Kajaria Iron Castings Pvt. Ltd. v. United States , 24 Ct. Int'l Trade 134 ( 2000 )

Slip Op. 00 - 20
UNITED STATES COURT OF INTERNATIONAL TRADE
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KAJARIA IRON CASTINGS PVT. LTD. et al.,
:
Plaintiffs,
:
v. Court No. 95-09-01240
:
UNITED STATES, :
Defendant. :
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Memorandum & Order
[Upon plaintiffs' motion, case remanded again
to the International Trade Administration.]
Dated: February 18, 2000
Cameron & Hornbostel LLP (Dennis James, Jr.) for the plain-
tiffs.
AQUILINO, Judge: The background of this case, which
arises out of Certain Iron-Metal Castings From India: Final Re-
sults of Countervailing Duty Administrative Review, 60 Fed.Reg.
44,843 (Aug. 29, 1995), is set forth sub nom. Kajaria Iron
Castings Pvt. Ltd. v. United States, 21 CIT , 956 F. Supp.
1023, remand results aff'd, 21 CIT , 969 F.Supp. 90 (1997),
aff'd in part, rev'd in part, 156 F.3d 1163 (Fed.Cir. 1998),
familiarity with which is presumed. In conformity with the man-
date of the court of appeals, Senior Judge DiCarlo remanded1 the
1
His order per Kajaria Iron Castings Pvt. Ltd. v. United
States, 22 CIT , Slip Op. 99-6 (Jan. 14, 1999), granted leave
to return to court to contest the results thereof. The ITA's
Corrected Final Results of Redetermination on Remand have been
duly docketed herein, and the plaintiffs have filed comments on
them, along with a motion for oral argument. The latter is here-
by denied, given the quality of their written submission and the
lack of any response by other parties.
Court No. 95-09-01240 Page 2
case again to the International Trade Administration, U.S. De-
partment of Commerce ("ITA") on the grounds that its
methodology double counted the subsidies the [plain-
tiffs] received from the CCS over-rebates, by counter-
vailing both the over-rebates and the section 80HHC
deduction attributable to those over-rebates
and that its
decision to countervail the portion of the section 80-
HHC deduction attributable to the IPRS rebates on non-
subject castings [was] beyond its statutory authority.
156 F.3d at 1180.
During the period under administrative review, the in-
come-tax deduction, an International Price Reimbursement Scheme
("IPRS"), and a Cash Compensatory Support ("CCS") program were in
effect in India. According to the record at bar, section 80HHC
of the tax law2 of that land permitted deduction from taxable in-
come of profits derived from exports of merchandise. Simply stated,
IPRS reimbursed Indian producers for difference in price between
domestic pig iron and that available for less on the world market.
CCS rebated indirect taxes and import duties and charges borne by
inputs physically incorporated into export product. A producer
received the latter upon export, calculated as a percentage of the
invoice price of the goods. To the extent the ITA came to con-
clude that such rebates exceeded the total amount of such charges
upon those inputs, it treated the excess (the "over-rebate") as
a countervailable subsidy. Because income from exports included
2
See Corrected Final Results, Appendix 1.
Court No. 95-09-01240 Page 3
IPRS grants and CCS rebates, those benefits had an impact on the
deductions pursuant to §80HHC.
In calculating net subsidy to the Indian exporters,
the ITA treated the portion of the §80HHC deduction attributable
to IPRS rebates as an untied, countervailable subsidy. Rejecting
this approach, the Federal Circuit explained that the agency
erred in countervailing th[at] portion of the . . .
deduction . . . because the rebates involved were
tied[3] to merchandise not within the scope of the
review. . . . On remand, Commerce should eliminate
the IPRS rebates in calculating the subsidy received
on subject castings through the section 80HHC deduc-
tion.
