Corruption
Did Volkswagen Evade Rs 11,600 Crore in Import Taxes in India? Know the Tricks Behind It
NEW DELHI : The Indian government has accused German automaker Volkswagen (VOWG_p.DE) of evading Rs 11,600 crores in taxes by allegedly misclassifying imported components to benefit from lower import duties. The case, one of the largest of its kind in India, adds to the challenges faced by the automotive giant. Volkswagen has denied any wrongdoing, asserting compliance with local laws and ongoing cooperation with Indian authorities.
India’s Tax Structure for Automobile Imports
India’s taxation policy aims to promote domestic manufacturing by imposing a 35% import duty on completely knocked-down units (CKDs). These CKDs, comprising parts imported as kits and assembled locally, are taxed lower compared to a 100% duty on fully imported vehicles. In contrast, individual components required for local manufacturing attract import duties ranging from 5-15%.
Allegations Against Volkswagen
Indian authorities allege that Volkswagen circumvented the higher 30-35% duties applicable to CKDs by misclassifying imports as “individual parts,” which are taxed at a lower rate of 5-15%. This alleged misrepresentation resulted in substantial tax savings for the company.
Volkswagen’s History of Fraud Cases: A Focus on Emissions Scandal
Volkswagen has been embroiled in multiple fraud cases linked to its infamous emissions scandal, which first came to light in 2015. Below are key developments:
- Clean Air Act Violations
In 2015, the U.S. Environmental Protection Agency (EPA) accused Volkswagen of violating the Clean Air Act by installing software designed to cheat emissions tests. The automaker agreed to a Rs 1.24 lakh crore settlement to partially resolve the charges.
- Securities Fraud Case
In 2019, the U.S. Securities and Exchange Commission (SEC) alleged that Volkswagen Group of America Finance (VWGAF) made false statements regarding the sale of corporate bonds in 2014 and 2015. Volkswagen was ordered to pay ₹400 crore in penalties.
- The Diesel Scandal’s Global Impact
The diesel emissions scandal, exposed by U.S. scientists, revealed that Volkswagen had installed software in millions of its diesel-engine cars to falsify emissions tests. This deceit affected an estimated 9 million vehicles globally, leading to significant costs for vehicle owners amounting to hundreds of millions of euros.
Volkswagen’s ongoing legal battles highlight the long-lasting consequences of its unethical practices, with financial and reputational damage continuing to unfold.
Models Implicated in the Allegations
The investigation centers on vehicles sold by Skoda Auto Volkswagen India, including Audi’s A4, A6 sedans, and Q5, Q7 SUVs; Skoda’s Octavia and Superb sedans, and Kodiaq SUV; as well as Volkswagen’s Tiguan SUV. Authorities claim over 97% of parts for these models were imported as individual components.
The Role of Volkswagen’s Software
Volkswagen reportedly used proprietary software programs, NADIN and ProCKD, to manage its imports and assembly operations in India:
- NADIN: This software, linked to suppliers in Germany, the Czech Republic, and Hungary, generates orders based on sales projections. It breaks down orders into 700-1,500 components required for assembly.
- ProCKD: Used at Indian assembly plants, this program tracks inventory and matches parts with corresponding vehicles.
Authorities allege these systems facilitated the deliberate misclassification of components to evade higher duties.
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Assembly and Logistics Allegations
Imported components were uniquely marked with identification numbers to streamline assembly at Indian factories. Authorities claim Volkswagen used logistical methods to evade detection by shipping parts under multiple consignments and invoices within three to seven days, avoiding scrutiny. While the company states this approach enhances efficiency, officials allege it was a deliberate tactic to minimize tax liabilities.
Volkswagen’s Response
Volkswagen has maintained that its operations adhere to Indian laws and that it is cooperating fully with authorities to resolve the issue. However, the case highlights the growing scrutiny automakers face over import practices in India, underscoring the government’s efforts to protect domestic manufacturing and enforce tax compliance.
