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Old 2nd February 2025, 14:12   #1
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Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

Volkswagen sues India to quash 'enormous' $1.4 billion tax demand, legal filing shows.

Volkswagen's unit, Skoda Auto Volkswagen India, also told the tax dispute puts at risk its investments of USD 1.5 billion in India and is detrimental to the foreign investment climate.

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arguing the ask is contradictory to New Delhi's import taxation rules for for car parts and will hamper the company's business plans.
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the tax dispute puts at risk its investments of USD 1.5 billion in India, and is detrimental to the foreign investment climate
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Volkswagen India had kept the Indian government informed of its "part-by-part import" model and received clarifications in its support in 2011
The tax notice is "in complete contradiction of the position held by the government ...(and) places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances" of the administration.

Volkswagen argues it is not liable to pay higher taxes as it did not import car parts together as a single "kit",but instead shipped them separately, combining them with some local components to make a car.

The tax notice "deals a body blow" to the much-advertised "policy of ease of doing business in India for foreign investors," the company said.

The High Court in Mumbai is due to start hearing the case on Feb. 5.

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Last edited by volkman10 : 2nd February 2025 at 14:17.
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Old 2nd February 2025, 14:47   #2
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Re: Skoda Auto Volkswagen India faces USD 1.4 billion tax evasion notice

VW does not seem to mince words with this one. Literally called out the govt and its claims of being "foreign investor friendly".

With this happening just a week after Mahindra announcing their JV is in "cold storage", I'm starting to think this penalty was some sort of arm twisting by GOI to take on Mahindra as a partner like they did with MG and Jindal (all speculation ofcourse).

We know Tata, Ola and Mahindra also import huge automotive components for both ICE and EVs but we don't seem to hear about any penalty there. Just like how the common public is banned from trading with Chinese ecommerce sites but billionaires can tie up with Chinese brands and launch their products here without issue. This is why GOI suddenly made it illegal to publish import export data from Zauba.

Maybe this explains the reluctance of other foreign manufacturers from adding more models to their dwindling lineup here.

Last edited by Nithesh_M : 2nd February 2025 at 14:49.
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Old 3rd February 2025, 17:44   #3
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Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

The Telegraph has reported about a civil suit filed by Volkswagen India to challenge the Government of India's demand for US $ 1.4 billion in duties, that the authorities have alleged the OE, to have evaded. The suit has been filed at the High Court of Bombay, Mumbai. VW also has invoked the "ease of doing business" phrase saying this tax demand will also be prejudicial to foreign investors. I am not sure whether VW also contested the ease of doing business factor with the U.S. court, when it's cheat software to sail through emission laws was caught red handed on the other side of the Atlantic.

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Volkswagen has sued Indian authorities to quash an "impossibly enormous" tax demand of $1.4 billion, arguing the ask is contradictory to New Delhi's import taxation rules for car parts and will hamper the company's business plans, court papers show.

Volkswagen's unit, Skoda Auto Volkswagen India, also told the High Court in Mumbai the tax dispute puts at risk its investments of $1.5 billion in India, and is detrimental to the foreign investment climate, according to the 105-page filing which is not public but was reviewed by Reuters.

In the biggest ever import tax demand, India in September slapped a $1.4 billion tax notice on Volkswagen for using a strategy to break down imports of some VW, Skoda and Audi cars into many individual parts to pay a lower duty.

Indian authorities alleged Volkswagen imported "almost the entire" car in unassembled condition - which attract a 30-35% tax applicable on CKDs, or completely knocked down units, but evaded the levies by mis-classifying them as "individual parts" coming in separate shipments, paying just a 5-15% levy.

Volkswagen India had kept the Indian government informed of its "part-by-part import" model and received clarifications in its support in 2011, the company says in the court challenge.

The tax notice is "in complete contradiction of the position held by the government ... (and) places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances" of the administration, the Jan. 29 court filing states.

The Indian finance ministry and the customs official who issued the demand order did not respond to requests for comment outside regular business hours.

Volkswagen's India unit said in a statement it is using all legal remedies as it cooperates with authorities and remains committed to ensuring "full compliance" with all global and local laws.

