New Delhi:

The Volkswagen Group, which include the brands Volkswagen, Audi, Skoda, Porche, and Lamborghini has been accused by Indian authorities of evading $1.4 billion (Rs 118.6 billion) in taxes, which is roughly Rs 11,865 crore.

The companies within the Volkswagen Group accused of import duty manipulation include the Indian unit Skoda Auto Volkswagen and the models of cars involved in the alleged scam include Audi’s A4 and A6 sedans and Q5 and Q7 SUVs. It also includes Skoda’s Octavia and Superb sedans, its Kodiaq SUV, and Volkswagen’s Tiguan SUV.

Relevant authorities in India have claimed after detailed scrutiny that Volkswagen has deliberately and “wilfully” manipulated its import in such a way that it evaded a higher tax slab by categorising parts to be imported under a lower tax category. This is something Volkswagen has denied, saying it complies with all local laws and is cooperating with Indian authorities.

UNDERSTANDING THE IMPORT DUTIES

To promote local manufacturing, India levies an import duty of 35 per cent on Completely Knocked-Down units or CKDs. These are imported as a kit and then assembled into cars at the manufacturing plants across India.

For other parts of the vehicle that are manufactured locally, but require components within it to be imported, the import duty for such components varies from 5 per cent to 15 per cent.

Should a ‘ready-to-drive’ car be imported in its entirety from another country, 100% import duty is charged. This steep duty, imposed for decades, is credited behind auto manufacturing plants being set up in India.

WHAT VOLKSWAGEN ALLEGEDLY DID

Upon detailed scrutiny, Indian authorities have claimed they found that to bypass the 30-35 per cent import duty on CKDs, Volkswagen intentionally “mis-declared and mis-classified” its component imports by declaring them as “individual parts” – which, as mentioned above, attracts a much-lower import duty of 5-15 per cent.

The authorities claimed that over time, Volkswagen imported 97 per cent of all parts of the car models mentioned above by declaring them as “individual components”, accumulating to nearly a billion-and-a-half dollars of import duty evasion.

HOW VOLKSWAGEN IMPORTS AUTO COMPONENTS AND PARTS

Volkswagen has an international inventory management system called NADIN for all its brands. It also has a separate software called ProCKD which it has developed to track and manage all inventory for manufacturing plants based in India.

Based on the feedback and projections sent by its sales and operations teams across India, the Volkswagen Group uses the these software – NADIN and ProCKD – to place orders for its various vehicle models across brands. This is how the manufacturing and assembly flow is managed.

Using the information entered in both software, an order is placed which NADIN then divides into a range of between 700 and 1,500 components which are necessary for a vehicle to be manufactured. The NADIN software is directly connected to international suppliers of three of Volkswagen’s brands – Audi, Skoda, and VW – in Germany, Czech Republic, and Hungary.

Once these brands receive the orders for components from India, the suppliers in these countries send the parts  to a “consolidation centre” for each brand from where it is shipped to India. Components are stamped with unique IDs that helped the production teams in India to identify which part goes where in the said car.

A 17-digit alpha-numeric number is also printed on the parts to identify them for each vehicle. A separate 16-digit ID number was also given so that factory workers could know that these parts need to be assembled together before being installed in the car.

WHAT VOLKSWAGEN CLAIMS AS COMPARED TO AUTHORITIES

These individual parts mentioned above then reach various Indian ports as multiple consignments and multiple invoices, all separate from one another, but usually arrive on consecutive days within a week. Authorities claim that the vehicle body is supplied along with the main components and the rest of the parts arrive separately in different packages to avoid detection as CKDs.

Volkswagen says this is purely a logistical model which it has adopted over the years to improve efficiency. However, authorities call this “intentional and deliberate” to avoid paying higher import duties.

The notice sent by Indian authorities to Volkswagen Group has been accessed by news agency Reuters. If the allegations are proven correct, it would be one of the biggest cases of import duty evasion in India’s history. It would also significantly impact the Volkswagen Group, which is already facing tough competition in the Indian auto market.
 

