Volkswagen Faces $1.4 Billion Tax Evasion Allegations in India: Here’s What You Need To Know

India has accused German automaker Volkswagen of evading $1.4 billion in taxes by allegedly misclassifying car component imports to avoid higher import duties. This case, one of the largest tax disputes in the country's history, highlights India's efforts to encourage domestic manufacturing through its taxation policies while curbing practices perceived as tax evasion. Volkswagen has denied any wrongdoing, asserting compliance with local regulations and cooperation with Indian authorities. 

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

India’s tax structure for automobile imports is designed to promote local manufacturing. These include Completely Knocked-Down Units (CKDs), which attract 35 per cent duty. These units consist of parts shipped as a kit for assembly in local factories, creating opportunities for domestic labour and supporting India’s “Make in India” initiative. Secondly, Fully Built Vehicles, These incur a steep 100 per cent duty to deter imports and incentivize local production. Lastly, parts imported for local manufacturing fall under a significantly lower duty bracket of 5-15 per cent. 

The dispute centres around Volkswagen’s operations through its Indian subsidiary, Skoda Auto Volkswagen India. Indian authorities allege that Volkswagen reportedly imported CKDs by misclassifying them as individual components to qualify for lower import duties of 5-15 per cent, rather than the 30-35% applicable for CKDs. This alleged misclassification allowed the company to evade higher duties, resulting in a $1.4 billion shortfall in tax revenue for the Indian government. 

The alleged tax evasion involves several high-end models, including Audi’s A4, A6 sedans, and Q5, Q7 SUVs, Skoda’s Octavia, Superb sedans, Kodiaq SUV and Volkswagen Tiguan. Authorities claim that over 97 per cent of the components used in these models were imported, with minimal local sourcing. 

Volkswagen’s global supply chain and internal systems have come under scrutiny in this case. The company uses two key software tools. First is NADIN. This internal procurement system coordinates the ordering process based on sales projections. It breaks orders into 700–1,500 components per car and interfaces with suppliers in Germany, the Czech Republic, and Hungary. Second is Pro CKD, This tracks inventory and matches parts at Volkswagen’s Indian assembly plants.

Indian authorities allege that the systems were used strategically to split CKD imports into multiple consignments labelled as individual parts to reduce taxable duties. The imports reportedly arrived in India as multiple shipments within a span of three to seven days. According to the authorities, this staggered delivery was intended to conceal the true nature of the CKDs. Volkswagen has countered this claim, stating that its logistical model is driven by operational efficiency rather than tax considerations. 

Volkswagen has maintained its adherence to Indian laws and regulations, stating, “We comply with all local legal requirements and are cooperating fully with Indian authorities to resolve the matter.” The company has not provided further details on its defence but has emphasised that its global operations are conducted in a transparent and compliant manner.