CORRECTED FINAL RESULTS OF REDETERMINATION ON REMAND PURSUANT TO KAJARIA IRON CASTINGS PVT. LTD., ET. AL. V. UNITED STATES Slip. Op. 99 - 6 (Ct. Intíl Trade, January 14, 1999)
CORRECTED FINAL RESULTS OF REDETERMINATION ON REMAND

PURSUANT TO

KAJARIA IRON CASTINGS PVT. LTD., ET. AL. V. UNITED STATES

Slip. Op. 99-6 (Ct. Intíl Trade, January 14, 1999)


SUMMARY

In accordance with the U.S. Court of International Trade's (CIT) order
in Slip. op. 99-6 (Jan. 14, 1999), Consol. Court No. 95-09-01240, the
Department of Commerce (the Department), pursuant to the U.S. Court of
Appeals for the Federal Circuitís (CAFC) opinion in Kajaria Iron Castings
Pvt. Ltd. v United States, 156 F.3d 1163 (Fed. Cir. September 8, 1998)
(Kajaria), has prepared these final results of redetermination on remand
with respect to the final results of the 1991 countervailing duty
administrative review of iron-metal castings from India.  Certain Iron-
metal Castings from India: Final Results of Countervailing Duty
Administrative Review, 60 Fed. Reg. 44,843 (Aug. 29, 1995).  Pursuant to
the Court's remand instructions, the Department has recalculated the
program rates for the subsidies conferred under section 80HHC of Indiaís
Income Tax Act (section 80HHC) and the company-specific total ad valorem
rates.  We have recalculated the rates, in conformity with the CAFCís
September 8, 1998 opinion in Kajaria, using a methodology which eliminates
from the section 80HHC calculations 1) the influence of the subsidies that
were provided in the form of CCS over-rebates and 2) the influence of
income in the form of International Price Reimbursement Scheme (IPRS)
rebates provided with respect to non-subject castings.   Finally, we have
recalculated the all-other rate and determined the company-specific total
ad valorem rates pursuant to the CAFCís September 8, 1998 opinion. 

REMAND ANALYSIS

In Kajaria, the CIT had previously affirmed the Departmentís original
calculations of the subsidies provided to the Indian producers/exporters
of iron-metal castings (the Producers).  The CAFC then reversed, in part,
and affirmed, in part, the CITís decision.  It held that the Department
erred in its calculations of the amount of section 80HHC subsidies
provided by the Government of India (GOI) to the Producers, but affirmed
the Departmentís methodology for calculating the all-other rate and
determining the company-specific total ad valorem rates.  Pursuant to the
CITís instructions and in conformity with CAFCís opinion, we have amended
our calculations of the section 80HHC program rates, the all-other rate,
and the company-specific total ad valorem subsidy rates for the 1991
administrative review.  

In the 1991 administrative review, the Department determined that the
Producers received, inter alia, countervailable subsidies in the form of
1) CCS over-rebates based on port and harbor service charges rather than
allowable taxes and 2) tax deductions on export profits under section
80HHC.  The Department determined that section 80HHC tax deduction
resulted in an "untied" subsidy to the Producers and calculated the
company-specific program rates by dividing the amount of tax savings
realized by each company by the total value of its export sales.  In
addition, the Department determined that the Producers did not receive
IPRS rebates with respect to subject castings but did receive IPRS rebates
with respect to exports of non-subject merchandise.  Consequently, the
Department determined that, for the period 1991, the IPRS program was not
used with respect to subject castings.  Preliminary Results, 60 FR 4596
(January 24, 1995).

In Kajaria, the CAFC disagreed with the our treatment of section 80HHC
tax deduction as an "untied" subsidy.

   We cannot agree with Commerceís decision to treat the portion of 
   the section 80HHC deduction attributable to IPRS rebates as an 
   untied subsidy. The portion of section 80HHC deduction based on 
   the IPRS rebates was not an untied subsidy, but rather a subsidy 
   tied to non-subject castings because the rebates were particular 
   to non-subject castings.

Kajaria, 156 F.3d. at 1176.

Reversing the CITís decision in part, the CAFC held that "Commerce acted
beyond its statutory authority in countervailing benefits received on non-
subject merchandise."  Id. at 1180.  The CAFC also held that the
Departmentís "methodology double counted the subsidies the Producers
received from the CCS over-rebates, by countervailing both the over-
rebates and the section 80HHC deduction attributable to those over-
rebates."  Id.  The CAFC remanded these two issues to the CIT for further
proceedings.  However, it upheld the CITís decision sustaining the
Departmentís methodology of using the rates of all of the companies
(including significantly different higher rates and BIA-based rates) to
calculate the all-other rate. Id.

