Bombay High Court to Hear Volkswagen’s Challenge Against $1.4 Billion Customs Duty Demand
Safiya Malik
The Bombay High Court has scheduled a hearing on February 17 for a petition filed by Škoda Auto Volkswagen India challenging a $1.4 billion tax demand issued by Indian customs authorities. The case involves allegations that the company misclassified its vehicle imports to pay lower customs duties, a claim Volkswagen denies. The court's decision is expected to have significant implications for the Indian automobile industry and customs regulations.
The dispute arises from a show-cause notice issued by customs authorities in September 2024 under the Customs Act. The notice alleges that Škoda Auto Volkswagen India misclassified imports of Audi, Škoda, and Volkswagen vehicles as "individual parts" rather than "completely knocked down" (CKD) units, thereby paying significantly lower customs duties.
Under Indian customs regulations, CKD units attract a duty of 30-35%, while individual components, when imported separately, are subject to a lower duty of 5-15%. The Directorate of Revenue Intelligence (DRI) has claimed that Volkswagen has been following this practice for over a decade to avoid paying the higher duty applicable to CKD units.
The customs department, represented by Additional Solicitor General N. Venkataraman, asserted before the court that authorities have "incriminating private records" supporting their claim that Volkswagen has been systematically underpaying duties.
Volkswagen, in its defense, contended that the definition of CKD parts was only introduced in 2002 and lacked clarity until 2011. The company further argued that it had sought and received a clarification from tax authorities in 2011, which was favorable to its classification method. The automaker alleged that the DRI has now altered its interpretation of the rules, resulting in the substantial tax demand.
A division bench of Justice B.P. Colabawalla and Justice Firdosh Pooniwalla agreed to hear the matter at length on February 17 after Volkswagen’s counsel, Naresh Thacker and Gopal Mundhra, mentioned the case before the court. The judges did not issue any interim relief or observations on the merits of the case at this stage.
The customs department maintained that Volkswagen’s classification of vehicle imports was inconsistent with customs regulations. It asserted that the company had artificially structured shipments to reduce its tax liability, despite the vehicles qualifying as CKD units.
Volkswagen countered this assertion by arguing that the company has been compliant with existing customs regulations and that its classification method had been accepted by the authorities in prior years. The automaker emphasized that the DRI’s current interpretation of the customs classification is inconsistent with previous decisions.
The court directed that the matter be heard in detail on February 17 and did not pass any immediate orders regarding the tax demand or Volkswagen’s petition. The customs department is expected to submit further details and arguments during the scheduled hearing.
Case Title: Škoda Auto Volkswagen India Pvt. Ltd. v. Union of India & Ors.
Case Number: WP/3455/2025(Stamp)
Bench: Justice B.P. Colabawalla and Justice Firdosh Pooniwalla
[Order awaited]
