The Finance Bill 2025 has fixed a 2 years timeline for finalising provisional assessments under Customs Act, which is likely to avert big tax evasion disputes like Volkswagen and Kia.
The customs department has issued a notice to the German automaker, Volkswagen for evading taxes, to the tune of $1.4 billion, by wilfully paying lower customs duties on components imported for the manufacture of its automobiles.
Similarly, a tax evasion proceedings in respect of Kia Motors was also initiated. South Korea’s Kia is accused of evading $155 million in taxes by misclassifying some car component imports and paying lower customs duty.
The customs laws in India regulate the import of goods to maintain the competitiveness of the domestic industries. However, concessional rates of import duties are applicable in certain situations to ensure the availability of products as well.
Completely Built Units (CBUs) of cars are classified under Chapter 87 of the Indian Customs Tariff Act, 1975 providing for a higher levy of 125% of the import value. However, with the objective to promote domestic assembly and manufacturing, 35% concessional rates are applicable in case the cars are imported in Completely Knocked Down (CKD) condition and then assembled in India.
A further lower rate of 15% is applicable in case the imports do not classify as CKDs.
The dispute relates to the classification of imports by the Automakers as either CKDs or not as CKDs but as parts and components.
The customs department has alleged that Kia’s website showed the Carnival model sold in India as being in “CKD” form, with retail sales of 9,887 units between 2020 and 2022 whereas the imports were intentionally declared as units not being in CKD state.
Finance Bill 2025
Finance Bill, 2025 mandated the provisional assessments, with respect to estimation of customs duties paid by businesses, must be finalised within two years of its commencement.
Earlier, the Customs Act, 1962 lacked a fixed timeline for finalising provisional assessments, causing delays and uncertainties, particularly for those entities involved in related-party transactions.
Typically, these assessments are carried out by authorities when there is uncertainty regarding the value, classification, or applicability of duty rates on imported or exported goods.
Petition Before Bombay High Court
Volkswagen India filed a plea in the Bombay High Court challenging the $1.4 billion tax demand notice issued by Customs authorities. The High Court is set to hear the case on February 17.
