The Bombay High Court is currently hearing a high-stakes legal battle between Volkswagen Group and Indian Customs authorities over a ($1.4 billion) USD tax demand. The automaker has termed the dispute a “life and death” matter for its Indian operations, while customs officials deny detaining any consignments linked to the case.
Background
Indian Customs accused Volkswagen of misclassifying imports of Audi, Skoda, and Volkswagen vehicle parts between 2012 and 2024. Authorities claim these imports should be taxed as Completely Knocked Down (CKD) units, attracting higher duties, instead of being declared as individual components. A show-cause notice (SCN) issued in September 2024 alleges tax evasion across 33,000 transactions spanning 12 years.
Volkswagen has challenged the SCN, arguing it was issued after an “excessive delay” and violates procedural guidelines. Senior Advocate Arvind Datar, representing the automaker, stressed that the delay renders the notice legally invalid.
“The SCN does not contain a single line explaining why it was issued after 12 years. Did I do something wrong?”
– Arvind Datar, Volkswagen’s Counsel
Delay in Issuing the SCN: Datar highlighted that customs authorities failed to act for over a decade despite Volkswagen consistently classifying parts as standalone components. Under the Central Board of Excise and Customs (CBEC) manual, assessments should be finalized within six months. Post-2018, the law mandates completion within a “reasonable time,” which Volkswagen claims was ignored.
Procedural Flaws in Assessment: The automaker argued that provisional assessments of its imports remain incomplete, particularly for parts sourced from related parties. A special valuation report is pending, which Datar claims is essential to finalize assessments.
“Until a special valuation report is provided, it is impossible to complete the provisional assessment.”
– Arvind Datar
No Legal Grounds for SCN: Volkswagen’s legal team asserted that issuing an SCN under Section 28 of the Customs Act before completing provisional assessments is unlawful. They emphasized that consignments cannot be taxed retroactively without finalized evaluations.
Customs officials assured the court that no Skoda Volkswagen consignments have been detained and pledged not to hold future shipments over the tax dispute. However, Additional Solicitor General Venkataraman defended the SCN, citing statements from Volkswagen’s managing directors admitting to importing “almost entire vehicles as parts.” He argued CKD classification is justified, demanding 30% duty after exemptions.