Id. at 1176. The court of appeals also disagreed with the
agency's position that countervailing CCS over-rebates and their
non-taxation separately does not result in double-counting,
concluding that
Commerce's policy of discounting secondary tax conse-
quences cannot mean that if a producer receives a sub-
sidy that is taxed Commerce will countervail the pre-
tax subsidy, but that if a producer receives a subsidy
that is not taxed Commerce will countervail the subsidy
and the tax that should have been paid if the subsidy
were taxed. The circumstances in this case are akin to
the latter situation, in that the Producers in effect
received the CCS over-rebates tax-free because of the
section 80HHC deduction. It was improper for Commerce
to countervail both the CCS over-rebates and the tax
that would have been paid on th[em] but for the section
80HHC deduction. The reason is that, in so doing, Com-
merce imposed a countervailing duty that was not "equal
to the amount of the net subsidy" in contravention of
19 U.S.C. § 1671(a). . . .
3
According to the record herein, when a countervailable
benefit is tied to the production or sale of a particular prod-
uct, the ITA will allocate the benefit solely to that product.
60 Fed.Reg. at 44,845.
Court No. 95-09-01240 Page 4
On remand, Commerce should recalculate the subsidy
provided by the section 80HHC deduction in a manner
that eliminates the double-counting of the CCS over-
rebates. . . .
Id. at 1175.
I
In attempted compliance with the Circuit mandate, the
ITA remand results now at bar state with regard to IPRS that the
companies' section 80HHC tax deduction claims are
based on their profit on export income. Therefore,
for each company, we adjusted the benefit (numerator)
by subtracting the amount of tax actually paid from
the amount of tax the company would have been liable
to pay absent an estimated amount of section 80HHC
deduction attributable to profit earned on exports of
non-subject merchandise. We factored [such] profit
. . . out of the . . . deduction because IPRS rebates
for non-subject merchandise can only influence, and
be reflected in, the component of profit earned on
non-subject merchandise.
To estimate the amount of the section 80HHC tax
deduction attributable to profits earned on exports
of non-subject merchandise, we took the ratio of the
value of non-subject exports to the value of total
exports and applied it to the total amount of the
section 80HHC deduction claimed. We considered this
result to be the only possible estimate of the amount
of section 80HHC tax deduction that is attributable
to exports of non-subject merchandise. We subtract-
ed this amount from the total amount of the section
80HHC deduction actually claimed. Because this result
is the portion of the section 80HHC deduction that is
attributable only to exports of the subject castings,
it is not influenced by IPRS rebates.
Corrected Final Results, pp. 3-4 (footnote omitted). Further:
. . . Because CCS rebates (including the CCS over-
rebates) are treated as income, it follows that CCS
rebate income contributes to a Producer's profit as
all of its income does. In the administrative re-
view, we determined that the CCS over-rebates were
provided to the Producers at ad valorem rates which
Court No. 95-09-01240 Page 5
varied on a company-by-company basis. Therefore,
we assumed that the contribution of the CCS over-
rebate income to a company's profit is commensurate
with its individual ad valorem rate of CCS over-
rebate and reduced each company's actual section
80HHC claim accordingly. These two adjustments re-
sulted in a recalculated section 80HHC deduction
for each company.
Id. at 4-5. Finally, the ITA explains its approach to that §
80HHC deduction as follows:
We derived the benefit (numerator) for each com-
pany by calculating the tax savings on its recalculated
amount of 80HHC deduction. By factoring out the amount
of the 80HHC tax deduction attributable to exports of
non-subject merchandise . . . , we eliminated any in-
fluence that IPRS rebates tied to non-subject merchan-
dise have on the calculation of the benefit . . .. By
prorating the section 80HHC deduction in this manner,
we derived a new "tied" amount of section 80HHC deduc-
tion that is attributable to subject merchandise only.
By further reducing this "tied" amount by the rate at
which the CCS over-rebates were received, we eliminated
from the calculation the profit generated by those CCS
over-rebates.
