Chinese phone maker Xiaomi’s India unit has been slapped with a show-cause order for allegedly evading import duties, official sources reported on Wednesday. A notice was issued following the discovery of documents during searches on its premises that indicate remittance of royalty and license fees to US and Chinese firms under contractual obligations, the union finance ministry said on Wednesday.
In response to a question on the company’s website, a Xiaomi spokesperson said, ‘At Xiaomi India, we give utmost importance to complying with Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all necessary documentation’. In violation of customs law, the Directorate of Revenue Intelligence (DRI) found that neither Xiaomi India nor its contract manufacturers included the amounts paid in royalties as part of the assessable value of goods imported by them.
In addition, Xiaomi India, as the beneficial owner of imported mobile phones, parts, and components, evaded customs duty by not including ‘royalty and license fee’ in the transaction value. As part of the investigation conducted by the DRI, three show-cause notices were sent to M/s Xiaomi Technology India Private Limited for demand and recovery of duty amounting to 653 crores for the period April 1, 2017, to June 30, 2020, the finance ministry said.
During the investigations, it was discovered that the ‘royalty and license fee’ paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., China (related party of Xiaomi India) was not included in the transaction value of the goods imported by the firm and its contract manufacturers. It was further discovered that Xiaomi India was engaged in the sale of MI brand mobile phones and these mobile phones were either imported by the company or assembled in India by contract manufacturers of Xiaomi India.
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In terms of the contract agreement, the MI brand mobile phones are made by the contract manufacturers exclusively for Xiaomi India. A DRI investigation was launched against Xiaomi India and its contract manufacturers after DRI officials received intelligence that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by undervaluing its products.
During the investigation, DRI conducted searches at the premises of Xiaomi India, and it came to light that Qualcomm USA and Beijing Xiaomi Mobile Software Co Ltd were to receive royalty and license fees from Xiaomi. There were recordings of key individuals from Xiaomi India and its contract manufacturers, in which one of the directors of Xiaomi India confirmed the payments, the company said.
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