India has issued a $1.4 billion tax evasion notice to German automaker Volkswagen for allegedly underreporting import taxes on components for its Audi, VW, and Skoda models, a document reveals. This is one of the largest such demands in India.

According to a notice dated Sept. 30, Volkswagen imported "almost the entire" car in unassembled form. These "completely knocked down" (CKD) units are subject to an import tax of 30-35%, but Volkswagen allegedly mis-declared these shipments as "individual parts," paying just 5-15% duty instead. The imports, handled by Volkswagen’s local unit, Skoda Auto Volkswagen India, involved models such as the Skoda Superb and Kodiaq, Audi A4 and Q5, and VW Tiguan SUV. Multiple consignments were used to evade detection and avoid paying higher taxes, as confirmed by India's investigation.

The notice, a 95-page document issued by Maharashtra’s Commissioner of Customs, states, "This logistical arrangement is an artificial arrangement ... operating structure is nothing but a ploy to clear the goods without the payment of the applicable duty," the document said. The notice, seen by Reuters, is not publicly available.

Since 2012, Volkswagen's Indian unit should have paid around $2.35 billion in import taxes and related levies but paid only $981 million, leaving a gap of $1.36 billion, according to the Indian authority.

In response, Skoda Auto Volkswagen India said it is a “responsible organization, fully complying with all global and local laws and regulations,” adding, “We are analyzing the notice and extending our full cooperation to the authorities.”

The notice gives Volkswagen 30 days to respond. However, it remains unclear whether the company has done so yet.

Neither India's finance ministry nor the customs department responded to Reuters' queries.

The government’s "show cause notice" demands that Volkswagen’s local unit explain why it should not face penalties and interest on the $1.4 billion in evaded duties. An anonymous government official indicated that penalties could reach up to 100% of the amount evaded, potentially totaling $2.8 billion.

High taxes and ongoing legal challenges have often been contentious for foreign companies in India. For example, electric car maker Tesla has long complained about high taxes on imported vehicles, while Vodafone has battled tax disputes. Chinese automaker BYD is also under investigation in India for tax underpayment of about $9 million on imports.