$1.4 billion Tax Demand Order against VW for Import of "Unassembled Car" reaches Bombay HC [Read Order]
The issue arose following the Revenue’s suspicion that Volkswagen had imported assembly parts under different consignments to avoid the 35 percent duty on Completely Knocked Down car units
VW -Tax Demand – Unassembled Car – taxscan
VW -Tax Demand – Unassembled Car – taxscan
Skoda Auto Volkswagen India Pvt. Ltd., the Indian subsidiary of German automobile giant Volkswagen and allied brands had recently landed itself in hot water following a tax demand order of $1.4 Billion (approximately Rs.12,198 Crore) raised against their alleged import of ‘completely knocked down’ units (CKD) in an attempt to evade taxes.
At present the Manufacturer has instituted a Writ Petition before the Bombay High Court against the tax demand order, averring that the tax dispute would damage their business operations and impair their investments of $1.5 Billion in India, according to their documents in their court, which was exclusively reviewed by Reuters.
The key issue regards the form of import undertaken by manufacturers - whether the parts are imported as constituent parts and then assembled at the destination or whether they are imported as finished cars.
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Indian tax authorities allege that Volkswagen misrepresented imported goods as individual parts for local production to benefit from lower tax rates of 5-15% instead of the 35% duty on Completely Knocked Down (CKD) units. Prominent models, including Audi A-Series, Q-Series, Skoda’s Octavia, Kodiaq, Superb, and Volkswagen’s Tiguan, were reportedly assembled using these under-taxed parts.
The disputed imports arrived at Indian ports in multiple consignments under separate invoices within three to seven consecutive days. Authorities claim this method was used to conceal the true nature of the shipments and evade higher duties.
The Future of Tax and Finance: Upskill with Us
Volkswagen's global supply system, NADIN, organizes vehicle components into 700–1,500 parts, sourcing from Germany, the Czech Republic, and Hungary, while ProCKD manages inventory in India for synchronized assembly. A Show-Cause Notice demands Volkswagen justify why the alleged tax evasion should not warrant penalties and interest under Indian law.
Volkswagen, in their court submissions had stated "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".
The Future of Tax and Finance: Upskill with Us
The tax dispute is a badly-timed blow to the German luminary as it battles it out with Indian and Chinese automobile manufacturers who have shifted gears in the race to the top of the Indian market.
Volkswagen, if found guilty may have to shell out a total of $2.8 billion. The Bombay High Court is slated to start hearing the Petition on the 5th of February, 2025.
