The Centre issued a $1.4 billion (₹11,842 crore) notice to German auto giant Volkswagen for allegedly avoiding taxes by "wilfully" paying cheaper import taxes on components for its Audi, VW, and Skoda cars.

Volkswagen used to import "almost the entire car" in an unassembled state, which incurs a 30-35 percent import duty in India for completely knocked down (CKD) units.

The corporation allegedly avoided charges by "mis-declaring and mis-classifying" the imports as "individual parts" and paying only a 5-15% levy.

"Various shipment consignments used to evade detection": Tax notice

According to the report, the notification said that Volkswagen's India unit, Skoda Auto Volkswagen India, imported luxury cars such as the Audi A4 and Q5, as well as VW's Tiguan SUV.

Various cargo consignments were allegedly used to avoid discovery and "willfully evade payment" of increased taxes.

"This logistical arrangement is an artificial arrangement... operating structure is nothing but a ploy to clear the goods without payment of the applicable duty," stated the 95-page notice issued by the Office of the Commissioner of Customs in Maharashtra, which Reuters obtained.

The company's India unit owed the Indian government approximately $2.35 billion in import taxes and other relevant charges, but only paid $981 million, resulting in a $1.36 billion shortfall.

Skoda Auto Volkswagen India's Response

In a statement, Skoda Auto Volkswagen India stated that it is a "responsible organization, fully complying with all global and local laws and regulations." We are reviewing the notice and providing full assistance to the authorities."

The notification requests a response within 30 days, but Volkswagen has not commented on whether it has done so.

The government's "show cause notice" urges Volkswagen's local unit to explain why the alleged tax fraud should not result in penalties and interests under Indian law, in addition to the $1.4 billion in evaded charges.

A government official who spoke on the condition of anonymity stated that if the corporation is found guilty, the punishment may be as high as 100% of the amount dodged, forcing the company to pay up to $2.8 billion in total.