Kia Course Corrected, Volkswagen Did Not: Indian Tax Authorities On Import Duty Scam
The high-stakes legal battle between Volkswagen India and the tax authorities is intensifying. Now, the tax department seems to have singled out Volkswagen in the dispute, saying that Kia- another company that reportedly committed similar offences in the past, 'corrected course' after being warned.
Kia Adjusted Its Practices, Volkswagen Did Not
Court filings (seen exclusively by Reuters) reveal that 10 other carmakers, including Mercedes-Benz, BMW, and Hyundai, correctly classified their imports despite using "split consignments to ship them in.
Kia India, once flagged for similar misclassification, revised its practice and started classifying them correctly after an investigation was conducted. Kia, however, continues to contest a $155 million tax demand related to its Carnival minivan imports.
A senior tax official stated that Kia acknowledged the misclassification and corrected its path. In contrast, Volkswagen is fighting the charges, arguing that Indian authorities took too long—12 years—to review shipment records. The tax department also made it clear that the delays were due to Volkswagen's failure to provide necessary documents in time.
Volkswagen Group's Tax Evasion: Details
Skoda Auto, the company that handles Volkswagen Group's India operations was taken to court after it allegedly evaded $1.4 billion in taxes by misclassifying semi-built cars as car parts. If found guilty, the carmaker will have to pay 2.8 billion USD, including penalties!
In India, completely knocked down (CKD) units attract 30% to 35% import duty. Imported car parts on the other hand, are taxed 10-15 per cent only.
Volkswagen Group allegedly used their NADIN software to break down vehicle orders into components and sub-assemblies, and ship these in under the lower duty slabs. These were brought in separate shipments to evade detection and penalties.
The customs officers finally found the discrepancy by analysing the KEN numbers (used to identify the car that the parts belong to) of the imported parts.
The Legal Battle So Far
The Mumbai High Court is expected to rule soon on Volkswagen’s challenge to the tax demand. During court proceedings, India's Additional Solicitor General, N. Venkataraman, dismissed Volkswagen’s attempt to shift blame, stating,
Don’t be the victim here. If you don’t follow the law, then we will initiate action in accordance with the provisions of law,
Volkswagen had previously stated that the huge amount that it might have to pay (including the penalties) is a matter of "life and death" for the brand. It further argued that the demand contradicts India's import tax regulations. The case’s outcome will be closely watched by global investors and the automotive industry, given its potential implications for foreign businesses operating in India.
Court: Prima Facie Dissatisfaction!
The Bombay High Court (HC) expressed prima facie (based on first impressions) dissatisfaction with Skoda Auto Volkswagen India’s arguments. The two-judge bench, led by Justice B.P. Colabawalla questioned if Skoda's plea should be entertained at this stage.
The bench said:
Prima facie, we are not satisfied with your argument. It is troubling us whether we should entertain the plea at the stage of the show-cause notice.
Further, it appreciated the customs officer who found out the misclassification and conducted the investigation. The court praised his "meticulous work and research" in getting the same done.
The Road Ahead
Many including us are looking forward to seeing how this legal battle will unfold in the coming days. The court's ruling here could set a reference for many.