WP(C) No. 8749/2009 Page 1 of 32 +* THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on : 27.05.2009 + WP(C) No. 8749 of 2009 SAINT-GOBAIN GLASS INDIA LTD & ANR. ..... Petitioner versus UNION OF INDIA & ORS. ..... Respondent WP(C) No. 8761 of 2009 THE ALL INDIA GLASS MANUFACTURERS FEDERATION ..... Petitioner versus UNION OF INDIA & ORS. ..... Respondent Advocates who appeared in this case: For the Appellant : Mr Raju M. Ramachandran, Sr. Advocate with Mr Jitender Singh, Mr Saurabh S. Sinha, Mr Shankar N. & Mr Mrigank Prabhakar, Advocates in WP(C) No. 8749/2009. Mr Pramod Kumar Rai with Mr Abdhesh Chaudhary, Ms Manisha Suri & Mr Neelendu, Advocates in WP(C) No. 8761/2009 For the Respondent : Mr. Sandeep Sethi, Sr. Advocate with Mr Rajesh Sharma, Advocate in WP(C) No. 8749/2009 Mr Mukesh Anand, Advocate in WP(C) No. 8761/2009 CORAM :- HON'BLE MR JUSTICE VIKRAMAJIT SEN HON'BLE MR JUSTICE RAJIV SHAKDHER 1. Whether the Reporters of local papers may be allowed to see the judgment ? Yes 2. To be referred to Reporters or not ? Yes 3. Whether the judgment should be reported in the Digest ? Yes RAJIV SHAKDHER, J 1. The captioned writ petitions lay challenge to notice of initiation of safeguard investigation dated 16.01.2009 issued under Rule 6 of the Customs Tariff (Transitional Product Specific Safeguard Duty) Rules, WP(C) No. 8749/2009 Page 2 of 32 2002 (hereinafter referred to as „Rules‟), the notification of preliminary findings dated 30.01.2009 issued by the Director General (Safeguards)(hereinafter referred to as „the Director General‟), and the consequent notification bearing No.37/2009-Customs dated 20.04.2009 issued by the Government of India, Ministry of Finance, Department of Revenue imposing a provisional safeguard duty at the rate of 20 per cent ad valorem in respect to soda ash falling under sub- heading 283620 of the first schedule to the Act on its import into India from People‟s Republic of China (in short „China‟). 2. Petitioner No.1 in Writ Petition No. 8749/2009 is a company incorporated under the Companies Act, 1956 (hereinafter referred to as „Saint-Gobain‟). The said petitioner is in the business of manufacturing and marketing Architectural and Automotive Glass. Petitioner No.2 in the said writ petition is an association of float glass manufacturers. The Petitioner in Writ Petition No.8761/2009 is the Federation of glass manufacturers which is incorporated as a non- profit company under the Companies Act, 1956 (hereinafter referred to as „the Federation‟). The Federation claims to represent all segments of the industry which includes large, medium and small scale manufacturers located in different parts of the country. 3. The genesis of the present litigation is in the initiation of safeguard investigation by the Director General under the provision of Rule 6 read with Section 8C of the Customs Tariff Tax, 1975 (hereinafter referred to as „the Act‟). It transpires that on 01.01.2009; the Alkali Manufacturers Association of India, i.e., Respondent No.3, which comprises of domestic producers such as Gujarat heavy Chemical Limited, Tata Chemicals Limited, Saurashtra Chemicals Limited, DCW Ltd and Nirma Ltd, (hereinafter collectively referred to WP(C) No. 8749/2009 Page 3 of 32 „domestic producers‟) filed an application with the Director General for the purposes of seeking initiation of investigation to determine existence of serious injury or threat of serious injury to the domestic producers of soda ash on account of import of increased quantities of soda ash from China which had the potentiality of market disruption or threatened to cause a market disruption both in absolute and relative terms when compared to the domestic production of soda ash. By the said application, the domestic producers sought protection by seeking an imposition of both safeguard duty as well as quantitative restrictions with regard to import of soda ash originating from China for a period of four years. In the application, a prayer was also made that, in the interregnum, a provisional duty be imposed in view of the presence of „critical circumstances‟ which, according to them, would result in irreparable damage. The said application was followed by an updated application which was filed with the Director General on 14.01.2009. 4. On receipt of the aforesaid written application of the domestic producers, the Director General issued the impugned notice of initiation of safeguards investigation dated 16.01.2009; a copy of which, as mandated under Rule 5, was sent to all interested parties calling upon them to respond by 16.02.2009. By the said initiation notice, it was also made clear that any other party to the investigation who wishes to be considered as an interested party was free to submit its request to the Director General within 21 days of the said notice. 