New Delhi:

The Volkswagen Group, which include the brands Volkswagen, Audi, Skoda, Porche, and Lamborghini has been accused by Indian authorities of evading $1.4 billion (Rs 118.6 billion) in taxes, which is roughly Rs 11,865 crore.

The companies within the Volkswagen Group accused of import duty manipulation include the Indian unit Skoda Auto Volkswagen and the models of cars involved in the alleged scam include Audi’s A4 and A6 sedans and Q5 and Q7 SUVs. It also includes Skoda’s Octavia and Superb sedans, its Kodiaq SUV, and Volkswagen’s Tiguan SUV.

Relevant authorities in India have claimed after detailed scrutiny that Volkswagen has deliberately and “wilfully” manipulated its import in such a way that it evaded a higher tax slab by categorising parts to be imported under a lower tax category. This is something Volkswagen has denied, saying it complies with all local laws and is cooperating with Indian authorities.

UNDERSTANDING THE IMPORT DUTIES

To promote local manufacturing, India levies an import duty of 35 per cent on Completely Knocked-Down units or CKDs. These are imported as a kit and then assembled into cars at the manufacturing plants across India.

For other parts of the vehicle that are manufactured locally, but require components within it to be imported, the import duty for such components varies from 5 per cent to 15 per cent.

Should a ‘ready-to-drive’ car be imported in its entirety from another country, 100% import duty is charged. This steep duty, imposed for decades, is credited behind auto manufacturing plants being set up in India.

WHAT VOLKSWAGEN ALLEGEDLY DID

Upon detailed scrutiny, Indian authorities have claimed they found that to bypass the 30-35 per cent import duty on CKDs, Volkswagen intentionally “mis-declared and mis-classified” its component imports by declaring them as “individual parts” – which, as mentioned above, attracts a much-lower import duty of 5-15 per cent.

The authorities claimed that over time, Volkswagen imported 97 per cent of all parts of the car models mentioned above by declaring them as “individual components”, accumulating to nearly a billion-and-a-half dollars of import duty evasion.

HOW VOLKSWAGEN IMPORTS AUTO COMPONENTS AND PARTS

Volkswagen has an international inventory management system called NADIN for all its brands. It also has a separate software called ProCKD which it has developed to track and manage all inventory for manufacturing plants based in India.

Based on the feedback and projections sent by its sales and operations teams across India, the Volkswagen Group uses the these software – NADIN and ProCKD – to place orders for its various vehicle models across brands. This is how the manufacturing and assembly flow is managed.

Using the information entered in both software, an order is placed which NADIN then divides into a range of between 700 and 1,500 components which are necessary for a vehicle to be manufactured. The NADIN software is directly connected to international suppliers of three of Volkswagen’s brands – Audi, Skoda, and VW – in Germany, Czech Republic, and Hungary.

Once these brands receive the orders for components from India, the suppliers in these countries send the parts  to a “consolidation centre” for each brand from where it is shipped to India. Components are stamped with unique IDs that helped the production teams in India to identify which part goes where in the said car.

A 17-digit alpha-numeric number is also printed on the parts to identify them for each vehicle. A separate 16-digit ID number was also given so that factory workers could know that these parts need to be assembled together before being installed in the car.

WHAT VOLKSWAGEN CLAIMS AS COMPARED TO AUTHORITIES

These individual parts mentioned above then reach various Indian ports as multiple consignments and multiple invoices, all separate from one another, but usually arrive on consecutive days within a week. Authorities claim that the vehicle body is supplied along with the main components and the rest of the parts arrive separately in different packages to avoid detection as CKDs.

Volkswagen says this is purely a logistical model which it has adopted over the years to improve efficiency. However, authorities call this “intentional and deliberate” to avoid paying higher import duties.

The notice sent by Indian authorities to Volkswagen Group has been accessed by news agency Reuters. If the allegations are proven correct, it would be one of the biggest cases of import duty evasion in India’s history. It would also significantly impact the Volkswagen Group, which is already facing tough competition in the Indian auto market.
 

