Court de-reserves judgment, sends case back for rehearing
The Bombay High Court has de-reserved judgment in Volkswagen’s $1.4 billion (around Rs 11,526 crore) customs tax dispute, sending the matter back to the hearing stage nearly 16 months after judgment was reserved. The court cited “exigency of work” for its inability to pronounce the judgment, according to two separate reports.
A bench of Justices BP Colabawalla and FP Pooniwalla had reserved judgment on February 26, 2025, after hearing detailed arguments from both sides. However, the verdict was not delivered within the stipulated period. On Tuesday evening, the bench called the lawyers involved in the case to its chamber and informed them that it was releasing the matter.
“Due to the exigency of work we have not been able to pronounce judgment till date. In these circumstances, we release the above matter, and which shall now be placed for hearing before the regular Bench as per the roaster hearing Writ Petitions arising from indirect taxes,” the bench said.
The case will now go before another bench handling tax matters, where Volkswagen and the tax authorities will have to present their arguments all over again. The court has directed that the existing situation be maintained for four weeks, giving Volkswagen temporary relief and time to approach the regular bench.
Unusual procedural move
The development is unusual because the case is being de-reserved even though there has been no retirement of a judge from the bench, as reported by CNBC TV18. The High Court is expected to take about four weeks to constitute the bench that will hear the case, according to the same report.
De-reserving a case means reopening the matter instead of delivering the judgment that had been reserved. This means the parties will have to make their arguments again before a new judgment is reserved and eventually delivered.
The underlying dispute
The dispute involves Skoda Auto Volkswagen India Pvt Ltd and customs authorities over the classification and taxation of vehicle parts imported for the company’s Aurangabad plant. Customs authorities have alleged that Volkswagen imported vehicle parts as individual components to pay lower customs duty, while they were effectively Complete Knocked Down (CKD) kits used to assemble cars. CKD imports can attract customs duty of 30% to 60%.
The authorities have also alleged that Volkswagen used software to divide orders for vehicle parts among suppliers in different countries, helping the company avoid the higher duty applicable to CKD kits. These allegations emerged during a Directorate of Revenue Intelligence (DRI) investigation, which officials said found that the Aurangabad plant was carrying out basic assembly of vehicles using imported kits.
Volkswagen has denied the allegations. Senior Advocate Arvind Datar, appearing for Volkswagen, argued that the tax authorities had taken too long to issue the show-cause notice, making it time-barred. The company has also maintained that it legitimately imported individual vehicle parts and relied on a 2011 clarification issued by the Revenue Secretary in support of its position.
Additionally, Volkswagen has argued that the long delay in completing provisional tax assessments left it unable to recover additional costs from customers, making the $1.4 billion tax demand unfair.