Skoda Auto Volkswagen India Faces Rs 12,000 Crore Tax Evasion Charge; Fines Could Double to Rs 24,000 Crore with Interest
In a significant development, Skoda Auto Volkswagen India has been issued a tax evasion notice by the Indian government, amounting to $1.4 billion (Rs 12,000 Crores). The allegations revolve around the company’s reported underpayment of import duties by misclassifying and misdeclaring imported components for its Skoda, Volkswagen, and Audi vehicles.
Allegations of Misclassification and Tax Evasion
According to a document dated September 30, reviewed by Reuters, Skoda Auto Volkswagen India allegedly imported “almost the entire car” in an unassembled state but declared these as individual parts. This practice reportedly allowed the company to benefit from lower import duties, ranging from 5-15%, as opposed to the 30-35% duty applicable to completely knocked-down (CKD) units.
The investigation claims this method was employed for models like the Skoda Kodiaq, Superb, Audi A4, Audi Q5, and Volkswagen Tiguan. Authorities allege that shipments were divided into batches to avoid detection and evade higher duties. “This logistical arrangement is an artificial structure … nothing but a ploy to clear the goods without paying the applicable duty,” the 95-page notice from the Office of the Commissioner of Customs in Maharashtra reportedly stated.
$1.4 Billion Underpayment Over a Decade
The notice asserts that since 2012, Skoda Auto Volkswagen India should have paid $2.35 billion in import taxes but has only remitted $981 million, leaving a shortfall of $1.36 billion. This is one of the largest tax demands issued to an automaker in India. If the allegations are proven, penalties could double the amount owed, potentially raising the company’s liability to $2.8 billion (Rs 24,000 crores), according to an anonymous government official cited in the report.
Skoda-Volkswagen India Responds
In its official statement, Skoda Auto Volkswagen India stated, “We are a responsible organization, fully complying with all global and local laws and regulations. We are analyzing the notice and extending our full cooperation to the authorities.”
The company’s Managing Director, Piyush Arora, was reportedly questioned in 2022 regarding the fragmented shipment of car components. Investigators claim he was unable to justify why the parts required to assemble a car were not shipped together. Searches conducted at the company’s facilities in Maharashtra uncovered documents, emails, and internal ordering software allegedly used to facilitate the practice.
Comparisons with Industry Norms
The investigation noted that competitors like Mercedes-Benz adhere to the CKD tax structure, paying the required 30% import duty for similar operations. The notice dismissed Skoda Auto Volkswagen’s defense that the approach was aimed at improving operational efficiency, stating that “logistics is a very small and rather least significant step of the whole process.”
Broader Implications for Foreign Automakers
The case highlights ongoing challenges faced by foreign automakers operating in India. High import taxes and protracted legal disputes have been a recurring theme, with companies like Tesla and BYD raising similar concerns in recent years. For Skoda Auto Volkswagen, this development adds to the challenges of competing in India’s 4-million-unit car market, where its brands lag behind rivals in both mass-market and luxury segments.
The notice underscores the government’s intent to ensure compliance with tax laws while maintaining a level playing field in the automotive sector. As the case unfolds, it remains to be seen how Skoda Auto Volkswagen India will address these allegations and the potential financial repercussions.
