Volkswagen India faces $1.4 Billion Tax Evasion Notice for Short Payment of Duty on Imports of Car Parts

Skoda Auto Volkswagen, the Indian unit of the German vehicle manufacturing titan Volkswagen Group (VW), has been accused of attempting to avoid import duties totalling $1.4 billion (roughly Rs.11.856 crore). The claims are made against the Volkswagen Group in relation with the import of automotive parts for their subsidiary automobile firms, Volkswagen, Audi, and Skoda.

It was claimed that Volkswagen avoided the 35% duty on the import of Completely Knocked Down (CKD) units. CKD refers to the importation of individual components of a complete automobile, which are supplied in pieces and assembled at the destination. Generally, it is cheaper to import vehicle parts and assemble them at the destination, taking into account customs duties on finished car imports. Furthermore, several countries have statutory restrictions that require specific components or items used in automobiles to be made within their borders.

The Indian Tax Authorities stated that Volkswagen disguised the imported items as separate parts to be used in local production, which are taxed at a rate of 5 to 15%, as opposed to the 35% duty imposed on CKD.

Popular vehicles models such as the Audi A Series, Q Series, Skoda’s Octavia, Kodiaq, Superb, and Volkswagen’s Tiguan have all been claimed to be built with similar duty-evaded parts.

The disputed imports were considered to have arrived at Indian ports in multiple consignments with independent invoices, but within three to seven days of each other. Authorities suspect that the constituent parts were divided into various consignments to evade discovery.

Volkswagen Group streamlines its vehicle procurement and inventory operations using two specialist software systems, NADIN and ProCKD.

NADIN facilitates international ordering by breaking down vehicle specifications into 700-1,500 components and working with suppliers in Germany, the Czech Republic, and Hungary. ProCKD, on the other hand, manages inventory in India, ensuring that components are properly synchronized with the assembly process.

Authorities are concerned that Volkswagen used these technologies to strategically reallocate shipments to avoid paying applicable duties. They claim that key pieces, including automobile bodies, were imported via several invoices and consignments arriving at short intervals, a procedure that may have been used to avoid classification as entirely knocked down units.

However, Volkswagen India has denied the allegations, claiming that its operations are entirely compliance with India’s duty laws. Furthermore, the corporation claimed that its NADIN and ProCKD logistics solutions are strategies for increasing efficiency rather than evading taxes.

The Show-Cause Notice has asked Volkswagen to explain why the suspected tax avoidance should not result in penalties and interest under Indian laws. If proven guilty, Volkswagen may face a whopping 100% penalty for the claimed $1.4 billion in tax evasion.