The Union government told the Bombay High Court on Monday that no consignment belonging to Skoda Auto Volkswagen India Pvt. Ltd had been stopped or will be stopped over an import tax demand of $1.4 billion, which the carmaker has disputed.
The carmaker had approached the HC after the government demanded customs duty at CKD (completely knocked down) rates on items imported over the past 12 years. CKD implies importing all components of a car in an unassembled state, which can then be put together to get a functional vehicle.
The company’s counsel Arvind Datar told the court that the urgency for hearing this petition was that the company’s consignment had been stopped by the customs authorities at the port where the imports were stored.
However, additional solicitor general (ASG) N. Venkatraman, representing the government, rejected the company’s contention. He told the court, with instructions from the tax authorities, that Skoda’s consignment had not been stopped and will not be stopped. This statement was recorded by the court, and the petition was posted for ASG’s arguments on 20 February.
Dispute over import classification
The carmaker stated in its petition that it uses NADIN software worldwide to track demand and plan production, which the taxman has misconstrued as a means to circumvent tax laws.
Skoda Auto allegedly used this software to break down vehicle orders into components and sub-assemblies, which were imported at a lower duty of 5-15%, instead of importing completely knocked down (CKD) kits and paying a 35% duty, according to the government. The court petition stated that these parts were then assembled locally into finished vehicles.
The dispute centred around whether these imports should be classified as CKD kits, which attract higher duties, or as standalone parts and components, which face a lower customs duty. Skoda’s petition says the taxman incorrectly interpreted the software as a means to break down the order for a car into separate parts, which are ordered from hundreds of suppliers around the globe, to the same effect as ordering CKD kits, to save on customs duty.
Legal challenges
The tax notice to Skoda on 30 September 2024 challenges Skoda’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.
The company’s plea on January 29 challenges the notice by customs authorities asking the automobile company to explain why its provisionally assessed bills of entry (BOEs) for importing goods between March 2012 and July 2024 should not be reassessed as CKD kits. The notice also proposes to impose a customs duty of approximately ₹11,526 crore (approximately $1.4 billion) along with interest and to confiscate the imported goods.
Skoda claimed that since 2001 it had been importing parts and components for vehicle assembly in India, and it transitioned to a “part-by-part” import model in 2003, in which parts and components are sourced from various global suppliers for local assembly. The carmaker has argued that this is a common practice in the automotive industry to use such software for production planning. It said parts and components are neither imported in a single consignment nor in and around the same time.
Datar pointed out the clarification issued by Union revenue secretary on 11 March 2011, which it claimed distinguished between CKD kits and standalone parts. He argued that this clarification should govern the classification of its imports and make the notice’s assessment invalid. He further explained that Skoda had followed guidelines outlined in the 2011 note, which explicitly stated that the standalone imports of parts and components would be subject to customs duty at the previous rate (10% basic customs duty), and not as imports of CKD kits for CKD operations.
He also questioned why the issue had not been raised earlier, noting that no concerns were raised between 2011 and 2024. “Why is this issue suddenly being raised in 2024,” Datar asked, emphasizing that all his goods had been cleared by customs without any objection for years.
The company’s plea requests the HC to prevent the commissioner from proceeding with the notice and to quash it. It has also sought a declaration that standalone imports of parts and components should not be considered as CKD kits for customs duty purposes. The company has requested an interim stay on the notice’s implementation, halting any action until the matter is resolved in the court.