Customs officials say Stefan Priesner, who served as the UNDP chief between 2008 and 2012, sold the sport utility vehicle (SUV) to one of his colleagues without completing the formalities regarding the duty.
Priesner now serves as the UNDP resident representative in Uzbekistan.
Customs department traced the car to one Ashikul Hasib Tarik at Dhaka's Uttara on Monday.
In a statement on Tuesday, the Customs Intelligence Department said that it had seized the car after going through the documents and being confirmed about the irregularities.
"Priesner handed over the car, which was brought under the duty-free facility, without completing the proper formalities before leaving the country," said Customs Intelligence's Director General Moinul Khan.
Moinul added that legal action will be initiated against both of them.
According to him, it is mandatory to inform the customs department when a diplomat, who used a duty-free car, leaves the country. "If he or she wants to sell it, then the duty has to be paid."
He said it was an 'uncalled-for behaviour' from a diplomat. "He did not care to inform the customs or the government, he just sold it before leaving."
Customs officials said Tarik was not at home when the car was seized and that his wife could not produce any documents.