We amended our calculations of the section 80HHC program rates in the
following manner.  We first adjusted the calculations with regard to the
influence of income in the form of  IPRS rebates on exports of non-subject
merchandise. The companiesí 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 profit
attributable to exports of non-subject merchandise out of the section
80HHC 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.1  We subtracted 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.

We then adjusted the calculations with regard to the subsidies provided
in the form of CCS over-rebates.  Once again, it not possible to ascertain
from the information on the record how much of a given companyís section
80HHC tax deduction for export profit is profit stemming from income in
the form of the countervailable CCS over-rebates.  The financial
information the Producers placed on the record clearly indicates that the
Producers record their CCS rebates in their financial statements as income
just as they record export sales revenues as income.  They then deduct
expenses from their aggregated income in order to determine profit. 
Because CCS rebates (including the CCS over-rebates) are treated as
income, it follows that CCS rebate income contributes to a Producerís
profit as all of its income does.  In the administrative review, we
determined that the CCS over-rebates were provided to the Producers at ad
valorem rates which varied on a company-by-company basis.  Therefore, we
assumed that the contribution of the CCS over-rebate income to a companyís
profit is commensurate with its individual ad valorem rate of CCS over-
rebate and reduced each companyís actual section 80HHC claim accordingly. 
These two adjustments resulted in a recalculated section 80HHC deduction
for each company.

We derived the benefit (numerator) for each company 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 exports, whether IPRS or otherwise, we eliminated any
influence that IPRS rebates tied to non-subject merchandise have on the
calculation of the benefit from the section 80HHC tax deduction
(numerator).  By prorating the section 80HHC deduction in this manner, we
derived a new "tied" amount of section 80HHC deduction 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 principles for the attribution of  "tied" benefits
and factored 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 which are consistent with the courtís instructions,
the countervailing duty law, the Departmentís regulations, and our
longstanding practice.

These recalculated rates are listed below under "Remand Results."  They
are slightly lower than the rates calculated for the administrative review
because, consistent with the Courtís reasoning, IPRS rebates tied to non-
subject merchandise can only affect the taxable income of non-subject
merchandise.  Once all of the profit attributable to non-subject
merchandise (and thus to all of the IPRS rebates ) is factored out of the
calculation of the benefit from the 80HHC tax deduction, the amount that
remains is "tied" solely to subject merchandise.  Therefore, the most
appropriate denominator to use in calculating the subsidy rate is exports
of subject merchandise.

Finally, we recalculated the all-other rate by taking the weighted-
average of all of the Producersí company-specific program rates.  We then
determined whether each Producerís individual company-specific rate was
significantly different than the all-other rate.  If so, the Producer was
assigned its individually-calculated rate.  If not, it was assigned the
recalculated all-other rate.

REMAND RESULTS

Per the instructions of the Court, we have recalculated the company-
specific 80HHC program rates for the 1991 period.  For each Producer, we
first calculated the amount of the companyís section 80HHC deduction that
was attributable to exports of  subject castings.  We then factored out of
that amount the contribution to profit stemming from income in the form of
CCS over-rebates.  In so doing, we have 1) ensured that the recalculated
total company-specific rates and the recalculated all-other rate are free
of any "double-counting" and 2) eliminated from the calculations any
influence of income in the form of IPRS rebates provided with respect to
non-subject castings.  We also recalculated the all-other rate.  The rates
in the first table below are the original and recalculated rates for the
section 80HHC program.  The rates set forth in the second table are the
original and recalculated total ad valorem rates for each Producer. 




80HHC Program Ad Valorem Rate Comparison

                                  Original            Recalculated Remand 
                                Program Rate             Program Rate
Calcutta Ferrous                     [                            ]
Carnation Enterprise Pvt. Ltd.       [                            ]
Commex                               [                            ]
Crescent Foundry Co. Pvt. Ltd.       [                            ]
Dinesh                               [                            ]
Kajaria Castings Ltd.                [                            ]
Kejriwal Iron & Steel Works          [                            ]*
Nandikeshwari                        [                            ]
R.B. Agarwalla & Co.                 [                            ]
R.S.I.                               [                            ]
Serampore Industries Pvt. Ltd.       [                            ]*
Super Castings (India)               [                            ]
Tirupati                             [                            ]
UMA Iron & Steel Co.                 [                            ]


Company-specific Total Ad Valorem Rate Comparison

                              Original       Recalculated   Final Total
                            Administrative      Remand      Ad Valorem
                              Review Rate        Rates         Rates

