Back to square one? Bombay HC bench releases Volkswagen tax case 1.5 years after reserving verdict

German auto giant Volkswagen will have to re-argue its petition against the $1.4 billion tax demand by Indian customs authorities in Bombay High Court [Skoda Auto Volkswagen India Pvt Ltd v. Union of India & Ors.]

This was after the bench which heard the matter in 2025 chose to release it without pronouncing a verdict.

The bench of Justices BP Colabawalla and Firdosh Pooniwalla had reserved the matter for judgment on February 26, 2025 after extensive hearings over 6 days.

They had clarified that their decision will be limited to whether the show-cause notice (SCN) issued by the customs authorities against the automotive company was time-barred.

However, the bench indicated today that their judgment is not ready for pronouncement.

The bench cited the Supreme Court ruling which mandates pronouncing judgments within 3 months of having heard and reserved the matter, with an additional extension of 3 months in exceptional circumstances.

Since the bench was not prepared to pronounce the judgment, it decided to release the matter.

The matter will now be placed before a co-ordinate bench of the High Court which is presently assigned to hear tax challenges arising in the year 2025.

In view of this, the matter will now be re-argued entirely.

The dispute revolves around the show cause notice (SCN) issued by Indian Customs, alleging that Volkswagen misclassified its imports for Audi, Škoda, and Volkswagen vehicles as individual parts rather than Completely Knocked Down (CKD) units, which attract higher customs duties. The SCN flagged approximately 33,000 such transactions.

Skoda Auto Volkswagen India Pvt. Ltd. (SAVWIPL) approached the Bombay High Court in 2025 against a ₹11,526 crore ($1.4 billion) customs duty demand.

The core dispute was about how the automaker classified car components imported for its Aurangabad plant between March 2012 and July 2024.

Custom officials argued that the imports should be taxed as Completely Knocked Down (CKD) kits rather than individual parts.

The department also alleged that SAVWIPL used software to split vehicle orders across hundreds of global suppliers to avoid higher CKD tax rates.

The show-cause notices issued in late 2024 threatened to confiscate the imported goods and demand unpaid duty with interest.

Customs officials filed an affidavit blaming SAVWIPL for delaying the 12-year tax assessment process by withholding information.

Senior Advocate Arvind Datar had countered that the show cause notice was issued after a 12-year delay, making it time-barred.

He emphasised that the company had consistently imported components as parts and not CKD units.

A 2011 clarification from the revenue secretary validated this classification, he argued.

He pointed out that the provisional assessments required to determine the correct duty had not been completed.

This left Volkswagen in a position where it could not pass on the tax burden.

Therefore, he questioned the $1.4 billion demand as unreasonable.

Additional Solicitor General N Venkataraman defended the notices claiming that Volkswagen intentionally misclassified its imports.

He argued that the automaker had failed to disclose key details about its operations.

He particularly pointed out to the fact that the Aurangabad plant imported nearly all of its parts, with only assembly taking place at the plant.

Venkataraman also contended that Volkswagen misrepresented the nature of its imports, which were not merely parts but nearly complete vehicles.

This made the imports liable for classification as CKD units, subject to higher duties of 30 percent or even 60 percent if mounted to the chassis.

Venkataraman also addressed the timing of the show cause notice, asserting that it was based on new information uncovered after a Directorate of Revenue Intelligence (DRI) raid.