Since the benefit (numerator) is now "tied" to
subject merchandise, we followed our standard princi-
ples for the attribution of "tied" benefits and fac-
tored exports of non-subject merchandise out of the
denominator as well. Therefore, we used the value of
exports of subject castings as the denominator rather
than the value of sales of all exports. This was done
to ensure that both the numerator and the denominator
reflect values attributable only to subject castings.
The calculations remain "apples-to-apples" comparisons
. . ..
Id. at 5.
II
The results of this analysis, which are listed at pages
7-8 of defendant's Corrected Final Results, must be upheld unless
they are "unsupported by substantial evidence on the record, or
otherwise not in accordance with law." 19 U.S.C. §1516a(b)(1)(B).
Court No. 95-09-01240 Page 6
Substantial evidence means "such relevant evidence as a reason-
able mind might accept as adequate to support a conclusion."
Matsushita Elec. Indus. Co. v. United States, 750 F.2d 927, 933
(Fed.Cir. 1984), quoting Consolidated Edison Co. v. NLRB, 305
U.S. 197, 229 (1938), and Universal Camera Corp. v. NLRB, 340
U.S. 474, 477 (1951). The standard requires "something less
than the weight of the evidence, and the possibility of drawing
two inconsistent conclusions from the evidence does not prevent
an administrative agency's finding from being supported by sub-
stantial evidence." Consolo v. Federal Maritime Comm'n, 383
U.S. 607, 620 (1966).
A
With regard to IPRS, the ITA considers its method of
factoring profit on non-subject merchandise out of the benefit
calculation to be the "only possible estimate"4 thereof, which,
in actuality, fails to eliminate that program's influence. That
is, as the plaintiffs show, that method
does not even address the IPRS since it uses ratios
based on "values" of "exports" . . . when IPRS reve-
nues are not even included in export sales values.
The IPRS is grant income received in addition to re-
venue earned on export sales. Therefore, the only
way to eliminate the "influence" of the IPRS on the
subsidy calculations is to actually deduct the IPRS
rebates from income and then calculate the total tax
savings based on all exports, i.e., both subject and
non-subject castings in the denominator.5
4
Corrected Final Results, p. 4.
5
Plaintiffs' Comments on the Commerce Department's Final
Results of Redetermination on Remand, pp. 4-5 (emphasis in ori-
ginal). The plaintiffs also note that, if
(footnote continued)
Court No. 95-09-01240 Page 7
Moreover, the plaintiffs assert that, by using only export values
to develop the ratios,
all Commerce . . . is doing is allocating (improperly)
the IPRS included in each company's taxable income to
both non-subject and subject castings . . . according
to export values. . . .
To take an example, if a company sells 200,000
rupees of subject castings and 100,000 rupees of non-
subject castings, and receives 30,000 rupees in IPRS
for the non-subject castings, all Commerce's ratio
approach does is allocate two-thirds of the 30,000
rupees received as IPRS to subject castings and one-
third to non-subject. That is, the approach allocates
the 30,000 rupees IPRS in the following manner:
20,000 to subject castings (200,000 subject castings
+ 100,000 non-subject castings = 300,000 total exports;
200,000/300,000 = 2/3; 2/3 x 30,000 IPRS = 20,000); and
10,000 to non-subject castings (100,000/300,000 = 1/3;
1/3 x 30,000 = 10,000).
Hence, the "influence" of the IPRS is still being in-
cluded in the subject castings since the IPRS allocat-
ed to subject castings should be zero, not 20,000.
. . . [A]ll that needs to be done to eliminate the IPRS
"influence" from the calculation is to subtract the
IPRS from the income used to calculate the 80HHC bene-
fit. Unless all IPRS is deducted from income or profit
first, the IPRS cannot be eliminated from the calcula-
tion as required by the CAFC.6
This court is constrained to concur. In attempting to
estimate the portion of the §80HHC deduction that is attributable
Commerce prefers a denominator based on subject cast-
ings only, the IPRS must still be deducted from income
first. Commerce can then calculate the remaining pro-
fit and 80HHC deduction attributable solely to subject
castings (the numerator) by using a ratio of the value
of subject castings sales to total sales. The denomi-
nator may then include subject castings only.
