The Bombay High Court recently expressed serious reservations about the defense presented by Skoda Auto Volkswagen India regarding a hefty $1.4 billion tax claim. This claim, arising from the Customs department, centers on the alleged misclassification of Skoda's car imports. Central to the court’s scrutiny is the assertion that Skoda classified unassembled car parts in a way that allowed them to incur a significantly lower import duty.
A judicial bench made up of Justices B P Colabawalla and Firdosh Pooniwalla questioned Skoda’s choice not to label these imports as Completely Knocked Down (CKD) units. CKD units, which involve a more complete set of car parts shipped to be assembled, attract higher import duties between 30-35%. In contrast, individual components only bear a 5-15% duty.
The Customs department accuses Skoda of navigating a workaround that exploits potential loopholes in tax regulations specified in a 2011 notification. The notification was intended to prevent exactly this kind of possible tax circumvention. The court recognized the diligence of the Customs officer responsible for the case, who meticulously examined part-specific KEN numbers, revealing a clear pattern of component imports. These parts were typically imported separately and later assembled at Skoda’s facility in Aurangabad.
Representing Skoda, legal counsel Arvind Datar argued that the firm had adhered to accepted classification norms and labeled the tax demand as ‘exorbitant and arbitrary.’ However, the court was unconvinced, highlighting the broader ramifications for all importers should such classification practices be implicitly endorsed. This, they caution, could compromise the integrity of the tax system as a whole.
As the hearings press on, the core issue revolves around whether Skoda’s import classification aligns with the guidelines of the 2011 notification. The debates are set to continue, with the September 2024 show-cause notice forming the basis for Skoda’s continuing challenge. The outcome of this case could set a profound precedent impacting not just the auto industry but the broader import-export domain.
- Mar, 19 2025
- Cassius Montgomery
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