The Bombay HighC Court, on Monday, prima facie, expressed that it was not satisfied with the arguments of Skoda Volkswagen India challenging the 1.4 billion dollar notice by the customs department. The court also commended the customs officer for his meticulous research before issuing the notice.
A bench of Justices BP Colabawalla and Firdosh Pooniwalla stated: “Prima facie, we are not satisfied with your argument. This is only prima facie.” The court emphasised that the company must establish why judicial interference is required at the stage of the show cause notice. “To entertain such a plea at the stage of show cause notice is something you have to convince us. This is troubling us whether we should entertain the plea at the stage of show cause notice,” the bench added.
Acknowledging the diligence of the customs officer involved in the case, the HC said: “One thing though, we must commend the customs officer because he has painstakingly gone through each number of the part. Because every part has a specific number. Each part has a KEN number.” The court noted that the officer had conducted extensive research before
issuing the notice.
The HC was hearing the auto maker’s plea challenging the notice issued in contending that the same was “arbitrary and illegal” . It argued that the demand of over Rs12,000 crore ($1.4 billion) is “exorbitant.” The customs department has alleged that the company misclassified its imports of Audi, Skoda, and Volkswagen cars as “individual parts” rather than “Completely Knocked Down” (CKD) units, allowing it to pay significantly lower customs duties. CKD units attract a 30-35% duty, whereas Volkswagen reportedly paid only 5-15% by classifying its imports as separate components in different shipments.
On Monday, the court questioned why the company should not be held accountable under the CKD category if it was importing almost all parts separately and assembling them in its Aurangabad unit. “It is actually basically a completely built-up (CBU) model in an unassembled form. The only difference is that in the CBU model, the car can be driven off once it is cleared here, but in the unassembled form, it is taken to the unit and assembled with a screwdriver technology,” the court observed.
The German auto group has been accused of deliberately misleading customs authorities by importing vehicles in a way that minimises tax liability. The government’s 2011 notification specifies duty categories of 10%, 30%, and 60% for different levels of assembly. The company’s counsel, Arvind Datar, argued that since 2011, the company has classified its imports as individual parts and paid tax accordingly. However, the court noted, “There is a purpose for the 2011 notification. There should not be a method by which the notification is circumvented. Otherwise, the notification is just a paper. It is not effective. Or else all importers will do the same.”
The bench will continue hearing the matter on Tuesday.
