Volkswagen tells court a $1.4 bn tax liability threatening its India operations

Skoda Auto Volkswagen India Private Limited (SAVWIPL), the Indian arm of Germany’s Volkswagen Group, told the Bombay High Court on Monday that it would collapse under the weight of a Rs12,000-crore ($1.4 billion) tax claim by the customs department.

The tax claim arose after customs authorities in Maharashtra found that SkodaAuto Volkswagen India has been evading import duty by misdeclaring SKD kits as individual parts.

SKD kits that are fully-built automobiles in knocked-down condition attract customs duty of up to 35 per cent against the imports of individual parts that attract 5-15 per cent customs duty.

As per the show-cause notice issued by the customs department, the German group had carried out around 33,000 import transactions between 2012 and 2024, depriving the customs department of Rs12,172 crore. With 100 per cent penalty attached to such tax evasion, Volkswagen’s total tax liability on CKD imports should work out to Rs24,544 crore. 

Advocate for the Volkswagen Group told the court that the $1.4 billion tax claim by the Indian Customs authorities created a situation that the company will have to close its operations in India.

The advocate also said the customs department had not issued any show cause notice for 12 years and that the show-cause notice gave no explanation for that.

A Volkswagen official also stated that the customs authorities had detained over 100 consignments of the company following the issue of the show-cause notice in September 2024.

Customs department, however, clarified in the court that no consignment belonging to the group has been detained and will not be detaining any such consignments in future as well. 

According to the customs, almost all models like the Skoda Kodiaq, Superb, Audi A4, Audi Q5, and Volkswagen Tiguan were imported this way to circumvent customs duty. 

The company also classified the imports into separate batches to avoid scrutiny, as per the tax notice issued by the Commissioner of Customs, Maharashtra.

The notice also pointed out that Skoda Auto Volkswagen India paid only $981 million in import duty against $2.35 billion duefrom the company.