During 2022, an investigation into car companies such as Volkswagen and Kia for allegedly evading India’s customs duties while importing components needed to assemble cars, started nearly three years ago.

Custom Notice To Volkswagen and Kia

It appears that the automakers allegedly “misclassifying” components for completely knocked down, or CKD, units, stated a top Finance Ministry official on  Thursday.

Moving ahead, they have sent two different customs notices to the carmakers Volkswagen and Kia, with a tax demand of $1.4 billion and $150 million, respectively.

These carmakers were allegedly importing components for a car in CKD condition in different lots, and misclassifying them as individual components as it attracts a lower customs duty.

Coming to the notice, it was sent to Kia last April by the Customs Office in Chennai.

The other one was issued to Volkswagen by the Office of the Commissioner of Customs in Maharashtra during September.

Usually, a duty of 30-35 percent is applicable on parts imported in CKD form in a single shipment.

But, individual parts attracts a lower tax rate of 10-15 per cent whrn they are being imported separately.

How Did This Happen?

Here used term, CKD – Completely Knocked Down cars are vehicles that are shipped in parts and assembled at the factory.

Contrary to this, Completely Built Units (CBU) are vehicles that are shipped in one piece and don’t require any assembly.

In a media interaction, chairman of the Central Board of Indirect Taxes and Customs (CBIC), Sanjay Kumar Agarwal said, “In these cases, the investigations started in 2022 and it was generally noticed that the imports were split into multiple consignments, whereas these were falling in the category of a car in CKD condition and the rate applicable to CKD condition was leviable.”

Further adding, “Some automobile companies were paying the rates applicable to CKD condition, (but) some car companies, for certain models imported in CKD condition. (This) means all the main parts were imported and assembled in India… So the rate on CKD was higher than the individual components. Accordingly, notices have been issued, but it is a culmination of investigations which were initiated in 2022.”

“SAVWIPL is availing itself of all legal remedies in response to the showcause notice as permitted under the law. SAVWIPL is committed to operating as a responsible organisation, ensuring full compliance with all applicable global and local laws and regulations. Compliance with regulatory requirements is one of SAVWIPL’s fundamental principles, and we are cooperating fully with the authorities on this matter,” said  spokesperson for Skoda Auto Volkswagen India Pvt Ltd (SAVWIPL) in a media report.

While talking about this notice, a spokesperson for Kia said, “already filed a detailed response, supported by comprehensive evidence and documentation to substantiate our stand.”