Legal Disputes & Operational Risks for Companies Entering India in 2026

Let's examine the legal disputes and practical risks for companies entering India

- India's Carrot-and-Stick Market: Missing 'This' Could Cost Multi-Billion Dollar Fines Even for Conglomerates - India is currently sending a dual message to foreign enterprises. In one hand, it holds a massive carrot of incentives (such as the PLI scheme); in the other, a heavy stick of rigorous enforcement across tax, environmental, and labor sectors. Precedents from global corporate legal disputes over the past three years prove that survival in the Indian market no longer hinges on "how fast you enter," but rather on "how robustly you design your compliance framework." The Indian authorities’ criteria for evaluating foreign firms has completely shifted from 'form' to 'substance.' 1. Taxation & Customs: "Focusing on Economic Substance Over Form" Indian tax and customs authorities are demonstrating aggressive taxation trends , probing into the actual substance and intent of business activities rather than relying on formal paperwork. ① Volkswagen: Customs Evasion Dispute via Fragmented Component Imports (2025–2026 Ongoing) The Directorate of Revenue Intelligence (DRI), under the Indian Customs, raised issues with Volkswagen’s import structure and imposed a record-breaking customs demand of $1.4 billion (approx. KRW 2.1 trillion). Background: To protect its domestic manufacturing industry, India differentiates customs duties by import type. Completely Built Units (CBU) face a steep duty of around 100%, whereas Completely Knocked Down (CKD) kits are taxed at 30–35%, and individual parts enjoy lower rates of 5–15%. The Issue: Volkswagen imported nearly all components (97–98%) required for a single vehicle across separate timelines, paying the lower "individual parts" duty. Indian authorities defined this as a circumvention and tax evasion tactic, stating it was "substantially importing a complete vehicle (CKD) that merely required assembly." Latest Trend (As of 2026): Volkswagen challenged this order, and a fierce legal battle is currently underway at the Bombay High Court. The court is scrutinizing whether the customs authority's retroactive assessment—reaching back 12 years—violates the legal doctrine of the 'statute of limitations.' Operational Solution: India operates the Phased Manufacturing Programme (PMP), which legally mandates gradual increases in local component sourcing for key industries. Companies must strictly adhere to these schedules. Moving beyond simple assembly, they should secure substantial grounds for "Made in India" products by sourcing core parts from local vendors or engaging in Joint Ventures (JV). ② Tiger Global: Tax Haven Subsidiaries Are No Longer a Shield (Supreme Court Final Ruling, January 2026) Utilizing the General Anti-Avoidance Rule (GAAR) to detect shell companies established solely for tax avoidance , the Supreme Court of India pierced the corporate veil of investment structures to look at their true substance. Key Ruling (January 15, 2026): When global investment firm Tiger Global sold its shares in Indian e-commerce giant Flipkart to Walmart through a Mauritius entity, the Indian Income Tax Department levied a $1 billion capital gains tax. Tiger Global argued it should be exempt under the Double Taxation Avoidance Agreement (DTAA) since it held a Tax Residency Certificate (TRC) issued by the Mauritius government. However, the Supreme Court ruled in favor of the tax authority. Interpretation: The Supreme Court held that "the mere formal requirement of a paper document (TRC) is insufficient. If the entity lacks the actual personnel and office space to make independent business decisions outside India, it is nothing more than a conduit for tax avoidance. " ③ Hyatt International: 'Permanent Establishment' Risk of Taxation Without a Physical Office The Issue: A Permanent Establishment (PE) refers to the physical or human baseline through which a foreign company must pay taxes within India. Hyatt did not maintain an official office in India, but its headquarters' employees stayed in the country for extended periods to substantially "control and supervise" local hotel operations. Ruling & Takeaway: The Supreme Court of India dismissed Hyatt’s argument that it was "merely providing advisory services." The court ruled that because the headquarters practically drove the local business, a PE was established, making it legitimate to tax the income generated within India. Linked Risk: Tax experts warn that this logic applies identically to the Goods and Services Tax (GST), a form of indirect tax. Long-term stays and activities by corporate headquarters staff can be viewed as "providing services within India," potentially triggering massive indirect tax bombs. 2. Antitrust & Fair Trade: "Fines Based on Global Turnover" ▪ Apple: Drastic Changes in the Competition Act and Legal Battles (2026) The Competition Commission of India (CCI), India’s antitrust watchdog, is launching unprecedented offensives against global Big Tech firms. Amended Standards: Previously, antitrust pe