4.1 It is not disputed that Saint-Gobain received a copy of the initiation notice, even though the date of receipt is not indicated in the writ petition. What is, however, not in dispute is that, by a communication dated 29.01.2009, Saint-Gobain requested the Director WP(C) No. 8749/2009 Page 4 of 32 General to supply to it, a copy of the initiation notification, correspondence exchanged with the interested parties and the domestic industry, copy of the application and updated information, if any, as also a copy of the index to the public file and inspection of the public file. In the very same communication, a request was also made that in the interregnum, in consonance with the principles of natural justice, no steps prejudicial to the interest of the user industry be taken till effective opportunity is given to them to respond to the notice of initiation of safeguard investigation. 5. It transpires that based on the views of the domestic producers, the information supplied by them and the information available with the Director General, came to the conclusion that preliminary findings had revealed that the import of soda ash in increased quantities from China had caused or threatened to cause a market disruption vis-a-vis the domestic industry. He further recommended that in view of the critical circumstances obtaining on account of import of soda ash from China in increased quantities, which, if not stemmed by imposition of provisional safeguard duty for a period of 200 days, pending final determination, would by virtue of market disruption and/or threat of market disruption, result in irreparable damage to the domestic industry. In the opinion of the Director General, keeping in view factors such as the average cost of production of soda ash by the domestic producers, a reasonable return of capital employed, the present level of import duty and current price of soda ash, a safeguard duty at the rate of 31% ad valorem be imposed to protect the interest of domestic industry in respect of imports from China with regard to soda ash falling under sub-heading 2836210, 28362020 and 28362090 of the first Schedule of the Act. WP(C) No. 8749/2009 Page 5 of 32 5.1 By the very same notification on preliminary findings, the Director General also indicated that a public hearing would be held in due course, on the date to be indicated, before proceeding to a final determination. 6. In response to the aforesaid notification of preliminary findings dated 30.01.2009, Saint-Gobain addressed a communication dated 11.02.2009 to the Secretary to the Government of India, Department of Revenue. It would be pertinent to note, that two days prior to the said notice, the Federation, that is, the petitioner in Writ Petition No. 8761/2009 had also issued a notice dated 09.02.2009 on almost identical lines to the Secretary, to the Government of India, Department of Commerce, which was thereafter followed by a second communication dated 13.02.2009. 7. It has been averred by the petitioner in CWP 8761/2009 i.e., the Federation that earlier, Writ Petition bearing No. 7782/2009 filed by Saint-Gobain, wherein the very same initiation notification dated 16.01.2009 and the notification of preliminary findings dated 30.01.2009 were impugned, was filed in this court, on 06.03.2009. The said writ petition, i.e., WP(C) No. 7782/2009 came up for hearing in Court on 26.03.2009 when, it was disposed of by a Division Bench, briefly, on the ground that the institution of the writ petition was premature as no order of levy of provisional safeguard duty had been passed by the Central Government at that point in time. 7.1 It would be important to note at this stage that, in the interregnum, i.e., 23.03.2009, a public hearing had been held by the Director General as indicated in the Notification of preliminary hearing dated 30.01.2009. This fact requires to be mentioned at this juncture WP(C) No. 8749/2009 Page 6 of 32 as great stress has been laid on this aspect of the matter by the petitioners before us which will be dealt with at a later stage in this judgment. 7.2. Continuing with the narration, the petitioners‟ stand is that after the conclusion of the public hearing, an opportunity was given to file written submissions. Accordingly, written submissions were filed by the petitioners on 30.03.2009 followed by a rejoinder by the domestic producers on 30.04.2009. 