India slaps Rs 653 cr import duty evasion notice on Xiaomi

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India slaps Rs 653 cr import duty evasion notice on Xiaomi

  • After the Income Tax department conducted searches on Chinese mobile companies operating in India.
  • The Directorate of Revenue Intelligence (DRI) found that Xiaomi Technology India Private Limited has evaded custom duty to the tune of Rs 653 crore over three years, officials said.
  • The DRI has issued three show cause notices to the company in order to recover the amount.
  • According to officials, the investigation by the DRI was initiated based on an intelligence input that Xiaomi India was evading customs duty by way of undervaluation.
  • The probe was conducted against Xiaomi India as well as its contract manufacturers.

DRI Findings

  • During the investigation, searches were conducted by the DRI at the premises of Xiaomi India.
  • This led to the recovery of incriminating documents which indicated that the company was remitting royalty and licence 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 manufactures 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 licence fee paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., China, Were not being added in the transaction value of the goods imported by Xiaomi India and its contract manufacturers

Period of evasion

  • According to the DRI, between April 2017 and June 2020, Xiaomi Technology India Private Limited evaded custom duty of Rs 653 crore.

Customs Act violation

  • Xiaomi India is engaged in the sale of MI brand mobile phones.
  • These devices 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 in violation of the Customs Act and Customs valuation 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 finance ministry's statement added.

It wasn’t the first time

  • In August, similar raids were conducted at several offices of the Chinese government-controlled telecom vendor ZTE in India.
  • Top executives of the company, including its Chief Executive Officer Li Jian Jun, were interrogated over alleged tax evasion to the tune of hundreds of crores and also reported failure to deduct tax at source (TDS) for several financial years.
  • The telecom major was allegedly making profits on the trading of telecom equipment over the years but reporting losses on books.
  • According to the media reports, the Indian government had sent notices to major Chinese players like Vivo, Oppo, Xiaomi, and OnePlus, asking for details on the data and components used in their phones.
  • In 2020, too, Chinese companies faced heat when the government banned as many as 220 Chinese applications in India, including top social media platforms with millions of Indian users.
  • Earlier, some Chinese firms which were allegedly running mobile loan application and transport business, were raided by the government agencies.