Volkswagen challenges India's $1.4 billion tax demand in court

Volkswagen has taken legal action against Indian authorities to overturn a staggering $1.4 billion tax demand, calling it "impossibly enormous" and contradictory to India's import taxation policies for car parts. The German automaker argues that the demand threatens its business operations and long-term investment plans in India.

The legal challenge was filed by Volkswagen’s Indian subsidiary, Skoda Auto Volkswagen India, in the Mumbai High Court. The company asserts that the tax dispute endangers its $1.5 billion investment in India and could negatively impact the country’s foreign investment climate.

India’s Largest Import Tax Dispute

The Indian government issued the record-breaking tax notice in September, alleging that Volkswagen manipulated import classifications to pay lower duties on VW, Skoda, and Audi cars. Authorities claim the company imported nearly complete vehicles in an unassembled state—classified as Completely Knocked Down (CKD) units, which attract a 30-35% duty—but misdeclared them as individual parts to qualify for a much lower 5-15% tax rate.

Volkswagen, however, maintains that its “part-by-part import” strategy was transparently communicated to the Indian government, which had provided clarifications in 2011 supporting the practice.

Legal Battle Over Policy Inconsistencies

In its January 29 court filing, Volkswagen argues that the tax demand contradicts past government positions and erodes foreign investors' trust in India's regulatory framework. The notice, the company says, undermines the assurances given by the administration and places foreign investment at risk.

Neither the Indian finance ministry nor the customs officials responsible for issuing the tax order responded to Reuters’ requests for comment outside regular business hours.