The customs department on Monday informed the Bombay High Court that it has not, and will not, stop any consignment of Skoda Auto Volkswagen India pursuant to a September 2024 show cause notice issued to the German firm seeking $1.4 billion in tax.
Last month, Skoda Volkswagen India had filed a petition in the HC challenging the tax demand notice of $1.4 billion, terming it as “arbitrary and illegal”. The tax demand notice relates to the firm allegedly importing car parts as individual units rather than as “completely knocked down” (CKD) units, which attract higher import duties.
A division bench of Justices B P Colabawalla and Firdosh Pooniwalla heard the matter extensively on Monday and said it would continue the hearing on February 20. Additional Solicitor General N Venkatraman, appearing for the customs department, told the court the central agency under the Ministry of Finance has till date not stopped any consignment of the German automaker and would not do so going forward. The bench accepted the statement.
What is the controversy?
Senior counsel Arvind Datar, appearing for Skoda Auto Volkswagen, sought for the show cause notice to be quashed, terming it as illegal and arbitrary. The authorities cannot now demand such an exorbitant amount in 2024 after having cleared the company’s bills from 2011 till 2024 wherein tax was paid as per the individual parts component, he argued.
“The whole controversy is about whether it is parts of completely knocked down units. The petitioner company has been importing parts since 2001,” Datar submitted.
In 2011, a modification was issued increasing the customs duty imposed on CKD units. From 2011 to 2024, the petitioner company did not receive any notice, the senior counsel told the bench. But in September 2024, one customs officer at the Nhava Sheva port near Mumbai decides that the company’s import falls under the CKD unit category (unassembled condition) and issues a show cause notice, Datar argued.
Skoda Auto Volkswagen India has been accused of deliberately misleading customs authorities through its mode of import of parts as individual units rather than as a component of a ‘completely knocked down’ unit, which attracts higher import duty. The notice alleged that the company misclassified its imports of Audi, Skoda and Volkswagen cars as “individual parts” instead of “completely knocked down” (CKD) units, thereby paying significantly lower customs duties.
