The Finance Ministry on Wednesday issued three show-cause notices to Chinese phone maker Xiaomi’s India unit ‘Xiaomi Technology India’ for evading customs duty by way of undervaluation. With notices, the tax authorities are demanding Rs 653 crore in tax from the company. This is after a detailed investigation was initiated by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers.
The DRI recovered documents at the premises of Xiaomi India indicating that the company was remitting royalty and license fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation. But the same was not reported by the company, evading import duty. “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”, the ministry said in its official statement.
Three show cause notices issued to Xiaomi Technology India for demand & recovery of duty amounting to Rs 653 cr for the period 01.04.2017 to 30.06.2020, under the provisions of the Customs Act, 1962: Ministry of Finance
— ANI (@ANI) January 5, 2022
The investigation by DRI revealed 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 statement added.
The probe found that while Xiaomi India was paying royalty and licence fees to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., China for the components and mobile phones imported to India, the same was not being added to the assessable value of the goods imported by Xiaomi India and its contract manufacturers. This is a violation of Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007, the Finance Ministry said.
Therefore, 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, the ministry informed.
It is said that the key persons of Xiaomi India and its contract manufacturers have confirmed the payments. This is a week after the Income Tax Department had indicated that Chinese mobile phone manufacturers Xiaomi and Oppo might face fines of up to Rs 1,000 crore for violating the law.
The Income Tax Department had conducted searches on leading Chinese mobile companies across the country on December 21. The searches were conducted in offices of Oppo, Xiaomi, and One Plus in Delhi and 11 states including, Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan.
The severe search by the Office then had revealed that two major companies have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than Rs 5500 crore. “These companies have not complied with the regulatory mandate prescribed under the Income-tax Act, 1961 for disclosure of transactions with associated enterprises. Such lapse makes them liable for penal action under the Income-tax Act, 1961, the quantum of which could be in the range of more than Rs 1000 crore”, the statement had read.
