Additional Solicitor General To High Court: Skoda, VW At Fault, Can’t Play Victim

In a high-stakes legal battle, the Customs Department has firmly defended its $1.4 billion (approximately ₹12,600 crore) tax demand against Skoda Auto Volkswagen India, accusing the automaker of misclassifying imports to evade higher duties. During a hearing at the Bombay High Court on Thursday, the Additional Solicitor General (ASG) N Venkatraman made it clear that Skoda and Volkswagen must take responsibility for their actions and cannot portray themselves as a victim.

“You Have to Fall in Line”: Customs Stands Firm

Representing the Customs Department, ASG Venkatraman asserted that the rule of law applies equally to everyone and that Skoda Auto and Volkswagen India cannot expect special treatment. He argued that other importers are already paying a 30% duty, and Skoda Volkswagen should have done the same too.

“You have to follow the law. You have to fall in line. The rule of law is the same for everyone, similar importers are already paying 30%” he told the court. He further stated that it was not the Customs Department that was at fault but rather the company, which failed to classify its imports correctly.

“Don’t be the victim here. If you don’t follow the law, then we will initiate action in accordance with the provisions of law,” he warned the German giant.

Volkswagen Challenges ₹12,600 Crore Tax Demand

Skoda Auto Volkswagen India has challenged the Customs Department’s tax notice, calling it “arbitrary and illegal.” The company further argued before the Bombay High Court saying that the 12,600 Crore demand is ‘exorbitant’.

VW’s legal team pointed out that it had been doing the practice of classifying CKDs as imported parts for years, and it is only now that they got sued for the same. The court acknowledged this and questioned whether the Customs Department could now reclassify these imports after having previously accepted them under a different category.

The Customs Speak On The Delay In Discovery

During the session, the bench pointed out: “Their (Volkswagen) argument is that once you (customs) have classified them under one category all these years, can you now re-classify them,”.

Answering this, Venkatraman said that the authorities had only recently uncovered ‘new facts’ about how the company was importing and assembling its vehicles.

“Until now, no commissioner had an iota of what the company was doing all these years. How they were importing their material, how they were assembling it, no one in the world knew. Our investigation revealed the truth,” he told the court.

Volkswagen India’s Tax Evasion: The Back Story

This legal battle stems from the allegation that the Volkswagen Group ( precisely Skoda- as it is the company that handles VW’s India operations) shipped in Completely Knocked Down Kits- CKDs of popular models like Tiguans, Kodiaqs, Superbs, Audi A4s and A6s, citing them as spare parts instead of semi built cars. This helped VW Group save much in import duties as semi-built cars are taxed at 30-35% while parts attract just 15% in import duty. Skoda thus paid just $981 million instead of the 2.35 billion US dollars it should have paid in the ideal case.

The customs department soon demanded 1.4 billion USD that was allegedly evaded. However, with the penalties included the net sum that had to be paid by the brand amounted to 2.9 billion USD (25,000 crores). This is the highest fine India has ever imposed on an automotive manufacturer. Volkswagen India referred to this as ‘a matter of life or death’. This could be what the ASG referred to as ‘victim playing’.

Legal Battle Continues

The Bombay High Court will continue hearing arguments from both sides on Friday. The outcome of this case could have serious financial consequences for Skoda Auto Volkswagen India. For now, the Customs Department remains firm in its tax demand. Whether the court upholds this claim or rules in favour of the accused remains to be seen.