Volkswagen Sues India Over Import Duty Demand

In November, news broke about Volkswagen’s Indian arm – Skoda Auto Volkswagen India Private Limited (SAVWIPL) – allegedly evading import duty to a tune of 11,486 crore, or about 1.4 billion US dollars. Also, the Indian government, through the Maharashtra Customs Department, served SAVWIPL a notice to recover the amount of 11,486 crore, and also sought to know why the automaker should not be charged an additional 100 % penalty for import duty evasion. This effective meant a tax notice of 2.8 billion US dollars or nearly 25,000 crore rupees. The German automaker has now hit the Indian government back with a legal notice.

According to a report on Reuters, who incidentally broke the story about the alleged duty evasion, the Volkswagen group, through its lawyers has sued the Indian government at the Bombay High Court. The German automaker is said to have petitioned the court to intervene, and get the 1.4 billion US dollar tax notice against it, quashed.

In court filings, the Volkswagen group has noted that such a large tax demand would put its 1.5 billion US dollar investment in India at peril, and that this order will adversely affect foreign investor sentiment in India. The group has also prepared a response to rebut the Maharashtra Customs Department’s allegations that it had evaded import duty.

Want a deep dive into the alleged scam? Read this!

What’s Volkswagen’s defense?

2. The Indian government was already informed about the ‘part by part’ import of car parts by the Volkswagen group way back in 2011, and that the government had even allowed this.
3. The parts that were imported were not used in a single car but multiple cars.
4. The group combined imported parts with locally sourced parts to build the final car.
5. There was no ‘secret software’ used. Instead, the software was meant to track consumer demand at a macro level by allowing dealers to place car orders.

What are customs officials alleging?

2. The Volkswagen group imported parts into India by paying 10-15 % duty instead of 30-35 % duty it was supposed to actually pay.
3. The Volkswagen group achieved this by splitting the import of a full car kit into multiple orders.
4. The multiple orders for parts means that the car was imported as a parts (10-15 % import duty) instead of a completely knocked down (CKD) kit (30-35 % import duty)
5. This caused a loss of nearly 1.4 billion US dollars or Rs. 11,846 crore to the Indian exchequer.

The Bombay High Court, under whose jurisdiction this case falls, will hear the matter between Volkswagen India and Maharashtra Customs Department from the 5th of February 2025.

If Volkswagen wins this case, it will not only escape the massive tax demand and penalty but could also stand to benefit from a lower import duty thanks to the procedure it has been using to import CKD kits into India.

Should Volkswagen lose this case, its India business will come under a huge question mark as the German automaker has been facing a difficult economic situation in Europe. Essentially, this result of this case could make or break Volkswagen’s fortunes in India.

For now, Volkswagen, through Skoda, has just launched a new mass market car – the Skoda Kylaq sub-4 meter compact SUV. A similar SUV with Volkswagen badging is expected to be launched in early 2026. Volkswagen is also planning to bring in a slew of facelifted cars – the Taigun and Virtus, which Skoda will also launch facelifted versions of the Kushaq and Slavia shortly.

The German automaker is also developing next-generation versions of the Taigun/Kushaq and Virtus/Slavia. Also, the group is working on a new electric car project that will be heavily localised and deployed in various emerging markets including India. All these plans could come under a cloud if the court to rule against Volkswagen India. The stakes are very high!