Volkswagen group’s Skoda officially opened bookings for its maiden sub-4m offering in India, the Kylaq, on Monday. With ex-showroom prices starting at 7.89 lakh, the Kylaq is the brand’s third India-specific model after Kushaq and Slavia. However, all is not pomp and celebration at Skoda Auto Volkswagen India, with the Indian government serving a tax evasion notice to the autogiant alleging import duty evasion.
Skoda Kylaq, based on the company’s MQB-A0-IN platform, will enter a crowded and in-demand compact SUV market that includes Hyundai Venue, Maruti Suzuki Brezza, Mahindra XUV300, Tata Nexon, and Kia Sonet.
A recent probe by the Customs Department of India found that Skoda Auto Volkswagen India allegedly paid only USD 981 million of the USD 2.35 billion owed in import duties since 2012. This meant a tax deficit of at least USD 1.36 billion (amounting to around Rs 11,500 crore).
If the company is found guilty, the Indian arm of the international auto giant could face a penalty equal to its dues, bringing its total liability to a whopping Rs 23,000 crore.
The unit of German automotive group Volkswagen announced on Friday that it was fully cooperating with Indian authorities. “We are analysing the notice and extending our full cooperation to the authorities,” Skoda Auto Volkswagen India said in a statement about the show-cause notice over alleged customs duty fraud.
The allegations are applicable to the group’s cars brought through the CKD (completely knocked down) route. In India, the group sold various models under the Audi, VW, and Skoda brands that were imported as CKD units and later assembled in India.
The VW group is now championed in the country by Skoda Auto Volkswagen India, which also offered CKD models such as Octavia, Superb, Kodiaq, Passat, Jetta, and Tiguan over the years.
Customs Department dismisses Skoda Auto Volkswagen India’s defense
The government notice alleged that the group imported CKD units but declared them as “individual components”. Import duties for parts range from 5 per cent to 15 per cent, much lower than the 30–35 per cent tax levied on CKD units. The investigation is said to have focused on cars ranging from Skoda Kodiaq and Superb to Audi A4 and Q5, and Volkswagen Tiguan.
Though Skoda Auto Volkswagen India defended their approach stating that it was intended to improve operational efficiency, investigators dismissed Skoda Auto Volkswagen India’s justification.
“The logistics involved in this process are a small and insignificant part of the overall operation,” read the notice, which also mentioned that another German automaker, Mercedes-Benz, complied with the higher tax norms in similar operations regarding completely knocked down units.
More than the financial fallout in an already challenging and crowded Indian car market, the VW group also looks at possible damage to its brand reputation, if the allegations are proven true.
