Skoda Auto Volkswagen India's USD 1.4 Billion Tax Case: Customs Warns of Severe Consequences

The Bombay High Court is currently examining a plea from Skoda Auto Volkswagen India regarding a significant tax demand. The Customs department has requested the court to dismiss the plea due to time limitations, warning of severe repercussions if the plea is accepted. The department's affidavit argues that granting relief could encourage other importers to conceal vital information.

Representative image

Last month, the court instructed the Customs department to justify its tax demand notice of USD 1.4 billion against Skoda Auto Volkswagen India. The company has challenged this notice, claiming it is arbitrary and illegal. The division bench of Justices B P Colabawalla and Firdosh Pooniwalla is hearing the case, focusing on whether the notice was issued within the permissible time frame.

Customs Department's Stand on Tax Demand

The Customs department contends that Skoda Auto Volkswagen India misclassified its imports of Audi, Skoda, and Volkswagen vehicles. Instead of declaring them as Completely Knocked Down (CKD) units, which attract higher duties, they were declared as individual parts. This classification allowed the company to pay significantly lower customs duties.

The department claims that if the court quashes the notice, it would set a negative precedent for car importers. It argues that such a decision could lead companies to withhold information and delay inquiries, undermining regulatory processes.

Skoda Auto Volkswagen India's Argument

Skoda Auto Volkswagen India has described the tax demand of over Rs 12,000 crore as excessive. Arvind Datar, representing the company, argued that this case is critical for their business in India. He stated that the company has been paying taxes based on individual parts for over a decade and suddenly changing this to CKD units is unjust.

Datar further argued that authorities cannot demand such a large amount in 2024 after approving bills from 2011 to 2024 under the individual parts category. The company maintains that it has consistently complied with tax regulations as understood over the years.

Investigation and Legal Proceedings

Additional Solicitor General N Venkatraman, representing Customs, stated last month that a comprehensive investigation led to the conclusion that taxes should be paid under the CKD category. The bench clarified that it will first address whether the notice was issued within legal time limits before delving into other aspects.

The German group, represented by Skoda Auto Volkswagen India in this matter, faces allegations of misleading Customs by importing parts as separate components rather than CKD units. CKD units incur a 30-35% duty, but by declaring them as separate shipments, Volkswagen paid only 5-15% in duties.

The court is scheduled to hear further arguments on March 24. The outcome will hinge on whether the tax demand notice falls within statutory time limits, which is central to resolving this dispute.