The Bombay High Court has expressed skepticism regarding Volkswagen’s defense against a $1.4 billion tax demand issued by Indian Customs authorities.
A Bench comprising Justice BP Colabawalla and Justice Firdosh Pooniwalla stated that it was prima facie not convinced by Volkswagen’s claim that parts should only be classified as CKD units when imported as a single kit.
“The entire fulcrum of your arguments is everything has to come in one go… One kit… Prima facie we are not impressed with the argument. I can easily ask any supplier to bring my car in four different packages. In which case, you can say… this is not a car. This is effectively defeating the (2011) notification,” the Court remarked.
The case centers on allegations that Volkswagen misclassified its imports of Audi, Škoda, and Volkswagen vehicles as individual parts instead of Completely Knocked Down (CKD) units, which attract higher customs duties.
Customs Notice and Allegations
The $1.4 billion show cause notice (SCN) pertains to nearly 30,000 transactions conducted over a 12-year period between 2012 and 2024. The 2011 notification issued by the Indian government differentiates customs duties for vehicles based on their form of import – higher duties for CKD kits and lower duties for individual parts.
Volkswagen has argued that its imports were consistently classified as parts, not CKD units, and that the Revenue Secretary had validated this practice in 2011. However, the Court found the argument unpersuasive, emphasizing that splitting imports into multiple packages could defeat the purpose of the notification.
Customs’ Stand Against Volkswagen
Additional Solicitor General (ASG) N Venkataraman, representing the Customs authorities, rejected Volkswagen’s claims, accusing the company of intentionally misclassifying its imports. He highlighted the operations at Volkswagen’s Aurangabad plant, which imports nearly all parts for assembly.
Time-Barred Argument Dismissed
During previous hearings, Volkswagen’s counsel, Senior Advocate Arvind Datar, argued that the SCN was issued 12 years after the alleged infractions, making it time-barred. However, the Court has not found sufficient merit in this argument thus far.
The Court will continue hearing the matter on Tuesday.
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