The Directorate of Revenue Intelligence (DRI) has issued three show-cause notices to Chinese smartphone maker Xiaomi India 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, according to an official statement.
“Based upon an intelligence (tip) that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, an investigation was initiated by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers,” according to a Press Information Bureau statement.
During the investigation, searches were conducted by the anti-smuggling agency at 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 under contractual obligation, as per the statement.
The DRI had also searched the factories of Foxconn’s India unit, Bharat FIH, and Dixon Technologies in South India. Bharat FIH and Dixon are contract manufacturers for Xiaomi.
The Income Tax Department had also conducted searches at Oppo and its partners’ premises across various states. The department last week said the two companies can be fined Rs 1,000 crore for non-compliance with the law pertaining to non-disclosure of related-party transactions, among other violations. It had not named the two firms, but sources had said they were Xiaomi and Oppo.
“At Xiaomi India, we give utmost importance to ensuring we comply with all Indian laws. We are currently reviewing the notice in detail. As a responsible company, we will support the authorities with all necessary documentation,” Xiaomi spokesperson said in a statement.
“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,” the PIB statement added.
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, 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 investigations conducted by the DRI 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 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 by the DRI 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.
“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,” the statement said.