Skoda Auto, the renowned German automobile manufacturer, is facing a significant tax challenge in India, with the customs department demanding a hefty amount of $1.4 billion (approximately ₹12,000 crores). The company has contested this notice by filing a petition in the Bombay High Court, labeling the demand as “arbitrary.” The recent development in this case prompts a closer look at the legal proceedings and the implications for Skoda and the broader automotive industry in India.
Recent Developments in the Case
The Bombay High Court, comprising Justice B.P. Colabawalla and Justice Firdous Punewala, has asked the customs department to submit an affidavit regarding the notice. The court previously praised the tax officer for their diligence during earlier hearings. The bench has mandated the customs department to clarify how the tax demand notice issued in September 2024, amounting to $1.4 billion, falls outside the limitations period for tax claims.
Details of the Hearing
During the hearings, the customs department argued that Skoda Auto Volkswagen India had misclassified its imports of Skoda, Audi, and Volkswagen vehicles. The department claims the company presented these imports as individual auto parts rather than fully assembled vehicles under the “CKD” (Completely Knocked Down) category. CKD imports involve bringing in a vehicle in parts to be assembled in India, which incurs different customs duties compared to importing discrete auto parts.
Skoda Auto, on the other hand, contended that it had been compliant with tax regulations, paying duties in various auto parts categories for nearly a decade. The company criticized the customs department’s sudden demand for such a large tax sum after years of silence on the matter.
Understanding Customs Duty Differences
The difference in customs duties between CKD imports and auto parts can be significant. Typically, CKD units are subjected to an import duty ranging from 30% to 35%, while the import duty for auto parts varies from 5% to 15%. This variance underscores the potential financial implications for manufacturers operating in India, particularly foreign automakers like Skoda.
Court’s Appreciation for Tax Officials
In previous court sessions, Justice B.P. Colabawalla and Justice Firdous Punewala acknowledged the thorough research conducted by the tax officials before issuing the notice to Skoda. The court emphasized that the customs duty officer meticulously examined each part’s identification numbers, which are crucial in ensuring accurate classification of imports. This commendation highlights the judicial recognition of procedural diligence within tax enforcement agencies.
Next Steps for the Customs Department
The customs department has been instructed to submit the required affidavit by March 10. This forthcoming submission is critical as it will help the court determine whether the issued notice aligns with legal limitations and whether the customs department’s assessment of Skoda’s imports was justifiable within the frameworks of Indian tax law.
As this high-profile case unfolds, it will undoubtedly influence both Skoda Auto’s operations in India and the regulatory landscape for foreign automakers navigating tax laws within the country.