Indian Government Issues $1.4 Billion Tax Evasion Notice to Skoda Auto Volkswagen India

The Indian government has issued a notice to Skoda Auto Volkswagen India Pvt Ltd (SAVWIPL) for allegedly evading $1.4 billion in import duties by misclassifying car components, according to a Reuters report citing official documents. The notice accuses the company of “wilfully” underpaying taxes on imports for Skoda, Volkswagen, and Audi vehicles, making it one of the largest tax demands of this nature in India.

Details of the Allegation

The notice, dated September 30, claims that SAVWIPL imported “almost the entire car” in an unassembled state, which typically attracts a 30-35% customs duty under Indian regulations for completely knocked-down (CKD) units. However, the company allegedly paid a much lower duty of 5-15% by misclassifying these imports as “individual parts.”

The imported components were used for models such as the Skoda Kodiaq and Superb, Volkswagen Tiguan, and luxury cars like the Audi A4 and Q5. To evade detection, the company allegedly shipped parts in separate batches over consecutive days, as stated in the 95-page notice issued by the Office of the Commissioner of Customs in Maharashtra.

“This logistical arrangement is an artificial arrangement ... operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty,” the notice reportedly states.

A Decade-Long Issue

The investigation, which began in 2022, revealed that since 2012, SAVWIPL should have paid $2.35 billion in taxes but only remitted $981 million, leaving a $1.36 billion shortfall. Inspectors conducted searches at three of the company’s facilities, including two factories in Maharashtra, seizing documents and emails during the probe.

The notice alleges that SAVWIPL’s internal software system facilitated bulk orders from suppliers in the Czech Republic, Mexico, and Germany. These orders were then broken down into 700-1,500 parts per vehicle, shipped in separate containers under multiple invoices, and declared as individual components to avoid higher duties.

Company's Response and Legal Implications

In response, Skoda Auto Volkswagen India stated it is a “responsible organization” that complies with “all global and local laws.” The company said it is analyzing the notice and cooperating with authorities.

However, a government official told Reuters that if the allegations are proven, SAVWIPL could face penalties up to 100% of the evaded amount, potentially increasing the total liability to $2.8 billion.

Challenges for Volkswagen in India

The notice adds to Volkswagen's challenges in India, a market where it is a relatively small player in the 4-million-unit-per-year car industry. Its Audi brand trails competitors like BMW and Mercedes-Benz in the luxury segment.

Key Questioning of Leadership

The company’s Managing Director, Piyush Arora, was reportedly questioned last year about why all components required for assembly were not shipped together. According to the notice, Arora was unable to provide a satisfactory explanation.

Volkswagen justified its import practices as measures for “efficiency of operations,” but the notice dismissed this claim, stating, “Logistics is a very small and rather least significant step of the whole process ... SAVWIPL is not a logistics company.”

Conclusion

The allegations against Skoda Auto Volkswagen India represent a significant challenge for the automaker, potentially impacting its reputation and financial standing. The final outcome will depend on the resolution of the investigation and the company’s ability to address the government’s concerns.

This case underscores the Indian government’s ongoing efforts to tighten compliance with import tax laws and ensure that multinational corporations adhere to fair trade practices.

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