Chinese mobile phone maker Xiaomi evaded Rs 653 crore in customs duty: DRI

Three show-cause notices have been issued to the mobile maker for demand and recovery of duty for April 2017-June 2020

Chinese mobile phone maker Xiaomi’s India unit evaded customs duty worth Rs 653 crore by suppressing and undervaluing royalty and licence fee paid to overseas affiliates and partners, the Directorate of Revenue Intelligence (DRI) said on Wednesday.

Based on intelligence that Xiaomi India was evading customs duty by way of undervaluation, the DRI had initiated an investigation against the company and its contract manufacturers. “During the investigation, searches were conducted by the DRI, which led to the recovery of incriminating documents indicating that Xiaomi India was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co, under contractual obligation,” the agency said in a statement.

It said that statements of key persons of Xiaomi India and its contract manufacturers were recorded, during which one of the directors of Xiaomi India confirmed the said payments.

“During the investigation, it further emerged that the ‘royalty and licence fee’ paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile were not being added in the transaction value of the goods imported,” the DRI said.

It said three show-cause notices had been issued to Xiaomi India to recover duty amounting to Rs 653 crore for the April 2017-June 2020 period, under the provisions of the Customs Act, 1962.

A company spokesperson said, “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." 

The DRI said evidence gathered during the investigation 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 not adding ‘royalty and licence fee’ into the transaction value, Xiaomi India was evading customs duty being the beneficial owner of imported mobile phones, the parts and components thereof.

Just last month, the tax department carried out raids on foreign mobile phone manufacturers, which could be liable to pay fines of up to Rs 1,000 crore. The search and seizure operations were conducted across several states on December 21. The action revealed that two major companies had made remittances in the nature of royalty to group companies located abroad, which aggregates to over Rs 5,500 crore. Evidence also emerged that the two companies could be under-stating taxable profit by more than Rs 1,400 crore. The earlier statement did not name the two firms. A report by NDTV said that they were Xiaomi and Oppo.