Introduction:

In a major legal battle concerning a USD 1.4 billion tax demand, Skoda Auto Volkswagen India Pvt. Ltd. has challenged the show-cause notice issued by Indian Customs authorities, arguing that it is time-barred. The Bombay High Court, while hearing the company’s writ petition (WP/2051/2025), has directed the Customs Department to file an affidavit justifying why the September 2024 show-cause notice is not barred by limitation. The division bench of Justices Burgess Colabawalla and Firdosh Pooniwalla emphasized that the issue of limitation is central to the case and sought a clear explanation from the Customs Department on whether the limitation period commenced at the start of the provisional assessment or at the time of the investigation. The Court noted that despite extensive hearings on multiple issues, it would adjudicate solely on the limitation aspect since it directly impacts the jurisdiction of the tax demand. The Additional Solicitor General (ASG) N. Venkatraman, representing the Customs Department, asserted that the limitation period is determined by the finalization of the assessment and that Volkswagen’s alleged failure to provide necessary documents has delayed the process. Volkswagen countered that the delay is arbitrary and that the tax demand, issued after over two decades of imports, is legally untenable. The Court has directed the Customs Department to file its affidavit by March 10, 2025.

Arguments of Both Sides:

Skoda Auto Volkswagen India Pvt. Ltd. contended that the Customs Authority’s demand notice is without jurisdiction due to an excessive delay. The company argued that it has been importing automobile parts since 2001, and the Customs Department, for years, treated these imports under a specific classification. However, in 2024, the Customs Authority arbitrarily decided that the imports should be classified as Completely Knocked Down (CKD) units and issued a tax demand of USD 1.4 billion. Volkswagen argued that such a reclassification two decades later is unlawful, and any action should have been initiated within the limitation period prescribed under the Customs Act. The company emphasized that the law does not allow Customs to keep the provisional assessment open indefinitely, and the 12-year delay in raising the demand renders the notice invalid. On the other hand, the Customs Department, represented by ASG N. Venkatraman, asserted that the limitation period should be counted from the finalization of the assessment, not from the initial import or investigation. The ASG argued that Volkswagen failed to provide all necessary documentation, and even as recently as February 5, 2025, the company had not submitted complete records, thereby delaying the final assessment. The Customs Authority maintained that it had acted within the legal framework and that Volkswagen’s delay in compliance prevented the conclusion of the assessment process earlier.

Judgement:

The Bombay High Court, after extensively hearing both parties, refrained from delving into the broader tax liability issues and focused strictly on the question of limitation. The Court questioned whether Customs could retrospectively extend the assessment period indefinitely, asking the department to justify how the delay does not render the notice time-barred. The Court directed the Customs Department to submit a detailed affidavit by March 10, 2025, outlining the legal basis for its position on limitation, after which further orders will be passed.