Volkswagen in legal war with India

German carmaker Volkswagen has filed a lawsuit against Indian authorities, seeking to cancel a $1.4 billion tax demand, calling it "impossibly enormous" and contradictory to India’s import tax rules, reported a news agency.

Feb 3, 2025 - 14:29
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Volkswagen in legal war with India

German carmaker Volkswagen has filed a lawsuit against Indian authorities, seeking to cancel a $1.4 billion tax demand, calling it "impossibly enormous" and contradictory to India’s import tax rules, reported a news agency.

The company has warned that this dispute could impact its $1.5 billion investments in India and harm the country’s foreign investment climate, according to court documents reviewed by the news agency.

The tax dispute began in September 2024, when Indian authorities issued a $1.4 billion tax notice to Volkswagen’s Skoda Auto Volkswagen India unit. Officials alleged that Volkswagen misclassified its imports to pay lower customs duties.

According to the government, Volkswagen broke down imports of some VW, Skoda, and Audi cars into separate components, instead of declaring them as completely knocked down (CKD) units. CKD units attract a higher import tax of 30-35%. Individual car parts are taxed at a lower 5-15% rate.

Authorities claim Volkswagen imported nearly complete vehicles in an unassembled condition but used a loophole to pay less tax by classifying them as separate parts. Volkswagen has denied any wrongdoing and says it had been transparent about its import model.

The lawsuit, filed on January 29 in the Mumbai High Court, said, "The tax notice is in complete contradiction of the position held by the government ... (and) places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances of the administration."

A government source said that if Volkswagen loses the case, the total tax and penalty amount could reach $2.8 billion. For context, in 2023-24, Volkswagen India reported sales of $2.19 billion (Rs 18,100 crore) and made a net profit of just $11 million. This means the tax penalty could be far greater than Volkswagen India’s annual revenue and multiple times its profit.

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