Kiswok Industries Pvt. Ltd. v. United States , 28 Ct. Int'l Trade 774 ( 2004 )

Slip Op. 04 - 54
UNITED STATES COURT OF INTERNATIONAL TRADE
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KISWOK INDUSTRIES PVT. LTD. and :
CALCUTTA FERROUS LTD.,
:
Plaintiffs,
: Consolidated
v. Court No. 00-06-00280
:
UNITED STATES,
:
Defendant.
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Memorandum & Order
[Plaintiffs' motion for judgment on the agency
record granted in part and denied in part; re-
manded to International Trade Administration.]
Decided: May 20, 2004
Cameron & Hornbostel LLP (Dennis James, Jr.) for the
plaintiffs.
Peter D. Keisler, Assistant Attorney General; David M. Cohen,
Director, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice (Lucius B. Lau); and Office of Chief Counsel
for Import Administration, U.S. Department of Commerce (Robert E.
Nielsen), of counsel, for the defendant.
AQUILINO, Judge: This case commenced pursuant to 19
U.S.C. §§ 1516a(a)(2)(A)(i)(I) and (B)(iii) and 28 U.S.C. §§ 1581-
(c) and 2631(c) consolidates complaints filed by Calcutta Ferrous
Ltd., CIT No. 00-06-00277, and by Kiswok Industries Pvt. Ltd., CIT
No. 00-06-00280, each praying for relief from Certain Iron-Metal
Castings from India: Final Results of Countervailing Duty Adminis-
trative Review, 65 Fed.Reg. 31,515 (May 18, 2000), promulgated by
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Court No. 00-06-00280 Page 2
the International Trade Administration, U.S. Department of Commerce
("ITA").
Following the grant of plaintiffs' motion for consoli-
dation, counsel interposed a consent motion to stay this case
pending resolution of a related issue still sub judice in Crescent
Foundry Co. v. United States, CIT No. 95-09-01239, and Kajaria Iron
Castings Pvt. Ltd. v. United States, CIT No. 95-09-01240, namely,
how income received on merchandise not subject to the
relevant countervailing duty order should be treated when
calculating benefits from an Indian income tax exemption
program.
Those matter(s) thereafter finally rested. See Kajaria Iron Cast-
ings Pvt. Ltd. v. United States, 21 CIT 99, 956 F.Supp. 1023, re-
mand results aff'd, 21 CIT 700, 969 F.Supp. 90 (1997), aff'd in
part, rev'd in part and remanded, 156 F.3d 1163 (Fed.Cir. 1998),
remanded, 23 CIT 13 (1999), second remand results remanded, 24 CIT
134, third remand results remanded, 24 CIT 1274 (2000), fourth
remand results aff'd, 25 CIT , Slip Op. 01-5 (Jan. 24, 2001);
and Crescent Foundry Co. v. United States, 20 CIT 1469, 951 F.Supp.
252 (1996), remand results aff'd, 21 CIT 696, 969 F.Supp. 1341(1997), aff'd in part, rev'd in part, 168 F.3d 1322 (Fed.Cir.
1998), remanded, 23 CIT 12 (1999), second remand results remanded,
24 CIT 141, third remand results remanded, 24 CIT 1278 (2000),
fourth remand results aff'd, 25 CIT , Slip Op. 01-6 (Jan. 24,
2001). By its terms, the parties' stay thus expiring, the plain-
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Court No. 00-06-00280 Page 3
tiffs have filed a motion for judgment upon the ITA record pursuant
to USCIT Rule 56.2.
I
All of this litigation, of course, has grown out of
Certain Iron Metal Castings From India: Countervailing Duty Order,
45 Fed.Reg. 68,650 (Oct. 16, 1980). And, as indicated, this par-
ticular consolidated case focuses on the final results of an ITA
review of imports subject to that order for the calendar year 1997.
Plaintiffs' motion faults those results as follows:
A. ITA Did Not Use the Correct Benefit Received
by Calcutta Ferrous to Determine the Counter-
vailable Subsidy from India's Passbook
Scheme[.]
