27 九月 2022

Countervailing duty cannot be revoked before completion of sunset review

The Gujarat High Court has held that it is not open to the Central Government to straightway issue the Notification rescinding the countervailing duty, during the sunset review investigation in respect of continuance of countervailing duty which has been already initiated and kept undecided.


Real Strips Ltd., the Petitioner, was a manufacturer of Cold Rolled Stainless Steel Strips/Coils (‘CRSS Coils’). By Notification dated 7 September 2017, the Department of Revenue, Ministry of Finance (‘Central Government’) had imposed definitive countervailing duty (‘CVD’) on the imports of CRSS Coils from China PR based on the recommendations dated 4 September 2017 of the Director General of Trade Remedies (‘DGTR’), which is a trade remedy wing working under the Ministry of Commerce. The CVD was imposed by the Central Government for 5 years and was to continue till 6 September 2022.

On 1 February 2021, the Central Government issued a Customs Notification suspending the CVD, first till 30 September 2021 and again till 31 January 2022 vide another notification.

In the meantime, a sunset review investigation was initiated by the DGTR vide Notification dated 8 October 2021 on an application filed by the domestic manufacturers of CRSS Coils. A sunset review investigation is conducted by the DGTR in accordance with first proviso to Section 9(6) of the Customs Tariff Act, 1975 (‘Act’) and Rule 24 of the Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995 (‘CVD Rules’). Such a review is conducted to determine if there is a need for continuation of CVD for another five years if its expiry is likely to lead to continuation or recurrence of subsidization and injury to the domestic industry of CRSS Coils.

Section 9(6) of the Act provides that the CVD imposed under that section shall, unless revoked earlier, cease to have effect on the expiry of five years from the date of such imposition. By using its powers under Section 9(6), the Central Government rescinded the CVD vide customs notification dated 1 February 2022 (‘Impugned Notification’) even while the sunset review investigation was being undertaken by the DGTR. This opened the doors of imports from China of CRSS Coils thereby giving competition to the domestic manufacturers of CRSS Coils.    

The Petitioner being aggrieved by the continued suspensions of CVD from Feb 2021 onwards and its final revocation vide the Impugned Notification filed a Writ Petition in the Gujarat High Court challenging the said revocation powers of Central Government. The Petitioner’s main case was that the Central Government was not competent to rescind the CVD before receiving the recommendation from the DGTR in the ongoing sunset review proceedings. On the other hand, the Central Government defended its decision by relying on its ‘sovereign powers’ to impose / revoke the duties under Section 9(6) of the Act, its ‘legislative functions’, ‘economic policy making’ as well as on ‘public interest’ grounds.

High Court’s decision:

It was claimed by the Central Government that issuance of the Impugned Notification rescinding the CVD was in exercise of its sovereign power and in public interest.

The High Court held that the enactment of Section 9 of the Act and CVD Rules was in line with the Government of India’s commitment at the WTO is a sovereign function and any exercise of powers by the Central Government under the Act and the CVD Rules must be in accordance with the statutory mandate.

The High Court held that Section 9(6) and the CVD Rules which lays down the process of decision making in such cases involves two mandatory steps - a. Review conducted by the DGTR and b. formation of an opinion by the Central Government to reject or accept the said recommendations. The Court further held that the sunset review conducted by the DGTR prior to levy or revocation of the countervailing duty is a mandatory pre-requisite for exercise of powers by the Central Government under Section 9(6) of the Act.   

The High Court held that the phrase ‘unless revoked earlier’ used in Section 9(6) of the Act cannot be viewed to be denoting or empowering the Central Government to revoke the CVD without any recommendations by the DGTR. The procedure including making of inquiry of ascertaining the aspects of injury to the domestic industry by DGTR, will have to be read into Section 9(6) before the powers to revoke is exercised by the Central Government.  

The High Court also held that exercise of powers in consonance with the laws and procedures is part of public interest and any exercise contrary to the statute cannot be said to be in public interest. The High Court also rejected the argument that the revocation of CVD was an economic policy decision and held that when the decision arises out of mandatory statutory provisions, it becomes a ‘statutory decision’ which can be challenged in the court of law based on statutory non-compliance.

The High Court held that since an appeal lies against the order of determination or review of CVD before the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’), the issuance of notification by the Central Government would be a quasi-judicial function and not a legislative function.

Considering the above, the Court in Real Strips Ltd. v. Union of India [Judgement dated 2 September 2022] held that rescinding the CVD via Impugned Notification dated 1 February 2022 was an illegal and irregular exercise of powers by the Central Government and the process of ongoing sunset review investigation could not have been disregarded while issuing such notification. More interestingly, the Court ordered that the levy of CVD would continue even though the original Notification dated 7 September 2017 has outlived its five years.

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