Exclusive: Volkswagen files lawsuit against India to block ‘enormous’ $1.4 billion tax demand
VW has filed a lawsuit against Indian authorities to stop a “impossibly enormous” $1.4 billion tax demand, claiming the demand will interfere with the company’s business plans and is in conflict with New Delhi’s import taxing regulations for auto parts, according to court documents.
Skoda Auto Volkswagen India, a division of Volkswagen, has warned the High Court in Mumbai that the tax issue jeopardizes its $1.5 billion in investments in India and harms the environment for foreign investment. The 105-page filing is not publicly available, but Reuters read it.
In the largest import tax demand ever, India sent a $1.4 billion tax notice to Volkswagen (VOWG_p.DE) in September and opened a new tab for a strategy that would reduce the charge on imports of certain VW, Skoda, and Audi vehicles by breaking them down into numerous individual parts.
According to Indian authorities, Volkswagen imported “almost the entire” car in disassembled form, which is subject to a 30–35% tax on completely dismantled units, or CKDs. However, Volkswagen avoided the taxes by misclassifying the parts as “individual parts” arriving in separate shipments, only paying a 5–15% levy.
According to Volkswagen India’s court case, the business provided the Indian government with updates on their “part-by-part import” strategy and obtained explanations in 2011.
According to the court filing dated January 29, 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.
Outside of regular business hours, neither the Indian finance ministry nor the customs official who issued the demand order responded to queries for comment.
As it works with authorities and is dedicated to guaranteeing “full compliance” with all international and local laws, Volkswagen’s India division said in a statement that it is utilizing all available legal remedies.
A request for comment was not answered by a Volkswagen representative in Germany.
The German automaker, whose Audi brand trails behind rivals in the luxury class like Mercedes (MBGn.DE), opens new tab, and BMW, is a minor participant in India’s automobile market, which produces 4 million units annually and is the third largest in the world.
Earlier, a government source told Reuters that if Volkswagen India loses the battle, it would be forced to pay almost $2.8 billion in penalties. VW India recorded sales of $2.19 billion and a $11 million profit in 2023–2024.
The tax disagreement coincides with Volkswagen’s efforts to reduce expenses in order to better compete with Chinese rivals and address the lackluster demand in Europe. It announced 35,000 job layoffs in Germany in December. According to the automaker, it would sell a portion of its business in China, its largest market.
FOR INVESTOR SENTIMENT, “BODY BLOW”
Volkswagen contends that it is exempt from paying additional taxes because it exported the individual auto parts rather than importing them as a “kit” and then mixing them with some local parts to create a car together.
A “kit” is defined as a “practical analogy” of purchasing a chair online from Amazon, which is subsequently shipped with all the fixtures and pieces required to construct the furniture.
Using internal software that linked it to suppliers in the Czech Republic, Germany, Mexico, and other countries, officials claimed that Volkswagen’s local unit often made large orders for automobiles.
Additionally, the software divided the order into “main components/parts” once it was ordered; they were supplied separately over time and ranged from 700 to 1,500 for each car, depending on the model?
Government officials in India claimed that this was “a ploy to clear the goods without the payment of the applicable duty.”
In the court document, the business claims that “there is no exclusive utilization of the parts towards manufacture of one specific car.”
Volkswagen India also disputes the claimed covert software use, claiming it aids dealers in communicating vehicle orders so it can monitor “consumer demand at a macro level.”
Foreign corporations have frequently complained about excessive taxes and drawn-out legal challenges in India. Tesla (TSLA.O) has opened a new tab and is publicly criticizing the high taxes on imported electric vehicles.
According to the corporation, the tax notice “deals a body blow” to the widely promoted “policy of ease of doing business in India for foreign investors.”
The case is scheduled to begin hearings at the Mumbai High Court on February 5.
