JSW Group wants Volkswagen to cover a $1.4 bn tax liability in India as the two companies negotiate a proposed partnership, according to people familiar with the matter. The demand has become a key unresolved issue and could affect the valuation and completion of the transaction. The companies have reached a preliminary understanding on the joint venture structure and other commercial terms, while financial due diligence is beginning. JSW is seeking a majority stake in Skoda Auto Volkswagen India, with the proposed venture set to develop, manufacture and market passenger vehicles in India and overseas. The partnership would cover internal-combustion engine vehicles, battery-electric vehicles, plug-in hybrids and hybrids. The companies did not immediately respond to requests for comment. JSW’s position is that any liability arising from the tax case should remain with Volkswagen, and it would not proceed if required to assume the burden. The dispute relates to the Indian government’s allegation that Volkswagen misclassified vehicle assembly kits imported from Germany, the Czech Republic and Hungary between 2012 and 2024. Authorities allege that the classification reduced the levies payable by the company, which has denied the claim. Volkswagen is challenging the tax demand in a Mumbai court, with a resolution not expected before the end of the year. Volkswagen has spent nearly two years seeking an Indian partner after negotiations with Mahindra & Mahindra ended. The German automaker is seeking to share costs and risks while expanding its presence in India, where it has a small market share despite substantial investment in manufacturing and locally developed models. The talks have also been affected by the departure of Klaus Zellmer, who left as Skoda’s chief executive to become chief executive of Volvo Car. Zellmer had been involved in the negotiations and had indicated that an agreement could be finalised later this year. The companies had targeted a binding agreement by December, although the discussions must advance to meet that timetable.