The Bombay High Court (HC) on Monday voiced a prima facie dissatisfaction with Skoda Auto Volkswagen India’s arguments in its challenge against a $1.4 billion tax evasion notice, issued by the customs department for paying lesser tax on import of car components.The two-judge bench led by Justice B.P. Colabawalla also praised a customs’ officer for his “meticulous work and research” before issuing the show-cause notice.The bench said the carmaker would need to make a compelling case for why the plea should be entertained at this stage. “Prima facie, we are not satisfied with your argument. It is troubling us whether we should entertain the plea at the stage of the show-cause notice,” the bench added.Also read | Skoda consignments won’t be stopped over $1.4 bn tax dispute: Govt to Bombay HCSkoda Auto had moved the court on 29 January after the government sought customs duty at CKD (completely knocked down) rates on items imported over the past 12 years. Tax authorities have demanded a customs duty of about ₹11,526 crore (around $1.4 billion), along with interest, from the German automaker and issued a notice to confiscate the imported goods. Apart from the amount, the tax notice of 30 September 2024 challenges the company’s classification of parts and components imported for its Aurangabad factory.The government says these imports should be classified as CKD kits—unassembled motor vehicle parts—for cars produced between March 2012 and July 2024. CKD implies importing all components of a car in an unassembled state, which can then be put together to get a functional vehicle.The government has argued that instead of importing CKD kits paying 35% duty, Skoda Auto Volkswagen India Pvt. Ltd used its software NADIN to break down vehicle orders to components and subassemblies. These were then imported at a lower duty of 5-15%, and assembled locally to finished vehicles.Also read | Skoda looks to turn profitable in India this year: OfficialDuring the hearing on Monday, the bench made a preliminary observation that if all parts barring one or two are imported as individual components and then assembled at the company’s Aurangabad unit, the imports could potentially fall under the CKD category.The bench acknowledged the diligent efforts of the customs officer for thoroughly reviewing the imported parts and their corresponding identification number—specifically the KEN number, a unique number that helps customs officials track which car model the parts belong to.“We commend the customs officer because he has painstakingly gone through each number of the part and done serious research before issuing the show-cause notice,” the judge said.The company has challenged the tax notice, which had asked the carmaker to explain why its provisionally assessed bills of entry for importing goods between March 2012 and July 2024 should not be reassessed as CKD kits.Additional solicitor general N. Venkatraman argued that the customs department
The High Court has expressed initial dissatisfaction with Skoda’s reasoning in the $1.4 billion tax controversy.
