[volkman10]

Cooperating with authorities over show cause notice: Skoda Auto Volkswagen India

It is understood that the alleged customs duty fraud is applicable only to cars which are brought under CKD (completely knocked down) route.

Some of the models include Octavia, Superb, Kodiaq, Passat, Jetta, and Tiguan

Link:

[skoda0505]

I was in the process of buying a Kodiaq. Have already made the booking amount and the dealer is after me to pay the remaining amount as well. What does this notice imply to people who are buying their new cars, especially the models which have been named in the notice (Kodiaq is one of them). Is there any real risk of Skoda VW exiting India?

[Traveler]

Originally Posted by skoda0505

I was in the process of buying a Kodiaq. Have already made the booking amount and the dealer is after me to pay the remaining amount as well. What does this notice imply to people who are buying their new cars, especially the models which have been named in the notice (Kodiaq is one of them). Is there any real risk of Skoda VW exiting India?

The litigation would easily outlast the life of the Kodiaq in my honest opinion. Things like this do not get resolved or decided so fast.

[Onthemove]

Originally Posted by skoda0505

I was in the process of buying a Kodiaq. Have already made the booking amount and the dealer is after me to pay the remaining amount as well. What does this notice imply to people who are buying their new cars, especially the models which have been named in the notice (Kodiaq is one of them). Is there any real risk of Skoda VW exiting India?

It would be more of a knife hanging over the head when we make a buy decision and whether the probability of them packing their bags..at this time looks highly unlikely but only time can tell depending on how hard nosed the authorities are and the strength of their case.

[kaps454]

Originally Posted by ramki.grandhi

https://www.autocarindia.com/industr...-report-433720

Hope VW/Skoda group come out of this clean. Else, 1.4bn penalty will close Skoda/VW's chapter in India.

Not the first time VW/Skoda has flouted (emissions cheating which finally exposed the myth of the european small diesel) the rules, guess won't be the last either. Did the Indian government fine them on cheating emission norms like the Europeans did? Let us see how this plays out, but given VW's history, this is definitely not a misunderstanding but a willful gaming of the system.
regards kaps454

[JayPrashanth]

Multiple issues here:

1. Multiple invoices 2. Alleged wrong declaration, which is a serious offense.

Basically, Indian Customs is alleging that parts were brought in at roughly the same time for CKD assembly but declared as individual parts, rather than as a part of the CKD kit, which probably allowed VW to get away with 5-15 % duty instead of 30-35 % duty.

VW is blaming software here, saying it's the way their logistics works. Fair enough, but the onus in on VW to inform customs that it needs to be charged 30-35 % import duty rather than 5-15 %. It's hard to believe that the guys handling purchase at VW didn't know they were undercharged.

It's also hard to believe that there wasn't collusion at the port to let this happen. Even small shipments of 20-30 lakh have so much paperwork.

1. If VW declared wrongly/withheld information at time of import, then the buck stops at them.

2. If VW declared rightly but customs missed it and charged wrong duty, customs can still raise a tax demand. This can happen because Indian Customs (to reduce corruption) has introduced 'faceless' clearing.

Under this system, a shipment arriving at a wet port like JNPT may be cleared by customs inspectors sitting in a dry ICD port like say Delhi.

In this case, customs basically puts the onus on the importer to declare correctly, and also to pay the prescribed duty. If the importer does hanky panky, customs will impose a massive penalty, usually at 100 % of the assessed value! The idea is to deter wrong/false reporting.

Some people try to beat this by importing through some private ports (many run by Adani), where there's no faceless clearing. So, in such ports, customs inspectors will have to physically clear imports, and this is where the scope of corruption comes in. Customs can be paid off in such ports as the inspector will have to assess stuff. You generally can figure who's assessing, or at least the assessing team. Clearing agents have their networks.

This is how it works. Lot of murky stuff, and we're just scratching the surface.

So, basically it is disadvantage VW at the moment. Wonder how they're going to handle this.

Ideally, paying up the duty should not be an issue as they'd have factored that in the price of the car.

The elephant in the room is the penalty!


Customs has not only served the tax demand notice to Skoda (who runs VW's India business) but also asked the company to explain why they shouldn't be penalized for this. Serious leverage there!

If customs decides to say levy a 100 % penalty, things can go from bad to worse as VW will have to pay another 1.4 billion USD. That could potentially mean curtains.

Then there's the matter of the Mahindra JV. What happens to that? Will M&M shareholders veto the deal, etc? Will Mahindra use its clout with the Govt to get the penalty dropped? Finally, will this mean that the VW group have no option but to do the JV on Mahindra's terms?

Lots of questions, no clear answers.

For now, it doesn't look very good!

Cheers,

Jay

[ajmat]

Originally Posted by JayPrashanth

Then there's the matter of the Mahindra JV. What happens to that? Will M&M shareholders veto the deal, etc? Will Mahindra use its clout with the Govt to get the penalty dropped? Finally, will this mean that the VW group have no option but to do the JV on Mahindra's terms?

You never know, this might be the desired outcome for the authorities. I assume that have been a lot of leveraged corporate takeovers like this.

