In the ongoing legal tussle between Volkswagen and Indian Government, there is a new development, reveals Reuters. Volkswagen Group’s Indian unit, SAVWIPL (Skoda Auto Volkswagen India Pvt Ltd) has sued the Indian Government to quash the rather sizable USD 1.4 Billion tax demands (Rs 12k Cr). With the penalties and other paraphernalia, Volkswagen might have to cough up USD 2.8 Billion (Rs 24k Cr).
Volkswagen Countersues India
The recent developments are in light of India’s Finance Ministry and Customs officials placing a USD 1.4 Billion (Rs 12k Cr) tax demand on Volkswagen Group’s Indian operation under Skoda Auto Volkswagen India Pvt Ltd. The allegation against Volkswagen was that the company used unlawful practices to cut down on import taxes.
The tax demand mentions that Volkswagen misclassified the CKD parts of cars, under Volkswagen, Skoda and Audi among others, as “individual parts”. This attracts an import tax of just 5% to 15%, depending on the part, when compared to the 30% to 35% tax applicable on CKD cars.
Authorities alleged that VW used ‘Clandestine’ software to regularly place bulk orders from suppliers in the Czech Republic, Germany, Mexico and other nations. The software broke down the orders into required parts, which were imported into the country over time. The allegations position this practice as a ploy to clear goods without payment of applicable duty.
This way, Volkswagen brought almost the entire car into India in unassembled condition and then assembled here at their facilities along with a few local components and built cars to sell to customers. Reuters mentions that Volkswagen might have to cough up around USD 2.8 Billion (Rs 24k Cr) adding penalties to India if they lost this dispute.
VW’s Argument
The company claims that this is non-contradictory to India’s import taxation rules and has now countersued India to quash what is called country’s biggest import tax demand. According to the company, they did not import car parts together as a single kit to attract CKD taxes, but shipped each part separately. At Mumbai High Court, the company further argues that this tax dispute hampers India’s future foreign investment potential as well.
At the same time, this tax demand puts Volkswagen’s USD 1.5 Billion investments in India at a great risk. Volkswagen also argues that they kept the Indian Government informed of its ‘part-by-part import’ model and received clarifications in its support in 2011. Volkswagen India maintains that they are using all remedies and the company is promising full compliance with all the global and local laws in its practices.
Currently, SAVWIP is among the smaller players in India’s ever-expanding car market. Skdoa and Volkswagen are lagging behind other mainstream OEMs, while Audi (a part of VW) is lagging behind other luxury brands, where sheer sales are concerned. Between 2023-2024, SAVWIPL reported sales worth of USD 2.19 Billion (Rs 19k Cr) and a net profit of USD 11 Million (Rs 96 Cr). The Mumbai High Court is due to start hearing the case on Feb 5th, 2025.
