The notice, issued in September 2024, has been challenged by the automobile company, which calls the demand “exorbitant” and “arbitrary and illegal.”
MUMBAI: The Bombay High Court has asked the Customs department to submit an affidavit explaining how its tax demand of $1.4 billion (over Rs 12,000 crore) from Skoda Auto Volkswagen India is not barred by limitation.
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The notice, issued in September 2024, has been challenged by the automobile company, which calls the demand “exorbitant” and “arbitrary and illegal.”
A division bench of Justices B P Colabawalla and Firdosh Pooniwalla is extensively hearing the plea filed by Skoda Auto Volkswagen India. The company argues that the Customs department has raised this tax demand after several years, despite it consistently paying duties under the “individual parts” category for over a decade.
The Customs department claims that Skoda Auto Volkswagen India misclassified its imports of Audi, Skoda, and Volkswagen cars. Instead of declaring them as “Completely Knocked Down” (CKD) units, which attract a higher duty, the company allegedly declared them as “individual parts,” resulting in significantly lower tax payments.
According to the department, CKD units attract an import duty of 30-35%, whereas the company paid only 5-15% by declaring the imports as separate components in different shipments. The authorities claim that this practice misled Customs and helped the company pay much lower taxes than required.
Senior Advocate Arvind Datar, representing the automobile company, argued that the sudden tax demand is unfair. He pointed out that the company has been paying taxes under the same classification for years.
“To now suddenly say that tax ought to be paid as per the CKD unit category is not fair,”
he contended.
On the other hand, Additional Solicitor General N Venkatraman, representing the Customs department, defended the tax demand.
“The department concluded after a thorough investigation that the company has to pay tax as per the CKD category,” he said.
The High Court made it clear that, for now, it will only examine the issue of whether the tax demand is within the legal time limit.
The bench stated:
“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 Customs department has been directed to file its affidavit by March 10, justifying why the tax demand is not barred by limitation.
The German auto group, which operates in India under Skoda Auto Volkswagen India, has been accused of misleading Customs authorities by declaring its imports as separate parts rather than CKD units. The authorities argue that if the imports had been classified correctly as CKD units, the company would have had to pay a higher duty of 30-35% instead of the lower 5-15% duty it actually paid.