7.3. It seems that Government of India, without awaiting the return of findings by the Director General has decided to accept his recommendation for imposition of provisional duty on import of soda ash into India from China vide Notification no. 37/2009-Customs dated 20.04.2009. By this Notification, the Central Government, in exercise of its powers under Section 8C (2) of the Act, read with Rules 10 and 14, upon consideration of the findings of the Director General, decided to impose a provisional duty at the rate of 20% ad valorem in respect of soda ash falling under sub-heading 283620 of the First Schedule of the Act. The notification dated 20.04.2009 further provides that the said provisional duty shall be effective upto 05.11.2009 unless revoked, superseded or amended at an earlier date. 8. The petitioners, being aggrieved by the aforementioned actions of the respondents 1 and 2, have instituted the instant writ petitions. On behalf of the petitioners, in Writ Petition No. 8749/2009, submissions were made by Sh. Raju Ramachandran, Sr. Advocate and in Writ Petition No. 8761/2009, submissions were made by Sh. Pramod Kumar Rai, Advocate. There are several grounds taken in the writ WP(C) No. 8749/2009 Page 7 of 32 petition. However, the petitioners before us confined their submissions to the following:- 8.1 The initiation notification dated 16.01.2009 issued by the Director General clearly indicated that the interested parties may respond to the application filed by domestic producers on or before 16.02.2009. It was submitted that even without waiting for the time stipulated in the said notification, within a period of 14 days, the Director General proceeded to issue a notification of preliminary findings dated 30.01.2009, thus depriving them of an effective opportunity to protect their interest and challenge the contentions raised by the domestic producers, in their application before the Director General. According to the learned counsels appearing for the petitioners, right to be heard is ingrained in Rule 6(4) which requires the Director General to accord at least 30 days time to respond to the initiation of safeguards investigation notice issued by the Director General. It was contended that the failure to do so had resulted in the infraction of a right conferred under Rule 6(4) and hence all such steps taken by the Director General and the Government of India thereafter which included the issuance of notification of preliminary findings dated 30.01.2009 and the Government of India notification dated 20.04.2009 imposing provisional duty had to be quashed and set aside. 8.2 In order to buttress their submission, the learned counsel for the petitioners drew our attention to the application filed by the domestic producers to demonstrate the inherent contradiction in the assertions made in their application. Towards this end, it was pointed out that even though the domestic producers‟ application specifically states that the soda ash imported from China is high density soda ash, the relief sought is with respect to all types of soda ash which includes WP(C) No. 8749/2009 Page 8 of 32 light as well as high density soda ash. Our attention was also drawn to the statistical table contained in Section II, paragraph 8 of the application to demonstrate that the allegation of import of increased quantities of soda ash from China, which purportedly caused or threatened to cause market disruption, could not sustain on a plain reading of the data incorporated therein. To appreciate this submission, it would be perhaps relevant to note that comparative data which has been filed by the domestic producers to show import of increased quantities of soda ash from China is for the period April- September, 2008 with respect to quantities and price of soda ash imported from China and countries other than China. The relevant table incorporated in paragraph 8 of the application is extracted hereinbelow:- “Export price: Details of export price of the imported product exporter/country-wise and the basis thereof (provide the f.o.b./ c.i.f. price at which the goods enter into India). Enclosed as Annexure-2 with this petition. these are CIF import prices (as reported to Indian Customs). Summarized position with regard to volume and price is given below: Year Volume MT Price Rs./MT China Other countries Total China Other countries Total 1999- 2000 3067 29872 32939 5342 5176 5191 2000-01 - 43428 43428 - 5547 5547 2001-02 14840 148778 163617 7655 6987 7048 2002-03 1597 103679 105276 7382 6192 6210 2003-04 151 128214 128365 42268 5801 5844 2004-05 2120 182427 184547 11804 6257 6321 2005-06 9016 692026 701042 8778 1601 1694 2006-07 44892 215494 260386 8568 8143 8216 2007-08 45771 309003 354774 8906 9187 9151 Apr. – 22907 105997 128904 13181 11365 11688 WP(C) No. 8749/2009 Page 9 of 32 Sep., 08 Petitioner obtained information with regard to exports from China to various countries in the world as per information published by China Customs, which shows import volumes as follows: