Volkswagen has filed a legal challenge against Indian authorities, seeking to overturn a massive $1.4 billion tax demand. The company argues that the tax demand contradicts India’s import rules and could disrupt its business plans. Skoda Auto Volkswagen India stated in its court filing that the dispute threatens its $1.5 billion investment in the country.
Allegations of Import Tax Evasion
The Indian government claims that Volkswagen imported nearly complete cars in unassembled form but misclassified them as individual parts to pay lower import duties. While completely knocked-down (CKD) units attract a 30-35% tax, Volkswagen allegedly paid just 5-15% by splitting shipments into separate components.
However, Volkswagen maintains that it followed a “part-by-part import” model with prior government approval in 2011. The company asserts that the tax notice contradicts earlier official clarifications and damages investor confidence in India’s policies.
Impact on Volkswagen’s Operations in India
Volkswagen is a relatively small player in India’s automotive market, which produces over 4 million vehicles annually. The tax dispute could impact its long-term business strategy and its Audi brand, which competes with luxury automakers like Mercedes-Benz.
In response to the tax demand, Volkswagen India has stated that it is using all legal options while ensuring full compliance with both global and local regulations. Meanwhile, the Indian finance ministry and customs authorities have not commented on the matter.
