Volkswagen challenges $1.4 billion tax demand in India, calls it a threat to investments

German automobile giant Volkswagen has filed a legal challenge against Indian authorities over a $1.4 billion (₹12,000 crore) tax dispute.

According to a report by Reuters, the automaker’s Indian subsidiary, Skoda Auto Volkswagen India Pvt Ltd, has argued in the Mumbai High Court that the tax demand could jeopardise its planned $1.5 billion investments in the country and impact foreign investor confidence.

The tax controversy began in September 2024, when the Indian government issued a notice to the Volkswagen Group over an alleged attempt to reduce import duties.

Authorities claim that the company misclassified car imports by breaking them down into individual parts and shipping them separately, instead of declaring them as CKD (completely knocked down) units. This strategy reportedly allowed Volkswagen, along with its brands Audi and Skoda, to pay a significantly lower 5-15% tax, rather than the 30-35% duty applicable to CKD units.

In response, Volkswagen India insists that it had been transparent with Indian authorities about its part-by-part import strategy and had even received official clarifications in 2011 supporting its approach. The company argues that the tax demand contradicts past government positions and undermines the trust that foreign investors place in India’s policies.

Volkswagen’s legal filing states that the tax order threatens the stability of foreign investments and raises concerns over policy consistency in India.

So far, there has been no official response from India’s Ministry of Finance or the customs officials responsible for the tax demand. Volkswagen’s German headquarters has also remained silent on the issue, according to Reuters.

Despite the legal battle, Volkswagen India asserts that it is fully committed to compliance with both local and international regulations and is working closely with authorities to resolve the matter.