Tax authorities demand over $1 billion from Volkswagen and Kia for misclassifying car parts imported as CKD units
Tax demand notices issued by the Indian government questioned Volkswagen and Kia because they improperly labeled components used for automobile assembling operations. The customs investigations launched in 2022 reveal that Volkswagen and Kia split their part imports into different shipments to minimize their customs duties.
The addressed shipments consisted of Completely Knocked Down (CKD) unit components yet the companies subjected them to lower tax levels by importing them separately. Volkswagen has received a $1.4 billion tax liability notice and Kia received alas $150 million notice. These legal matters are being fought by the two companies through their established legal representation.
Allegations of Tax Evasion and Misclassification
The Indian authorities discovered that Volkswagen and Kia separated their imported CKD components across different delivery consignments. Through this approach, they paid lower duties for single-car components instead of the more expensive duties that would be due for CKD units. A 30-35% customs duty must be paid for CKD units that arrive from foreign sources. Importing car parts at separate rates rather than as one whole unit results in reduced duties amounting to 10-15%.
The incorrect classification of imported car models from Volkswagen and Kia became a matter of concern for the Central Board of Indirect Taxes and Customs (CBIC) which initiated an investigation of the automobiles. The Volkswagen Tiguan, Skoda Superb, Audi A,4, and Kia’s Carnival limousine vehicles are among the cars that face examination in this investigation. The investigation team identified problems with parts classification in these models because of which additional tax responsibilities may exist.
Volkswagen and Kia Respond to the Notices
Volkswagen submitted a lawsuit against the tax demand which the company claims will damage its India operations alongside its future business prospects. Volkswagen claims to follow regulatory guidelines by combining local assemblies with imported components for their vehicle production. The company official stated that Volkswagen intends to obey every relevant law while conducting business operations.
At the same time, Kia delivered an extensive response to the tax authorities by presenting supporting records and documentation. Volkswagen declared its full commitment to work with government authorities as the company attempts to resolve any ambiguities concerning the way imported components are categorized. The company stands that everything it has done regarding imported car regulations meets established guidelines and requirements.
Ongoing Investigation and Future Developments
The investigation remains active to review every detail of the imported products from Volkswagen and Kia. The existing investigation scrutinizes certain products from both manufacturers yet it does not affect their entire model range. The manufacturers will endure a prolonged legal fight alongside Indian tax authorities while resolving this matter.
