Volkswagen India slapped with $1.4 Billion Tax Notice citing Short-Payment of Duty on Import of VW, Audi and Skoda Parts
It was alleged that Volkswagen attempted to bypass the 35 percent duty on the import of Completely Knocked-Down (CKD) units
Volkswagen India tax notice – Volkswagen India tax case – Volkswagen import duty – Skoda import duty – Audi India tax evasion – taxscan
Volkswagen India tax notice – Volkswagen India tax case – Volkswagen import duty – Skoda import duty – Audi India tax evasion – taxscan
Skoda Auto Volkswagen, the Indian subsidiary of German automobile manufacturing titan, Volkswagen Group (VW) has been accused of attempting to evade $1.4 billion (approximately Rs.11,856 crore) in import duties. The allegations have been purported against the VW Group in connection with their import of car parts for their sub-divisional automobile companies i.e., Volkswagen, Audi and Skoda.
It was averred that Volkswagen bypassed the duty of 35 percent on the import of Completely Knocked Down (CKD) units. CKD refers to the import of constituent parts of a complete automobile which are delivered in parts and assembled at the destination. Generally, it is cheaper to import the parts of an automobile and assemble them at the destination taking into consideration customs duty on the import of finished cars. Furthermore, some countries have legislative mandates that require certain components or products used on automobiles to be manufactured within their national limits.
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The Indian Tax Authorities claimed that Volkswagen disguised the import goods as individual parts to be used in local production which are taxed at a mere 5 to 15 percent as compared to the 35 percent duty imposed on CKD.
Prominent models such as Audi A Series, Q Series, Skoda’s Octavia, Kodiaq, Superb and Volkswagen’s Tiguan have all been reported to be compiled using such duty-evaded parts.
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The imports in dispute were deemed to have arrived at Indian ports as multiple consignments under separate invoices but within three to seven consecutive days of each other. Authorities allege that the constituent parts had been split up into multiple consignments to avoid detection.
Volkswagen Group utilizes two specialized software systems, NADIN and ProCKD, to streamline its procurement and inventory processes for vehicle production.
NADIN supports international ordering by breaking down vehicle requirements into 700–1,500 components and coordinating with suppliers in Germany, the Czech Republic, and Hungary. ProCKD, on the other hand, oversees inventory management in India, ensuring components are appropriately synchronized with the assembly process.
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Authorities have raised concerns that Volkswagen leveraged these systems to strategically reallocate shipments to avoid applicable duty. They allege that major parts, including car bodies, were imported through multiple invoices and consignments arriving within short intervals, a practice that may have been employed to circumvent classification as completely knocked down units.
However, Volkswagen India have refuted the allegations, maintaining that their operations are fully compliant of India’s Duty Laws. Furthermore, the company averred that their logistics models of NADIN and ProCKD are strategies to optimise efficiency and not to evade tax.
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The Show-Cause Notice has called upon Volkswagen to explain why the alleged tax evasion should not attract penalties and interest under Indian Laws. If proven guilty, Volkswagen may be slapped with an eye-watering 100% Penalty on the alleged $1.4 Billion evaded tax.
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