B. Countervailing Preferential Export Financing
as Well as Income Tax Deductions under Tax
Code Section 80 HHC Double-Counts the Subsi-
dies from the Financing Programs[.]
C. ITA Failed to Properly Account for Penal In-
terest Paid by Calcutta Ferrous on Preferen-
tial Export Loans[.]
D. Since Kiswok Was Able to Break down Revenues
Between Subject and Non-Subject Castings, ITA
Should Have Calculated the Section 80 HHC
Subsidy Based on Tax Savings Relating to
Subject Castings Only[.]
Plaintiffs' Memorandum, p. i (capitalization in original).
A
The ITA's administrative review herein found that the
government of India's "Passbook Scheme" remained in effect for the
first three months of the year at issue. See Certain Iron-Metal
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Court No. 00-06-00280 Page 4
Castings From India: Preliminary Results and Partial Recission of
Countervailing Duty Administrative Review, 64 Fed.Reg. 61,592,
61,596 (Nov. 12, 1999). For that time frame, the scheme
provided exporters with credits that could be used to pay
the countervailing and custom duties levied on imported
products. [It] was available to certain categories of
exporters, i.e., those manufacturer and merchant export-
ers which were granted the status of export house,
trading house, star trading house, or super star trading
house. Upon the export of finished goods, which were
produced with indigenous raw materials, and not imported
materials, the exporter was eligible to claim credits
which could be used to pay customs duties on subsequent
imports. The . . . scheme was only applicable for those
exported products for which standard input/output norms
had been fixed. The standard input/output norms set out
quantities of imported raw materials needed to produce
one unit of finished output. The credit in the passbook
. . . was calculated on the basis of input/output norms
for the deemed input content of the exported product.
The Indian Customs Authority (ICA) determined the basic
customs duty payable against the input as if it had been
imported and not sourced from the domestic market. A
company's passbook account was then credited for the
amount equivalent to the basic customs duty payable on
such deemed imports. The company could then utilize the
credits in its passbook account to pay the countervailing
and customs duty levied on imported goods. Any good
which was not included in the Negative List of Imports
could be imported under the Passbook Scheme. Payment of
the duties was made through a debit entry in the com-
pany's passbook account by the ICA.
Id. The agency verified that it was not mandatory for the
passbook holder to consume the goods, imported with
passbook credits, in the production of exported products.
There was no relation between the imported goods and the
production of the exporter and no relation between the
standard input/output norms of the export product and the
goods being imported with passbook credits. The norms
were simply used to calculate the credits. A company
could not transfer or sell passbook credits received, but
the goods imported with passbook credits could be
transferred or sold in the domestic market.
Id.Consolidated
Court No. 00-06-00280 Page 5
The record indicates that Calcutta Ferrous Ltd. ("CFL"),
a plaintiff at bar, availed itself of this program and also that
the ITA determined the scheme was an export subsidy "[b]ecause
receipt of the passbook credits was contingent upon export
performance"1 and countervailable because
a financial contribution was provided by the government
in the form of customs duty revenue forgone[, and t]he
amount of customs duty which should have been paid by the
company to import the goods constitute[d] the benefit
. . ..
Id. at 61,596-97.
To calculate the benefit conferred by this program,
we summed the amount of passbook credits each respondent
company used during the POR to pay the customs duty on
goods imported. We then divided the benefit by each
company's f.o.b. value of total exports for 1997.2
This approach resulted in a rate of 7.27 percent for CFL3 that is
contested by this plaintiff in several ways.
(1)
CFL contends that the ITA inappropriately relied on 19
C.F.R. §351.519(a)(3)(ii), adopted November 25, 1998, and which
provided with regard to identification and measurement of
countervailable subsidies:
1
64 Fed.Reg. at 61,597.
2
Id. The "we" quoted here and hereinafter refers to the ITA
and "POR" to the period of review.
