Mumbai, Feb 20 (PTI) Skoda Auto Volkswagen India will have to "fall in line and not play victim," the Customs department told the Bombay High Court on Thursday, justifying its tax demand notice of USD 1.4 billion to the company for allegedly providing misleading information about its imports.

Additional Solicitor General N Venkatraman, appearing for the customs department, said the rule of law is the same for everyone.

"You have to follow the law. You have to fall in line. The rule of law is the same for everyone. Similar importers are already paying 30 per cent," he said.

The customs department was not at fault for sending the show-cause notice but "it is the company's fault for not classifying the items properly," the ASG added.

"Don't be the victim here. If you don't follow the law then we will initiate action in accordance with the provisions of law," Venkatraman said.

A division bench of Justices B P Colabawalla and Firdosh Pooniwalla was hearing a petition filed by the company, challenging the tax demand notice by terming it as "arbitrary and illegal".

The company said the over Rs 12,000 crore demand was "exorbitant".

The court will continue hearing the arguments on Friday.

The customs has claimed that the company "misclassified" its imports of Audi, Skoda and Volkswagen cars as "individual parts" instead of "Completely Knocked Down" (CKD) units, thereby paying significantly lower import duties.

The court, while hearing the ASG's argument, said the contention of Volkswagen was that until the notice was issued, it had been classifying its imports as individual components and paying tax at the rate applicable to that category.

"Their (Volkswagen) argument is that once you (customs) have classified them under one category all these years, can you now re-classify them," the bench pointed out.

Venkatraman said this was possible, and there was no harm in doing so when the department came across new facts.

"Until now, no commissioner had an iota of (idea of) what the company was doing all these years. How they were importing their material, how they were assembling it, no one in the world knew. Our investigation revealed the truth," he told the court.

The company ought to have come clean, Venkatraman added.

Earlier this week, the ASG had told the court that no consignment from Skoda Auto Volkswagen India had been or would be stopped following the tax demand notice.

`Completely Knocked Down' units attract a 30-35 per cent customs duty, but Volkswagen declared its imports as separate components in different shipments and paid only 5-15 per cent in duties, the customs says.

The German group, led in the country by Skoda Auto Volkswagen India, has been accused of deliberately misleading the authorities. Imports of various unassembled parts of cars should have been declared as CKD units, is the contention of the customs department. PTI SP RSY KRK

Import classification disputes: reclassification permitted when new facts emerge, leading to substantial duty reassessment against alleged misdeclaration. A tax dispute concerns customs alleging that the company declared imports as separate components while in substance they were Completely Knocked Down units, justifying a show cause notice and reassessment; the department asserts reclassification is permitted when new investigative facts emerge, while the company argues that longstanding classification and prior duty payments preclude retrospective reclassification.