[chaotic]

Originally Posted by ajmat

You never know, this might be the desired outcome for the authorities. I assume that have been a lot of leveraged corporate takeovers like this.

Exactly my thoughts! Too much of a coincidence that we hear about the JV talks breaking down and IT teams sending the notice within a few days.

Another possible 'too much of a coincidence' seems to be the time when the investigation started in 2022. Didn't the JV talks start around the same time as well?

I guess we are headed into a China-like future....Tata and Mahindra left as the only big companies with their own brands and JVs; Maruti-Toyota surviving due to their size and Government stake (in MS).

[volkman10]

Originally Posted by chaotic

---
Another possible 'too much of a coincidence' seems to be the time when the investigation started in 2022. Didn't the JV talks start around the same time as well?

I guess we are headed into a China-like future....Tata and Mahindra left as the only big companies with their own brands and JVs; Maruti-Toyota surviving due to their size and Government stake (in MS).

Mahindra's too is in the radar of a big penalty. Skoda Auto India will rather quit than a JV to Mahindra's terms.

https://www.team-bhp.com/forum/india...ml#post5884639 (Top Indian carmakers face stiff fines for violating emission norms | Kia India gets 373 crore fine!)

[JayPrashanth]

Originally Posted by volkman10

Mahindra's too is in the radar of a big penalty. Skoda Auto India will rather quit than a JV to Mahindra's terms.

https://www.team-bhp.com/forum/india...ml#post5884639 (Top Indian carmakers face stiff fines for violating emission norms | Kia India gets 373 crore fine!)

That's an unfair penalty imho.

Reason: CAFE II came into effect in April 2022 but the fines were inserted by amending the Energy Efficiency Act of 2001 only in December 2022.

Now, the Govt wants Hyundai, Mahindra, Kia, Renault, Nissan, Skoda and Force Motors to pay penalty for the whole year - April 2022-March 2023 - for exceeding CAFE II emissions, even though fines were notified only in December 2022.

If anything, the Govt must take monthly average, and calculate fines only for 3 months. I see car makers negotiating for this and getting the fines reduced, or even waived off! If Govt doesn't relent, they'll go to court, and are likely to get a favourable judgment.

It's like saying, 'no fine if you don't meet your yearly target, and then suddenly coming up in December and saying, I'm going to fine you for not meeting the target for the whole year'.

That's ridiculous, and exactly the anti-thesis of stable policy.

And guess what, it was public knowledge that Mahindra would not meet the CAFE II norms even when CAFE I was in place. It's almost like the Govt wants to extort by bringing in the amendment after 9 months of the financial year.

Cheers,

Jay

[zeus18]

I don't know honestly when was the last time Skoda/ Volkswagen was in news for something good!

[AKB]

Originally Posted by StarrySky

The report states that VW's internal SW breaks down the ordered car to individual parts and invoices them separately and arranges shipping in different containers so that the parts reach India at roughly the same time.

This is the key element of this case, if shipments were spread across multiple containers and then invoiced as parts, then Indian Govt. does have a case. However, from what we know, CKD units come neatly packed in containers and the method of packaging and final assembly is well documented.

Only challenge I see is that Indian Govt continues to make it difficult for MNC to operate without surprises. While a lot of Indian promoter heavy enterprises continue to operate at their will.

[sudeepg]

Originally Posted by Turbohead

The arguments don't make any sense. IMO VW/Skoda did what the Indian govt originally wanted - force companies to create factories that produce employment in some form instead of nothing. Not only did they try CKD but they also ended up actually producing India specific cars, which is a total win for the economy.

Originally Posted by extreme_torque

The cars did arrive as individual parts at the port of entry to avoid the CKD duty so I fail to see what the issue is? It does not matter if the car was fully assembled - obviously Skoda/VW saw a cost saving in first diassembling the car and then assembling it again in India.

Originally Posted by extreme_torque

It is hack for sure but it says more about our complicated tax regulations, often needlessly so, than anything else, which incentivizes hacks like this.

Originally Posted by Thyag

We all can give names like sham, scam or hack, but this is what conglomerates do and remember, this is Volkswagen which got caught in Dieselgate.

Our taxation system is also not very specific and very vague. Our tax people also wake up suddenly and give a new perspective on the existing laws.

Finally, overpriced cars and overtaxed cars fall on the common man's head

Assuming these allegations are accurate, as far as I can remember, Skoda and the VW group has sold these cars at higher CKD tax rates than what they might have gained by classifying it as parts import. So from that point of view, what they might have done is against the law.

[carhead]

Mods pl delete this post if inappropriate.

I don't want to bash VW needlesly.

They make sturdy vehicles with excellent dynamics. After Sales - quality and cost are 2 gaps they've improved over past few years.

However this is the same VW who orchestrated the Dieselgate Emissions scandal.

Standalone I don't think it's beyond them to try cut corners again.

[Bhodrolok]

Sounds to me like the recent GST notice to Infosys which was then withdrawn, is VAG India not playing the "game"? Do we have data on how much electoral bond they have bought?

This is the very definition of tax bullying and harassment, hopefully this gets sorted out soon.