3
See ibid.Consolidated
Court No. 00-06-00280 Page 6
Exemption of import charges. If the Secretary
determines that the exemption of import charges upon
export confers a benefit, the Secretary normally will
consider the amount of the benefit to be the import
charges that otherwise would have been paid on the inputs
not consumed in the production of the exported product,
making normal allowance for waste, and the amount of
charges other than import charges covered by the exemp-
tion.
Implicit in plaintiff's position are two propositions,
namely, that the ITA did in fact rely on this provision, and that
the reliance was unfounded. But CFL fails to show how and where on
the record the agency so relied. Instead, it states in conclusory
fashion that the "ITA initially based its reason for using the
unpaid duties as the benefit on 19 C.F.R. §351.519(a)(3)(ii)".
Plaintiffs' Memorandum, p. 7. Later, it tempers this assertion
with "apparently". See id. at 11. Whatever the choice of words,
the record shows that the ITA plainly and repeatedly indicated that
it did not rely on section 351.519(a)(3)(ii), viz:
. . . All citations to the Department's regulations
reference 19 CFR part 351 (1998), unless otherwise
indicated. Because the request for this administrative
review was filed before January 1, 1999, the Department's
substantive countervailing regulations, which were
published in the Federal Register on November 25, 1998
(see CVD Regulations, 63 FR 65348), do not govern this
review.
65 Fed.Reg. at 31,515-16 (bold face in original);
. . . [U]nless otherwise indicated, all citations to the
Department's regulations are to the regulations as
codified at 19 CFR Part 351 (1998).
64 Fed.Reg. at 61,593;
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. . . We note that the Department's substantive CVD
Regulations cited by respondents are not controlling in
this review because the request for the review was
received prior to the effective date of the new regula-
tions.
ITA Issues and Decision Memorandum ("DecMemo"), PubDoc 94, p. 16,
n. 27.
(2)
CFL contends that the ITA inappropriately applied 19
U.S.C. §1677(5)(D)(ii), which defined "financial contribution" to
mean a governmental authority's "foregoing or not collecting
revenue that is otherwise due, such as granting tax credits or
deductions from taxable income". The gist of plaintiff's argument
is that the agency failed to find both governmental pecuniary
assistance and a benefit as required by 19 U.S.C. §§ 1677(5)(D) and
(E). Cf. Delverde, SRL v. United States, 202 F.3d 1360, 1366 (Fed.
Cir. 2000)("the statute clearly requires that in order to find that
a person received a subsidy, Commerce [must] determine that that
person received from a government both [pecuniary assistance] and
benefit"). In particular, CFL insists that the ITA did not make a
determination under section 1677(5)(E). In support thereof, it
directs the court's attention to the ITA's lack of reference to
that section in its decision memorandum, page 17:
. . . [T]he respondents are incorrect on the valuation of
the benefit. It is irrelevant whether the respondents
make a profit on the sale of the imported good. The
financial contribution and benefit provided to the
respondents by the government under this program is the
amount of duties that otherwise would have been paid on
these imports. See section [1677](5)(D)(ii) of the Act.
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Court No. 00-06-00280 Page 8
Therefore, we calculated the benefit under this program
based upon the amount of import duties that would have
been paid by the respondents absent the use of credits
provided under the Passbook Scheme.
The plaintiff claims that, because only that subsection (5)(D)(ii)
is cited, the agency relied on it alone and could not have properly
derived any benefit conferred. See Plaintiff's Memorandum, p. 12.
In a case such as this, the court must consider the
entire record within the meaning of 19 U.S.C. §1516a(b)(2). E.g.,
Ausimont USA, Inc. v. United States, 19 CIT 151, 157, 882 F.Supp.
1087, 1092 (1995), citing Universal Camera Corp. v. NLRB, 340 U.S.
