Volkswagen case: HC to decide only if retrospective tax demand is valid

MUMBAI: The Bombay high court on Wednesday concluded hearings in the $1.4-billion tax dispute between Volkswagen India and the customs department and clarified that it would pass orders only on the issue of limitation, i.e. whether the customs authorities failed to adhere to deadlines set by law for raising the tax demand.

“Although we have heard extensively on all the issues, we will pass orders only on the issue of limitation,” the division bench of justices BP Colabawalla and Firdosh Pooniwalla said after both sides concluded their arguments.

The court also directed the customs authorities to file an affidavit by March 10, explaining why the show cause notice issued in September 2024 was not barred by limitation.

The German auto giant had approached the high court over the customs’ department tax demand of $1.4 billion, pertaining to imports by the car maker between 2012 and 2024. This was after the commissioner of Customs in Maharashtra, in September 2024, sent a show cause notice to company, saying it intentionally misclassified vehicle components as complete-knock-down units to circumvent taxes worth ₹1.4 billion.

In its plea, Volkswagen India raised concerns over the 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 stated.

On Wednesday, the division bench asked customs authorities if they could go back 12 years under the guise of not having completed the provisional assessment. Responding to this, additional solicitor general N Venkatraman, representing the customs department, said that it was not constrained by limitation, considering the company had not provided relevant documents and data till February 5, 2025. The court, however, said that the customs authorities were free to take action against the company under relevant provisions of the Customs Act for suppression of facts.

The customs department informed the court that the September 2024 show cause notice was based on new information uncovered after a Directorate of Revenue Intelligence (DRI) raid and submitted that the authorities acted well within their rights in issuing the notice.