The Special Investigation Branch of Customs is reportedly probing whether luxury car maker BMW AG's Indian arm has evaded custom duty.

A source from the Customs department has revealed that the Indian tax authorities believe that German car maker BMW's Indian arm has evaded taxes to the tune of more than Rs 500 crore.

The source that that tax authorities said that BMW imported luxury cars in semi-knocked down conditions though it had declared that it had imported cars only in fully knocked down conditions. It may be noted here that custom duty on car imports in semi-knocked down conditions is higher than on car imports in completely knocked down conditions.

Speaking on the condition of anonymity, the officer also said that BMW is not the only car maker that is being probed by the tax authorities; as some other foreign car makers are also adopting the same way to evade taxes. He added that the method had helped car makers to evade estimated more than Rs 2,000 crore in taxes.

Revealing the ongoing investigations, the officer further added, "These car manufacturers are given tax concession to encourage local manufacturing units. However, they have not gone in for indigenization of components as the sales volume does not justify it."

According to the source, BMW imported engines, transmission units and gear boxes, and got them assembled at its facility in the country.

When contacted, BMW admitted that an inspection was going on at its facility and assured that it was fully co-operating with the authorities.