India slaps tax evasion notices to Volkswagen, Kia for ‘misclassifying’ imported parts

German and South Korean multinational automobile manufacturers are reportedly being investigated for allegedly evading India’s customs duties while importing components needed to assemble cars.

According to reports, this started around three years ago, when Volkswagen and Kia automakers allegedly “misclassified” components for completely knocked down or CKD, units.

Volkswagen and Kia received separate customs notices with tax demands of $1.4 billion (₹11,620 crore) and $150 million (₹1,245 crore), respectively, for allegedly importing car components in CKD condition across multiple shipments while misclassifying them as individual parts to incur lower customs duties, as per reports.

The Customs Office in Chennai issued Kia’s notice in April, while the Office of the Commissioner of Customs in Maharashtra sent Volkswagen’s notice in September, the reports suggest.

Completely Knocked Down (CKD) means a vehicle, that is imported in parts and assembled at the destination. The Central Board of Indirect Taxes and Customs (CBIC) regulates the customs duties and procedures related to CKD imports in India. 

Notably, a duty of 30-35% is applicable on parts imported in CKD form in a single shipment, whereas importing them separately as individual parts attracts a lower tax rate of 10-15%.

Last year, Indian officials slapped a similar tax notice of $1.4 billion on Volkswagen’s unit, Skoda Auto Volkswagen India, reported British media.

However, Volkswagen challenged the demand in the Bombay High Court and said it was “availing itself of all legal remedies”.

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