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Volkswagen and India fighting over tax demand in court

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Case is matter of life and death for automaker, company

says

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India arguing VW did not give correct information over

years

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India wants VW to respond to tax notice, not litigate in

court

By Arpan Chaturvedi and Aditya Kalra

NEW DELHI, March 23 (Reuters) - India's government has

told a court in Mumbai that agreeing to Volkswagen's demand to

quash a $1.4 billion tax bill would have "catastrophic

consequences" and encourage companies to withhold information

and delay inquiries, court documents show.

India's highest-ever demand for back taxes related to import

duties came after scrutiny of 12 years of Volkswagen shipments

and has rekindled foreign investors' fears over lengthy

investigations. The automaker has described the case as a

"matter of life and death" for its India business, and is

fighting the tax authority in the high court in Mumbai.

Volkswagen unit, Skoda Auto Volkswagen India, faces

allegations that it misclassified component imports of some

Audi, VW and Skoda cars to evade higher tariffs. Its key

argument to quash the tax demand is the "inaction and tardiness"

of tax officials in delaying shipment reviews.

The Indian tax authority told the high court in a 78-page

rebuttal that Volkswagen caused the delays by

withholding crucial information and data about its imports.

Accepting the carmaker's reasoning would allow importers to

suppress vital information and then claim that the time-limit

for the tax authority to conduct a probe had passed, the

authority said in its March 10 filing, which was not public and

is being reported for the first time.

This would have "catastrophic consequences", they said in

the filing.

The case will be heard on Monday. Volkswagen and the Indian

government did not respond to requests for comment.

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

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

such as Mercedes and BMW. If found guilty it

could face a tax bill of $2.8 billion, including penalty and

delayed interest.

Prime Minister Narendra Modi has been courting foreign

investors with promises of simpler regulations and lower

bureaucratic hurdles, but lengthy tax investigations that can

trigger lawsuits stretching over years remain a sore point.

Had New Delhi wrapped up its reviews earlier, Volkswagen has

said, it could have challenged the findings or re-evaluated its

import strategy. The tax notice sent in September 2024 puts "at

peril the very foundation of faith and trust" foreign investors

desire, it said.

In the latest government filing, the tax authority argues

Volkswagen was submitting "information and documents critically

required for" completing shipment reviews "only in tranches".

The Indian government wants the court to direct Volkswagen

to follow procedures and respond to its tax notice by engaging

with the authority, and not before judges, the filing showed.

The tax authority alleges that Volkswagen over several years

imported auto parts in separate shipments to evade detection and

cut taxes, instead of declaring items as "completely knocked

down" (CKD) units to be reassembled in India.

CKD units are taxed at rates of 30%-35%, compared to around

5%-15% for auto parts.