Rs 650 Crore Penalty Imposed On Xiaomi By Govt Of India: Here’s The Reason Why?
In a development reported by the Finance Ministry’s Directorate of Revenue Intelligence (DRI) on Jan 5, 2021 Chinese smartphone company Xiaomi has been charged with evading custom duty and taxes worth Rs 653 crore for three years, from 2017-2021.
During interrogation by the DRI, statements of key persons of Xiaomi India and its contract manufactures were recorded, in which one of the directors of the Chinese smartphone manufacturer’s Indian arm confirmed the tax evasion.
Xiaomi India Evades Taxes Worth Rs 653 Crore
According to a press release posted by the Directorate of Revenue Intelligence, Finance Ministry on Jan 5, 2022, Xiaomi Technology India Private Limited was found evading customs duty through route of ‘undervaluation’, after investigations conducted by DRI against Xiaomi India and its contract manufacturers.
Investigations conducted by DRI on Xiaomi India’s premise revealed incriminating documents pointing out that the smartphone maker’s India arm was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation.
Moreover, 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 was not added into the transaction value, which means that the former was evading Customs duty, as it is the beneficial owner of such imported mobile phones, the parts and components thereof.
DRI’s investigations showed that Xiaomi India sells MI brand mobile phones, and these phones are either imported by the company or assembled in the country by importing parts and components of mobile phones by contract manufacturers of Xiaomi India.
MI brand’s phones are manufactured by the contract manufacturers and are sold exclusively to Xiaomi India.
“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,” stated DRI’s release.