Volkswagen Group, which includes the Volkswagen, Audi, Skoda, Porsche and Lamborghini brands, has been accused by Indian authorities of tax evasion of $1.4 billion (Rs 118.6 billion), or about Rs 11,865 crore.
The Volkswagen Group companies accused of import duty manipulation include Indian unit Skoda Auto Volkswagen and the car models involved in the alleged scam include Audi’s A4 and A6 sedans and Q5 and Q7 SUVs. This also includes Skoda’s Octavia and Superb sedans, its Kodiaq SUV and Volkswagen’s Tiguan SUV.
The relevant authorities in India, after a detailed investigation, have claimed that Volkswagen knowingly and “deliberately” manipulated its imports in such a way that it escaped the higher tax slab by classifying the parts being imported under a lower tax category. . Volkswagen has denied this and said that it complies with all local laws and is cooperating with Indian authorities.
Understanding Import Duties
To promote local manufacturing, India imposes an import duty of 35 percent on Completely Knocked-Down Units, or CKD. These are imported as a kit and then assembled into cars at manufacturing plants across India.
For other parts of the vehicle that are manufactured locally but the components within it need to be imported, the import duty for such components varies from 5 percent to 15 percent.
Should the ‘ready-to-drive’ car be imported completely from another country, 100% import duty is charged. This heavy duty imposed over the decades is credited with setting up auto manufacturing plants in India.
what volkswagen allegedly did
After a detailed investigation, Indian authorities claim to have found that in order to circumvent the 30-35 percent import duty on CKDs, Volkswagen deliberately misdeclared and misdeclared its component imports by declaring them as “individual parts”. Misclassified” – which, as mentioned above, attracts a very low import duty of 5-15 percent.
Authorities claimed that over time, Volkswagen imported 97 percent of the parts of the above-mentioned car models by declaring them as “individual components”, thereby evading import duties amounting to approximately one and a half billion dollars.
How does Volkswagen import auto components and parts
Volkswagen has an international inventory management system called NADIN for all its brands. It also has a separate software called ProCKD which it has developed to track and manage all the inventory for manufacturing plants located in India.
Based on feedback and projections sent by its sales and operations teams across India, Volkswagen uses these software – NADIN and ProCKD – to place orders for its various vehicle models across brands. This is how manufacturing and assembly flow is managed.
Using the information entered into both software, an order is placed which NADIN then divides into between 700 and 1,500 components that are required to manufacture a vehicle. NADIN software is directly linked to the international suppliers of Volkswagen’s three brands – Audi, Skoda and VW in Germany, the Czech Republic and Hungary.
Once these brands receive orders for components from India, suppliers in these countries ship the parts to a “consolidation center” for each brand, from where it is shipped to India. The components are marked with unique IDs that help production teams in India identify which part goes where in a given car.
A 17-digit alpha-numeric number is also printed on the parts to identify each vehicle. A separate 16-digit ID number was also given so that factory workers would know where these parts needed to be assembled before they could be installed in the car.
What does Volkswagen claim compared to the authorities
These different parts mentioned above reach different Indian ports in the form of multiple consignments and multiple invoices, all separate from each other, but usually arriving on consecutive days within a week. Officials claim that the body of the vehicle is supplied with the main components and the rest of the parts come separately in separate packages to avoid being identified as CKD.
Volkswagen says this is entirely a logistics model that it has adopted over the years to improve efficiency. However, officials call this a “deliberate and deliberate” move to avoid paying higher import duties.
The notice sent by Indian authorities to Volkswagen Group has been obtained by news agency Reuters. If the allegations are proved true, it will be one of the biggest cases of import duty evasion in the history of India. This will also have a significant impact on Volkswagen Group, which is already facing tough competition in the Indian auto market.
