Decoded: How Volkswagen Group 'evaded' paying $1.4 billion in tax in India

Volkswagen bypassed the 35 per cent duty imposed on Completely Knocked-Down (CKD) units by misclassifying components as individual parts, according to Indian tax authorities

Indian authorities have issued a tax notice to German automaker Volkswagen Group, accusing it of evading $1.4 billion (approx Rs 11,865 crore) in import duties. The allegations pertain to manipulation in the import classification of car parts by the group’s Indian subsidiary, Skoda Auto Volkswagen, which reportedly misrepresented its imports to benefit from lower tax rates.  

 

Indian tax authorities claim Volkswagen bypassed the 35 per cent duty imposed on Completely Knocked-Down (CKD) units by misclassifying components as individual parts. CKD units, which arrive as kits to be assembled locally, attract a higher tax to encourage domestic manufacturing. In contrast, individual parts, used in local production, are taxed at rates ranging from 5 per cent to 15 per cent.  

 

Investigators allege that Volkswagen declared nearly 97 per cent of its car components as individual parts, avoiding the higher tax applicable to CKDs. This misclassification reportedly affected models such as Audi’s A4, A6 sedans, Q5 and Q7 SUVs, Skoda's Octavia and Superb sedans, Kodiaq SUV, and Volkswagen’s Tiguan SUV. Authorities estimate this manipulation resulted in tax evasion amounting to $1.4 billion.  

 

India’s tax framework for automobile imports

 

India’s tax structure for automobile imports is designed to promote local manufacturing.   

- CKD units attract a 35 per cent import duty, as they are assembled in India.  

- Fully built, ready-to-drive cars incur a steep 100 per cent duty to discourage imports.  

- Individual parts, which integrate into locally manufactured vehicles, are taxed at lower rates ranging from 5 per cent to 15 per cent.  

 

This policy has incentivised several global automakers to establish manufacturing plants in India, reducing reliance on imports while boosting the local economy.  

 

Volkswagen’s procurement process: NADIN and ProCKD

 

Volkswagen Group uses two software systems – NADIN and ProCKD – for procurement and inventory management. These systems handle the ordering and logistics for components necessary for its vehicles.  

- NADIN: Facilitates international orders by dividing vehicle requirements into 700–1,500 components and connecting to suppliers in Germany, the Czech Republic, and Hungary.  

- ProCKD: Manages inventory in India, ensuring components align with the assembly process.   

Authorities allege that Volkswagen leveraged these systems to fragment shipments. Components, including the car body and major parts, were reportedly imported under multiple invoices and consignments that arrived within a short timeframe, enabling them to bypass classification as CKDs.  

 

Volkswagen denies allegation

 

Volkswagen has denied the allegations, maintaining that its operations fully comply with Indian laws. The company describes its logistics model as a strategy to optimise efficiency rather than evade taxes. It claims to be cooperating with authorities to resolve the matter.  

 

If proven, the tax evasion case could rank among the largest of its kind in India’s history. Beyond financial penalties, it could significantly impact Volkswagen’s reputation and operations in a market where it already faces stiff competition from local and global automakers.  

 

For now, the case remains under scrutiny, and its outcome could shape future practices for international automakers operating in India.