India’s government has told a court in Mumbai that agreeing to Volkswagen’s demand to quash a US$1.4 billion tax bill would have “catastrophic consequences” and encourage companies to withhold information and delay inquiries, court documents show.
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India’s highest-ever demand for back taxes related to import duties came after scrutiny of 12 years of Volkswagen shipments, rekindling foreign investors’ fears over lengthy investigations. The carmaker 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.
The 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 caused the delays by withholding crucial information and data about its imports.
Accepting the carmaker’s reasoning would allow importers to suppress vital information and then claim that the time-limit for the tax authority to conduct a probe had passed, the authority said in its March 10 filing, which was not public and is being reported for the first time.
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This would have “catastrophic consequences”, they said in the filing.
The case will be heard on Monday. Volkswagen and the Indian government did not respond to requests for comment.