India says quashing Volkswagen’s $1.4bn tax bill would be ‘catastrophic’

NEW DELHI: India’s government has told a court in Mumbai that agreeing to Volkswagen’s demand to quash a $1.4 billion tax bill would have “catastrophic consequences” and encourage companies to withhold information and delay inquiries, court documents show.

India’s highest-ever demand for back taxes related to import duties came after scrutiny of 12 years of Volkswagen shipments and has rekindled foreign investors’ fears over lengthy investigations.

The automaker has described the case as a “matter of life and death” for its India business, and is fighting the tax authority in the high court in Mumbai. Volkswagen unit, Skoda Auto Volkswagen India, faces allegations that it misclassified component imports of some Audi, VW and Skoda cars to evade higher tariffs. Its key argument to quash the tax demand is the “inaction and tardiness” of tax officials in delaying shipment reviews.

The Indian tax authority told the high court in a 78-page rebuttal that Volkswagen VOWG.DE caused the delays by withholding crucial information and data about its imports. This would have “catastrophic consequences”, they said in the filing.