474, 488 (1951). Having now done so, the inference the court draws
is that the ITA properly relied on both subsections (5)(D) and (5)
(E) in deriving the benefit conferred. Its Preliminary Results
state that the amount of customs which should have been paid by the
company to import the goods constitutes the benefit under (5)(E) of
the Act. 64 Fed.Reg at 61,596-97. At the beginning, the decision
memorandum assures that there were no changes in methodology from
that used in the Preliminary Results. The agency's Final Results
are to the same effect. See 65 Fed.Reg. at 31,515. To the extent
the record induces a conflicting inference, "the court will uphold
a decision of less-than-ideal clarity if the agency's path may be
reasonably discerned". Neenah Foundry Co. v. United States, 25 CIT
, , 142 F.Supp.2d 1008, 1020 (2001), citing Colorado Inter-
state Gas Co. v. FPC, 324 U.S. 581, 595 (1945). In sum, the court
cannot find that the ITA's approach was not in accordance with law.
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(3)
CFL claims its benefit was the profit earned on the goods
it imported and not the amount of duty foregone by the Indian
government. Plaintiffs' Memorandum, p. 11. The court can concur
that the company benefitted from that profit, but this is not to
say that it therefore disagrees with the ITA's conclusion. Indeed,
CFL may have benefitted twice under the scheme, first via the
exemption from duties and then the profit earned on the goods
subject to the exemption.
The question the court must decide is whether the ITA's
approach was permissible. The court concludes that it was
consistent with the statute, subparagraph 1677(5)(B) of which
states:
A subsidy is described in this paragraph in the case
in which an authority - -
(i) provides a financial contribution,
(ii) provides any form of income or price
support within the meaning of Article XVI of
the GATT 1994, or
(iii) makes a payment to a funding mecha-
nism to provide a financial contribution, or
entrusts or directs a private entity to make a
financial contribution, if providing the con-
tribution would normally be vested in the
government and the practice does not differ in
substance from practices normally followed by
governments,
to a person and a benefit is thereby conferred. For pur-
poses of this paragraph . . . , the term "authority"
means a government of a country or any public entity
within the territory of the country.
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Furthermore, a benefit "shall normally be treated as conferred
where there is a benefit to the recipient".4 Whatever twists of
reasoning this language may permit, they do not negate the agency's
determination.
CFL's preferred approach on the other hand, the benefit
conferred should be the profit earned, would nullify the intent of
the statute in all those instances where recipients of home-govern-
ment, countervailable benefits still do not turn a profit. Of
course, that intent, unchanged from the law's enactment, has been
to compensate for the unfair opportunity to compete that receipt of
such benefits entails, not what actually is made of such opportun-
ity:
. . . This purpose is relatively clear from the face of
the statute and is confirmed by the congressional
debates: The countervailing duty was intended to offset
the unfair competitive advantage that foreign producers
would otherwise enjoy from export subsidies paid by their
governments.
Zenith Radio Corp. v. United States, 437 U.S. 443, 455-56 (1978),
citing to remarks in the Congressional Record by three Senators
with regard to the Tariff Act of 1897; Wolff Shoe Co. v. United
States, 141 F.3d 1116, 1117 (Fed.Cir. 1998)(countervailing duties
"are levied on subsidized imports to offset the unfair competitive
advantages created by foreign subsidies").
4
19 U.S.C. §1677(5)(E). Apparently, the word "normally" was
added "only to indicate that in the case of certain types of
subsidy programs . . . [none of which are involved here] the use of
the benefit-to-the-recipient standard may not be appropriate."
H.R. Rep. 103-826(I), p. 109 (1994).
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B
According to the ITA's Preliminary Results herein, the
Reserve Bank of India ("RBI"),
through commercial banks, provides short-term pre-ship-
ment financing, or "packing credits," to exporters. Upon
presentation of a confirmed export order or letter of
credit, companies may receive pre-shipment loans for
working capital purposes, i.e., for the purchase of raw
materials and for packing, warehousing, and transporting
of export merchandise. Exporters may also establish pre-
shipment credit lines upon which they may draw as needed.
Credit line limits are established by commercial banks,
based upon a company's creditworthiness and past export
performance. Companies that have pre-shipment credit
lines typically pay interest on a quarterly basis on the
outstanding balance of the account at the end of each
period. In general, packing credits are granted for a
period of up to 180 days.
