The case between VW and the Indian government is taking a serious turn as the former retaliates
After the Indian agencies levied a tax evasion case on VW, the German carmaker has struck back. You might have read in the recent news reports that Volkswagen was slapped with a tax demand of a whopping $2.8 billion (approx. Rs 25,000 Crore) by the Indian tax authorities. This was due to the fact that VW imported car parts to India and assembled the vehicle here. Generally, this is known as the CKD (Completely Knocked Down) route which many carmakers adopt. They often bring the components of a car from other nations and assemble them into a complete car in India.
VW Sues Indian Authorities
Now, in this manner, the company is liable to pay 30-35% tax instead of a colossal over 100% tax on CBU (Completely Built Up) cars. Note that this amount is valid for cars costing above $40,000 (approx. Rs 35 lakh). However, the import duties on spare parts are in the range of 5-15%. Therefore, VW imported car components by categorizing them under spare parts and ended up assembling cars in India. In this manner, they paid $981 million worth of taxes which would have otherwise amounted to $2.35 billion. That is where the problem lies. A report by Reuters captures all the specifics of this case.
In response, VW argued in the Mumbai High Court that it had made the government aware of its ‘part-by-part import’ approach back in 2011 itself and even received a promise of compliance by the Indian authorities. Hence, it says that if the government contradicts its own position, it will be concerning for other foreign investors who plan to do business in India due to a lack of trust. In fact, VW mentions that this could hamper its own plans to invest $1.5 billion in India in the coming time.
Furthermore, VW also says that it didn’t import car parts together as a single “kit” but shipped them separately with some local components. Hence, the parts didn’t go towards making a specific car. In order to achieve this, the Indian authorities alleged that VW used internal software which connected it to suppliers in the Czech Republic, Germany, Mexico and other countries. To this, VW replied by saying that the software only helps dealers place orders and keep track of them. In any case, the hearing will go on for a while before an amicable solution is reached. I shall update this post once we get more details.
Also Read: VW Teases New Entry-Level EV – India Launch Soon?
