                          Slip Op. 00 - 20

            UNITED STATES COURT OF INTERNATIONAL TRADE

- - - - - - - - - - - - - - - - - - - - x
KAJARIA IRON CASTINGS PVT. LTD. et al.,
                                        :
                          Plaintiffs,
                                        :
                 v.                       Court No. 95-09-01240
                                        :
UNITED STATES,                           :

                          Defendant.    :
- - - - - - - - - - - - - - - - - - - - x

                          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
