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The Bombay High Court, on Wednesday, directed the Customs Department to submit an affidavit clarifying why its September 2024 show-cause notice—raising a $1.4 billion tax demand from Skoda Auto Volkswagen India—should not be deemed time-barred.
A division bench consisting of Justices B. P. Colabawalla and Firdosh Pooniwalla has been extensively hearing the automobile company’s challenge to the notice, which it argues is arbitrary and legally untenable.
Skoda Auto Volkswagen India has characterized the $1.4 billion (over Rs 12,000 crore) tax demand as “exorbitant.”
The Customs Department, in its notice, contends that the automaker deliberately misrepresented details regarding its imports.
According to Customs, the company wrongly classified its imports of Audi, Skoda, and Volkswagen vehicles as “individual parts” rather than “Completely Knocked Down” (CKD) units, which resulted in the payment of significantly lower customs duties.
The company’s principal argument is that the department cannot retroactively impose a tax demand after years of consistent compliance under the “individual parts” classification.
To now claim that duties should have been paid under the CKD category is unfair, contended the company’s counsel, Arvind Datar.
Additional Solicitor General N. Venkatraman, appearing for the Customs Department, countered that an exhaustive investigation had established that the automaker was liable to pay duties under the CKD category.
On Wednesday, the bench emphasized that, at this juncture, it would adjudicate solely on the issue of limitation.
“On the issue of limitation, please file an affidavit. Though we have heard extensively on all issues, as of now we are only deciding on the issue of limitation because that goes to the root of the case,” the court directed.
The Customs Department has been instructed to submit its affidavit by March 10.
The German automotive conglomerate, represented in India by Skoda Auto Volkswagen, has been accused of deliberately circumventing Customs regulations by classifying its imports as individual parts rather than as CKD units, which would have subjected them to a higher duty regime.
CKD units are subject to duties ranging from 30 to 35 percent, whereas Volkswagen allegedly declared its imports as separate components in multiple shipments, thereby paying duties in the range of only 5 to 15 percent, as per the Customs Department.
Authorities argue that various unassembled car parts should have been declared as CKD units. Instead, the automaker strategically minimized its duty obligations by declaring imports as individual components arriving in separate shipments, significantly reducing its tax liability.
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