Bombay High Court questions Volkswagen’s defence in $1.4 billion tax case
A bench comprising Justice B.P. Colabawalla and Justice Firdosh Pooniwalla rejected Volkswagen’s argument that CKD classification applies only when all parts arrive as a single kit.
ADVERTISEMENT
The Bombay High Court on Monday expressed scepticism over Volkswagen’s defence in the $1.4 billion tax dispute, stating that it was not convinced by the automaker’s interpretation of customs regulations.
The case concerns a show-cause notice (SCN) issued by Customs authorities, alleging that Volkswagen misclassified its imports of Audi, Škoda, and Volkswagen vehicles between 2012 and 2024. The company is accused of declaring the imports as individual parts rather than Completely Knocked Down (CKD) units, which attract higher customs duties.
A bench comprising Justice B.P. Colabawalla and Justice Firdosh Pooniwalla rejected Volkswagen’s argument that CKD classification applies only when all parts arrive as a single kit. The Court remarked that such an interpretation could allow manufacturers to evade higher duties by importing components separately.
"The entire basis of your argument is that everything must arrive in one go, as a single kit. Prima facie, we are not convinced. A manufacturer could easily request suppliers to deliver a vehicle in multiple shipments and then claim it is not a CKD import. This would defeat the intent of the 2011 customs notification," the Court stated.
The SCN covers approximately 30,000 transactions over 12 years. Volkswagen maintains that it consistently imported parts, not CKD kits, and had received clarification from the Revenue Secretary in 2011 supporting this classification. However, Additional Solicitor General (ASG) N. Venkataraman, representing Customs authorities, dismissed Volkswagen’s stance, alleging deliberate misclassification.
Venkataraman cited findings from a Directorate of Revenue Intelligence (DRI) raid, which reportedly revealed that Volkswagen’s own officers admitted to importing 97% of the Aurangabad plant’s parts for assembly. He further argued that the SCN was based on fresh evidence and was not a final order, allowing Volkswagen to provide further clarifications.
While the Court acknowledged that Volkswagen could present its case before the adjudicating authority, it commended the Customs officer who issued the SCN, noting that the official had conducted extensive research into vehicle identification and classification data.
The Court will continue hearing the case on Tuesday.
