Industry Odisha Bureau, Sep 24: JSW Group wants Volkswagen to keep a disputed $1.4 billion tax exposure. The demand could reshape valuation of their proposed India JV deal. It may also test a December signing target.*
A disputed $1.4 billion tax exposure now stands between JSW and Volkswagen. JSW wants the German carmaker to remain responsible for any liability from the case. People familiar with the negotiations said JSW does not want the venture to inherit it.
The sides have reached a preliminary understanding on the JV structure and some commercial terms. No binding agreement has been signed.
Tax dispute enters the deal
The exposure stems from a customs dispute with Indian authorities. Authorities allege Volkswagen misclassified certain vehicle assembly kits imported into India. The kits came from countries including Germany, the Czech Republic and Hungary. The disputed imports span roughly 2012 to 2024.
According to the allegation, the classification reduced the customs duties Volkswagen paid. Volkswagen denies the allegations and is challenging the demand in a Mumbai court. The potential liability therefore remains subject to legal proceedings.
Valuation becomes the battleground
JSW is considering an investment in Skoda Auto Volkswagen India Pvt. The Sajjan Jindal-led group is seeking a majority stake. Financial due diligence is under way, and final valuation remains unresolved.
At its core, the dispute asks who pays for events before a new shareholder arrives. Buyers in such deals typically examine tax exposure, pending litigation, debt and contingent liabilities. An unresolved obligation this large can change a buyer’s view of an asset’s worth.
It does not automatically cut valuation by $1.4 billion. The eventual effect depends on the court outcome and the deal structure. Transactions often allocate such risks through indemnities, escrow accounts, warranties or price adjustments. Neither side has disclosed any such mechanism.
The issue could also affect valuation and each partner’s capital contribution, the people said.
Volkswagen seeks an India reset
The proposed venture would develop, build and market passenger vehicles for India and exports. Its planned range spans combustion-engine, battery-electric, plug-in hybrid and hybrid models. That breadth lets the venture serve buyers as India’s powertrain mix evolves.
Volkswagen has spent nearly two years seeking a local partner to share costs and risks. Earlier talks with Mahindra & Mahindra broke down. Despite two decades of local investment, its Indian market share remains small.
A large Indian partner could help share investment, deepen localisation and build an export base. The tension is clear: Volkswagen needs a partner, while JSW wants protection from past exposure.
December target under pressure
Klaus Zellmer, Skoda’s chief executive, was closely involved in the India talks. As recently as August, he indicated a JSW deal could be finalised later this year. He has since left to become chief executive of Volvo Car AB.
His exit and the tax issue have slowed negotiations, people familiar with the discussions said. The companies had targeted a binding agreement by December 2026. Talks will need to accelerate to meet that timetable.
Until liability is settled, industrial logic alone may not close the JV deal.
