Skoda Tax Case: Customs Warns of 'Catastrophic' Consequences if Relief Granted

Mumbai, Mar 23 (PTI) The Customs department has urged the Bombay High Court to dismiss the plea filed by Skoda Auto Volkswagen India in connection with a tax demand of USD 1.4 billion on the ground of time limitation as this would lead to "catastrophic consequences".
The department earlier this month filed its affidavit in reply to Skoda's petition challenging the September 2024 show cause notice.
A division bench of Justices B P Colabawalla and Firdosh Pooniwalla has been extensively hearing the plea filed by the automobile company challenging the notice on the ground that it was arbitrary and illegal.
Last month, the court directed the department to file its affidavit explaining as to how its notice raising a tax demand of 1.4 billion dollar from Skoda Auto Volkswagen India was not barred by limitation.
The department's affidavit said if any relief is given to the company on this ground then it would set a "bad precedent" for car importers to suppress critical information.
"This would lead to catastrophic consequences," the affidavit said. If the notice is quashed and relief is granted then it would encourage companies to withhold information and delay inquiries, it added.
Skoda had delayed the inquiry in the case by withholding data about its imports and had provided misleading information regarding its imports to the department, it said.
The Customs has claimed the company misclassified its imports of Audi, Skoda and Volkswagen cars as "individual parts" instead of "Completely Knocked Down" (CKD) units, thereby paying significantly lower customs duties.
The company said the demand of over Rs 12,000 crore was "exorbitant".
Its counsel Arvind Datar had last month submitted to the court that the case was a "matter of life and death" for its business in the country.
The main contention of the company was that the department could not have raised the tax demand after all these years.
As per the company, it has been been paying tax as per the individual parts category since over a decade.
To now suddenly say that tax ought to be paid as per the CKD unit category is not fair, the company's counsel Arvind Datar had argued.
The authorities cannot demand such an exorbitant amount in 2024 after having cleared the company's bills from 2011 till 2024 wherein tax was paid as per the individual parts component, he had said.
Additional Solicitor General N Venkatraman, appearing for the Customs, had last month said a thorough investigation was carried out by the department to understand and come to the conclusion that the company has to pay tax as per the CKD category.
The bench had then clarified that it would at this stage only decide the issue on the point of limitation as that goes to the root of the case.
The court will hear the matter on March 24.
The German group, led in the country by Skoda Auto Volkswagen India, has been accused of deliberately misleading Customs authorities through its mode of import of parts as individual units rather than as a component of a 'completely knocked down' unit, which attracts higher import duty.
The CKD units attract a 30-35 per cent duty, but Volkswagen declared its imports as separate components in different shipments and paid only 5-15 per cent in duties, as per Customs department.
According to authorities, imports of various unassembled parts of cars should have been declared as CKD units.