The Bombay High Court has expressed “prime facie” dissatisfaction with Skoda Auto Volkswagen India’s arguments against a USD 1.4 billion notice from the Customs Department.

A bench has been hearing the plea filed by the company challenging the September 2024 notice issued to it by the Customs department, since last week.

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“Prima facie, we are not satisfied with your (Skoda Auto Volkswagen India) argument,” the division bench of Justices B P Colabawalla and Firdosh Pooniwalla said.

“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 said.

The notice claimed that Skoda Auto Volkswagen India allegedly provided misleading information to the Customs department by misclassifying its imports of Audi, Skoda and Volkswagen cars as “individual parts” instead of “Completely Knocked Down” (CKD) units, thereby paying significantly lower Customs duties.

The CKD units attract a customs duty of around 35% but Skoda Volkswagen declared its imports as “separate components” in different shipments and paid only around 15% customs duty. The Customs department stated that import of unassembled parts of cars should have been declared as CKD units.

“If almost all the parts barring one or two are imported as individual components and then assembled here at the company’s Aurangabad unit then why should it not be held under the CKD category,” the HC questioned.

“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 its unassembled form, it is taken to the unit and assembled using screwdrivers,” the HC said.

The HC bench said the government has issued the 2011 notification specifying that “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 thing,” the bench stated.

However, the company stated that the demand of over Rs 12,000 crore Customs duty was “exorbitant”, “arbitrary and illegal”. The company’s lawyer Arvind Datar had argued that a notification was issued in 2011 under which 35% tax was imposed on CKD model. The company claimed that it had classified itself as importing individual parts and has paid tax as per that category.