumping and determine the injury or threat of injury in accordance with Rule 6 of the Rules and Annexures- I and II. If for any reason applicant/ petitioner is not a “domestic industry”, the initiation of investigation and recording of preliminary findings as well as final findings would be ex facie illegal because an unqualified entity cannot trigger the process for imposition of ADD. To that extent, there is no dispute between the rival parties before us. “Domestic industry”, “interested party” and “like article” are defined in Rules 2(b), 2(c) and 2(d) of the Rules. Omitting proviso and explanation thereto, Rules 2(b), 2(c) and 2(d) of the Rules read as under. 2. Definitions.- In these rules, unless the context otherwise requires- (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 may be deemed not to form part of domestic industry. (c) “interested party” includes - (i) an exporter or a foreign producer or the importer of an article subject to investigation for being dumped in India, or a trader or business association a majority of the members of which are producers, exporters or importers of such an article; (ii) the government of the exporting country; and (iii) a producer of the like article in India or a trade and business association a majority of the members of which produce the like article in India; (d) “like article” means an article which is identical or alike in all respects to the article under investigation for being dumped in India or in the absence of such an article, another article which although not alike in all respects, has characteristics closely resembling those of the articles under investigation; (emphasis supplied) Domestic producers engaged in the manufacture of “like article” whose collective output constitutes a major proportion of total domestic production of that article shall be “domestic industry”. But exporters or importers of the alleged dump article or producers related to them do not form part of “domestic industry”. “Like article” means an article which is identical or alike in all respects to the article under investigation for being dumped in India or an article which has characteristics closely resembling the articles under investigation if there is no such article which is being dumped in India. Ascribing plain meaning to the definitions, any domestic producer who is not importer, exporter, who is not related to such exporters or importers, manufactures a major portion of the total domestic production – say more than 50%, then only such producer can be qualified as “domestic industry” to initiate investigation under Rule 5(1) of the Rules. In other words, any exporter or importer of an article identical to a dumped article or a subsidiary of such exporter or importer, which is controlled, shall not qualify as “domestic industry”. Rule 4 casts duty on DA to investigate dumping and identify the article liable for ADD and submit the findings to the Central Government. He is also empowered to recommend the amount of ADD equal to the margin of dumping or less which if levied would remove the injury to the domestic industry. The ADD so determined finally under Rule 17 shall be the basis for the Central Government to issue notification imposing such duty. Therefore, in the scheme of things DA has a pivotal role. DA can suo motu initiate investigation when it receives information from the Commissioner of Customs regarding the existence of dumping causing injury to domestic industry. DA can also initiate investigation only when an application is made by or on behalf of domestic industry. Therefore, the assumption of jurisdiction by DA depends on the applicant satisfying that it is a domestic industry as defined under Rule 2(b) of the Rules. In the absence of the qualifications as to domestic industry, the assumption of jurisdiction by DA, initiation of investigation, preliminary findings and final findings would be ex facie without jurisdiction and any investigation would amount to error in the exercise of the jurisdiction. Be that as it is, Rule 6 contains principles that govern investigations, Rule 12 speaks of recording preliminary findings and Rule 17 deals with recording of final findings by DA. Precedents In Rajasthan Textile Mills Association v Director General of Anti-Dumping[4], petitioner assailed initiation notification concerning imports of Polyester Staple Fiber (PSF) originating from four foreign countries. The preliminary findings were also challenged whereunder levy of provisional ADD was recommended. The respondents including “domestic industry” manufacturing PSF raised a preliminary objection regarding maintainability of writ petition against preliminary findings of DA having regard to availability of appeal before Central Excise Appellate Tribunal. A Division Bench of Jodhpur Bench of Rajasthan High Court negatived the contention observing as under. As far as the challenge to preliminary finding is concerned, it being recommendatory in nature, the normal rule is that no interference should be made by a writ Court under Article 226 of the Constitution. However, as the Rule 6 provides an opportunity to the industrial users as well as interested parties or its representatives to present an information relevant to the investigation, the limited interference is called for to satisfy if the preliminary finding has been recorded after following the statutory provision. It is of course true that it is for the Central Government to levy or not to levy a provisional duty on the basis of the preliminary finding but as