Recent raids by the government at Xiaomi India opened a can of worms as it threw light on the customs duty evasion of the company amounting to Rs.653 crore. The raids were carried out on Wednesday. Three show-cause notices have been sent to Xiamoi for recovery, the government said. According to the Government,
“Neither Xiaomi India nor its contract manufactures included the royalty paid by Xiaomi India in the assessable value of the goods imported.”
The What and Why
The Directorate of Revenue intelligence initiated an investigation against Xiaomi India after receiving information that the company has been evading customs duty through undervaluation. Incriminating evidence was discovered at the premises of Xiamoi India during the investigation by DRI. The evidence threw light on the fact that royalty and license fees were remitted by the company to Qualcomm USA and Beijing Xiaomi Mobile Software Co.Ltd owing to contractual obligations. These payments were confirmed by one of the company directors while the statements were being recorded. However, these amounts paid weren’t added to the transaction value of the imported goods. This is what put the company and its contract manufacturers in trouble.
Further investigations conducted by the DRI threw light on the fact that the company is carrying out the sale of mobile phones under the brand MI. These phones are either imported by the company or the parts are assembled in India after they are imported. As per the contract agreement, the sale of these phones is exclusive to India. The company and its contract manufactures are charged with the plain violation of Section 14 of the Customs Act 1962 and Customs Valuation Rules 2007 as they failed to include the royalty amount to the value of the imported goods. Through this, the company craftily evaded the customs duty close to a whopping Rs.653 crore. Following the investigation that revealed the customs duty evasion of the company, the government issued three show-cause notices for recovery of the said amount.
This is what a spokesperson from Xiaomi India had to say about the matter,
“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 the necessary documentation.”