DRI raided the firm, initiated an investigation
Directorate of Revenue Intelligence (DRI has issued show-cause notices to mobile handset manufacturer Xiaomi Technology India Private Limited for demand and recovery of duty amounting to ₹653 crore.
According to a statement by the Finance Ministry, evidence gathered during the investigations by the DRI indicated that neither Xiaomi India nor its contract manufacturersincluded the amount of royalty paid by Xiaomi India in the assessable value of the goods imported by Xiaomi India and its contract manufacturers. This violates of Section 14 of the Customs Act, 1962 and Customs valuation (determination of the 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,” the Ministry said.
During the investigation, searches were conducted by the DRI at the premises of Xiaomi India, which led to the recovery of incriminating documents indicating that Xiaomi India was remitting royalty and licence fees to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation. 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.
Further, “it was found that the ‘royalty and licence fee’ paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., 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 statement said.
The investigations also showed that Xiaomi India is engaged in the sale of MI brand mobile phones. 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.
“After completion of the investigation by the DRI, three show-cause notices have been issued to Xiaomi Technology India Private Limited for demand and recovery of duty amounting to Rs. 653 crore for the period April 1, 2017, and June 30, 2020, under the provisions of the Customs Act, 1962,” the statement said.