New Delhi:
A show cause of Rs 653 crore has been slammed on Chinese phone maker Xiaomi’s India unit for alleged tariff evasion, official sources said on Wednesday.
The notice was issued following the recovery of documents during searches of its premises that indicated the transfer of royalties and license fees to US and Chinese companies under contractual obligations, the union’s treasury ministry said Wednesday.
In response to a query sent by email, a Xiaomi spokesperson said: “At Xiaomi India, we attach the utmost importance to complying with all Indian laws. We are currently studying the notification in detail. As a responsible company, we will inform the authorities all necessary documentation.”
Evidence gathered during investigations by the Directorate of Revenue Intelligence (DRI) indicated that neither Xiaomi India nor its contract manufacturers included the amount of royalties paid by the company in the appraised value of the goods imported by the company and its contract manufacturers, which in violation of the customs law, according to the ministry.
By not adding a “royalty and license fee” to the transaction value, Xiaomi India evaded customs duties as it is the beneficial owner of such imported mobile phones, their parts and components, it added.
“Upon the completion of the investigation by the DRI, three cause indication notices have been issued to M/s Xiaomi Technology India Private Limited for the demand and recovery of rights amounting to Rs. 653 crore for the period from April 1, 2017 to June 30, 2020 , according to the provisions of the Customs Act of 1962,” said the Ministry of Finance.
During the investigations, it was further found that the “royalty and license fee” paid by Xiaomi India to Qualcomm USA and Beijing Xiaomi Mobile Software Co Ltd, China (related party of Xiaomi India) was not added to the transaction value of the goods imported by the company. and its contract manufacturers.
The investigation further revealed that Xiaomi India is engaged in the sale of MI brand mobile phones and that these mobile phones are either imported by the company or assembled in India by importing mobile phone components 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 information that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duties through undervaluation, after which an investigation was launched by DRI against the company and its contract manufacturers. During the investigation, searches were conducted by DRI on the premises of Xiaomi India, and the issue of transferring royalties and license fees to Qualcomm USA and to Beijing Xiaomi Mobile Software Co Ltd came to light.
Statements from key persons of Xiaomi India and its contract manufacturers were included, in which one of the directors of Xiaomi India confirmed the said payments, it said.