Commercial banks extending export credit to Indian
companies must, by law, charge interest on this credit at
rates determined by the RBI. The rate of interest
charged on pre-shipment export loans up to 180 days was
13.0 percent for the period January 1, 1997 through
October 21, 1997, and 12.0 percent for the period October
22, 1997 through December 31, 1997. For pre-shipment
loans not repaid within 180 days, the banks charged
interest at the following rates for the number of days
the loans were overdue: 15.0 percent for the period
January 1, 1997 through October 21, 1997, and 14.0
percent for the period October 22, 1997 through December
31, 1997. An exporter would lose the concessional in-
terest rate if the export loan was not repaid within 270
days. If that occurred, the banks were able to assess
interest at a non-concessional interest rate above the
ceiling rate of interest set by the RBI.
64 Fed.Reg. at 61,593. The agency also found that post-shipment
export financing
consists of loans in the form of trade bill discounting
or advances by commercial banks. The credit covers the
period from the date of shipment of the goods, to the
date of realization of export proceeds from the overseas
customer. Post-shipment finance, therefore, is a working
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capital finance or sales finance against receivables.
The interest amount owed is deducted from the total
amount of the bill at the time of discounting by the
bank. The exporter's account is then credited for the
rupee equivalent of the net amount.
In general, post-shipment loans are granted for a
period of up to 90 days. The following interest rates
were charged on post-shipment loans up to 90 days: 13.0
percent for the period January 1, 1997 through June 23,
1997, 12.0 percent for the period June 24, 1997 through
October 21, 1997, and 11.0 percent for the period October
22, 1997 through December 31, 1997.
For loans not repaid within the negotiated number of
days (90 days maximum), banks assessed the following
rates of interest for the number of days the loans were
overdue, up to six months from the date of shipment: 15.0
percent for the period January 1, 1997 through June 23,
1997, 14.0 percent for the period June 24, 1997 through
October 21, 1997, and 13.0 percent for the period October
22, 1997 through December 31, 1997. If a post-shipment
loan was not repaid within six months of the date of
shipment, an exporter would lose the concessional in-
terest rate on the financing, and interest would be
charged at a commercial rate determined by the banks.
Id. at 61,594.
CFL availed itself of such financing, which the ITA
determined to be an export subsidy because it was contingent upon
export performance and also countervailable because the interest
rates charged were less than what the company otherwise would have
had to pay on comparable short-term loans. See id.; 65 Fed.Reg. at
31,517. To calculate the benefit, the agency
compared the actual interest paid on the loans with the
amount of interest that would have been paid at the
benchmark interest rate. Where the benchmark rate
exceeded the program rates, the difference between those
amounts is the benefit.
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If the . . . loans were received solely to finance
exports of subject merchandise to the United States, we
divided the benefit derived from those loans by exports
of subject merchandise to the United States. For all
other . . . loans, we divided the benefit by total ex-
ports to all destinations.
64 Fed.Reg. at 61,594.
CFL's complaint now is that the agency "double-counted"
the export finance subsidies. Its reliance on Kajaria, supra, in
this regard, however, is misplaced. Countervailing a subsidy and
countervailing the non-taxation of that subsidy is not countenanced
by Kajaria; countervailing a subsidy and countervailing the non-
taxation of a different subsidy that incidentally includes a
partial benefit via the other is not impermissible. The facts at
bar constitute an instance of the latter, not the former, and
therefore do not run afoul of that case.
The issue in Kajaria was whether the ITA had double-
counted a subsidy by countervailing both a section 80HHC deduction
on export profits and some over-rebates resulting from India's Cash
Compensatory Support ("CCS") Program. The court held in the af-
firmative, 156 F.3d at 1173-74. The over-rebates were the result
of the agency's finding that certain rebates claimed and received
under the CCS program were improper. That program rebated both
indirect taxes and import duties imposed on products physically
incorporated into an export product. The ITA determined that port
and harbor taxes were not the type of taxes and duties falling
within the rebate exemption under the CCS; instead, they were
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service charges. The rebate of these non-exempt service charges
was countervailable as a subsidy. See 156 F.3d. at 1168.
