German automobile giant Volkswagen is taking its fight with the Indian government to court over a $1.4 billion tax evasion allegation.
The automaker’s Indian arm, Skoda Auto Volkswagen India Pvt Ltd, has filed a lawsuit in the Bombay High Court against Indian authorities for demanding an "enormous" tax payment, Reuters reported, citing court filings. Volkswagen claims the tax notice threatens its $1.5 billion investment in the country.
Volkswagen also argues that the tax evasion notice it received in September last year has dealt a blow to the Modi government’s "Ease of Doing Business" campaign. The case is set for a hearing on February 5.
Tax Evasion Notice to Volkswagen
In November, reports revealed that Indian authorities had served a notice to the German firm, accusing it of "willfully" paying less import tax on auto components. The notice alleged that Volkswagen shipped "almost entire" cars in unassembled form to reduce tax liabilities.
India imposes a 30-35% import duty on completely knocked-down (CKD) vehicle units, while individual auto parts are subject to lower tariffs of 5-15%.
Authorities reportedly claim that Volkswagen’s local unit used internal software to place bulk orders for cars, which were then broken down into 700-1,500 components per vehicle, shipped separately, and assembled locally—thus avoiding higher duties.
Volkswagen contests the allegation, stating that the parts were not exclusively meant for specific cars and that the software was used to track consumer demand rather than bypass tax regulations.
In its court filing, the German automaker also argued that it had kept the Indian government informed of its "part-by-part import" model and was fully cooperating with authorities.
High Stakes for Volkswagen
Volkswagen is a relatively small player in the world’s third-largest auto market, generating just $11 million in net profit in the financial year 2022-23. According to Reuters, if the company loses the case, it may have to pay up to $2.8 billion in penalties.
A loss would be another setback for the automaker, which is already facing multiple challenges globally, including lagging in the electric vehicle transition and job cuts in Germany.
