[volkman10]

Skoda India in news again, for wrong reasons: Reuters

Skoda Auto Volkswagen India slapped with USD 1.4 billion tax evasion notice.

- Volkswagen India unit accused of misclassifying imports
- Skoda Auto Volkswagen India claims compliance with laws
- VW classified imports as individual parts, paying lower tax
- Company says it is cooperating with Indian authorities

India has issued a notice to German automaker Volkswagen for allegedly evading $1.4 billion in taxes by "wilfully" paying lesser import tax on components for its Audi, VW and Skoda cars, a document shows, in what is one of the biggest such demands.
A notice dated Sept. 30 says Volkswagen used to import "almost the entire" car in unassembled condition - which attracts a 30-35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by "mis-declaring and mis-classifying" those imports as "individual parts", paying just a 5-15% duty.

Such imports were made by Volkswagen's India unit, Skoda Auto Volkswagen India, for its models including the Skoda Superb and Kodiaq, luxury cars like Audi A4 and Q5, and VW's Tiguan SUV. Different shipment consignments were used to evade detection and "willfully evade payment" of higher taxes, the Indian investigation found.
"This logistical arrangement is an artificial arrangement ... operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty,"

Since 2012, Volkswagen's India unit should have paid import taxes and several other related levies of about $2.35 billion to the Indian government, but paid only $981 million, amounting to a shortfall of $1.36 billion, the authority said.

The notice asks to respond within 30 days, but Volkswagen didn't comment if it has done so or not.


Link:

[Nithesh_M]

Originally Posted by volkman10

- VW classified imports as individual parts, paying lower tax
A notice dated Sept. 30 says Volkswagen used to import "almost the entire" car in unassembled condition - which attracts a 30-35% import tax in India under rules for CKD, or completely knocked down units, but evaded levies by "mis-declaring and mis-classifying" those imports as "individual parts", paying just a 5-15% duty.

Nothing new. A lot of manufacturers are doing this today. This is exactly how they all successfully lobbied to make it illegal for public like us to post or analyse import export data from websites like Zauba
https://indianexpress.com/article/bu...arity-7758862/

And the biggest beneficiary of this govt move were some particular electronic goods and service provider who have a habit of importing Chinese goods in huge numbers and selling it with Indian stickers. Heck the biggest beneficiary of this are our very own local companies across multiple businesses.


But god forbid I order a video game controller from Hong Kong prized 3000, the customs will be waiting to slap another 3000 on it as duty(true story).

[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.

[chakravorty]

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[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.

Also, this CKD assembly is such a well documented method that it has a dedicated YouTube video of the same:

https://m.youtube.com/watch?v=wDT53oIfgds

My guess is that some IT official is trying to find new interpretations of the law in order to meet their targets while being oblivious to the damage it causes to our image in terms of ease of doing business.

[StarrySky]

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.

My guess is that some IT official is trying to find new interpretations of the law in order to meet their targets while being oblivious to the damage it causes to our image in terms of ease of doing business.

That was my first thought, but reading a bit further, IT department alleges that VW/Skoda imports CKD kits mislabelling them as "individual parts". That is all the parts to make one individual car is not labelled or invoiced as such (a CKD kit), but invoiced separately. This allows the company to pay lower import taxes, as individual parts have lower import taxes than CKD kits.

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. I can understand why any company would want to manage logistics to minimise cost and maximise efficiency. But if this is also used to evade taxes, then that's a problem.

However, it seems fairly straightforward for the authorities to verify how many CKD cars VW/Skoda produced and on how many individual CKD kits were import duties paid. So why would a company want to cheat on this?

[ron178]

I’m curious — and pardon my lack of knowledge in this area — could this have anything to do with VW/Škoda insisting on calling CKDs “parts-and-components” cars? Or is that just company jargon?

[AMG Power]

Originally Posted by Turbohead

My guess is that some IT official is trying to find new interpretations of the law in order to meet their targets..

Exactly my thoughts.

Either that or he is looking for an out of court settlement.

[extreme_torque]

Originally Posted by StarrySky

That was my first thought, but reading a bit further, IT department alleges that VW/Skoda imports CKD kits mislabelling them as "individual parts". That is all the parts to make one individual car is not labelled or invoiced as such (a CKD kit), but invoiced separately. This allows the company to pay lower import taxes, as individual parts have lower import taxes than CKD kits.

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.

[StarrySky]

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.

Isn't importing parts of the car and assembling them in India the very definition of CKD?

[extreme_torque]

Originally Posted by StarrySky

Isn't importing parts of the car and assembling them in India the very definition of CKD?

Except they did not arrive as a CKD. The company seem to be complying to the letter of law but not the spirit of the law since they did arrive as different parts in multiple shipments containers across different invoices.

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.

[StarrySky]

Originally Posted by extreme_torque

Except they did not arrive as a CKD. The company seem to be complying to the letter of law but not the spirit of the law since they did arrive as different parts in multiple shipments containers across different invoices.

After going through some documents on customs duty, I think I have got the issue backwards.

The rules seem to say that the customs duty is lowest if parts are imported as a "Completely Knocked Down (CKD) kit containing all the necessary components, parts or sub-assemblies, for assembling a complete vehicle" with engine/gearbox not pre-assembled. My guess is the government is taking a stance that shipping car components as VW is doing does not come under the definition of "CKD kit containing all necessary parts", and hence they cannot claim lower duty.

If that is the case, my sympathises are with VW.

[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

[Turbanator]

There are three different kinds of custom duties on CKD kits per SIAM.

I don't know if Skoda in India makes engines or gets them from overseas. If they do it here, there should be no concern, but if they do import, which looks like the case, there may be an issue.

In all likelihood, Skoda VW has got the parts cleared at 15% duties. This lower slab has a condition on the engine/ gearbox & transmission and must not be pre-assembled.

https://www.siam.in/economic-afairs....8&pgidtrail=20

If Skoda imported engines not as fully built but still assembled, say the cylinder head and the engine block separately and mounted other components locally, this can be a matter of litigation.

Remember BMW and Mercedes, both are getting engines assembled locally as they had similar issues in past. They too had to pay fines but at that time, their volumes were limited. No wonder, they outsourced this assembly to a third vendor who imports such components/ assemblies.

[Swapnil4585]

The Autocar article says that the investigators relied on the company's internal software placing bulk orders for "cars", and after the order was placed, its software broke down the order into main components / parts.

So, the basis of notice here is the placing an order for "cars" as a whole unit but not importing it as a whole unit, which as per the Department results in an evasion of duty. The extent of evasion estimated, might be over exaggerated like Department wants tax at a CBU's rate.

Issuance of notice in my view, looks not completely incorrect. It is a matter of litigation. If Volkswagen is an importer of CKD or SKD units, its purchase orders should have been in that order.

Completely agree with extreme_torque here.