After an extensive hearing of arguments for days in the $1.4 billion tax dispute case of Skoda Auto Volkswagen India with the Indian Customs, the Bombay High Court on Wednesday directed the Customs department to file an affidavit explaining how its September 2024 show-cause notice to the German auto giant is not barred by limitation.
A Division Bench of Justices B. P. Colabawalla and Firdosh Pooniwalla observed, “On the issue of limitation, which is factual, please file an affidavit setting out how limitation does not arise. Though we have heard extensively on all issues, as of now, we are only deciding on the issue of limitation because that goes to the root of the case.”
The Customs department has to file the affidavit by March 10 with factual aspects that counter Volkswagen’s claim that no communications were made before 2023. The court also said that even if the Volkswagen’s petition is allowed by the court and the court takes a decision against the Customs, the latter is free to take suitable action under Section 28 of the Customs Act that covers the recovery of duties and interest that have not been paid.
Volkswagen’s petition challenges a tax demand of USD 1.4 billion by the Customs authority that alleged that the Volkswagen has misclassified its imports of Audi, Skoda and Volkswagen cars as individual parts instead of Completely Knocked Down (CKD) units to avoid higher customs duties. The show-cause notice by the Customs department covers approximately 33,000 transactions of Volkswagen that is under scrutiny.
Additional Solicitor General N. Venkatraman for the Customs submitted to the court that company has failed to reveal key details about its operations and after a thorough investigation, the Customs department said that Volkswagen must pay tax as per the CKD units’ category, a 30% to 35% duty. However, Volkswagen has declared its imports as a separate component in different shipments and paid only 5% to 15% in duties.
“Merely because you bring investment, it cannot be an erosion of sovereign space. We as a nation cannot compromise on sovereignty in taxation and regulatory matters,” Mr. Venkatraman said.
Senior Advocate Arvind Datar for Volkswagen argued that the legal notice was only issued after a 12-year delay, making it time-barred. The company had consistently imported components as parts and not CKD units, and that a 2011 clarification from the revenue secretary validated this classification, he argued. “It is life and death for us as Volkswagen’s operation is crucial in India,” he said.
Published – February 26, 2025 10:07 pm IST