Id. at 5, n. 3.
6
Id. at 5-6 (emphasis in original).
Court No. 95-09-01240 Page 8
to non-subject exports, the ITA has seemingly lost sight of the
guidance of the Federal Circuit. No matter what ratio is used,
because export profits (and the resultant §80HHC deduction) re-
flect both IPRS grants and sales revenue, some IPRS income will
still be attributed to subject exports and, hence, countervailed
under the agency's methodology. The court of appeals did not
require the ITA to estimate profit on non-subject merchandise,
only to eliminate IPRS, which it has failed to do.
This court also concurs that the agency, in attempting
to estimate the portion of the §80HHC deduction attributable to
non-subject exports, has made "what should be a very simple
adjustment into a complicated -- and erroneous -- calculation
that thwarts the CAFC's instructions."7 Even the ITA recognizes
that IPRS grants are "clearly treated" as income in financial
statements on the record, pointing out, for example, that IPRS
receipts are reported as "Reimbursement against Pig Iron" in
plaintiff RSI, Ltd.'s financial records. See Corrected Final
Results, pp. 12-13. Indeed, the court of appeals noted that no
complicated subsidy tracing would be required in cases such as
this, where the foreign respondents have provided
documentation that allows Commerce to separate the por-
tion of the tax deduction based on rebates related to
non-subject merchandise from the remainder of [the]
countervailable tax deduction. . .. Since the Produ-
cers provided such data, Commerce should eliminate []
IPRS . . . from the calculation of the subsidy pro-
vided by the section 80HHC deduction.
156 F.3d at 1176.
7
Id. at 6.
Court No. 95-09-01240 Page 9
The ITA's attempt to estimate profit on non-subject
merchandise must therefore be set aside. This court cannot
accept its position that the methodology proposed by the plain-
tiffs "makes no sense at all" because IPRS is income rather than
profit, and simply subtracting the IPRS amount from the §80HHC
deduction would result in a negative number several times the
value of the deduction. See Corrected Final Results, p. 13. The
plaintiffs concede that a negative number would result in some
instances, but deny that this proves any error:
. . . [A]ll this means is that but for the IPRS, the
company would have had a loss. In such an instance,
the 80HHC subsidy would become zero because all of
the otherwise countervailable deduction would be
"tied" to the IPRS earned on non-subject castings.8
The Federal Circuit similarly noted that IPRS increased export
profits by "no more than" the amount of the grants, implicitly
accepting plaintiffs' explanation that they may also have tended
to offset losses in certain instances. See 156 F.3d at 1176.
B
With regard to the CCS over-rebates, the ITA assumed
that their contribution to a company's profit was commensurate
with its individual ad valorem rate therefor and thus reduced
the §80HHC claim by that rate. The plaintiffs argue that such
reasoning is "flawed" and "does not come close to eliminating
8
Id. at 16, n. 10 (emphasis in original).
Court No. 95-09-01240 Page 10
all the double-counting", as required by the court of appeals,
because the
countervailable subsidy found from the over-rebate
is not a percentage of profit; it is a percentage
of total exports. Accordingly, the contribution of
the CCS over-rebate to profit can only be determined
by multiplying the company's over-rebate rate times
total export sales. Eliminating only a percentage
of profit does not eliminate all of the CCS that has
been separately countervailed.9
The CCS program rebated indirect taxes and import du-
ties and charges borne by inputs physically incorporated into an
exported product,
paid upon export and [] calculated as a percentage
of the f.o.b. invoice price. . . . [T]he rebate
rate for exports of castings was set at a maximum
of five percent for the review period.