Import Volume (MT) Average Monthly Imports (MT) Average FOB Price (US$MT) 2005-06 10063 839 157.15 2006-07 47252 3938 145.43 2007-08 45771 3814 218.55 April – Oct. 2007 22334 3191 167.39 Apr. - Oct. 2008 28284 4041 218.87 Nov., 2008 10000 10000 Import price declined upto CIF US$ 200 Dec. 2008 15000 15000 Apr. – Dec. 2008 48284 5365 8.3 Based on the aforesaid, it was argued that during the relevant period i.e., April-September, 2008, the volume of imports of soda ash from China was only 22,907 metric tonnes (MT) whereas in comparison, the import from other countries was much more, i.e., 1,05,997 MT. Similarly, the price of soda ash imported from China was Rs 13,181/- per MT, which was higher than that which was obtained with respect to soda ash imported from other countries which disclosed as Rs 11,365/- per MT. Pivoted on these discrepancies, a contention was made that the domestic producers had failed to make out even a prima facie case, despite which, the Director General, without making a suitable inquiry into the matter, had, with undue haste, proceeded to issue a notice of preliminary findings, setting out his recommendation for imposition of provisional duty, by accepting the material and data supplied by domestic producers as gospel truth. 9. In rebuttal, on behalf of the Union of India and the Director General Mr. Mukesh Anand, Advocate and Mr. Sandeep Sethi, Sr. WP(C) No. 8749/2009 Page 10 of 32 Advocate representing the domestic producers, vigorously opposed the admission of the Writ Petition contending that if the submission of petitioners was accepted the entire purpose with which the various provisions and the mechanism for imposition of provisional duty stands incorporated in the Act and Rules would become nugatory. 9.1 The learned counsel for respondents submitted that the procedure for imposition of provisional duty was contained in Rule 9, which provided that if the Director General was of the view that there was evidence to show that increased quantities would cause or threaten to cause market disruption of domestic industry, he would conduct an investigation and proceed to record his preliminary findings, recommending thereby to the Government of India, a suitable course of action to prevent and/or stem market disruption. In view of the imminence of irreparable damage to the domestic industry by virtue of increased quantities of imports, the procedure prescribed under Rule 6(4) was not applicable to the inquiry conducted under Rule 9, and thus no fault could be found with the actions of the Director General, in not awaiting the expiry of the period notified under the Initiation Notification dated 16.01.2009. 9.2 As regards the discrepancies pointed out by the petitioners with respect to fact that the imports from China were far less than those from other countries and at a higher price than imports from other countries, it was submitted that a bare perusal of the contents of the said table would show that within a span of four months, that is, April- September, 2008, imports from China were equivalent to almost 50% of the imports made from China in 2006-07 and 2007-08. Furthermore, as regards the price, it was submitted that no mileage could be drawn by comparing the price of import of soda ash with that WP(C) No. 8749/2009 Page 11 of 32 of other countries, in view of the fact that the findings of the Director General clearly indicated that the FOB price of export of soda ash from China dropped from US $ 280.14 per MT in April, 2008 to US $ 194.07 per MT in December, 2008. This by itself, according to the learned counsel, showed a sharp decline in the price and thus the necessity for immediate action. 10. In rejoinder, the learned counsel for the Petitioner submitted that assuming without admitting that Rule 6(4) did not apply in respect of proceedings initiated under Rule 9, even then the principles of natural justice had to be read into the said procedure since the imposition of provisional duty for a period of nearly 200 days at the rate of 20% ad valorem by the Government of India, entailed serious civil consequences. It was submitted that there were no critical circumstances which were present in the instant case, as the imposition of the provisional duty was brought about after expiry of nearly two and a half months from the date of issuance of Notification of preliminary findings by the Director General. It was further contended that at the point in time when the petitioners had approached this Court by way of writ petition in March, 2009, it was contended by the respondent Nos. 1 & 2 before this Court, that it may not be necessary to issue an order for imposition of provisional duty as hearing with respect to final determination had been completed in the matter. It was submitted that contrary to the stand taken before this Court on 26.03.2009, in the earlier round, the Respondent Nos. 1 & 2 had proceeded to impose provisional duty without giving any opportunity to the petitioners to protect their interests. 