Bombay High Court Resets Volkswagen’s $1.4 Billion Tax Case
German automotive leader Volkswagen faces a renewed legal battle over a $1.4 billion customs tax demand following a procedural reset by the Bombay High Court. The High Court bench, comprising Justices BP Colabawalla and Firdosh Pooniwalla, released the case after reserving judgment for over 1.5 years, prompting a complete re-argument of the matter.
The case, originally argued in early 2025, involves a challenge to a show-cause notice (SCN) issued by Indian customs authorities. The court previously reserved its decision on February 26, 2025, with hearings spanning six days. The primary legal question revolved around whether the SCN was issued within the permissible time frame.
Supreme Court Mandate and Bench Decision
The bench cited a Supreme Court directive, which mandates that judgments be pronounced within three months of reservation, with a possible extension of an additional three months in exceptional cases. As the bench was not ready to deliver its judgment within this timeframe, the case was released and is now set to be heard anew by a co-ordinate bench assigned to 2025 tax challenges.
Core Dispute Over Import Classification
The core issue in the case pertains to the customs classification of Volkswagen’s imports for Audi, Škoda, and Volkswagen vehicles. The SCN argued that the company misclassified these imports as individual parts rather than Completely Knocked Down (CKD) units, which are subject to higher customs duties. Approximately 33,000 transactions were flagged in the notice.
Skoda Auto Volkswagen India Pvt. Ltd. (SAVWIPL) had sought relief from the Bombay High Court against the ₹11,526 crore ($1.4 billion) customs duty demand. The dispute centers on the classification of car components imported for the Aurangabad plant between March 2012 and July 2024. Customs officials maintained that these imports should be taxed as CKD kits, not individual parts, alleging that SAVWIPL used software to split vehicle orders across numerous global suppliers to circumvent higher CKD tax rates.
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Arguments Presented by Both Sides
Senior Advocate Arvind Datar, representing Volkswagen, argued that the SCN was issued after a 12-year delay, rendering it time-barred. He asserted that the company had consistently classified imports as parts, not CKD units, citing a 2011 clarification from the revenue secretary as validation. Datar highlighted that the provisional assessments necessary for determining the correct duty remained incomplete, leaving Volkswagen unable to pass on the tax burden.
On the other hand, Additional Solicitor General N Venkataraman defended the customs notices, alleging intentional misclassification by Volkswagen. Venkataraman claimed that the automaker failed to disclose crucial operational details and imported nearly all parts for assembly at the Aurangabad plant, constituting CKD units liable for higher duties of up to 60 percent if mounted to the chassis. He also noted that the timing of the SCN was based on new findings from a Directorate of Revenue Intelligence (DRI) raid.
