The Indian Tax authorities had recently accused Korean-automobile giant of trying to evade taxes of $155 Million (Approximately ₹1356 Crores) through misclassifying vehicle components as Completely-Knocked-Down ( CKD ) Units during import to avail lower tax rates.
An exclusive report by Reuters revealed that a 432-page Notice was served to Kia alleging that Kia’s Carnival model minivan was “being imported in parts or components in separate lots” through different shipping ports in an attempt to discharge reduced customs duty.
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The Notice, issued by a Customs Commissionerate in Chennai alleged that Kia had devised a strategy to avert legitimate customs duty by importing a complete car in the form of CKD units over the course of multiple days and through separate shipments instead of a single one to avail a lower tax rate of 10% to 15% rather than the 30% to 35% applicable on CKD Units of individual cars.
Kia rolled into the Indian automobile market in 2019 with the launch of the Seltos and has since been on an upward trajectory, accumulating sales of $4.45 billion fiscal during the 2022/23 fiscal year and yielding a net profit of $243 million.
Read More: GST Council Approves Hike in Tax Rate on Sale of Old and Used Cars, Including EVs: Sources
Speaking to Reuters, Kia India said that “a detailed response, supported by comprehensive evidence and documentation to substantiate” its position had been rendered to the Tax authorities while investigation is still underway.
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The issue comes following a $1.4 billion Tax Demand Order issued against Skoda Auto Volkswagen India Pvt. Ltd. on the similar lines, leading to the institution of a Petition before the Bombay High Court against the tax demand order. Volkswagen submitted before the Bombay High Court that the enormous tax demand would impair their Indian business operations.
Read More: $1.4 billion Tax Demand Order against VW for Import of “Unassembled Car” reaches Bombay HC
While Volkswagen’s woes concern a number of models, including those of its sub-brands Audi and Skoda, the demand order against Kia concerns the Carnival model only.
The Kia Carnival is a luxurious 7-seater minivan which has received much love from the Indian market, including Kerala Chief Minister Pinarayi Vijayan who traded in the Innova Crysta to continue his travels in the Kia Carnival from 2022 onwards.
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While Indian laws permit duty leeways on the import of CKD units, the national import laws attract a 100% customs duty levy on fully-assembled imported cars.
Reports suggest that Kia has deposited “under-protest” an amount of 2.78 billion rupees ($32 million) with the authorities while it patiently awaits the decision of the tax authorities.
Sanjay Kumar Agarwal, the Chairman of Central Board of Indirect Taxes & Customs told Reuters that the taxation laws regarding manufacture and import of foreign-origin vehicle brands was clear, but were subverted by many car manufacturers who attempted to get away by not paying requisite CKD duties.
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