Rakia Imran
A Double-Bench comprising Justice BP Colabawalla and Justice Firdosh Pooniwalla of the Bombay High Court decided to address the matter of Skoda Volkswagen India’s challenge to a $1.4 billion tax demand raised by Indian Customs Authorities on February 17, next week after the company’s counsel, Naresh Thacker and Gopal Mundhra brought it to the bench’s attention on Wednesday.
Volkswagen operates two manufacturing facilities in India—at Chakan (Pune) and Shendra (Chhatrapati Sambhajinagar).
Škoda Auto Volkswagen India has petitioned the Court to challenge a show-cause notice it received from customs authorities in September 2024 under the Customs Act. The notice accuses the company of misrepresenting its imports of Audi, Škoda, and Volkswagen cars by declaring them as “individual parts” instead of classifying them as “completely knocked down” (CKD) units. By doing so, Volkswagen allegedly paid significantly lower customs duties than what would have been applicable under the CKD category.
Customs authorities assert that CKD units are subject to a duty ranging from 30% to 35%, whereas Volkswagen’s classification of the imports as separate parts allowed it to pay only 5-15% in duties. The Directorate of Revenue Intelligence (DRI) further claims that the company has employed this method for over ten years, avoiding a substantial amount in tax payments.
During the court hearing, Additional Solicitor General (ASG) N Venkataraman, appearing on behalf of the customs department, informed the bench that authorities had access to “incriminating private records” that support their allegations against Volkswagen.
In response, Volkswagen’s legal counsel refuted these accusations, arguing that the definition of CKD parts was only formally introduced in 2002 and remained ambiguous until 2011. They highlighted that in 2011, Volkswagen sought and received official clarification from tax authorities, which endorsed its classification approach. The counsel further alleged that the DRI has now changed its interpretation of customs rules, leading to the imposition of the hefty tax demand on the company.