Skoda Auto Volkswagen India Faces $1.4 Billion Tax Evasion Notice

The authorities claim that Volkswagen shipped car components in separate batches to avoid detection and evade higher taxes

Skoda Auto Volkswagen India has been issued a notice by the government over alleged tax evasion amounting to $1.4 billion. The company is accused of misclassifying imported car components to avoid paying higher import duties, according to a document reviewed by Reuters.

According to the Reuters' report, the notice, dated September 30, alleges that Skoda Auto Volkswagen India, a subsidiary of Volkswagen, imported "almost the entire car" in an unassembled state and misdeclared the goods as individual parts. While fully assembled car kits attract a 30-35 per cent import duty under Indian law, individual parts are taxed at a lower rate of 5-15 per cent.

The authorities claim that Volkswagen shipped car components in separate batches to avoid detection and evade higher taxes. Models such as the Skoda Kodiaq, Skoda Superb, Audi A4, Audi Q5, and Volkswagen Tiguan are reportedly among those affected.

"This logistical arrangement is an artificial ploy to clear the goods without paying applicable duties," the 95-page notice from the Office of the Commissioner of Customs in Maharashtra. The investigation concluded that since 2012, the company has paid only $981 million in duties, significantly lower than the $2.35 billion it should have paid.

Skoda Auto Volkswagen India has denied wrongdoing, stating it is "a responsible organisation, fully complying with all global and local laws and regulations." The company is reviewing the notice and has pledged full cooperation with authorities. A government official, speaking on condition of anonymity, suggested penalties in such cases could equal 100 per cent of the evaded amount. If enforced, Volkswagen may face a total liability of around $2.8 billion.

This case highlights the broader struggles foreign companies face in India, including high taxes and prolonged legal disputes. Companies like Tesla and Vodafone have similarly contested India's taxation policies, while Chinese automaker BYD is under investigation for allegedly evading $9 million in import duties.

Volkswagen has faced difficulties in India’s competitive 4-million-unit car market, with its Audi brand trailing BMW and Mercedes in the luxury segment.

The investigators allege that Volkswagen’s internal software facilitated bulk orders for cars, which were then broken into 700-1,500 individual components. These parts, shipped in separate containers over several days but arriving simultaneously at Indian ports, were declared as individual imports to reduce tax liability.

Volkswagen defended its practices, citing operational efficiency, but authorities rejected this explanation. "Logistics is a very small and rather least significant step of the whole process," the notice stated.

The investigation involved searches at three Volkswagen India facilities in 2022, including two factories in Maharashtra. Officials seized documents and email backups and questioned Piyush Arora, the company's India Managing Director, who reportedly could not justify why car parts were not shipped together.

The notice pointed out that competitors like Mercedes adhered to import regulations, paying the required 30 per cent duty on fully assembled car kits. The case adds to Volkswagen's ongoing challenges in India, where it has struggled to gain a foothold despite the growing automobile market.

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