The Customs Department on Monday informed the Bombay High Court that it has not, and will not, block any consignments of Skoda Auto Volkswagen India, despite issuing a $1.4 billion tax demand notice to the German automaker in September 2024.
Skoda Auto Volkswagen had filed a petition last month challenging the show cause notice, calling it “arbitrary and illegal.” The dispute stems from allegations that the company imported car parts as individual units rather than as “completely knocked down” (CKD) kits, which attract higher import duties.
A bench of Justices B.P. Colabawalla and Firdosh Pooniwalla heard the case extensively on Monday and scheduled further proceedings for February 20. During the hearing, the bench scrutinized the company’s method of importing car parts, and questioned it about potential tax avoidance.
“You (petitioner) bring in all the components except for one — let’s say the gearbox. You would still fall under the parts category and submit import duty at a lower rate. That is just clever tax planning,” Justice Colabawalla remarked. He further questioned whether importing all but one or two components would still allow the company to avoid CKD classification.
Representing the Customs Department, Additional Solicitor General (ASG)N. Venkatraman assured the court that the agency has not halted any of Skoda Auto Volkswagen’s consignments and will not do so moving forward. The bench accepted this statement.
Senior counsel Arvind Datar, appearing for Skoda Auto Volkswagen, argued that the company has been importing individual car parts, not CKD units, since 2001. He contended that the tax demand was unjustified, given that the authorities had consistently cleared the company’s imports from 2011 to 2024, with duties paid as per the individual parts classification.
“The whole controversy is about whether these are parts or completely knocked-down units. The petitioner company has been importing parts since 2001,” Datar submitted.
He pointed out that in 2011, customs duty on CKD units was increased, yet for over a decade, the company was never issued a notice — until a customs officer at Mumbai’s Nhava Sheva port unilaterally decided in 2024 that the company’s imports should be classified as CKD.
“The authorities did not raise this issue for over a decade. Why suddenly now? Until 2023-24, the company has been paying duty as charged for parts, not CKD. The show cause notice must be quashed,” he urged.
According to the customs authorities, Skoda Auto Volkswagen misclassified its imports of Audi, Skoda, and Volkswagen vehicles by declaring them as separate components instead of CKD units, which attract a 30-35% import duty. By doing so, the company allegedly paid only 5-15% duty, significantly reducing its tax liability.
