Xiaomi India was fined Rs 653 crore on charges of evasion of customs duty by the Ministry of Finance on Wednesday. China state-affiliated media Global Times stated that the company, in a statement on the fine, mentioned that the penalty was due to disagreement on how to determine price for imported goods.
“Xiaomi responded on Wed to a $88 million fine, issued by the Indian Ministry of Finance for evasion of customs duties, that the tax issue in India is caused by the disagreement on how to determine the price for imported goods,” it said. In the statement, Xiaomi said that whether royalty and licence fee should be included in the price of imported goods is a complex and technical challenge across the world, as mentioned by Global Times. Xiaomi said that it will continue to communicate with the responsible Indian authorities and that it “always complies with the relevant laws and regulations of the places where it operates”.
It added that the Indian government asked Xiaomi to pay back the import taxes on the royalty and licence fees from April 1, 2017 to June 30, 2020. It is not related to Xiaomi's recent business, the company stated, as mentioned in the Chinese news site. The company further stated that the statement from the government is not the final decision.
The statement comes after the ministry, based upon an intelligence, initiated an investigation on the company over charges of customs evasion by way of undervaluation. The Directorate of Revenue Intelligence (DRI) initiated the investigation against Xiaomi India and its contract manufacturers.
The DRI had conducted searches at the premises of Xiaomi India, leading to the recovery of documents indicating that the company was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation, the ministry said. Statements of key individuals of Xiaomi India and its contract manufacturers were recorded, during which one of the directors of Xiaomi India confirmed the payments, the ministry stated.
The royalty and licence fee to Qualcomm and Beijing Xiaomi Mobile Software were not added in the transaction value of goods imported by Xiaomi India and its contract manufacturers.
“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. 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 thereof,” the ministry added.
Three show cause notices were issued to Xiaomi Technology India amounting to Rs 653 crore for the period of April 1, 2017 to June 30, 2020.
Also read: Xiaomi India evaded customs duty of Rs 653 crore: DRI