- Volkswagen must reargue its Rs 11,526 crore tax dispute at Bombay High Court
- The case concerns customs claims on vehicle parts classified as CKD units attracting higher duty
- Customs allege misclassification and use of software to split orders among suppliers to evade duty
Volkswagen will have to make its case again before the Bombay High Court in its dispute with Indian customs authorities over a Rs 11,526 crore tax demand.
The matter was released by the bench of Justices BP Colabawalla and Firdosh Pooniwalla after the judgment, which had been reserved earlier, was not pronounced within the period contemplated under Supreme Court guidelines, as per Bar & Bench.
The court had limited the scope of its proposed decision to whether the customs department's show-cause notice was barred by limitation. However, with the bench releasing the matter without delivering its verdict, Volkswagen's petition will now be heard afresh by an appropriate co-ordinate bench.
The dispute concerns imports made by Skoda Auto Volkswagen India Pvt Ltd (SAVWIPL) for Audi, Skoda and Volkswagen vehicles at its Aurangabad facility.
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Customs authorities allege that the company incorrectly classified vehicle components as individual parts instead of Completely Knocked Down (CKD) units, which attract higher customs duties.
The customs department has questioned around 33,000 import transactions covering the period from March 2012 to July 2024. It has also alleged that Volkswagen used software to divide vehicle orders among hundreds of overseas suppliers to avoid the higher duties applicable to CKD units.
The department issued show-cause notices in late 2024, seeking unpaid duties along with interest. It also alleged that the company withheld information, delaying the assessment process.
Volkswagen, however, has challenged the demand and argued that the notices were issued after an excessive delay. Senior Advocate Arvind Datar contended that the company consistently treated the imports as individual components and relied on a 2011 revenue department clarification that supported its position.
The automaker also argued that provisional assessments had not been completed, leaving it unable to recover the disputed tax burden from customers.
The customs department has taken the opposite position. Additional Solicitor General N. Venkataraman argued that Volkswagen deliberately misclassified its imports and failed to disclose critical details about its operations at the Aurangabad facility.
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According to the Bar & Bench report, customs authorities argued that the plant imported almost all the components required to assemble the vehicles and primarily carried out assembly. The department therefore maintained that the shipments effectively represented nearly complete vehicles and should attract CKD duties of 30%, or up to 60% in certain cases.
The customs authorities have also linked the notices to information obtained following a Directorate of Revenue Intelligence investigation.
The rehearing will now reopen Volkswagen's challenge to the customs action, including the dispute over whether the show-cause notices were issued within the permissible period and whether the imports were correctly classified.
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