VicRoads has confirmed it has the power to suspend the registration of impacted Volkswagen, Audi and Skoda models unless they are fixed under the recall. Other states and territories could follow Victoria's lead.

"If vehicles are not fixed voluntarily by the manufacturer, or through the Commonwealth's mandatory recall process, VicRoads is sent a list of outstanding vehicles," said Robyn Seymour, director of vehicle and road use policy at VicRoads.

"It's only at this stage that we can decide whether further action, including suspension of registration, is necessary," .

Volkswagen Group has issued a voluntary recall for almost 100,000 cars in Australia, which it admitted were producing as much as 40 times the legal limit for emissions.

So far the regulator in Germany has given the green light to repair Volkswagen's Amarok ute, which is powered by the EA189 diesel engine at the heart of the sandal. That engine is installed with software designed to cheat emissions tests. Impacted cars include variants of the popular Volkswagen Golf, Polo, Tiguan and Passat, Audi A4 and Q5 and Skoda Octavia.

Impacted cars could be deemed "non-compliant with the standards for registration" and taken off the roads unless they are fixed through the recall, according to VicRoads.

Class action against VW

Motorists caught driving cars that do not comply with Australian standards also face fines of up to $3080, depending on which state or territory they live.

Victoria Police confirmed it will not target Volkswagen drivers, saying it is impossible to detect if a car is not compliant unless it is billowing smoke.

Law firm Maurice Blackburn is leading the local class action against the German automotive giant.

The Federal Court ordered Volkswagen in December to provide detailed information about total emission production both in testing and real-world driving environment.

The company has yet to comply fully with the order and is set to appear in the Federal Court in Sydney again on Friday. But Volkswagen appears to be backing away from admissions made last September that it cheated emission testing.

According to documents lodged in the Federal Court, the company says there is nothing wrong with the affected diesel engines, which "were at all times technically safe and roadworthy".

"The relevant emission … concern laboratory testing and not ordinary driving conditions," the company said in the court documents.

'No defeat device'

It said it didn't use a "defeat device", which is classified as a modification outside the engine. Instead it used exhaust gas recirculation [EGR], rather than fresh air, to pump into the engine (which is what happens under normal driving conditions).

This lowered levels of nitrogen oxide emissions during regulatory testing.

"The EGR system does not constitute a defeat device," Volkswagen said. "Having regard to the facts and the applicable law, there is no violation of ADR 79 [emissions standards] or legislation relating to the registration of vehicles as alleged by the applicants."

Maurice Blackburn principal Jason Geisker likened Volkswagen's argument to a takeaway food restaurant saying that because "no salmonella was detected in our food during testing, that doesn't guarantee the food that we serve to you today has no salmonella in it".

"Volkswagen's statements of remorse and contrition about the dieselgate scandal are in stark contrast to the vigorous way they are defending the class action brought on by Maurice Blackburn," Mr Geisker said.

Mr Geisker said motorists driving cars caught up in Volkswagen's scandal are relying on the "goodwill of authorities" not to fine them or take their cars off the road, but the timeline for the recall remains unknown.

Mr Geisker said this was because Volkswagen's planned "30 minute fix" was yet to gain approval from European authorities.

Risks still there

However, Mr Geisker said the risk of a fine or deregistration is still there, according to the law. Further, he said many insurers do not payout if one of their customers has an accident in a non-compliant car, according to their insurance policies.

Audi Australia communications manager Anna Burgdorf said the company took the issue "extremely seriously" and was working with Volkswagen Group to implement a solution for owners.

"We aim to restore the trust of our customers, and to ensure that each vehicle is part of the campaign," she said. "We will ensure that the owners of all affected vehicles are contacted directly as the technical solution for their vehicle becomes available. It's important to note that all affected vehicles remain safe to drive."

Volkswagen Group did not respond to questions.