**Tax Dispute Between Volkswagen Group and Indian Government Centers on Enterprise Software**
A significant tax dispute, valued at $1.4 billion, has emerged between Volkswagen Group and the Indian government, primarily revolving around a piece of enterprise software utilized by the German automaker to source car parts globally. The government alleges that Skoda Auto Volkswagen India Pvt. Ltd (SAVWIPL) exploited the NADIN software to circumvent tax regulations. Instead of importing completely knocked down (CKD) kits, which incur a 35% duty, the company reportedly used the software to deconstruct vehicle orders into individual components and sub-assemblies. These parts were then imported at a reduced duty rate of 5-15% and assembled locally into finished vehicles.
The dispute escalated when the Indian government demanded customs duties at CKD rates for items imported over the past 12 years. SAVWIPL has filed a petition in the Bombay High Court, asserting that the NADIN software is employed globally for tracking demand and production planning, and that the tax authorities have misinterpreted its use as a method to evade tax obligations.
The process begins when a customer places an order for a vehicle, which the dealer inputs into the NADIN software. The production planning team then utilizes this data to determine the number of cars to manufacture within a specific timeframe. The software subsequently breaks down the order into its individual parts, which are sourced from various suppliers, predominantly located in Germany, the Czech Republic, and Hungary. Both imported and locally manufactured components are assembled at the Aurangabad factory to create the final product.
The crux of the disagreement with tax authorities lies in the classification of these imports. The government contends that the parts and components brought in for the Aurangabad factory should be categorized as CKD kits—unassembled motor vehicle parts—pertaining to vehicles produced between March 2012 and July 2024. In response, SAVWIPL’s petition challenges the customs authorities’ notice issued on September 30, 2024, regarding this classification.
