Reverse Gear - Rs. 200 Crore Demand from Skoda Auto India confirmed
CAR manufacturers in India are on the wrong track - while new models are hitting the market, sales are hitting rock bottoms. And then there are tax problems. Last year Fiat had a total breakdown in the Supreme Court when the Apex Court ruled that when cars were sold at prices below the cost price, excise duty was to be paid on actual value.
Now it is the turn of Skoda Auto India stuck with a huge Customs demand. Skoda India paid USD 45 millions to Skoda, Czech Republic as royalty while importing cars in SKD and CKD conditions. The Customs Commissioner found the documents fabricated/concocted to undervalue the imports. The Commissioner confirmed a duty amount of Rs. 97 Crores with equal penalty and applicable interest. He also imposed a penalty of Rs. 5 Crores on the former Managing Director. The Commissioner even imposed a penalty of Rs. 25 Crores on the tax advisory firm PWC.
Two years ago, while deciding the Stay issue, the CESTAT had ordered a pre-deposit of Rs. 30 Crores against which the Company had appealed to the High Court and on failing there approached the Supreme Court, where also it did not meet with any success.
Now, the Tribunal has decided the issue - against Skoda. The Demand of 97.15 Crores is confirmed with equal penalty. The penalty on the MD was reduced to one Crore rupees and the penalty on PWC was dropped.
Another interesting aspect of the story is that Skoda had paid Service Tax with interest on the USD 45 Millions they paid to their holding company abroad, but after the decision in the Indian National Shipowners case () realised that they were not required to pay the Service Tax and claimed refund of the interest [without claiming the refund of Service Tax which they had taken as CENVAT Credit], which was rejected by the CESTAT (2012-TIOL-961-CESTAT-MUM). Corporate tax management is a difficult game indeed.
We will bring you the Tribunal decision tomorrow - this is certainly not the end of the story - the matter is sure to reach the Supreme Court.