Volkswagen has sued the Indian authorities to quash the $1.4 billion tax demand, stating that it is in opposition to the government's import taxation rules for car parts and will hamper the company's business plans, Reuters reported.
Volkswagen's unit, Skoda Auto Volkswagen India, also told the High Court in Mumbai the tax dispute puts at risk its investments of $1.5 billion in India and will hamper the foreign investment climate, as per the filing not made public, but reviewed by Reuters.
In September last year, the Indian government imposed a tax notice of $1.4 billion on VW for implementing a strategy of breaking down imports of some VW, Skoda and Audi cars into many individual parts to pay a lower duty.
Indian authorities alleged Volkswagen imported "almost the entire" car in unassembled condition - which attracts a 30-35% tax applicable on CKDs, or completely knocked down units, but evaded the levies by mis-classifying them as "individual parts" coming in separate shipments, paying just a 5-15% levy.
Volkswagen India had kept the Indian government informed of its "part-by-part import" model and received clarifications in its support in 2011, the company says in the court challenge.
The tax notice is "in complete contradiction of the position held by the government ... (and) places at peril the very foundation of faith and trust that foreign investors would desire to have in the actions and assurances" of the administration, the Jan. 29 court filing states.
Reuters could not elicit a response from the Ministry of Finance and the customs official who issued the demand order. A Volkswagen spokesperson in Germany also did not offer a response at the time of filing of the story.
Volkswagen's India unit said in a statement it is using all legal remedies as it cooperates with authorities and remains committed to ensuring "full compliance" with all global and local laws.