Volkswagen sues India over $1.4-billion import tax demand: Report
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The tax notice “deals a body blow” to the much-touted “policy of ease of doing business in India for foreign investors”, Volkswagen has said in the court filing | Representative photo

Volkswagen sues India over $1.4-billion import tax demand: Report

India claims Volkswagen imported almost entire cars in separate shipments, in unassembled condition, by classifying them as “individual parts”, to pay lower duty


Volkswagen has reportedly moved the Mumbai High Court against the Indian government for slapping it with the biggest import tax demand ever — $1.4 billion.

In a 105-page filing, Skoda Auto Volkswagen India, a unit of the German carmaker, has told the Mumbai High Court that the “impossibly enormous” tax notice jeopardises its investments worth $1.5 billion in India and is generally damaging to the foreign investment climate in the country, news agency Reuters has reported.

CKDs versus ‘individual parts’

India slapped the enormous tax notice on Volkswagen in September, alleging that the car manufacturer was evading higher taxes through a cunning strategy. While CKDs (completely knocked down units) attract a 30–35 per cent tax, “individual parts” coming in separate shipments are subject to only a 5-15 per cent duty.

India claims Volkswagen imported almost entire cars — including VW, Skoda, and Audi — in an unassembled condition by classifying them as “individual parts” coming in separate shipments to pay a lower duty, according to the Reuters report.

Also read: Volkswagen India unit gets tax evasion notice, has to pay $1.4 billion in dues: Report

‘Part-by-part import’ model

The company has claimed in its court filing that Volkswagen India had kept the government informed of its “part-by-part import” model and received clarifications in its support in 2011, says Reuters.

Now, the tax notice is “in complete contradiction of the position held by the government ... (and) places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances” of the administration, the January 29 filing states.

Claims and counter-claims

Volkswagen’s argument is that it did not import the car parts together as a single “kit”. It shipped them separately and combined them with some local components to make a car. It has also said in the court filing that “there is no exclusive utilization of the parts towards manufacture of one specific car”.

However, government authorities claim that Volkswagen uses an internal software on which the local unit regularly placed bulk orders for cars to suppliers in Czech Republic, Germany, Mexico, and other nations. The software would break down the orders into “main components/parts” — 700–1,500 for each vehicle, depending on the model — which were then shipped separately over time.

This was “a ploy to clear the goods without the payment of the applicable duty”, government authorities argue.

Volkswagen India has claimed that the software only helps dealers place car orders so that it can track “consumer demand at a macro level”.

Also read: India's automotive industry fantastic, future-ready: PM Modi at global expo

Struggling Volkswagen

If Volkswagen India loses the case in court, it may have to pay about $2.8 billion to the Indian government, with penalties, Reuters quoted a government source as saying earlier. That’s more than VW India’s reported sales in 2023-24 — $2.19 billion — while the net profit was $11 million.

In recent years, Volkswagen has been struggling against weak demand in Europe on one hand and Chinese competition on the other. In December, it announced 35,000 future job cuts back home in Germany and the sale of some of its operations in its biggest market, China.

In India, the world’s third biggest car market, Volkswagen is a small player, where even its prestigious Audi lags competitors such as Mercedes and BMW in the luxury segment.

Higher taxes a stumbling block

The tax notice “deals a body blow” to the much-touted “policy of ease of doing business in India for foreign investors”, the company said in the filing.

This is not the first time a foreign carmaker has faced a legal dispute over high taxes in India; Elon Musk’s Tesla has also publicly complained about exorbitant taxes levied on imported EVs.

In a statement, Volkswagen India said it was using all legal remedies while cooperating with the authorities and remained committed to ensuring “full compliance” with all global and local laws.

The Mumbai High Court is scheduled to start hearing the case on February 5.

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