Volkswagen India sees customs delays due to a $1.4 billion tax demand, says report

German car manufacturer Volkswagen India experienced delays in air shipments in Mumbai as custom authorities temporarily held them due to a $1.4 billion tax demand. This resulted in spare part supply disruptions at dealerships, Reuters reported on Tuesday.

This development comes at a crucial time for the company, as it strives to boost sales in India, the world's third-largest car market, through new product launches and planned investments. 

According to two sources familiar with the situation, including a government official, the delay involves over 50 shipments primarily consisting of spare parts and is linked to tax demands made by Indian authorities.

In September, India issued a notice to Volkswagen's local unit, accusing them of evading taxes by intentionally providing inaccurate information about their imports and underpaying taxes on components for their Audi, VW, and Skoda brand cars.

Skoda Auto Volkswagen India has reiterated its commitment to compliance with all laws and regulations, and has expressed willingness to cooperate with the authorities in addressing the allegations.

Business Today was unable to verify the development independently. 

The impacted shipments primarily carried spare parts for the luxury brands under the group, including Audi, Lamborghini, and Porsche. They were ultimately released after a hold of approximately two weeks, as reported by sources with knowledge of the situation. However, two car dealers in India are experiencing a delay of multiple days in receiving their spare parts consignment, as disclosed by the same sources.

September notice

The September notice issued by the Indian authorities revealed that Volkswagen had allegedly imported nearly whole cars in a disassembled state, subjecting them to a 30-35 percent import tax in India under the CKD (completely knocked down) units’ rule. These imports were reportedly misclassified and mis-declared by Volkswagen as “individual parts”, resulting in a significantly lower duty payment of 5-15 percent.

The imports were carried out by Volkswagen's local unit, Skoda Auto Volkswagen India, for various models including the Skoda Superb, Kodiaq, Audi A4, Q5, and VW Tiguan SUV. An investigation uncovered that multiple shipments were utilized to evade detection and intentionally avoid paying the higher taxes.

This situation is particularly significant for Volkswagen as it contends with stiff competition from local players like Tata Motors and Mahindra & Mahindra, as well as global competitors such as Hyundai Motor.