Dispute Over Demand Of $1.4 Billion Import Duty From Volkswagen Will Not Affect Its Production In India: Customs Dept Tells Bombay HC

The dispute with regard to the demand for USD 1.4 billion import duty from Skoda Auto Volkswagen India has not and will not affect the German company's production in the country, the Customs Department told the Bombay High Court on Monday.

A division bench of Justices Burgess Colabawalla and Firdosh Pooniwalla recorded the statement made by Additional Solicitor General N Venkatraman, who told the judges that from September 2024 (when the notice was issued to Skoda) till date, the Customs department has not stopped any consignment of the company and will also not be doing so, going forward.

"We have ensured that the production goes on smoothly. It is incorrect on their (company's) part to say that our officers have stopped the consignments. I have clear instructions that till date, we have not and even in future, we will not be stopping the consignments," Venkatraman told the judges.  

The bench was hearing a petition filed by the German company challenging the tax demand of USD 1.4 billion by Indian customs authorities.

Notably, the customs authorities in India have accused Skoda Auto Volkswagen India, of misleading them through its mode of import of parts as "individual units" rather than as a component of a "completely knocked down" (CKD) unit, which attracts higher import duty. It had therefore, in September last year, issued a show cause notice to the automobile company under the Customs Act.

Senior Advocate Arvind Datar representing Volkswagen India, made extensive submissions, for the whole day before the bench along with senior advocate Rohan Shah.

Datar pointed out to the court that his clients have been importing parts since 2001 and that there was an increase in the customs duty imposed on CKD units - a notification of which was issued way back in 2011. He further told the judges that from 2011 to 2024, his client never received any such notice. 

"But in September 2024, one customs officer at the Nhava Sheva port near Mumbai decided that my client's imports fall under the CKD unit category (unassembled condition) and he issued a show cause notice. The authorities cannot now 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," Datar argued. 

The senior counsels made it clear that their clients were only importing 'parts of the car' and not a 'car as a whole' and thus they cannot be taxed as per the rates for the CKD units. 

"The authorities did not rake up the issue from 2011 to 2024. Why suddenly in 2024? Till 2023-2024, the company has been paying duty as charged for parts and not CKD. The show cause notice has to be quashed as it is arbitrary," Datar submitted. 

During the hearing, the judges questioned what if the company imports all components of the car except one item and then says they are only parts and not a CKD unit.

"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 pay import duty at a lower rate. That is just clever tax planning," Justice Colabawalla said.

The bench has adjourned the hearing till Thursday (February 20) for the ASG to make his submissions.