India has issued a notice to German automaker Volkswagen, accusing it of evading $1.4 billion in taxes by intentionally underreporting the import tax on components for its Audi, VW, and Skoda cars, as per a Reuters report. This is one of the largest such demands from the Indian authorities.
Business Today was unable to verify the development independently.
The notice, dated September 30, claims that Volkswagen imported nearly entire cars in an unassembled form, which typically attracts a 30-35 percent import tax in India under the CKD (completely knocked down) units’ rule, the report added.
Volkswagen allegedly misclassified and mis-declared these imports as “individual parts”, allowing it to pay a much lower duty of 5-15 percent.
The imports were made by Volkswagen’s local unit, Skoda Auto Volkswagen India, for models like the Skoda Superb and Kodiaq, Audi A4 and Q5, and the VW Tiguan SUV. The investigation found that different shipments were used to avoid detection and intentionally evade paying the higher taxes.
“This logistical arrangement is an artificial arrangement… the operating structure is a ploy to clear the goods without paying the applicable duty,” a 95-page notice, issued by the Office of the Commissioner of Customs in Maharashtra, said.
Since 2012, Volkswagen’s India unit should have paid $2.35 billion in import taxes and related levies to the Indian government, but only paid $981 million, resulting in a shortfall of $1.36 billion, according to the authorities.
Skoda Auto Volkswagen India response
Skoda Auto Volkswagen India responded by stating that it is a “responsible organisation, fully complying with all global and local laws and regulations”, and that it is currently analysing the notice and cooperating with the authorities.
The “show cause notice” requires Volkswagen’s local unit to explain why it should not face penalties and interest under Indian law, in addition to the $1.4 billion in duties allegedly evaded.
High taxes and lengthy legal disputes have been ongoing challenges for foreign companies operating in India. Electric vehicle maker Tesla has repeatedly criticised India’s high taxes on imported cars, while Vodafone has been involved in protracted legal battles over back taxes. Chinese automaker BYD is also under investigation in India for underreporting taxes on imports.
Volkswagen is planning to invest $1.8 billion to manufacture electric and hybrid vehicles in Maharashtra and signed a deal in February to supply electric components to Mahindra.
In 2022, investigators raided three of Volkswagen India’s facilities, including two in Maharashtra. They seized documents related to component imports and emails from senior executives. Piyush Arora, the managing director of Volkswagen India, was questioned about why all the parts needed to assemble a car were not shipped together, but was unable to provide an answer, according to the notice.
Volkswagen defended its actions by stating that this was done for “efficiency of operations”, but the authorities dismissed this explanation, noting that logistics was only a minor part of the process.
