New Delhi: German carmaker Volkswagen is now in for another legal battle in India, with the Bombay High Court ruling that the case would be considered once again in the ongoing tax dispute involving it. The development might make Volkswagen’s life more difficult in an already competitive car market in India. The development may only add to Volkswagen’s woes as it attempts to tighten its grip on the market in India.
The case is about the imports into India by Volkswagen over 12 years. The company improperly categorized some vehicle components as individual parts instead of as fully knocked down (CKD) vehicles, Indian tax officials claim. CKD imports may be subject to higher duties (approx. 30%-35%) while individual parts may be subject to lower duties. This led to Volkswagen paying less tax than it deserved, the authorities say.
Volkswagen has denied the charges, and has stated it has acted within the guidelines. The company has filed a protest against the tax demand in court, and has stated that the matter may have significant implications for its business and investment plans in India.
The development doesn’t mean that Volkswagen has lost the case. Final verdict has yet to be issued. The case, however, will be heard again, as the previous bench had not made its judgment after the arguments were heard. The case is now transferred to another bench, so that Volkswagen and the tax authorities will have to argue the case again.
Could Volkswagen face bigger problems in India?
The biggest concern for Volkswagen is the financial risk. The original tax demand is approximately at $1.4 billion or approximately at ₹11,500 crore. In a previous court filing, the company had stated the matter was serious enough it feared it would put some of its proposed investments in India at risk.
The timing is also important. Volkswagen is currently talking to a local firm to expand its operations in the country. The Skoda Group has been looking for a local partner and is targeting the completion of the deal by the end of 2026, the CEO Klaus Zellmer recently said, adding that the talks are ongoing with JSW Group.
Future investment decisions may be more complicated due to the likelihood of a long-running tax dispute. It will also put Volkswagen under pressure to cut expenses – and to cooperate with a powerful local partner in order to allocate some of those risks.
But the Indian business of the Volkswagen is not on any immediate threat. The company is still in business in the country, and the final decision has yet to be handed down.
So far, the tax dispute is being viewed more as a fiscal and business risk for Volkswagen, than as a hint that the carmaker is pulling up stakes in India. The final verdict will have implications on the extent of the blow and it could even affect Volkswagen’s investment plans in the country.