A Volkswagen spokesperson in Germany did not respond to a request for a comment.

The German carmaker is a tiny player in India's 4 million units a year car market, the world's third biggest, where its Audi brand also lags competitors in the luxury segment like Mercedes and BMW.

In the case, authorities alleged Volkswagen's local unit regularly placed bulk orders for cars through internal software which connected it to suppliers in Czech Republic, Germany, Mexico and other nations.

And 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, which were shipped separately over time.

This, the Indian authorities said, was "a ploy to clear the goods without the payment of the applicable duty."
The matter will be heard next by the court on 05.02.2025. It remains to be seen whether VW India was really adapting dubious methodologies taking advantage of the gaps in the very bureaucratically drafted import duty laws? Or, is it so that the customs officials and its overseeing Ministry viz. Ministry of Finance have used everything in the, or not in the rule books to frame the German OE who claim to be a "small" player with their brands both in the mass market and the luxury segments where 4 million cars are sold per annum. Now only time will tell as to who was following the laws and rules.

The link
https://www.telegraphindia.com/busin...us/cid/2081177

Last edited by anjan_c2007 : 3rd February 2025 at 17:51.
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Old 3rd February 2025, 17:52   #4
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

Problems are mounting for Volkswagen. What with this and now also the import tariffs on their products made in Mexico is going to impact them significantly.

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Old 3rd February 2025, 17:57   #5
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

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Originally Posted by Jeroen View Post
Problems are mounting for Volkswagen.
Jeroen
The new US government, freshly engaging in its trade wars with its once NAFTA allies will focus its weapons towards Western Europe, sooner or later.

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Old 3rd February 2025, 18:15   #6
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

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Originally Posted by anjan_c2007 View Post
I am not sure whether VW also contested the ease of doing business factor with the U.S. court, when it's cheat software to sail through emission laws was caught red handed on the other side of the Atlantic.
Don’t think so. Apart from the $14.7 billion penalty to settle civil suits in US, VW had to setup a EV charging infrastructure as a part of settlement with the government.

“Volkswagen Group of America owns Electrify America. The automaker was required to build out that network as part of its settlement with the government related to its diesel emissions scandal”

https://cars.usnews.com/cars-trucks/...rging-stations
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Old 3rd February 2025, 21:11   #7
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

I think VW used some smarts to save tax. Most of the times when such things get caught, the penalty will be huge. Just like the diesel gate.

How did the authorities wait for so long to discover this ?
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Old 3rd February 2025, 21:37   #8
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

If I was a VAG group beneficiary right now. I would be deeply concerned about this litigation. The future of Skoda and Volkswagen customers looks uncertain. If you wanted to book the new Kylaq, hold your breath until they reach a consensus with the government on this.
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Old 3rd February 2025, 21:46   #9
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

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Originally Posted by anjan_c2007 View Post
Or, is it so that the customs officials and its overseeing Ministry viz. Ministry of Finance have used everything in the, or not in the rule books to frame the German OE
This appears to be either an over zealous Customs Officer trying to score brownie points or a veiled political move for certain objectives.

VW Group has been operating in India for close to 21 years and all imports are cleared by Customs and duty levied after inspection of imports by the Customs officials. So how come they didn’t notice that VW was importing a fully built unit instead of parts.

If the software had placed an order for parts, that order would be available with the customs and usually is the base document for levy of duty.

I don’t think the order will pass legal scrutiny. Far too many flaws for levy of such an incredibly high duty.
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Old 3rd February 2025, 21:55   #10
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

So, VW bought in the components for manufacturing the cars as spare parts and then used them to assemble the entire car in India? If that were the case, wouldn't these cars technically be classified as a locally made rather than CKDs or SKDs? However, all the cars listed like the various high-end Skodas and Audis were always sold as CKDs which meant they attracted the higher customs duty which were passed on to the consumer, so how exactly did they bring in the parts individually misclassifying them without the government's knowledge?

That aside, isn't this the plot of the movie 'Guru' IIRC?
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Old 4th February 2025, 09:43   #11
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

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so how exactly did they bring in the parts individually misclassifying them without the government's knowledge?
Like grey cars and grey bikes were brought, back in the older days. Chop down major components, misclassifying them as spare parts and then, assemble them and register them in certain RTOs. It could be an entirely different playbook as VAG is an established player with certain connections with higher ups. They could be doing it long enough to get noticed.

