Volkswagen Faces $1.4 Billion Tax Demand: Indian Court Seeks Explanation

Mumbai, Feb 26 (PTI) The Bombay High Court on Wednesday directed the Customs department to explain through an affidavit how its September 2024 show-cause notice raising a tax demand of $1.4 billion from Skoda Auto Volkswagen India was not barred by limitation.


A division bench of Justices B P Colabawalla and Firdosh Pooniwalla has been extensively hearing the plea filed by the automobile company challenging the notice on the grounds that it was arbitrary and illegal.


The auto major has called the demand for $1.4 billion, over Rs 12,000 crore, “exorbitant”.


In its notice, Customs said the company provided misleading information, concerning its imports, to the department.


The Customs has claimed that the company misclassified its imports of Audi, Skoda and Volkswagen cars as “individual parts” instead of “Completely Knocked Down” (CKD) units, thereby paying significantly lower customs duties.


The main contention of the company was that the department could not have raised the tax demand after all these years. The company has contended that it has been paying tax for over a decade under the individual parts category.


To now suddenly say that tax ought to be paid as per the CKD unit category is not fair, the company's counsel Arvind Datar had argued.


Additional Solicitor General N Venkatraman, appearing for the Customs, said the department concluded after a thorough investigation that the company has to pay tax as per the CKD category.


On Wednesday, the bench clarified that it would, at this stage, only decide the issue on the point of limitation.


“On the issue of limitation, please file an affidavit. 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 court said.


The department has to file its affidavit by March 10.


The German group, led in the country by Skoda Auto Volkswagen India, has been accused of deliberately misleading the Customs authorities through its mode of import of parts as individual units rather than a component of a CKD unit, which attracts higher import duty.


The CKD units attract a 30-35 per cent duty, but Volkswagen declared its imports as separate components in different shipments and paid only 5-15 per cent in duties, as per the Customs department.


According to the authorities, imports of various unassembled parts of cars should have been declared as CKD units. Instead, the automaker paid a duty of only 5 to 15 per cent by choosing to declare its imports as individual components arriving in separate shipments.