Rakia Imran
On 17th February, 2025, a Division-Bench comprising Justices B P Colabawalla and Firdosh Pooniwalla, of the Bombay High Court was considering a petition filed by Skoda Auto Volkswagen India last month, in which it described the notice as “arbitrary and illegal.” Following an extensive hearing, the Court scheduled the next proceedings for February 20.
During a hearing on Monday, the Customs Department informed the Bombay High Court that no consignments from Skoda Auto Volkswagen India have been or will be held up, despite a USD 1.4 billion tax demand notice served on the company. The notice accuses the automaker of submitting misleading information regarding its imports. The company argued that the demand of over Rs 12,000 crore is “exorbitant.” Customs authorities, however, claimed that Skoda Auto Volkswagen India misclassified its imported Audi, Skoda, and Volkswagen vehicles as “individual parts” rather than “Completely Knocked Down” (CKD) units, thereby reducing the customs duty it had to pay.
While CKD units attract a customs duty of 30-35 percent, Volkswagen declared its imports as separate parts in different shipments, leading to a significantly lower duty of 5-15 percent. The Court, during Monday’s proceedings, pressed the company on this classification, questioning whether it could technically import almost an entire car while leaving out just one item to continue avoiding the higher CKD duty. To this Justice Colabawalla said, “You (petitioner) bring in all the components except for one. Let’s say the gear box. You would still fall under the parts component and submit import duty at a lower rate. That is just clever tax planning”. Further he added, “Even if you (petitioner company) import all parts in one assignment except the gearbox and engine your argument of individual parts would stand, won’t it. Still you won’t come under the CKD unit component“.
During the hearing, Additional Solicitor General N. Venkatraman, appearing on behalf of the Customs department, clarified to the court that the agency, under the Ministry of Finance, had never stopped any of Volkswagen’s consignments and would not do so in the future. The Court accepted this submission.Meanwhile, Senior Counsel Arvind Datar, representing Skoda Auto Volkswagen, argued that the cause notice should be set aside, labeling it illegal and arbitrary. He contended that the company had consistently paid taxes on its imports according to the classification of individual parts from 2011 to 2024, and it was unjust for authorities to demand an exorbitant amount now, despite previously approving its tax payments.
The senior counsel informed the Court that the company had 6,000 employees in India and stressed that its survival was now at stake due to the ongoing dispute. He asserted that the company had always imported individual components rather than CKD units, contradicting the allegations made by the Customs department. He explained that the controversy stemmed from whether these imports constituted CKD units or merely individual parts. He reminded the bench that the company had been importing in this manner since 2001. He further noted that a modification introduced in 2011 had increased customs duties on CKD units. Despite this, from 2011 to 2024, no notice had been served to the company, suggesting that the authorities had not found any issue with its import classification. He then pointed out that it was only in September 2024 that an officer at Nhava Sheva port near Mumbai categorized the company’s imports as CKD units and issued a show cause notice. He questioned why the Customs department had not raised concerns for over a decade and argued that the company had been paying duties correctly under the parts category. Therefore, he urged the Court to revoke the notice.
Case Name: Skoda Auto Volkswagen India Pvt. Ltd. v. Union of India Thr. The Secretary Ministry of Finance Department of Revenue and Ors
Citation: WP/2051/2025 [Civil]
Bench: Justices B P Colabawalla and Firdosh Pooniwalla