New Delhi:

India has issued a notice to German automaker Volkswagen for allegedly evading $1.4 billion in taxes by “wilfully” paying lesser import tax on components for its Audi, VW and Skoda cars, a document shows, in what is one of the biggest such demands.

A notice dated Sept. 30 says Volkswagen used to import “almost the entire” car in unassembled condition – which attracts a 30-35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by “mis-declaring and mis-classifying” those imports as “individual parts”, paying just a 5-15% duty.

Such imports were made by Volkswagen’s India unit, Skoda Auto Volkswagen India, for its models including the Skoda Superb and Kodiaq, luxury cars like Audi A4 and Q5, and VW’s Tiguan SUV. Different shipment consignments were used to evade detection and “willfully evade payment” of higher taxes, the Indian investigation found.

“This logistical arrangement is an artificial arrangement … operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty,” said the 95-page notice by the Office of the Commissioner of Customs in Maharashtra, which is not public but was seen by Reuters.

Since 2012, Volkswagen’s India unit should have paid import taxes and several other related levies of about $2.35 billion to the Indian government, but paid only $981 million, amounting to a shortfall of $1.36 billion, the authority said.

In a statement, Skoda Auto Volkswagen India said it is a “responsible organization, fully complying with all global and local laws and regulations. We are analyzing the notice and extending our full cooperation to the authorities.”

The notice asks to respond within 30 days, but Volkswagen didn’t comment if it has done so or not.

India’s finance ministry and the customs department did not respond to Reuters queries.

The so-called “show cause notice” issued by the government authority asks Volkswagen’s local unit to explain why its alleged tax evasion should not attract penalties and interests under Indian laws, over and above the $1.4 billion evaded duties.

A government official who spoke on condition of anonymity said the penalty typically in such cases, if the company is found guilty, could go as high as 100% of the amount evaded, which could force the company to pay up about $2.8 billion in total.

High taxes and prolonged legal disputes have often been a sore point for foreign companies in India.

Electric vehicle maker Tesla, for example, has for years complained about high taxes on imported cars and Vodafone has fought cases related to back taxes. Chinese automaker BYD also faces an ongoing Indian tax investigation for underpaying taxes of roughly $9 million on imports.

BULK CAR ORDERS, USE OF SOFTWARE

Volkswagen is a tiny player overall in India’s 4 million units a year car market and has struggled to boost sales. The case can increase its headaches in India, where its Audi brand already lags competitors in the luxury segment like Mercedes and BMW.

Indian investigators said in their notice that Mercedes was following the necessary rules to pay a 30% tax by importing the CKD units of their cars, and not separate the individual parts.

Inspectors searched three of Volkswagen India’s facilities in 2022, including the two factories in Maharashtra. Documents related to component imports and email backup of top executives were seized at the time then.

The company’s India Managing Director, Piyush Arora, was questioned last year and asked “why all the parts required to assemble a car are not shipped together”, but “he was not able to answer this question,” the investigators said in the notice.

Arora did not respond to a Reuters request for comment.

MODUS OPERANDI

The Indian notice, based on review of the company’s internal software, said Volkswagen India regularly placed bulk orders for cars through an internal software which connected it to suppliers in Czech Republic, Mexico, Germany and other nations.

After the order was placed, the software broke it down into “main components/parts”, roughly 700-1,500 for each vehicle depending on the model.

Then, the supplies started.

The car parts were packed abroad in different containers within a span of three to seven consecutive days under multiple invoices, and then reached the Indian port roughly at the same time, Indian authorities alleged.

“This appears to have been done to pay lesser duties applicable on these individual parts,” the notice said.

Volkswagen told investigators it was using such a route for “efficiency of operations”, but the argument was dismissed.

“Logistics is a very small and rather least significant step of the whole process … (Skoda-Volkswagen India) is not a logistics company,” the notice said.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)