Volkswagen India faces Rs 600-cr penalty for ‘undervaluing’ cars

The 190-page order, reviewed by The Indian Express, has also upheld the penalty of an equal amount of Rs 323 crore imposed by the excise department — taking the firm’s total liability to over Rs 646 crore.

Written by Khushboo Narayan | Mumbai | Published: March 9, 2016 2:09 am
The excise department has also alleged that the companies were selling the cars below their cost price, a practice that has been struck down by the Supreme Court. The excise department has also alleged that the companies were selling the cars below their cost price, a practice that has been struck down by the Supreme Court.

The Central excise department has accused three Volkswagen firms of evading duty of over Rs 323 crore by undervaluing cars that were sold in India between January 2010 and December 2014, according to an adjudication order passed by principal commissioner of central excise in Pune on February 29.

The 190-page order, reviewed by The Indian Express, has also upheld the penalty of an equal amount of Rs 323 crore imposed by the excise department — taking the firm’s total liability to over Rs 646 crore. The three firms are Volkswagen India, Skoda Auto, Aurangabad and Volkswagen Group Sales India. When contacted, Volkswagen India’s official spokesperson said: “(We have) received the said order. However, we are still evaluating the details. Volkswagen has been doing all its transactions at an arm’s length and as per the well-accepted industry practices. We will appeal against the order.”

According to the Directorate General of Central Excise Intelligence (DGCEI), the three firms paid duty on the value of the car at the factory gate. This, officials said, allegedly violates norms as the three firms are “related parties” and should pay duty on the value at which a car is sold to the customer by the sales office of Volkswagen in India.

“It is not an arm’s length transaction. There is mutuality of interest in financial transactions of the three companies. Therefore, as per the rule the value of the end seller in this case Volkswagen Group Sales is the value at which duty is to be detected,” an official told The Indian Express. “We have evidence to prove that the price at which their sales centre is selling to the customer is actually the price on which they should pay duty to government,” the person added. According to the excise department data, Volkswagen has sold 2.63 lakh cars between 2010 and 2014.

 

The excise department has also alleged that the companies were selling the cars below their cost price, a practice that has been struck down by the Supreme Court.

“For selling cars below its cost price, Volkswagen India and Skoda Auto Aurangabad were being compensated by the parent company. This compensation was received by the companies as subvention, loss compensation, marketing assistance, price reduction support and forex volatility assistance. This proves that the company has suppressed the value of the cars,” said another official. The Supreme Court had in 2012 ruled that Fiat India would have to pay excise duty on the basis of cost of production plus a notional mark-up rather than on the selling price, which was lower than production cost.

Subsequently, the Central Board of Excise and Customs (CBEC) clarified that the judgment on excise duty in the Fiat India case will apply only in case a company sells its products at below manufacturing cost for a prolonged time to capture market share.

Last year, the government issued a show-cause notice to Volkswagen for significant variations in on-road emission levels in some of its diesel models. Some of the car maker’s Indian models are fitted with the same engine which is responsible for its trouble in Europe and US.

The US Environmental Protection Agency found out that this engine (fitted in around 11 million vehicles worldwide) had a software device which lowered emissions when it detected test conditions.

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