Calcutta Ferrous                  [                   ]        5.52%
Carnation Enterprise Pvt. Ltd.    [                   ]        5.52%
Commex                            [                   ]        5.52%
Crescent Foundry Co. Pvt. Ltd.    [                   ]        5.52%
Dinesh                            [                   ]        0.00%
Kajaria Castings Ltd.             [                   ]       16.57%
Kejriwal Iron & Steel Works       [                   ]*       5.52%
Nandikeshwari                     [                   ]        5.52%
R.B. Agarwalla & Co.              [                   ]        5.52%
R.S.I.                            [                   ]        5.52%
Serampore Industries Pvt. Ltd.    [                   ]*       5.52%
Super Castings (India)            [                   ]       41.77%
Tirupati                          [                   ]        5.52%
UMA Iron & Steel Co.              [                   ]        5.52%

 
All-other Rate                            5.53%                5.52%



*The rates for Kejriwal and Serampore change substantially due to
clerical errors in the original calculations.  These errors are explained
in the respective calculation sheets.

Attached is (1) a summary of comments received in response to our draft
remand redetermination, (2) the Departmentís response to these comments,
and (3) our calculations for these remand results.

                                              
Robert S. LaRussa
Assistant Secretary
  for Import Administration
                                            
Date: April 20, 1999




COMMENT SECTION

Comment 1: The Engineering Export Promotion Council of India (EEPC) and
the Producers take issue with the Departmentís approach with respect to
IPRS rebates provided for non-subject merchandise.  They argue that "it
does not even address the IPRS since it uses ratios based on values of
exports when IPRS is not even included in such values."  EEPCís and
Producersí Comments (March 31, 1999) (Comments) at 3 .  They argue that
the Departmentís use of ratios incorrectly apportions "the IPRS in each
companyís profit to non-subject and subject castings alike -- according to
export values."  Id. at  4. They contend that Department must "deduct the
IPRS rebates from profit and then calculate the total tax savings based on
all exports, i.e., both subject and non-subject castings in the
denominator or, if the Department prefers a denominator based on subject
castings only, to first deduct the IPRS rebates from profit, then
calculate the remaining profit attributable to subject castings by using a
ratio of the values of subject merchandise to non-subject castings, and
then divide by subject castings only." Id.
Department Position: We disagree with the EEPC and the Producers. 
Section 80HHC allows for the deduction of profit on income associated with
exports.  The information placed by respondents on the record shows that
IPRS rebates are treated as income, not profit.  While income in the form
of IPRS rebates contributes marginally to a companyís overall profit,
income in the form of IPRS rebates is not deductible, as such, under
section 80HHC.  It is this misunderstanding on the part of the Producers--
incorrectly equating, on a dollar-for-dollar basis, IPRS income with
profit deducted under section 80HHC--that lies at the core of their
misguided comments.
Under the IPRS program, the Producers must first incur specific
expenses, such as the expense of purchasing domestic inputs at higher
prices than imported inputs, before they are eligible to receive IPRS
rebates.  It is basic accounting that profit is the difference between
income and expenses.  See Blackís Law Dictionary (5th ed. 1979) at 1090. 
Because the section 80HHC program only allows for a deduction of profit,
it is not appropriate simply to reduce the amount deducted under section
80HHC by the amount of income recorded as IPRS rebates.  If a portion of
the numerator is removed on the basis of being "tied" to non-subject
merchandise,  then, in the interest of consistency, it is necessary to
separate out all other portions which are "tied" to non-subject
merchandise. To do this, we used sales ratios to estimate the amount of
profit deducted under section 80HHC that can reasonably be attributable
only to subject castings and then divided by exports of subject castings. 
This "tied" methodology eliminates the influence of non-subject
merchandise from both the numerator and the denominator and thereby
results in calculations that are not influenced by IPRS rebates on non-
subject merchandise in any way.
In determining the rate of subsidy to subject merchandise, it is the
Departmentís longstanding practice to divide the benefit (the numerator)
by the category of sales to which it is related, that is, by exports of
subject merchandise for a benefit that is "tied" to subject merchandise or
by total exports for "untied" export subsidies.  Either method provides
fair and accurate results.  As explained above in the Remand Analysis
section, the Department originally determined in the administrative review
that section 80HHC tax deductions were "untied" export subsidies to the
Producers. The India Tax Act identifies section 80HHC as a "Deduction in
respect to profits retained for export business" and makes clear that
companies may claim a tax deduction equal to the profit derived from all
exports, not the amount of income realized from  exports.  See S.80HHC(1).
(Attached as Appendix 1).2  Therefore, in calculating the rate of
subsidization, the Department did not attempt to ascertain the amount of
income the Producer realized from its exports in order to determine the
countervailable benefit (the numerator).  Rather, the Department
determined the benefit (the numerator) to be the amount of tax savings
realized by the Producer had it not claimed a section 80HHC tax deduction,
that is, had it not deducted its profit on the income it realized from all
