Volkswagen's $1.4 billion tax bill: Government warns of 'catastrophic consequences'

Amid the ongoing tax dispute between Volkswagen and the Indian government, the authorities have told the Mumbai High Court that acquiescing to the demand of the German automaker to quash a $1.4 billion tax bill would have "catastrophic consequences", Reuters news agency reported.

According to the tax officials, Volkswagen unit, Skoda Auto Volkswagen India, allegedly misclassified component imports for certain Audi, VW, and Skoda cars to evade higher tariffs between 2012 and 2024. The company is accused of declaring these imports as individual parts rather than Completely Knocked Down (CKD) units, which incur higher customs duties.

CKD units are taxed at rates of 30%-35%, whereas auto parts are taxed at around 5%-15%.

Volkswagen rebutted saying that the tax officials' "inaction and tardiness" led to delays in shipment reviews,

Bombay High Court questions Volkswagen’s defence in $1.4 billion tax case

However, the officials said that that Volkswagen concealed crucial information and data about its imports, leading to the delays.

Volkswagen officials argued that if tax officials had completed the reviews earlier, the company could have challenged the findings or reassessed its import strategy.

The tax authority claimed that Volkswagen submitted the required information and documents for shipment reviews "only in tranches." The Indian government is seeking a court directive for Volkswagen to follow procedures and respond to its tax notice through engagement with the authority, rather than approaching the judges directly.