Concurrently, section 80HHC deductions that included the over-
rebates were countervailed by the agency. See id. at 1167. Those
deductions included the over-rebates because the rebates were
exempt from taxation under that tax section. See id. at 1172,
1174-75.
The plaintiffs in Kajaria argued that countervailing both
the CCS over-rebates and the section 80HHC deductions that were
based on them double-counted the over-rebates. The court con-
curred:
. . . Countervailing the portion of the section 80HHC
deduction attributable to the CCS over-rebates counter-
vails the tax [Kajaria et al.] would have paid on the CCS
over-rebates as a result of their inclusion in taxable
income. In effect, Commerce fully countervailed the CCS
over-rebates and the tax that would have been paid on the
over-rebates. However, [Kajaria et al.] only received a
benefit equal to the full amount of the CCS over-rebates,
which Commerce fully countervailed. Commerce overstated
the subsidies received by double-counting the CCS over-
rebates.
Id. at 1174-75.
Here, however, the ITA did not attempt to countervail
more subsidies than were received. It countervailed interest saved
under the export financing program, and it countervailed taxes
saved under the section 80HHC deduction for export profits, two
distinct subsidies, each of which benefitted CFL. That they can be
seen to partially overlap via accounting principles is not enough
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to render the agency's approach impermissible. This is because the
ITA is not required to take into account the secondary tax effect
of subsidies, despite the net benefit's being the amount of the
subsidy minus the taxes paid on it:
. . . Mindful of the burden on Commerce, our decision
does not mean that in every administrative review or
investigation Commerce must trace the tax treatment of
subsidies to determine if two independent subsidies
partially include the same benefit. However, Commerce
must avoid double-counting subsidies, i.e., countervail-
ing both the full amount of a subsidy and the nontaxation
of that subsidy . . ..
Id. at 1175.
C
CFL alleges that the ITA failed to account for the
"penal" interest it paid in determining the benefit actually
derived from the preferential financing:
Where Calcutta Ferrous paid interest on the same
loan at rates both less than and greater than the
benchmark rate, all the interest -- including the penal
interest paid at rates greater than the benchmark rate --
must be taken into account to determine the actual
benefit to the company from the loans. The methodology
used by ITA, however, improperly eliminates the overdue
penal interest from the calculation of the benefit from
the export loans and uses only the preferential interest
rates.
Plaintiff's Memorandum, p. 21. The sum and substance of defend-
ant's response to this complaint has been as follows:
. . . As we explained in the preliminary results, ex-
porters discount their export bills with Indian commer-
cial banks to finance their operations. . . . By dis-
counting an export bill, the company receives payment
from the bank in the amount of the export bill, net of
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interest charges. The loan is considered "paid" once the
foreign currency proceeds from an export sale are
received by the bank. If those proceeds are not paid
within the negotiated period, then the loan is considered
"overdue." For the overdue loan, the bank will charge
the company interest on the original amount of the loan
at a higher interest rate[;] however, the bank does not
go back and levy the higher penalty interest on the
original term of the loan. In essence, the overdue loan
becomes a new loan with a new applicable interest rate.
Because penalty interest does not apply to the period
preceding the date the loan is considered overdue, we
have not taken the penalty interest into account when
calculating the subsidy provided on the original dis-
counted loan.
DecMemo, p. 24. See also Defendant's Memorandum, pp. 21-25.
While that memorandum defends this position as being
supported by substantial evidence on the record and otherwise in
accordance with law within the meaning of 19 U.S.C. §1516a(b)(1)-
(B)(i), the defendant does admit that "Commerce has previously
taken penalty interest into account." Id. at 22, citing Certain
Iron-Metal Castings From India; Amended Final Results of Counter-
vailing Duty Administrative Review, 62 Fed.Reg. 590 (Jan. 3, 1997).
. . . Since that time, however, Commerce reconsidered its
practice and concluded that adjusting for penalty
interest did not conform to the requirements of the
statute, particularly to the net countervailable subsidy,
offset provision, 19 U.S.C. § 1677(6).
