Chinese smartphone maker Xiaomi has been charged with customs duty evasion worth Rs. 653 crore in India, Finance Ministry said on Wednesday.
The Revenue Intelligence team of the Income Tax Department conducted thorough searches of Xiaomi India offices in India and found that the company has evaded custom duty of up to Rs. 653 crores over the last 3 years, officials claimed. Following these findings, the Tax department has issued 3 show-cause notices to the company to recover the amount.
According to tax officials, their investigation was initiated based on an intelligence input that Xiaomi was evading customs duty by undervaluation. The probe was conducted against Xiaomi India and its contract manufacturers.
During their investigation, searches were conducted at the premises of Xiaomi India which led to the recovery of incriminating documents indicating that Xiaomi was remitting royalty and license fees to Qualcomm USA and Beijing Xiaomi Mobile Software Co. Ltd. Under contractual obligation. The statements of key individuals associated with Xiaomi India and its contract manufacturers were recorded, during which one of the directors of the company purportedly confirmed the aforementioned payments.
“During the investigations, it further emerged that the royalty and license fee paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., China was not being added in the transaction value of the goods imported by Xiaomi India and its contract manufacturers,” a statement by the Union Finance Ministry said.
For those who aren’t aware, Xiaomi India is engaged in the sale of Mi brand smartphones and these phones are either imported by Xiaomi India or assembled in India by importing components of the mobile phones via contract manufacturers. The MI brand mobile phones manufactured by the contract manufacturers are sold exclusively to Xiaomi India, as per the contract agreement.
“Evidence gathered during the investigations by the DRI indicated that neither Xiaomi India nor its contract manufacturers 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 a violation of the Customs Act and Customs valuation Rules 2007. By not adding royalty and license 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,” the finance ministry’s statement added.
According to the DRI, between April 2017 and June 2020, Xiaomi Technology India Private Ltd. Evaded a custom duty of Rs. 653 crores for which notices have been sent to them.
In a statement, Xiaomi’s spokesperson said, “At Xiaomi India, we give utmost importance to ensuring we comply with all the Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all necessary documentation.”
The IT department had conducted searches at Oppo and its partners’ premises too across various states. The department last week said that 2 companies might be fined Rs. 1000 crore for non-compliance with the law pertaining to non-disclosure of related-party transactions, among other violations. It has not named the 2 firms, but sources have confirmed that they are Xiaomi and Oppo only.