Chinese Mobile Company MI evaded Rs 653 crore in customs duties

The Directorate of Revenue Intelligence (DRI) launched an inquiry into Xiaomi India and its contract manufacturers after receiving information that M/s Xiaomi Technology India Private Limited (Xiaomi India) was dodging customs duty through undervaluation. During the inquiry, the DRI conducted searches at Xiaomi India’s offices, which resulted in the discovery of damning documents indicating that Xiaomi India was obligated to pay royalty and license fees to Qualcomm USA and Beijing Xiaomi Mobile Software Co. Ltd. The statements of key personnel from Xiaomi India and its contract manufacturers were recorded, and one of Xiaomi India’s directors verified the 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 (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 DRI’s investigations further revealed that Xiaomi India sells MI brand mobile phones, which are either imported by Xiaomi India or built in India using parts and components supplied by Xiaomi India’s contract manufacturers. According to the contract agreement, the contract manufacturers’ MI brand mobile phones are sold only to Xiaomi India.

According to evidence gathered by the DRI during its investigations, neither Xiaomi India nor its contract manufacturers included the amount of royalty paid by Xiaomi India in the assessable value of goods imported by Xiaomi India and its contract manufacturers, which is a violation of Section 14 of the Customs Act, 1962, and the Customs valuation (determination of value of imported goods) Rules 2007. Xiaomi India evaded Customs duty as the beneficial owner of such imported mobile phones, parts, and components by not including “royalty and license fee” in the transaction amount.

Following the DRI’s probe, three show cause notices were issued to M/s Xiaomi Technology India Private Limited under the Customs Act, 1962, for demand and recovery of duty of Rs. 653 crore for the period 01.04.2017 to 30.06.2020.