Id., citing Certain Iron-Metal Castings From India; Final Results
of Countervailing Duty Administrative Review, 62 Fed.Reg. 32,297
(June 13, 1997). In that determination, the ITA recited section
1677(6) and proceeded to conclude that penalty interest under
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Court No. 00-06-00280 Page 17
India's Post-Shipment Export Credit in Foreign Currency Program did
not fall within that statutory section's exclusive list of
allowable offsets. See 62 Fed.Reg. at 32,305. This court concurs,
but it cannot agree that that offset section, on its face5, is
actually apposite.
Indeed, the ITA's reasoning in this matter, quoted above,
makes no mention of that section. Rather, its "essence" is that
"the overdue loan becomes a new loan with a new applicable interest
rate." Nothing on the record, however, supports this thesis, nor
should any support be found, given that the loan(s) at issue con-
sisted of a sum certain of money receivable within a specified
period of time at a particular rate of interest or thereafter at a
greater rate. Those were the elements of the borrowing, the
5
The full text of this provision is as follows:
For the purpose of determining the net counter-
vailable subsidy, the [ITA] may subtract from the gross
countervailable subsidy the amount of --
(A) any application fee, deposit, or similar
payment paid in order to qualify for, or to
receive, the benefit of the countervailable
subsidy,
(B) any loss in the value of the counter-
vailable subsidy resulting from its deferred
receipt, if the deferral is mandated by
Government order, and
(C) export taxes, duties, or other charges
levied on the export of merchandise to the
United States specifically intended to offset
the countervailable subsidy received.
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Court No. 00-06-00280 Page 18
benefit of which is not necessarily conclusive upon the close of
that specified, initial period. The duration of the loan, any
loan, cannot be disregarded. It is a critical element of the ulti-
mate cost thereof.
D
The section 80HHC of India's Income Tax Act that has been
referred to hereinabove enabled exporters to deduct from taxable
income profits derived from the export of merchandise. The record
shows that the plaintiffs availed themselves of this deduction,
which the ITA countervailed
because it result[ed] in a financial contribution by the
government in the form of tax revenue not collected which
also constitute[d] the benefit.
64 Fed.Reg at 61,595. Its Preliminary Results report in part
pertinent to this case:
In its questionnaire responses, Kiswok Industries
. . . stated that its profit rate on export sales of
subject castings is lower than the profit rate the
company realizes on the export sales of other castings.
The company submitted audited derivations of its profit
rate for exports of subject castings in 1997, and its
profit rate for exports of other castings for the same
year. The company then calculated that portion of the 80
HHC tax deduction which was applicable to export profit
earned on subject castings.
In prior reviews of this order, the Department has
found the section 80HHC tax deduction program to be an
"untied" export subsidy program. The benefits provided
under this program are not tied to the production or sale
of a particular product or products. It is the Depart-
ment's consistent and long-standing practice to attribute
a benefit from an export subsidy that is not tied to a
particular product or market to all products exported by
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Court No. 00-06-00280 Page 19
the company. . . . Therefore, to calculate the benefit
Kiswok Industries received under the section 80HHC
program, we have not made any adjustments to our standard
allocation methodology.
To calculate the benefit each company received under
section 80HHC, we subtracted the total amount of income
tax the company actually paid during the review period
from the amount of tax the company otherwise would have
paid had it not claimed a deduction under section 80HHC.
We then divided this difference by the f.o.b. value of
the company's total exports.
Id., citing Final Affirmative Countervailing Duty Determination:
Certain Pasta from Turkey, 61 Fed.Reg. 30,366 (June 14, 1996).
In contesting this approach, the plaintiff Kiswok refers
to the opinion of the Court of Appeals for the Federal Circuit in
Kajaria, supra, to wit:
. . . [W]hen the party under investigation provides
documentation that allows Commerce to separate the
portion of the tax deduction based on rebates related to
non-subject merchandise from the remainder of a counter-
vailable tax deduction, Commerce should not countervail
the portion of the tax deduction subsidy tied to non-
subject merchandise. Since the Producers provided such
data, Commerce should eliminate the . . . rebates from
the calculation of the subsidy provided by the section 80
HHC deduction.
