Bombay High Court Condemns Skoda VW’s Argument Against USD 1.4 Billion Customs Notice

Bombay High Court Condemns Skoda VW’s Argument Against USD 1.4 Billion Customs Notice

The matter will be heard on Tuesday

The Bombay High Court has expressed prime facie dissatisfaction with Skoda Auto Volkswagen India's arguments against a USD 1.4 billion notice from the Customs Department.

The division bench of Justice BP Colabawalla and Justice Firdosh Pooniwalla held, "We are not satisfied with your (Skoda Auto) argument. This is only prima facie.”

It added, "To entertain such a plea at the stage of a show-cause notice is something you have to convince us. This is troubling us whether we should entertain the plea.”

The notice claimed that the German group, led by Skoda Auto Volkswagen India, allegedly provided misleading information to the Customs Department by misclassifying its imports of Audi, Skoda and Volkswagen cars as ‘individual parts’ instead of Completely Knocked Down (CKD) units and paying significantly lower duties.

The CKD units attract a 30-35 percent duty, but Volkswagen declared its imports as separate components in different shipments and paid only 5-15 percent.

The department said the import of various unassembled parts of cars should have been declared as CKD units.

While applauding the department’s officer, Justice Colabawalla said, “We must commend the Customs officer because he has painstakingly gone through each number of the part. Every part has a specific KEN number. He has done some serious research before issuing the show-cause notice.”

(KEN refers to a unique identification number used primarily for automotive parts. It allows officials to track which specific car model the parts belong to when importing large quantities of individual components).

If almost all parts, barring one or two, are imported as individual components and assembled at the company's Aurangabad unit, why should it not be held under the CKD category, the bench said.

The court stated, "It is basically a completely built-up (CBU) model in an unassembled form. The only difference is that in the CBU model, the car can be driven off once it is cleared, but in the unassembled form, it is taken to the unit and assembled with a screwdriver technology.”

The bench has been hearing the company’s plea, challenging the September 2024 notice issued by the Customs Department. It contended that the Rs.12,000 crore demand was ‘exorbitant, arbitrary and illegal’.

Representing Skoda, counsel Arvind Datar argued that a notification was issued in 2011 under which a 30-35 percent tax was imposed on the CKD model. The company had classified itself as importing individual parts and paid the tax as per the category.

However, the bench stated that the government issued the 2011 notification, specifying the 10, 30 and 60 percent categories for a purpose.

It added, “There should not be a method by which the notification is circumvented. Otherwise, the notification is just a paper. It is not effective. That way, all importers will do the same.”