India vs Volkswagen: ₹12,000 Cr Tax Row Threatens Auto Giant’s $1.5B Investment

Volkswagen’s Indian branch, Skoda Auto Volkswagen India, is suing the Indian government to block a whopping ₹12,000 crore (1.4billion) taxbill—ademandthatcouldballoonto ₹24,000 crore (2.8 billion) with penalties. The legal battle, first reported by Reuters, centers on accusations that Volkswagen dodged import taxes by mislabeling car parts.

What’s the Fight About?

Indian authorities claim Volkswagen imported nearly complete car kits under the radar but labeled them as “individual parts” to slash import duties. Fully built car kits (CKDs) attract 30-35% tariffs, while separate parts face just 5-15% taxes. Officials allege Volkswagen used software to split bulk orders from global suppliers into smaller shipments over time, avoiding higher CKD rates. By doing this, the company allegedly imported almost entire cars in pieces, assembled them locally with minimal Indian parts, and sold them without paying the proper duties.

Volkswagen Fights Back

The automaker denies wrongdoing, arguing its “part-by-part” imports comply with Indian tax rules. In a Mumbai High Court filing, Volkswagen stated it never imported parts as unified kits and claims the government approved this model back in 2011. The company warns the dispute could hurt India’s appeal to foreign investors and jeopardize its $1.5 billion investment in the country.

Why This Matters

Volkswagen’s Indian unit—which sells Skoda, Volkswagen, and Audi cars—is already a minor player in India’s booming auto market, trailing rivals in both mainstream and luxury segments. Last fiscal year, the group reported ₹19,000 crore (2.19billion) in sales and a modest ₹96crore (11 million) profit. The court is set to hear the case in February 2025. For now, Volkswagen insists it’s following all local and global laws and will “explore all legal options” to resolve the standoff.