Volkswagen, Skoda & Audi in India Accused of Tax Evasion by Misclassifying Car Imports

Volkswagen, Skoda, and Audi are under scrutiny for allegedly evading import duties in India by misclassifying car parts. A notice issued on September 30 accuses Volkswagen of bypassing the 30-35% tax levied on Completely Knocked-Down (CKD) units by declaring near-complete vehicles as “individual components,” which are taxed at a significantly lower rate of 5-15%.

The Indian government claims that Volkswagen imported almost-complete cars in staggered shipments, disguising the classification of the parts. This tactic is alleged to be a deliberate attempt to avoid higher duties. Over the past decade, Volkswagen’s Indian arm reportedly owed $2.35 billion but paid only $981 million, leaving a tax shortfall of $1.36 billion.

Authorities detailed that parts were shipped in separate containers under multiple invoices but arrived simultaneously at Indian ports. Volkswagen’s explanation of “operational efficiency” was rejected by investigators, who insist that the practice was designed to evade taxes.

This issue further complicates Volkswagen’s position in India’s competitive passenger vehicle market, where the brand holds a small share. Additionally, its luxury Audi brand has struggled to match competitors like Mercedes-Benz and BMW. Investigators pointed out that other manufacturers, such as Mercedes, adhered to CKD import norms and paid the appropriate taxes.

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Penalties & Financial Implications (Tax Evasion Case)