Volkswagen moves HC over tax evasion case

Skoda Auto Volkswagen India seeks to quash a customs notice claiming $1.4B tax evasion over 12 years, arguing compliance with import duties.

MUMBAI: Skoda Auto Volkswagen India moved the Bombay high court on Monday seeking quashing of the show cause notice issued by the customs department, which accuses the auto giant of evading taxes worth $1.4 billion over 12 years by misrepresenting imports.

Volkswagen moves HC over tax evasion case

The “arbitrary tax environment” could make India a “laughing stock” for others, Volkswagen India told the division bench of justices BP Colabawalla and Firdosh P Pooniwalla, while the customs department said it has no intentions to stop any consignments of the company.

The dispute pertains to the import of auto parts by the German car maker between 2012 and 2024.

According to a 2011 notification, completely knocked down (CDK) kits, which contain all automobile components in parts, attract a custom duty of 10%; pre-assembled engines, gearboxes and transmissions attract a duty of 30%; and parts mounted on a chassis attract 60% custom duty.

In September 2024, the commissioner of customs in Maharashtra sent a show cause notice to the Volkswagen group, saying the company intentionally misclassified individual components as CKD units to circumvent taxes worth ₹1.4 billion between 2012 and 2024. The department imposed retrospective custom duty on Volkswagen, subjecting them to fill the duty gap.

In its plea in the high court, Volkswagen claimed that it has never availed the CKD route and always imported all parts in unassembled condition, which elicit 10% custom duty. Based on the global “predictive demand” model, unassembled items are imported from different parts of the world and assembled in India, the company said.

The plea raised concerns over pending provisional assessment by customs authorities for years, citing statutory limitations that require such assessment to be completed within six months. “The pending provisional assessment renders the show cause notice unsustainable,” the plea noted. The customs department was yet to classify and determine the valuation of its imports, making the show cause notice premature, it added.

“The 30% duty retroactively from 2012 to 2024 is untenable, considering that the company has always followed the procedures and has never claimed CKD exemption, establishing that they do not fall under the CKD category,” the plea said.

Regarding the custom authorities’ claim that Volkswagen was trying to oversimplify the matter, the company said, “I got 6,000 people working under me. It is a matter of life and death. It is not oversimplification...The sheer exorbitant amount is the ground to entertain my writ.”

Around 100 consignments of the company were halted due to the situation, putting 60,000 employees at stake, said Volkswagen. “The company has invested heavily in India. We are not blind to the situation.”

Customs authorities, however, claimed that Volkswagen had been consistent in importing components separately to circumvent the duty slab whereas the imports fell under the CKD model which attracted higher duty.

“We have seized incriminating material. We will articulate it,” they said.

The next hearing is scheduled for Thursday.