Vanshika Bhalla
The Bombay High Court on February 24, 2024, expressed scepticism over Volkswagen’s defence in a $1.4 billion tax dispute. The case involves a show-cause notice (SCN) from Customs authorities, alleging Volkswagen misclassified its imports of Audi, Škoda, and Volkswagen vehicles between 2012 and 2024 as individual parts rather than Completely Knocked Down (CKD) units, which carry higher duties.
A Bench led by Justices BP Colabawalla and Firdosh Pooniwalla found Volkswagen’s argument that CKD classification applies only when all parts arrive as a single kit unconvincing.
“The entire fulcrum of your arguments is everything has to come in one go… One kit… Prima facie we are not impressed with the argument. I can easily ask any supplier to bring my car in four different packages. In which case, you can say… this is not a car. This is effectively defeating the (2011) notification,” the Court stated.
Volkswagen’s counsel, Senior Advocate Arvind Datar, argued that the SCN, issued 12 years after the alleged infractions, was time-barred. However, Additional Solicitor General (ASG) N Venkataraman countered that Volkswagen had misclassified imports and concealed relevant details. A Directorate of Revenue Intelligence (DRI) raid revealed that Volkswagen officers admitted to importing 97% of plant parts for assembly.
The Court noted Volkswagen could present its case before the adjudicating authority and acknowledged the Customs officer’s thorough research before issuing the SCN.
“You should indeed commend the customs officer as he had done some serious research before issuing the SCN by painstakingly going through KEN numbers, VIN numbers, etc.,” the Bench remarked.
Additionally, the Court examined whether Volkswagen’s Aurangabad plant was engaged in manufacturing or merely assembling parts. A 2011 Automotive Research Association of India (ARAI) report indicated that over 50% of activities at the plant involved modifications qualifying as manufacturing.
The case remains ongoing, with the next hearing scheduled for Tuesday.
Case Name: Skoda Auto Volkswagen India Pvt. Ltd. v. Union of India and Ors
Case Number: WP/2051/2025
Bench: Justices BP Colabawalla and Firdosh Pooniwalla