Gadgets manufacturer Xiaomi India evaded customs duty of Rs 653 crore, the Finance Ministry said on January 5, adding that three show cause notices have been issued to the company.
An investigation was conducted by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers, based on inputs which suggested that the company was evading customs by way of undervaluation, the ministry said in a statement.
During the investigation, searches were conducted by the DRI on the premises of Xiaomi India, which led to the recovery of incriminating documents indicating that the company "was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation", it said.
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 Xiaomi India and its contract manufacturers", the ministry said.
Statements of key persons of Xiaomi India and its contract manufactures were recorded, during which one of the directors of Xiaomi India confirmed the said payments, it added.
The DRI probe further showed that Xiaomi India is engaged in the sale of MI brand mobile phones and "these mobile phones are either imported by Xiaomi India or assembled in India by importing parts and components of mobile phones by contract manufacturers of Xiaomi India", the statement said, further noting, "The MI brand mobile phones manufactured by the contract manufacturers are sold exclusively to Xiaomi India, in terms of the contract agreement."
Evidence gathered during the investigations indicated that "neither Xiaomi India nor its contract manufactures were including the amount of royalty paid by Xiaomi India in the assessable value of the goods imported by Xiaomi India and its contract manufacturers, which is in violation of Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007", the ministry said.
"By not adding royalty and licence fee into the transaction value, Xiaomi India was evading customs duty being the beneficial owner of such imported mobile phones, the parts and components thereof," it said.
"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 01.04.2017 to 30.06.2020, under the provisions of the Customs Act, 1962," it added.
Xiaomi India, while reacting to the government's statement, said it "will support the authorities with all necessary documentation."
"At Xiaomi India, we give utmost importance to ensuring we comply with all Indian laws. We are currently reviewing the notice in detail," the company noted.
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