Volkswagen Group claims a $1.4 billion tax dispute with Indian Customs threatens its operations. The Bombay High Court reviews arguments over misclassification of imports, with hearings set to continue.
Mumbai: The Volkswagen Group on Monday told the Bombay High Court that its $1.4 billion tax dispute with Indian Customs authorities is a “life and death” situation for its operations in India.
Senior Advocate Arvind Datar, appearing for Volkswagen, stated that the Customs department’s decision to classify the company’s imported parts as Completely Knocked Down (CKD) units would have severe consequences.
“It is life and death for us,”
he emphasized.
Meanwhile, Customs authorities assured the court that no consignments belonging to Škoda Volkswagen have been detained so far and that they would not detain any shipments moving forward over the $1.4 billion tax demand.
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This assurance followed Volkswagen’s counsel arguing that over 100 consignments had been detained since the issuance of a Show-Cause Notice (SCN) in September 2024.
A Bench of Justices BP Colabawalla and Firdosh Pooniwalla was hearing Volkswagen’s plea challenging the SCN issued under the Customs Act. The notice accused Volkswagen of misclassifying its imports of Audi, Škoda, and Volkswagen vehicles as “individual parts” instead of CKD units, thus evading higher customs duties.
The SCN pertains to approximately 33,000 transactions between 2012 and 2024. Volkswagen’s legal team, led by Senior Advocates Arvind Datar and Rohan Shah, argued that the notice was issued after an excessive delay, making it time-barred.
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“The SCN does not contain a single line explaining why it was issued after 12 years. Did I do something wrong?”
Datar questioned, highlighting that customs authorities had not taken action for over a decade despite Volkswagen consistently importing parts as standalone components rather than CKD units.
Datar pointed out that as per the Central Board of Excise and Customs (CBEC) manual, assessments should have been completed within six months until 2018. After 2018, the law required assessments to be completed within a “reasonable time,” which was not done in this case, he argued.
Furthermore, Datar contended that a show-cause notice under Section 28 of the Customs Act cannot be issued before a provisional assessment is completed. However, the provisional assessment remains incomplete as certain parts—especially those imported from related parties—are still awaiting valuation.
“Until a special valuation report is provided, it is impossible to complete the provisional assessment,”
Datar stated.
Volkswagen’s imports, he argued, are still stuck at the provisional assessment stage, making the SCN premature and unjustified.
Datar also cited past customs orders since 2012, where authorities had consistently classified Volkswagen’s imports as parts rather than CKD units. He argued that the authorities cannot reverse their classification stance after more than a decade of consistent rulings.
At this stage, the High Court Bench remarked that Volkswagen’s method of importing vehicles as CKD units without pre-assembled engines was a clever tax strategy.
“What you can do according to you is that to get over higher rate of duty, you can import a CKD without a pre-assembled engine and then import the engine separately. That is clever tax planning,”
the Bench noted.
Meanwhile, Datar raised concerns about the exorbitant tax demand, arguing that such a massive amount makes alternative legal remedies impractical.
“Merely because my components, along with other parts, can become a car doesn’t mean I am importing a car,”
he maintained.
On the other hand, Additional Solicitor General N Venkataraman, representing Customs authorities, argued that Volkswagen had been importing significant portions of vehicles into India, which should have been classified as CKD units.
He asserted that Volkswagen misclassified its imports as individual parts instead of CKD units, making them subject to a higher customs duty of 30% or even 60% if pre-assembled to the chassis.
Venkataraman also cited statements from Volkswagen’s managing directors, acknowledging that the company had been importing almost entire vehicles as parts. Under the law, such imports attract a higher duty, making the SCN justified, he claimed.
The arguments will continue on February 20, as both parties prepare to present further evidence and justifications before the Bombay High Court.
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