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VW, Indian authorities in legal tussle over record tax

demand

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India accuses VW of using clandestine scheme to evade tax

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VW case rekindles worries among foreign companies in India

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Loss could cost VW $2.8 billion, including penalty,

interest

By Arpan Chaturvedi, Aditya Kalra and Aditi Shah

NEW DELHI, Feb 26 (Reuters) - Indian tax authorities

have singled out Volkswagen as the only automaker to wrongly

classify its car imports for 12 years to evade $1.4 billion in

taxes, even as rival Kia changed its practice after being pulled

up, court papers show.

Volkswagen is a tiny player in India's car market, which is

the third biggest in the world, and its Audi brand lags luxury

peers such as Mercedes and BMW. If found guilty it could face

dues of $2.8 billion, including penalty and delayed interest.

The court fight over the record tax demand is a matter of

"life and death", Volkswagen's Indian unit says. The highest

import tax demand in India's history has also rekindled investor

worries that lengthy disputes could stymie their plans.

India says Volkswagen used a clandestine scheme to import

auto parts in separate shipments, to evade detection and cut

taxes, instead of declaring items as "completely knocked down",

or CKD, units that face higher taxes of 30% to 35%.

Rebutting Volkswagen's court plea, tax authorities listed 10

carmakers, from Mercedes-Benz to BMW and

Hyundai , that correctly classified their

imports, despite using "split consignments" to bring in parts.

South Korea's Kia fell in line after being warned, the

authorities said in their 506-page filing, which is not public,

but was seen by Reuters.

"Earlier, they were clearing such imports as parts, against

which investigation was undertaken," the authorities told the

court about the altered practice at Kia, which continues to

fight a demand for $155 million in tax.

"Post the investigation, they have started classifying such

imports correctly."

This month Reuters reported Kia was contesting a

$155-million tax demand from 2024 for the similar import, in

separate shipments, of parts for its Carnival luxury minivan.

Kia says it is reviewing the matter and cooperating with

authorities.

A senior Indian tax official, speaking on condition of

anonymity, confirmed Kia had "accepted misclassification" and

corrected its process, but cites a lengthy investigation period

as justification for contesting the tax demand.

Volkswagen's domestic unit, Skoda Auto

Volkswagen, Kia and India's tax department did not respond to

queries from Reuters.

The Mumbai High Court is expected to decide within days the

outcome of Volkswagen's challenge to its own tax demand.

Volkswagen blames India for taking as long as 12 years to

review some shipment records, but tax authorities say the

investigation delay came about as the company did not provide

necessary documents in time.

The company has also argued the tax demand is contradictory

to New Delhi's own tax rules on imports of car parts. Lawyers

for the two sides have sparred in recent court hearings over how

imports should be classified.

"Don't be the victim here," N. Venkataraman, India's

additional solicitor general, said in court last week, while

criticising Volkswagen. "If you don't follow the law then we

will initiate action."