case comment relevant to SEZ

In Reliance Industries Ltd Vs. Designated Authority and Ors. 11 September, 2006 Supreme Court of India www.LegalDuniya.com, imposition of Anti dumping duty was in question. The petitioner has challenged imposition of anti dumping duty on it for importing Pure Terephatalic Acid (for short `PTA'), from Japan, Malaysia, Spain and Taiwan . It is used for the manufacture of polyester yarn (which in turn is used for manufacture of textiles). Apart from the manufacture of PTA, the appellant, inter alia, has a captive power plant from which it draws electricity. The appellant also draws electricity from the Grid for the manufacture of PTA. The cost of electricity forms a significant part of the cost of production. For the electricity drawn from the Grid, the appellant has to pay a tariff rate at the market price of the electricity, while regarding electricity drawn from the captive power plant the appellant transfers electricity at the market rate to its PTA unit.
The court observed: After India became independent in 1947, the Government of Independent India headed by Prime Minister Jawahar Lal Nehru decided to industrialize India as it was realized that the country cannot escape from poverty, unemployment and other social evils unless there is industrialization. It was also known to them that a country cannot be really independent in modern times unless it is industrialized. Hence, the Industrial Policy Resolution was adopted by the Indian government in the early 1950s and encouragement was given to the growth of heavy industry and other industries so that India may become economically independent and a prosperous nation.

The result was that an industrial base was created in India after independence and this has definitely resulted in some progress. The purpose of Section 9A can, therefore, easily be seen. The purpose was that our industries which had been built up after independence with great difficulties must not be allowed to be destroyed by unfair competition of some foreign companies. Dumping is a well-known method of unfair competition which is adopted by the foreign companies. This is done by selling goods at a very low price for some time so that the domestic industries cannot compete and are thereby destroyed, and after such destruction has taken place, prices are again raised.

The purpose of Section 9A is, therefore, to maintain a level-playing field and prevent dumping, while allowing for healthy competition. The purpose is not protectionism in the classical sense (as proposed by the German economist Friedrich List in his famous book `National System of Political Economy' published in 1841) but to prevent unfair trade practices. The 1995 Amendment to Section 9A was apparently made in pursuance to Article VI of the General Agreement on Tariffs and Trade 1994 (GATT 1994) which permitted anti-dumping measures as an instrument of fair competition.

The concept of anti-dumping is founded on the basis that a foreign manufacturer sells below the normal value in order to destabilize domestic manufacturers. Dumping, in the short term, may give some transitory benefits to the local customers on account of lower priced goods, but in the long run destroys the local industries and may have a drastic effect on prices in the long run.
The court has dealt with the relevant provisions under the Customs Act [Section 9A of the Customs Tariff Act, 1975, which was inserted by the Customs Tariff (Second Amendment) Act, 1982. Section 9A was substituted by the Customs Tariff (Amendment) Act, 1995 with effect from 1.1.1995, and now it reads as follows:-

"SECTION 9A - Anti-dumping duty on dumped articles. - (1) Where any article is exported from any country or territory (hereinafter in this section referred to as the exporting country or territory) to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article. ]
(2A) Notwithstanding anything contained in sub-section (1) and sub-section (2), a notification issued under sub-section (1) or any anti-dumping duty imposed under sub-section (2), unless specifically made applicable in such notification or such imposition, as the case may be, shall not apply to article imported by a hundred per cent export-oriented undertaking or a unit in a free trade zone or in a special economic zone.

Explanation. - For the purpose of this section, the expressions "hundred per cent export-oriented undertaking", "free trade zone" and "special economic zone" shall have the meaning assigned to them in explanation 2 to sub-section (1) of Section 3 of the Central Excise Act, 1944 (1 of 1944).
The only interesting thing with respect to SEZs is that despite the injury caused due to the dumping of articles to the local industry as was aptly explained by the apex court in the instant case as above, 100% Export Oriented Units, Free Trade Zones and the SEZs are exempted from imposition of even the ‘anti dumping duty’ .
The case has no relevance with the SEZs excepting the incidental perusal of the provisions. In the instant case the petitioner is not an SEZ nor a 100% EOUnit.