Customs blames VW for delay in $1.4 bn tax evasion case

India’s tax authorities have blamed Skoda Auto Volkswagen India Pvt. Ltd for the delay in its provisional assessment of $1.4 billion (about ₹11,526 crore) tax demand, saying the Indian unit of the German automaker did not provide the information needed promptly.

The customs commissioner refuted the automaker’s challenge to the notice, asserting that the delays were “solely attributable to the company and not to any inaction on the part of the authorities”, according to an affidavit filed before the Bombay High Court–Mint has reviewed a copy.

Skoda Auto approached the high court on 29 January, contesting the customs department’s demand for duty at Completely Knocked Down (CKD) rates on imported car components over the past 12 years. The department has also issued a notice threatening to confiscate the imported goods.

Responding to Mint‘s emailed query, Škoda Auto said, “We, at Škoda Auto Volkswagen India Pvt Ltd, acknowledge the ongoing proceedings and are actively pursuing all legal remedies available to us under the law. As this matter is currently under legal review, we cannot provide further comments at this moment”, the company said emphasizing they were fully co-operating with the authorities.

Core dispute over classification of imported parts

The core of the dispute, evident from the show-cause notices of September and November 2024, is the company’s classification of parts and components imported for its Aurangabad factory between March 2012 and July 2024.

The government argues these imports should have been classified as CKD kits – unassembled motor vehicle parts – as they were intended for car production. CKD classification applies when all vehicle components are imported in an unassembled state for local assembly.

The tax department’s affidavit, submitted following a direction from the high court, offered the reason for the prolonged provisional assessment period of 12 years.

Pending SVB probes

The customs commissioner said the proceedings were protracted due to ongoing Special Valuation Branch (SVB) investigations, which scrutinize import transactions between related parties. Skoda’s practice of importing goods and receiving services from related entities globally necessitated SVB involvement, according to the affidavit.

The department said that “as many as eight proceedings were pending, out of which investigation reports have been completed in three cases. Two more cases, namely Volkswagen Group Sales India Ltd. and Volkswagen India Pvt. Ltd. (both are group entities) were also pending thus totaling to ten SVB cases.”

The customs authorities contended that they consistently sought necessary information, data and documents from Skoda Auto, but the company failed to provide them promptly.

The department claimed the automaker did not raise any objection at any point to the assessments being provisional in nature. “In fact, the communications sent by them from time to time recognize this aspect of provisionality, concede the fact that documents are incomplete from their end, schedule a target date within which it shall be provided, seek an extension of time for breaching the target dates and the undeniable truth remains that even today documents or data are yet to be provided”, the affidavit said.

The department also presented documentary evidence, including a Skoda email indicating an intention to finalize the pending assessments by June 2024, along with an action plan for obtaining data from foreign suppliers.

“Skoda’s email indicated why the provisional assessments are pending and that Skoda would attempt to give a closure by June 2024. Skoda also gave an Action Plan which stated that it was in the process of obtaining the cost computation or collation of data from the foreign supplier and Skoda in most of the cases have not given the details even today”, the affidavit underscored.

DRI findings back customs case

The affidavit also revealed an investigation by the Directorate of Revenue Intelligence (DRI) that uncovered a significant number of agreements entered into by Volkswagen Group Sales India Pvt. Ltd., some of which were allegedly concealed by Skoda.

“It is important to submit that the DRI Bangalore Zonal Unit investigated Volkswagen Group Sales India Pvt. Ltd. (VWGSIPL) and unearthed as many as 107 agreements entered by it with Parent or subsidiary companies out of which 31 Agreements relate to the Petitioner’s company whereas only 7 agreements were submitted to the SVB,” the commissioner stated.

The customs department also emphasized the continuity bond executed by Skoda, which covers multiple import shipments. Authorities pointed out that Skoda had renewed this bond even after the issuance of the show-cause notice in September 2024, signifying their acceptance of the provisional assessments.

“Post the initiation of show cause proceedings, petitioners have made willingly and through voluntary compliance two more continuity bonds totalling to ₹2,800 crores without an iota of objection that the respondents ought to have finalized the provisional assessments, and the petitioners are objecting to its continuity. This is a clear conduct of approbate and reprobate,” the commissioner asserted.

The department further argued that Skoda had presented an incomplete picture to the court by withholding relevant correspondence and documents. “It remains an undisputed fact that material information and documents critically required for completion of SVB proceedings are being furnished by the Petitioners only in tranches and it remains undisputed that still some more information and documents are yet to be furnished,” the affidavit stated.

The customs department urged the HC to dismiss Skoda’s writ petition and allow the adjudication process to proceed. The department also committed to appointing an adjudicator in the rank of commissioner for show-cause notices and simultaneously finalizing the provisional assessments within six to eight months.