Full CKD comes in a different tax bracket. So if you manufacture different parts abroad while importing them in batches, you can possibly pass it off as a one off spare part import, which gets taxed lower. VAG used smart software to make it look like they are importing spares from multiple countries using software (to minimize costs) and only setup an assembly line in India. Some exceptionally smart finance consultant could be their guru here?

If that's the case, we, as Indians, lost valuable tax revenue. The Indian government encourages them to setup local manufacturing like other brands or, pay higher tax if importing.

Last edited by wheelspinner : 4th February 2025 at 09:50.
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Old 4th February 2025, 10:12   #12
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

I think VAG was trying to be too clever by half! They imported CKD components. Technically, yeah they can be called spare parts if they are used to replace parts in existing vehicles. But then they used them to assemble entire car and sell it here. They made a good profit while govt lost money.

Importers make a customs declaration stating the type of item. So VAG falsely certified it as spare parts.

I believe this might be for higher-end cars as Kushak/Slavia/Taigun etc have lots of localized components
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Old 4th February 2025, 10:37   #13
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

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Originally Posted by dragracer567 View Post
So, VW bought in the components for manufacturing the cars as spare parts and then used them to assemble the entire car in India?
We have different duty structures, one for the parts (5-15% depending on HS Code), the second for fully assembled kits (SKD), engines mounted on chassis (30%), and the third for kits with unmounted engines CKD(15%).

As we have talked on a different thread, it appears VW has cleared the components filling under individual parts and paid duty based on the HS code of the part and GOI is now demanding the difference in duties plus penalties.

The lower duty on spare parts is for a reason (lower costs to customers) but I don't think it says that these parts cannot be used for the manufacture of new cars. So, what VW has done is cleared the input parts with lower tariffs instead of paying flat 15% or 30%.

If someone is trying to circumvent the rules, the judiciary may not like it and VW may be asked to pay the difference with interest/ penalties. Very difficult to predict how the judiciary will view this.
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Old 4th February 2025, 12:12   #14
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

Is this not a case against "Ease of Doing Business?"

Now the tax department is going to govern how we do our business within the available legal frame? Do they expect us to go to them and check every change in the business process and how we achieve efficiency?

The said software is helping VW automate manufacturing of some parts across globe and import some of the components and randomly assemble them. Our tax department out of nowhere thinks that there is a forgery into this after the company is into existence for 21 years. wow!!

This is not diesel gate where a crucial compliance of rule was falsified.

This is at the same weird level where, say in Mumbai, BMC could raise a tax notice for avoiding Octroi tax on companies, whose offices are registered in Mumbai but go-downs are outside Mumbai. They may claim that the companies purposely avoided Octroi and hence made a loss of revenue to the BMC.

Even if VW did this meaningfully, in my opinion, no law was broken. If the definition of the CKD or CBU does not contain elaborate scenarios, how can tax department raise issues in this case. The details of the rules are always in the explanation of the rules. In this case, there are no explanations and hence tax department is applying their own mind.

Now when it is a case of tax department mind versus your own mind, then you have a prolonged battle where the courts will apply their own mind. On top of that there could be a mind of the Government through a retrospective law to aid the case. That results in a very long mind game. Remember Vodafone - Idea merger etc.

Your ease of doing business goes to toss.
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Old 4th February 2025, 13:08   #15
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Re: Volkswagen sues the Indian government for its USD 1.4 billion alleged duties claim!

I don't think the tax authorities will poke the giant without having valid grounds. While I get the uneasy vibes of the Vodafone tax claim, here I feel GOI has not made unfair changes with retrospective effect.

If a part is declared as spares, should they not be distributed to ASS for fitment on cars already registered rather than be used as raw materials in assembly of new cars?

This is where the management ethos come into play whether you follow the spirit of the law or go perilously close to where a possible (tax) demand can arise in the future.

Last edited by GeeTee TSI : 4th February 2025 at 13:10.
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