In what can be a major setback for Volkswagen which is trying to make a mark in the Indian car market, the government has reportedly issued a notice to the German automaker for allegedly evading $1.4 billion in taxes by paying lesser import tax on components for its Audi, VW and Skoda cars.
It is being alleged that Volkswagen imported almost the entire car in unassembled condition—which attracts a 30-35% import tax in India under rules for completely knocked-down (CKD) units—but misreported those imports as individual parts, thereby paying just a 5-15% duty, stated a government notice issued on September 30.
The notice is yet to be made public and was accessed by Reuters.
"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," said the 95-page notice by the Office of the Commissioner of Customs in Maharashtra.
Since 2012, Volkswagen's India unit should have paid import taxes and several other related levies of about $2.35 billion to the Indian government, but paid only $981 million, amounting to a shortfall of $1.36 billion, the authority said.
The Indian investigation found that different shipment consignments were used to evade detection and "willfully evade payment" of higher taxes.
Skoda Auto Volkswagen India, in a statement on Friday, said it is a responsible organisation, fully complying with all global and local laws and regulations. “We are analysing the notice and extending our full cooperation to the authorities,” added the carmaker.
The notice asks the company to respond within 30 days, but Volkswagen didn't comment if it has done so or not.
Volkswagen's India unit, Skoda Auto Volkswagen India, made such imports for its models, including the Skoda Superb and Kodiaq, luxury cars like Audi A4 and Q5, and VW's Tiguan SUV.
The notice to Volkswagen’s India unit comes at a time when the carmaker is trying hard to scale its visibility in the Indian market. Skoda Auto is all set to launch a sub-4 meter SUV to boost its volume.
A government official who spoke on condition of anonymity to Reuters said the penalty typically in such cases, if the company is found guilty, could go as high as 100% of the amount evaded, which could force the company to pay up about $2.8 billion in total.
It is also being reported that Skoda Auto Volkswagen India Managing Director, Piyush Arora, was questioned last year and asked "why all the parts required to assemble a car are not shipped together", but "he was not able to answer this question," the investigators said in the notice.