of its exports.  See the "Original Calculations" in the attached
calculation sheets.
As explained above, section 80HHC allows for a deduction equal to profit
on exports, not the amount of income attributable to exports.  Because the
deduction is equal to the amount of profits realized on all exports, the
Department respectfully maintains that its original methodology of
treating section 80HHC subsidies as "untied" export subsidies is the
correct way to countervail the program.  The Departmentís standard
methodology of dividing the "untied" subsidy by total exports does not
over-or understate the value of the subsidy to subject merchandise.  The
portion of the profit deducted under section 80HHC which stems from income
in the form of IPRS rebates on exports of non-subject merchandise is
subsumed in the calculation by the fact that the very exports against
which those IPRS rebates were received are included in the denominator. 
This position notwithstanding, we have adopted a new calculation
methodology in order to conform with the CAFCís holding in Kajaria. 
Instead of treating the section 80HHC subsidy as an "untied" subsidy, we
are now using our "tied" methodology pursuant to the CAFCís opinion.  This
methodology accurately determines the rate of subsidization on subject
merchandise because the calculation remains an "apples-to-apples"
comparison.  Both the numerator and the denominator are attributable to
the same universe of merchandise, exports of subject castings.
The EEPC and Producers contend that the appropriate calculation
methodology is to subtract a Producerís total IPRS income from its section
80HHC deduction, calculate the tax savings on that remainder, and then
divide by total sales.  We strongly disagree with such an approach.  It is
incorrect to subtract income from the amount of section 80HHC deduction as
though it were profit.  The benefit (the numerator) under the section
80HHC program is the amount of tax savings on the profit (not income) that
a given Producer realized and claimed as a deduction with respect to the
income associated with its exports.  A portion of the section 80HHC tax
deduction is profit generated from income in the form of IPRS rebates
which were received on exports of non-subject merchandise.  The rest
consists of profit on income generated from export revenues (both subject
and non-subject) and profit stemming from export income in the form of CCS
rebates.
IPRS rebates are clearly treated as income in the Producersí financial
statements.  They represent a small component of the aggregate income
figure used to derive profit.  Once expenses are deducted, the resulting
profit figure is naturally much less than aggregate income.  The error of
the approach proposed by the EEPC and the Producers can be seen from the
fact that, in some cases, the Producerís IPRS income approaches or even
exceeds the amount of profit it deducted under section 80HHC.  For
example, information on the record indicates that RSIís section 80HHC
deduction for its accounting year ended March 1991 tax return was [ Rs.   
            ].  See Appendix 2 at 1 and 2.3  In its financial statements,
RSIís IPRS income ("Reimbursement against Pig Iron") for the year ended
March 31, 1991, is listed as [ Rs.                  ].  See Appendix 3 at
2.4  If IPRS rebates were profit, then the value of a Producerís section
80HHC deduction should at least equal the value of IPRS income that the
Producer generated for the same period.  But, it does not.  IPRS rebates
are treated as income like other forms of income.  They contribute
marginally to overall profit, but they do not constitute profit.  This can
be seen in the Producersí financial statements.  In RSIís financial
statement, IPRS rebates are listed as income ("Reimbursement against Pig
Iron") which is included in an aggregate income figure; profit is
calculated by subtracting expenses from that aggregate income.  See
Appendix 3 at 2 and 3.  For these reasons, the methodology proposed by the
EEPC and the Producers of reducing the section 80HHC deduction, which is
an amount of profit, by the value of IPRS income, makes no sense at all. 
In  RSIís case, reducing the 80HHC deduction by IPRS income would result
in a negative number several times the value of the deduction.
We divided the amount of section 80HHC deduction attributable to subject
castings by exports of subject castings.  As explained above in the Remand
Analysis section, it is not possible to ascertain from the information on
the record how much of the profit deducted under section 80HHC is
attributable to non-subject merchandise and how much is attributable to
subject merchandise.  The record does not contain such a breakdown. 
Therefore, we used a ratio based on export sales values to derive an
estimated amount of profit generated from non-subject merchandise.  We are
assuming, absent information to the contrary, that the average margin of
profit on subject and non-subject merchandise is the same.  We then
subtracted this amount out of the section 80HHC deduction and calculated
the tax savings on the remainder.  This result (the numerator) divided by
exports of subject castings is the rate of subsidy.  By deducting profit
on exports of non-subject merchandise from the numerator and the value of
exports of non-subject merchandise from the denominator in this manner, we
have factored out of the calculations the profit attributable to non-
subject castings, whether IPRS-related or otherwise.  Thus, we disagree
that our use of ratios based on export values does nothing more than
apportion IPRS rebates to both subject and non-subject castings alike.
Comments at 4.  Prorating the section 80HHC deduction as we have done is a
reasonable method for estimating the profit attributable to subject
castings, while at the same time attributing the profit from income in the
form of IPRS rebates solely to non-subject merchandise.
 
