Bombay High Court To Hear Skoda Volkswagen India's Challenge to $1.4 Billion Tax Demand

Bombay High Court to Hear Skoda Volkswagen India's Challenge to $1.4 Billion Tax Demand

The Bombay High Court has scheduled to hear Skoda Volkswagen India’s challenge against a $1.4 billion tax demand by Indian customs authorities on February 17. A Division Bench of Justice BP Colabawalla and Justice Firdosh Pooniwalla agreed to take up the matter next week after the company’s counsel, Naresh Thacker and Gopal Mundhra, mentioned the case before the bench on Wednesday.

Volkswagen has approached the Court to challenge a show-cause notice issued by customs authorities in September 2024 under the Customs Act. The notice alleges that Škoda Auto Volkswagen India misclassified its imports of Audi, Škoda, and Volkswagen cars as “individual parts” instead of “completely knocked down” (CKD) units, thereby paying significantly lower customs duties.

Customs authorities claim that while CKD units attract a 30-35% duty, Volkswagen declared its imports as separate components in different shipments, thereby paying only 5-15% in duties. According to the Directorate of Revenue Intelligence (DRI), Volkswagen has been importing nearly complete cars in this manner for over a decade and should have paid the higher duty rate applicable to CKD units.

Additional Solicitor General (ASG) N Venkataraman, representing the customs department, told the Court that authorities have “incriminating private records” to support their claim. Volkswagen’s counsel countered that the concept of CKD parts was introduced only in 2002 and lacked a clear definition until 2011. Volkswagen argued that it had sought and received a favorable clarification from tax authorities in 2011. The company’s legal team further alleged that the DRI has now changed its interpretation of the rules, leading to the massive tax demand.