156 F.3d at 1176. Whereupon, it argues that this reasoning
"applies with equal force to Kiswok's calculations in the case at
bar." Plaintiffs' Memorandum, p. 25. This court cannot concur, as
countervailing a subsidy tied to non-subject merchandise is dif-
ferent than countervailing profit on non-subject merchandise.
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Court No. 00-06-00280 Page 20
Kajaria et alia had challenged the ITA's decision to
countervail that portion of a section 80HHC deduction attributable
to IPRS rebates (reimbursements to exporters for the difference in
price between domestic and foreign pig iron) on non-subject
merchandise. The agency reasoned that the deduction was an untied
export subsidy and, in accordance with its policy, allocated the
benefit of the subsidy over Kajaria’s total exports, which included
the non-subject merchandise entitled to IPRS rebates. See 156 F.3d
at 1175-76. The question the court had to answer was "whether the
portion of the section 80HHC deduction based on the IPRS rebates
was a countervailable subsidy." Id. at 1176. It answered in the
negative, holding that the ITA
erred in countervailing the portion of the section 80HHC
deduction based on the IPRS rebates because the rebates
involved were tied to merchandise not within the scope of
the review.
Id. In other words, a subsidy tied to non-subject merchandise--a
non-countervailable subsidy--does not become countervailable
merely by virtue of its being deductible under a separate, untied
countervailable subsidy that is a tax deduction.
This precept does not apply herein. The Kajaria court
was faced with two subsidies: one tied and countervailable, and one
tied and not countervailable; and two groups of exports: one
subject to investigation and one not. The record at bar, on the
other hand, involves one subsidy, untied and countervailable, and
merchandise, some subject to administrative review and some not.
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Court No. 00-06-00280 Page 21
The question thus is whether that non-subject merchandise is of any
moment, not, as in Kajaria, whether the countervailing-duty order
governed a subsidy tied to non-subject merchandise. On its face,
that case is not controlling here, nor does it counsel this court
to apply its reasoning by analogy.
Untied subsidies are not linked to any particular mer-
chandise; they are presumed to benefit an exporter in general and
are therefore allocated to its total business. See, e.g., British
Steel PLC v. United States, 19 CIT 176, 879 F.Supp. 1254 (1995),
aff’d in part, rev’d in part and remanded sub nom. LTV Steel Co. v.
United States, 174 F.3d 1359 (Fed.Cir. 1999). The presumption is
sensible. Money is fungible. A cash subsidy, regardless of its
intended or actual use, frees up revenue, which in turn may be
applied for other purposes, and thus entails general benefit. See,
e.g., Usinor Sacilor v. United States, 19 CIT 711, 893 F.Supp. 1112(1995), aff'd in part, rev’d in part, 215 F.3d 1350 (Fed.Cir.
1999).
In short, Kiswok is asking this court to reject this
longstanding approach of the ITA because profit rates on subject
and non-subject merchandise differed. Yet it fails to point to any
authority supporting its position. The simple truth of the matter
is that the statute does not favor Kiswok’s request. Counter-
vailing-duty orders are based on the existence of a countervailable
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Court No. 00-06-00280 Page 22
subsidy, 19 U.S.C. §1671(a). Just as a foreign firm’s revenue or
expenses do not affect a countervailing-duty order on its subsi-
dized merchandise, the extent to which the exporter profits on that
merchandise is irrelevant when it comes to imposition of duties
thereunder.
II
In view of the foregoing, plaintiffs' motion for judgment
upon the agency record must be, and it hereby is, denied, except
that the defendant is directed to recalculate the benefit the
plaintiff Calcutta Ferrous Ltd. realized from its preferential
loan(s), taking into account all of the interest paid thereon. The
defendant may have until July 9, 2004 to report the results thereof
to the court and the plaintiffs, which may then have until July 23,
2004 to comment thereon.
So ordered.
Decided: New York, New York
May 20, 2004
Thomas J. Aquilino, Jr.
Judge