Comment 2: The EEPC and the Producers take issue with the Departmentís
treatment of CCS over-rebates in its calculation of the section 80HHC
subsidies. They argue that the Department should use a methodology of 
"multiplying total export sales value by the individual companyís over-
rebate rate and then subtracting the resultant product from "taxable
profit without 80HHC deduction." " Id. at 9.
Department Position:  We disagree with the EEPC and the Producers.  Once
again, the argument of the EEPC and the Producers is based on the
misunderstanding that income in the form of CCS over-rebates is deductible
under section 80HHC as though it were profit.  Section 80HHC allows for
the deduction of profit on income associated with exports, yet the record
shows that CCS rebates are treated as income, not profit.  The Producers
must first incur the expense of paying indirect taxes before they are
eligible to receive CCS rebates.  Since profit is the difference between
income and expenses, it is not appropriate simply to reduce the amount
deducted under section 80HHC by the amount of income attributable to CCS
over-rebates.  Instead, we used sales ratios to estimate the amount of
profit deducted under section 80HHC that is attributable only to subject
castings and then divided by exports of subject merchandise.  This "tied"
methodology eliminates the influence of non-subject merchandise from both
the numerator and the denominator.  We then reduced the amount of section
80HHC deduction "tied" to profits on export of subject merchandise by an
estimated amount of profit deducted under section 80HHC  stemming from
income in the form of CCS over-rebates. 
Like IPRS rebates, CCS rebates are clearly treated as income in the
Producersí financial statements.  They represent a small component of the
aggregate income figure used to derive profit.  Once expenses are
deducted, the resulting profit figure is naturally much less than
aggregate income.  The error of the approach proposed by the EEPC and the
Producers can be seen from the fact that, in some cases, the Producerís
CCS income approaches or even exceeds the amount of profit it deducted
under section 80HHC.  For example, information on the record indicates
that RSIís section 80HHC deduction for its accounting year ended March
1991 tax return was [ Rs.            ].  See Appendix 2 at 1 and 2.  In
its financial statements, RSIís CCS income ("Cash Assistance")  for the
year ended March 31, 1991, is listed as [ Rs.                 ].  See
Appendix 3 at 2.  If CCS rebates were profit, then the value of a
Producerís section 80HHC deduction should at least equal the value of CCS
income that the Producer generated for the same period.  But, it does not.
CCS rebates are treated as income like other forms of income.  They
contribute marginally to overall profit, but they do not constitute
profit.  This can be seen in the Producersí financial statements.  In
RSIís financial statement, CCS rebates are listed as income ("Cash
Assistance") which is included in an aggregate income figure, and profit
is calculated by subtracting expenses from that aggregate income.  See
Appendix 3 at 2 and 3.  For these reasons, the methodology proposed by the
EEPC and the Producers of reducing the section 80HHC deduction, which is
an amount of profit, by the value of CCS income, makes no sense at all. 
In  RSIís case, reducing the 80HHC deduction by CCS income would result in
a negative number. 
As explained above in the Remand Analysis section, we estimated the
contribution to the profit deducted under section 80HHC from income in the
form of CCS over-rebates to be commensurate with the ad valorem rate at
which those over-rebates were received.  The EEPC and the Producers
erroneously claim that CCS rebates constitute profit that is deductible
under the section 80HHC program.  Their example, in which the full value
of the countervailable CCS over-rebates would be subtracted from the
section 80HHC deduction, is based on their misguided  understanding, as
explained above, that profit deducted under section 80HHC equates with
income on a dollar-for-dollar basis.  See Comments at 8.  Because CCS over-
rebates are not profit but rather income which contributes marginally to
overall profit, and because the information on the record does not permit
a precise breakdown of the amount of profit from CCS rebates that was
attributable to subject and non-subject merchandise, it is reasonable to
estimate the magnitude of the contributions.