Volkswagen Customs Case to Be Reheard by Bombay High Court

Skoda Auto Volkswagen India will have to re-argue its challenge to a Rs 11,526 crore customs duty demand before a fresh Bombay High Court bench after the judges who heard the case in 2025 released the matter without pronouncing their verdict, according to a report by Moneycontrol.

The development effectively takes the German automaker's legal challenge back to the starting point, with the case now set to be placed before a co-ordinate bench assigned to hear tax matters arising from 2025.

A bench of Justices BP Colabawalla and Firdosh Pooniwalla had reserved its judgment on February 26, 2025, after hearing the matter for six days. The bench had indicated that its ruling would be limited to whether the show-cause notice issued by the Customs department was barred by limitation.

However, when the matter came up on August 25, the bench indicated that it was not ready to pronounce its judgment and decided to release the case. The judges referred to the Supreme Court's direction that judgments should ordinarily be delivered within three months of a matter being reserved, with a further three-month extension permitted in exceptional circumstances.

With the judgment not ready for pronouncement beyond that period, the matter will now have to be heard afresh by another bench. Moneycontrol reported that Volkswagen declined to provide a comment when contacted.

Why Volkswagen faces a Rs 11,526 crore customs demand

The dispute stems from a September 2024 show-cause notice issued by Customs seeking around Rs 11,526 crore in duties, besides interest, from Skoda Auto Volkswagen India.

The department has alleged that the company incorrectly classified imports of components for Audi, Skoda and Volkswagen vehicles as individual parts and sub-assemblies instead of completely knocked down (CKD) kits.

The disputed imports relate to components brought into the company's Aurangabad plant between March 2012 and July 2024. Customs has alleged that around 33,000 transactions were involved.

The distinction is significant because CKD kits attract substantially higher customs duties than individual components. Authorities have alleged that the company's use of the NADIN software to break down vehicle orders into individual components enabled the imports to be cleared at lower duty rates.

Volkswagen has disputed the department's interpretation of the software and maintained that it is used for production planning and demand tracking. The company has also argued that its imports were made part-by-part from suppliers across the world and did not constitute CKD kits.

Volkswagen's challenge before the Bombay High Court

The automaker approached the Bombay High Court in January 2025, seeking to quash the show-cause notice and prevent the Customs department from proceeding with the proposed demand.

During the hearings in February 2025, the court had questioned whether the company's plea should be entertained at the show-cause notice stage and had noted the detailed investigation undertaken by Customs.

The court's eventual decision on whether the notice was time-barred was therefore expected to determine whether the department could proceed with the proposed tax demand.

That decision will now have to wait, as Volkswagen prepares to present its arguments afresh before a new bench.

Volkswagen customs case returns to a new bench

The development comes as the automaker seeks to expand its presence in India's passenger vehicle market through its Volkswagen, Skoda and Audi brands. A potential liability of Rs 11,526 crore represents a significant financial risk for its India operations if the Customs department's position ultimately prevails.