11. We have heard the learned counsels for the parties. In order to adjudicate upon this writ petition, it would be important to take note of WP(C) No. 8749/2009 Page 12 of 32 certain provisions of the Act and the Rules as well as the basic purpose and object in empowering the Director General and the Government of India to take recourse to the measures provided therein. 12. Under the Act, i.e., Customs Tarrif Act, 1975, the Government of India in order to protect the domestic industry has power to impose broadly; Anti-Dumping Duty, Countervailing Duty or the Safeguard Duty. Broadly, Anti-Dumping duty is imposed by the Government of India where goods are imported into the country at a dumped price. Dumped price is a price less than the normal value which is judged with reference to the comparable price of an article imported to the country in the ordinary course of trade when exported from the exporting country. As against this, Countervailing Duty is imposed generally if goods are subsidized in the country of export. Similarly, resort is taken to imposition of safeguard duty if increased quantities of goods enter the country. The determining factor as to which of the three measures ought to be adopted when the goods are imported into country, at a dumped price or are subjected to subsidy in the country of export or in increased quantities, is dependent upon whether these actions result in causing or threaten to cause material injury or material retardation in the establishment of domestic industry or result in causing or threaten to cause serious injury to domestic producers of like or competitive products. In the case of the former, recourse may be had to Anti-Dumping duty or Countervailing Duty, while in case of the latter situation, resort may be had to safeguard duty. 12.1 Under Section 8B of the Act, the Central Government has been given power to impose safeguard duty if after conducting an enquiry it is satisfied that the article imported into the country in such increased quantities and under such conditions, will cause or threaten to cause WP(C) No. 8749/2009 Page 13 of 32 serious injury to domestic industries. This is a general power available to the Government of India. A specific provision i.e., Section 8C was introduced in the Act by Finance Act, 2003 w.e.f. 11.05.2002 in respect of specific safeguards duty with regard to imports from China. Under Sub-Section (6) of Section 8C, the Central Government has been empowered to make rules for the purposes of giving effect to the provisions of Section 8C. By a notification no. 34/2002-Customs dated 11.06.2002 the Central Government has framed the necessary Rules. 13. It would be relevant to note that the provisions for safeguard duty under Section 8B and 8C of the Act and the relevant rules framed thereunder have been enacted pursuant to „Article XIX of GATT - Emergency Action on Imports of Particular Products’ (in short „GATT‟) read with „WTO Agreement on Safeguards‟ (in short „WTO Agreement‟). A reading of the provisions of clause 1(a), 1(b), 2, 3(a) and 3(b) of Article XIX GATT read with the provisions of WTO agreement on Safeguards would show that the measures provided for imposition of safeguard duty as also provisional duty in the event of presence of critical circumstances is taken recourse to ensure play for „structural adjustment‟ by the domestic industry with a view to „enhance rather than limit competition‟ in international markets. The provisions for imposition of safeguard duty are thus temporary in nature. We do not wish to burden the judgment with extensive extracts from either the GATT or the WTO agreement. It would perhaps be sufficient to indicate that the provisions both under 8B and 8C of the Act as well as the rules framed thereunder are largely based on the provisions of Article XIX of the GATT and the WTO agreement on safeguards. For the purposes of the present writ petition, it may WP(C) No. 8749/2009 Page 14 of 32 perhaps be convenient to refer to clause 1(a) and 2 of Article XIX. The same read as follows:- “1.(a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession. XXXXXXXXX 2. Before any contracting party shall take action pursuant to the provisions of paragraph 1 of this Article, it shall give notice in writing to the Contracting Parties as far in advance as may be practicable parties having a substantial interest as exporters of the product concerned an opportunity to consult with it in respect of the proposed action.