Volkswagen Challenges India’s $1.4B Tax Demand in Court

Volkswagen has filed a lawsuit against Indian authorities to contest a $1.4 billion import tax demand, calling it "impossibly enormous" and contradictory to New Delhi's import rules. The case, filed by Skoda Auto Volkswagen India in Mumbai's High Court, argues that the dispute threatens its $1.5 billion investment in India and could harm the country’s foreign investment climate.

India imposed the record tax notice in September, accusing Volkswagen of circumventing duties by breaking down imported vehicles into multiple parts to pay lower taxes. Authorities claim VW imported "almost entire" cars as unassembled units, attracting a 30-35% duty, but classified them as separate components to pay only 5-15%.

Volkswagen maintains it informed the Indian government about its "part-by-part import" model and obtained clarifications supporting its approach in 2011. The company asserts the tax demand contradicts past government assurances, undermining investor confidence.

If Volkswagen loses the dispute, it could face penalties pushing its liability to $2.8 billion—more than its 2023-24 revenue of $2.19 billion. The tax battle comes as the automaker struggles with cost-cutting, weak demand in Europe, and growing competition from Chinese rivals.

Authorities claim Volkswagen used internal software to break down car orders into 700-1,500 parts per vehicle and import them separately, avoiding higher duties. The company denies this, arguing the software tracks consumer demand rather than manipulating imports.

Foreign companies have long faced high taxes and legal complexities in India, with Tesla also criticizing import levies. Volkswagen warns the tax dispute could damage India's reputation as a business-friendly destination. The Mumbai High Court will begin hearings on February 5.