A ₹11,700 crore notice. Allegations of misdeclared imports. And a courtroom battle that could redefine how multinationals view India’s tax system.
What’s the Story?
India’s customs authorities have issued a massive ₹11,700 crore tax demand to Skoda Auto Volkswagen India Pvt Ltd, Volkswagen’s Indian subsidiary. This is the largest customs duty demand ever raised in India’s history.
But the total liability doesn’t stop there. Add interest and penalties, and the figure may cross a jaw-dropping ₹23,400 crore.
And yes, this isn’t a fresh issue — it goes all the way back to 2012.
What Did Volkswagen Allegedly Do?
To understand the heart of this dispute, let’s talk about CKD kits – or Completely Knocked Down kits.
These are cars broken down into parts and imported to be assembled in India. CKD kits attract 30% to 35% customs duty, depending on the component.
Now, here’s what the Directorate of Revenue Intelligence (DRI) and the customs department allege:
Volkswagen misclassified these CKD kits as “individual spare parts” — which attract only 5% to 15% duty.
This lower classification helped Volkswagen pay far less customs duty over the years — allegedly saving thousands of crores in the process.
But the government says this was deliberate underreporting, and they’ve now raised the bill.
The Numbers Breakdown
Here’s how the numbers stack up:
| Particulars | Amount (in ₹ crore) |
|---|---|
| Duty Volkswagen paid | 8,200 |
| Duty they should have paid | 19,600 |
| Shortfall / Alleged underpayment | 11,400 |
| Additional penalty + interest (estimated) | 12,000 |
| Total Demand | ~₹23,400 |
That’s nearly 250x their FY24 profits, which were reportedly just ₹94 crore.
What Is Volkswagen Saying?
Volkswagen has approached the Mumbai High Court to challenge the tax notice. Here’s what they argue:
- Nothing was hidden: The company says it informed authorities about its import practices, and got no response for years.
- Delay isn’t their fault: They claim the tax department sat on the file, and this delay is on the government, not them.
- Dispute, not evasion: They’re framing it as a difference in interpretation, not an attempt at evasion.
- “Matter of survival”: With ₹94 crore in profit last year, they say a ₹23,400 crore demand could cripple their Indian operations.
Volkswagen’s plea is simple — they didn’t commit fraud, and they should not be penalized for ambiguous rules and delayed scrutiny.
Government’s Counterargument
The customs department, however, is pushing back hard.
Their stance:
- The import pattern was designed to exploit duty loopholes.
- Volkswagen was less than forthcoming with documentation.
- If the court cancels this tax demand, it sets a dangerous precedent — encouraging other companies to misdeclare goods and wait out enforcement.
- They’re calling the potential quashing of the case “catastrophic” for future enforcement actions.
Why This Case Matters Globally
This isn’t just about Volkswagen or the auto industry.
This is about how India treats foreign companies when it comes to tax disputes. And if this sounds familiar, it’s because it’s giving people serious Vodafone flashbacks.
Let’s break it down:
- In the early 2010s, Vodafone was hit with a massive retrospective tax claim of ₹20,000+ crore.
- The long legal battle led to international criticism of India’s tax regime.
- Eventually, India had to roll back the retrospective tax law in 2021 to save face globally.
Now, with a similar-scale dispute re-emerging, investor confidence is again on the line.
Foreign companies are watching:
Is India becoming business-friendly? Or is tax uncertainty still a risk?
What’s Next for Volkswagen?
The Mumbai High Court is hearing the matter. Until the final verdict:
- The tax demand stays on the books, creating accounting uncertainty.
- Volkswagen’s future investment plans in India could be on hold.
- Other global companies may reconsider how they structure imports and disclosures in India.
If Volkswagen loses, they’ll either have to pay up or appeal further — possibly to the Supreme Court. If they win, it’ll reopen debate around customs classifications and interpretative clarity under Indian tax law.
In Simple Terms
Volkswagen imported cars as kits to be assembled in India. These kits should have been taxed at ~35%, but the company allegedly labeled them as spare parts (taxed at just ~10%). This led to a huge tax shortfall over a decade.
Now, the Indian government wants its dues — and Volkswagen says, “We disclosed everything, the delay is on you.”
It’s a battle over tax interpretation, but it may have a ₹23,400 crore price tag.
The Bottom Line
This is India’s largest-ever customs duty case. It’s not just a tax fight — it’s a test of India’s regulatory clarity, investor trust, and the balance between compliance and overreach.
If India wants to be seen as a global manufacturing hub, resolving this case fairly — and quickly — could send the right signal.
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