Skoda Auto Volkswagen India To Pay ₹11,800 For Evading Taxes: Report

The Office of the Commissioner of Customs, Maharashtra has reportedly sent a notice to Skoda Auto Volkswagen India Private Limited (SAVWIPL) for evading $1.4 billion (roughly ₹11,800 crore) by paying lesser import duties on components. Reuters reports that a 95-page notice has been sent by the Customs department for misclassifying imports of components used in Audi, Skoda and Volkswagen models. 

Acko Drive has reached out to SAVWIPL regarding the allegations and the brand responded by saying, “Skoda Auto Volkswagen India, a part of a Global Group, 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 report claims that SAVWIPL imported “almost the entire” car unassembled, also known as a completely knocked-down unit (CKD). CKD units attract a tax of around 30-35 per cent, while individual parts only attract 5-15 per cent. The report claims that SAVWIPL evaded paying the higher tax by “mis-declaring and mis-classifying” the imports. 

The imports were for cars like Skoda’s Superb and Kodiaq, Audi’s A4 and Q5 and Volkswagen’s Tiguan, which are all assembled in India. SAVWIPL reportedly had different shipping consignments to avoid detection and “willfully evade payment” of higher taxes, as per an investigation. 

“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,” read the 95-page notice by the Customs office. The document, though not public, was accessed by Reuters. 

Since 2012, SAVWIPL had to pay around $2.35 billion (roughly ₹19,800 crore) as import duties and other related taxes but has reportedly only shelled out $981 million (roughly ₹8,300 crore). Thus leading to a shortfall of $1.36 billion (₹11,500 crore). The notice sent to the company demanded a response in 30 days, but there’s no confirmation if that has been done yet. The report also states that the penalty in such cases could also go up to 100% of the evaded amount, meaning SAWVIPL might have to shell out around $2.8 billion (roughly ₹23,700 crore). 

Three facilities of SAVWIPL were searched in 2022, including the two factories it has in Maharashtra. The investigators also seized documents on component imports and email backups of top executives. Even Piyush Arora, MD & CEO, SAVWIPL, was questioned last year about “why all the parts required to assemble a car are not shipped together” and he reportedly couldn’t answer the question. 

The report states that SAVWIPL uses internal software to place an order for components from Volkswagen Group’s multiple factories in the Czech Republic, Germany, Mexico and other countries. Once the order is placed, the software breaks it down into components or parts, tallying 700-1500 for each vehicle depending on the model. All the parts were shipped separately but reached Indian ports roughly around the same time, as per the Indian authorities. SAVWIPL claims this has been done to make operations more efficient but notice refuted this claim.