Rs 12,000-crore bombshell – Skoda Auto Volkswagen India hits

Skoda Auto Volkswagen India faces Rs 12,000-crore tax evasion charges; fine may be doubled to Rs 24,000-crore including interest

In a major development, Skoda Auto Volkswagen India received a tax evasion notice from the Indian government amounting to $1.4 billion (Rs. 12,000 crore). The accusations revolve around the company underpaying import duties due to misclassification and misdeclaration of imported parts for its Skoda, Volkswagen and Audi cars.

Misclassification and tax evasion charges

Skoda Auto Volkswagen India allegedly imported “almost the entire vehicle” in an unassembled state but declared them as separate parts, according to a document dated September 30 reviewed by Reuters. This practice reportedly allows the company to benefit from lower import duties, ranging from 5% to 15%, while completely knocked down (CKD) equipment is subject to duties of 30% to 35%.

According to the investigation, this method is used in models such as Skoda Kodiaq, Superb, Audi A4, Audi Q5 and Volkswagen Tiguan. Authorities claim the shipments were divided into batches to avoid detection and evade higher tariffs. The 95-page notification issued by the Maharashtra Customs Commissioner’s Office reportedly said, “This logistics arrangement is an artificial structure… and is nothing more than a way to clear customs without paying applicable duties.” cargo strategy.”

$1.4 billion underpaid over a decade

The notice stated that since 2012, Skoda Auto Volkswagen India should have paid US$2.35 billion in import taxes, but only remitted US$981 million, leaving a shortfall of US$1.36 billion. This is one of the largest tax demands ever made to an Indian automaker. If the allegations are proven, the fine could double the amount owed, potentially taking the company’s liabilities to $2.8 billion (Rs 24,000 crore), the report quoted an anonymous government official as saying.

Skoda Volkswagen India responds

“We are a responsible organization and fully comply with all global and local laws and regulations. We are analyzing the notification and extending full cooperation to the authorities,” Skoda Auto Volkswagen India said in its official statement.

According to reports, the company’s managing director Piyush Arora was questioned in 2022 over the issue of scattered transportation of auto parts. The investigator claimed he could not prove why the parts needed to assemble the car were not shipped together. A search at the company’s facility in Maharashtra uncovered documents, emails and internal ordering software allegedly used to facilitate the practice.

Comparison to industry norms

The investigation pointed out that competitors such as Mercedes-Benz adhere to the CKD tax structure and pay the required 30% import tax for similar operations. The notice rejects Skoda Auto Volkswagen’s defense that the approach is aimed at improving operational efficiency, noting that “logistics is a very small and least important step in the entire process.”

Wider implications for foreign automakers

The notification underlines the government’s intention to ensure compliance with tax laws while maintaining a level playing field in the automotive industry. As the case unfolds, it remains to be seen how Skoda Auto Volkswagen India will respond to the allegations and the potential financial impact.

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