Bombay High Court Orders Fresh Hearing in Skoda Volkswagen’s $1.4 Billion Tax Dispute

The Bombay High Court has ordered a fresh hearing in Skoda Auto Volkswagen India’s challenge to a $1.4 billion (₹11,526 crore) customs duty demand, after the bench that had heard the case released the matter without pronouncing its judgment. The dispute, one of India’s largest automobile tax cases, will now return to the hearing stage before a new bench.

A division bench of Justices B P Colabawalla and Firdosh Pooniwalla had reserved its verdict on February 26, 2025, after hearing the case for six days. The judges had indicated that their ruling would primarily address whether the September 2024 Customs show-cause notice was barred by limitation. However, the bench said it could not deliver the judgment within the timeframe prescribed by the Supreme Court and released the case. It will now be placed before a coordinate bench handling indirect-tax matters, requiring Volkswagen to re-argue the petition.

The court has ordered status quo for four weeks, but has not ruled on whether Volkswagen owes the disputed amount. The case concerns imports made between March 2012 and July 2024, involving around 33,000 transactions at the company’s Aurangabad plant.

At the centre of the dispute is the classification of components imported for Audi, Škoda and Volkswagen vehicles. Customs alleges that Volkswagen effectively imported cars in Completely Knocked Down (CKD) form but declared the shipments as individual parts and sub-assemblies. CKD imports attract duties of about 30–35%, compared with roughly 5–15% for individual components. Authorities allege the arrangement resulted in a duty shortfall of about $1.36 billion, with the total demand set at approximately $1.4 billion.

Customs has also focused on Volkswagen’s internal NADIN software, alleging that vehicle orders were broken down into 700–1,500 components, which were sourced through multiple suppliers and shipped to India in separate consignments. Authorities argue that this structure effectively concealed CKD imports and reduced the applicable duty.

Volkswagen disputes the allegations, maintaining that NADIN is a production-planning and demand-tracking system and that its components were legitimately imported individually. The company has also challenged the retrospective nature of the demand, arguing that it had followed the individual-component classification for years and that Customs cannot reopen the assessments after such a prolonged period.

The company approached the High Court in January 2025 seeking to quash the Customs notice. The fresh hearing now leaves the core questions unresolved, including CKD classification, limitation and the legality of the proposed reassessment. The outcome could have wider implications for how global automakers structure component imports and local assembly operations in India.