The Bombay High Court has directed the Customs department to submit an affidavit clarifying the timeliness of a $1.4 billion tax demand against Skoda Auto Volkswagen India, amid claims of undue delay. The demand pertains to the alleged misclassification of imported car units which resulted in reduced customs duties.
The division bench, consisting of Justices B P Colabawalla and Firdosh Pooniwalla, is hearing a challenge from the automobile giant, which has labeled the September 2024 show-cause notice as arbitrary and illegal. Volkswagen contends that the figure—over Rs 12,000 crore—is “exorbitant.”
During proceedings, Volkswagen’s counsel, Arvind Datar, argued that the tax demand based on the classification of their imports as “Completely Knocked Down” (CKD) units rather than individual parts is unjustified after years of consistent tax payments under the latter category. The company asserts that a sudden shift to classify imports as CKD units, which attract higher duties, is inequitable.
The Customs department has countered this by stating that their thorough investigation justified the reclassification. They allege that Volkswagen misled the authorities by declaring the imports of Audi, Skoda, and Volkswagen cars as individual parts to avoid higher duties. According to Customs, these should have been declared as CKD units, which attract a 30-35% duty, instead of the 5-15% that was paid.
On Wednesday, the bench emphasized that their immediate focus would be on the limitation issue, a foundational aspect of the case that could determine the validity of the tax demand. “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 noted.