Certain Iron-Metal Castings from India: Preliminary Results of
Countervailing Duty Administrative Review, 60 Fed.Reg. 4,596,
4,598 (Jan. 24, 1995). Hence, the ITA found in prior proceedings
that the CCS program per se did not provide a countervailable
benefit, but noted that it had to
determine on a case-by-case basis whether there is
an over-rebate, i.e., "whether the rebate for the
subject merchandise exceeds the total amount of in-
direct taxes and import duties borne by inputs that
are physically incorporated into the exported pro-
duct." . . . If an over-rebate exists, the differ-
ence between the allowable rebate and the actual
rebate is a countervailable subsidy.
156 F.3d at 1167-68, quoting 60 Fed.Reg. at 4,598.
9
Id. at 19-20.
Court No. 95-09-01240 Page 11
The over-rebate rate calculated by the agency is
therefore, by definition, also a "percentage of f.o.b. invoice
price", calculated upon export. Hence, the record supports
plaintiffs' premise that the subsidy found from over-rebate is
a percentage of total exports rather than a percentage of pro-
fit. Counsel use the ITA's calculation for plaintiff RSI, Ltd.,
which had a rate of 0.83%, to illustrate the error in methodol-
ogy, explaining that, after adjusting its calculations to account
for IPRS, the agency found a percentage of profit:
. . . However, RSI received CCS as a percentage of
total exports, not as a percentage of profit. Ap-
pendix 3, page 2, of Commerce's Remand Results shows
that RSI received "cash assistance," which is the
CCS, of . . . rupees. Some of this . . . was coun-
tervailed; all of it contributed to profit; and all
of it was deducted pursuant to 80 HHC. Hence, in
order to eliminate the double counting under 80 HHC,
all of the countervailed CCS must be deducted from
profit first, before calculating the 80 HHC subsidy.10
The plaintiffs further explain the error in terms of percentages:
The total CCS at the time was 5% of export sales;
however, only 0.83% was countervailed. This means
that 16.6% of the CCS received was countervailed (0.83/
5.00 = 16.6%). Thus, 16.6% of the CCS actually re-
ceived must be eliminated from profits in order to
eliminate the double counting. When Commerce reduced
RSI's actual 80 HHC claim by an additional 0.83%, Com-
merce did not eliminate 16.6% of the CCS, it eliminated
at most only 0.83% of it.11
10
Id. at 20 (emphasis in original).
11
Id. at 21.
Court No. 95-09-01240 Page 12
The court concurs that the record shows that the ITA
has failed to eliminate CCS over-rebates from the benefit calcu-
lation under §80HHC. They were a percentage of a firm's total
exports, so merely reducing profit (and hence the §80HHC deduc-
tion) by their over-rebate rate(s) fails to eliminate all of
the CCS that was countervailed separately.12
III
In view of the foregoing, this case must again be
remanded to the ITA for recalculation of the net subsidies to
the plaintiffs under §80HHC, using a methodology that complies
with the mandate of the court of appeals, eliminating both IPRS
grants and the double-counting of CCS over-rebates in a manner
not inconsistent with that court's opinion.
The defendant may have 90 days to complete said recal-
culation and to report the results thereof to this court, where-
12
The agency takes the position, as it did with regard to
IPRS, that plaintiffs' suggested approach is erroneous because
CCS over-rebates are income rather than profit, and reducing the
deduction by such income would result in a negative number. See
Corrected Remand Results, p. 16. The plaintiffs respond that
there is no reason why the §80HHC deduction should equal CCS,
since it increases profits "or offsets losses" in the exact
amount of the cash received. Plaintiffs' Comments on the Com-
merce Department's Final Results of Redetermination on Remand,
p. 24. The Federal Circuit supports this reasoning, stating
that inclusion of the CCS rebates in export income raises ex-
port profits by an amount "no greater than" the amount of the
rebates. 156 F.3d at 1174.
Court No. 95-09-01240 Page 13
upon the parties may file written comment(s) thereon within 30
days, with any reply thereto submitted within 15 days thereafter.
So ordered.
Dated: New York, New York
February 18, 2000
________________________________
Judge