India says cancelling Volkswagen's $1.4 billion tax bill would be 'catastrophic': Report 

The Indian government has informed a Mumbai court that ceding into Volkswagen's demand to quash a $1.4 billion tax bill would have 'catastrophic consequences' and enable firms to withhold information and hold up inquiries, as per court documents, Reuters reported. 

India's largest ever demand for back taxes (taxes owed from a previous year) pertaining to import duties came after a 12 year scrutiny of VW's shipments. It has reinforced foreign investors' concerns about lengthy investigations, the newswire noted. 

Volkswagen has called the case a 'matter of life and death' for its India business and is fighting the tax authority in High Court in Mumbai, it noted. 

Volkswagen's Skoda Auto VW India is looking at allegations of improperly classifying information of imports of some components, namely those of Skoda, VW, and Audi cars to avoid high tariffs, the newswire noted. 
The company's main argument for quashing tax demand is the 'inaction and tardiness' of tax officials in postponing shipment reviews, Reuters reported. 

The Indian tax authority informed the high court in a 78 page document that VW caused the delay by not sharing critical information about imports, Reuters noted. 

Accepting the carmaker's reasoning would allow importers to withhold important information and then claim that the time limit for the tax authority to probe the matter has passed, it noted in its March 10 filing, that was not made public and is being reported for the first time by the newswire. This would have 'catastrophic consequences,' they noted in the filing. 

The case will be heard on Monday. Reuters could not elicit responses from the Indian government and Volkswagen. 

If found guilty, Volkswagen could end up paying $2.8 billion in taxes. These include delated interest and a penalty, the newswire noted. 

Volkswagen stated that had New Delhi finished its reviews earlier, it could have challenged the findings or re-assessed its import strategy, the newswire noted. 
It further added that the tax notice sent in September 2024 puts 'at peril the very foundation of faith and trust' that foreign investors need. 

In the latest government filing, the tax authority notes that VW was giving 'information and documents critically required for completing shipment reviews,' 'only in tranches.' 

The Indian government would like the auto major to follow processes and respond to the tax notice by engaging with them and not before judges, as per the filing, Reuters noted. 

The tax authority alleges that Volkswagen over the past many years, has imported auto parts in separate shipments rather than classifying them as 'completely knocked down' units to be reassembled in India, to avoid paying higher taxes, the newswire noted. CKD units attract a tax slab of 30-35%, versus 5-15% for auto parts, Reuters noted.