Chinese phone maker Xiaomi's India unit slapped with Rs 653 crore - Here is why

Chinese phone maker Xiaomi's India unit has been slapped with a Rs 653 crore notice for alleged evasion of import duty, as per an official statement.

A show-cause notice has been slapped on Xiaomi India following recovery of documents during searches on its premises that indicated remittance of royalty and licence fee to US and Chinese firms under contractual obligations, the union finance ministry said on Wednesday.

Replying to an email query, a Xiaomi spokesperson said, "At Xiaomi India, we give utmost importance to ensuring we comply with all Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all necessary documentation."

Evidence gathered during investigations by the Directorate of Revenue Intelligence (DRI) indicated that neither Xiaomi India nor its contract manufacturers were including the amount of royalty paid by the firm in the assessable value of the goods imported by the company and its contract manufacturers, which is in violation of the customs law, the ministry said.

By not adding "royalty and licence fee" in the transaction value, Xiaomi India was evading customs duty, being the beneficial owner of such imported mobile phones, the parts and components thereof, it added.

"After completion of the investigation by the DRI, three show cause notices have been issued to M/s Xiaomi Technology India Private Limited for demand and recovery of duty amounting to Rs. 653 crore for the period April 1, 2017 to June 30, 2020, under the provisions of the Customs Act, 1962," the finance ministry said.

During the investigations, it further emerged that the "royalty and licence fee" paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co Ltd, China (related party of Xiaomi India) were not being added in the transaction value of the goods imported by the firm and its contract manufacturers.

Investigations further showed that Xiaomi India is engaged in the sale of MI brand mobile phones and these mobile phones are either imported by the company or assembled in India by importing components of mobile phones by contract manufacturers of Xiaomi India.

The MI brand mobile phones manufactured by the contract manufacturers are sold exclusively to Xiaomi India, in terms of the contract agreement.

The DRI officials had received intelligence input that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, following which an investigation was initiated by DRI against the company and its contract manufacturers.

During the investigation, searches were conducted by DRI at the premises of Xiaomi India, and the issue of remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co Ltd came to light.

Statements of key persons of Xiaomi India and its contract manufacturers were recorded, during which one of the directors of Xiaomi India confirmed the said payments, it said.