*The story has been updated with Volkswagen India’s official statement*
In November 2024, the Volkswagen Group was slapped with a notice for evading a tax worth humongous $1.4 billion (approx. Rs 11,847 crore) by the Government of India for “wilfully” paying lesser import tax on components for the cars brought to India under the Audi, VW and Skoda brands.
The third-largest auto conglomerate in the world, Volkswegen has now retorted to the Government of India by suing authorities to quash an “impossibly enormous” tax demand. In the latest 105-page filing submitted at the Bombay High Court, the German carmaker states that the demand is contradictory to the country’s import taxation rules for car parts and will hamper the company’s business plans.
According to Reuters, the tax dispute puts the company’s proposed investments of $1.5 billion in India at risk, and is detrimental to the foreign investment climate. Skoda Auto Volkswagen India Private Limited (SAVWIPL), a wholly-owned subsidiary of Volkswagen Group, handles the company’s India operations. The notice also sought to know why the automaker should not be charged an additional 100% penalty for import duty evasion.
In effect, Volkswagen has been asked to pay a humongous amount of $2.8 billion (approx. Rs 25,000 crore). To provide a brief flashback to our readers, Indian authorities alleged that Volkswagen used to import “almost the entire” car in unassembled condition – which attracts a 30-35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by “mis-declaring and mis-classifying” those imports as “individual parts”, paying just a 5-15% duty.
As per the report, Volkswagen contends that it is not obligated to pay higher taxes, as it did not import car parts as a single “kit.” Instead, the components were shipped separately and assembled with locally sourced parts to manufacture the vehicle. To illustrate the concept of a “kit,” the company provides a practical analogy: purchasing a chair online from Amazon, where all necessary parts and fixtures for assembly are delivered together in a single shipment.
Dealt with “heavy blow”: What’s next for Volkswagen?
If the petition is accepted by the court, this could lead to a long legal battle between the Government of India and Volkswagen. In 2020, SAVWIPL announced the launch of its India 2.0 programme with a new range of products under Volkswagen and Skoda, with the latter taking charge this time. Despite the products receiving praises from all corners, the VW Group still doesn’t enjoy the mass appeal as some of its Korean or Japanese rivals.
Furthermore, Volkswagen’s own backyard in Europe has witnessed gradual decline in passenger vehicle sales in the last few years. Hence, the company’s over dependence on the Indian market is very evident. In December 2024, Volkswagen announced 35,000 job cuts in Germany. Also, the company will sell some of its operations in China which has been its biggest consumer market till date.
If things don’t go in favour, Volkswagen will have to pay an exorbitant fee to the Indian government which will not only overburden the company but put its investments and future in India at stake. With sales plummeting globally, Volkswagen is reportedly in talks with a few local entities in India which will help boost its sales in the country and also share development and production costs of its future models.
In July 2024, VW entered into preliminary talks with Mahindra and Mahindra (M&M) to scale up their supply agreement on components which could eventually lead to the formation of a joint venture. Recent developments also put the dialogue between the two automotive firms at risk. The High Court in Mumbai is due to start hearing the case from 5 February 2025.
On the product front, Skoda recently launched its latest offering Kylaq in India at a starting price of Rs 7.89 lakh (ex-showroom). A VW iteration of the same is also expected down the line in the coming months. At the same time, Volkswagen is also developing facelifted models of Virtus and Taigun, while Skoda is working on the updated iterations of Kushaq and Slavia which are expected to break cover sometime next year. All these plans are at stake if Volkswagen has to pay Rs 25,000 crore from its pocket.
Volkswagen Responds
Express Drives reached out to SAVWIPL, which has issued an official statement regarding this matter. It says, “SAVWIPL is availing itself of all legal remedies in response to the Show Cause Notice as permitted under the law. SAVWIPL is committed to operating as a responsible organisation, ensuring full compliance with all applicable global and local laws and regulations. Compliance with regulatory requirements is one of SAVWIPL’s fundamental principles, and we are cooperating fully with the authorities on this matter.”
