Chinese telecom giant Xiaomi has been caught evading Customs duty to the tune of a whopping Rs 653 crore by undervaluing the imported parts of the telecom equipment and mobile handsets that it makes in India.  

“Based upon an intelligence that Xiaomi India was evading customs, an investigation was initiated by the Directorate of Revenue Intelligence (DRI) against the company and its contract manufacturers,” according to a finance ministry statement, 

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 fee 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.

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 statement explained.

The investigations conducted by the DRI further showed that Xiaomi India is engaged in the sale of MI brand mobile phones and 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, the statement added.

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 the Customs Act and Customs Valuation Rules. 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 statement explained.

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