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Xiaomi gets 653 cr notice for tax evasion

The ministry also alleged that evidence indicated that Xiaomi’s contract manufactures too did not include the amount of royalty paid in the assessable value of the goods imported by them. (REUTERS)Premium
The ministry also alleged that evidence indicated that Xiaomi’s contract manufactures too did not include the amount of royalty paid in the assessable value of the goods imported by them. (REUTERS)

  • The govt said, by not adding royalty and licence fee into the transaction value, Xiaomi India was allegedly evading customs duty as the beneficial owner of such imported mobile phones and parts

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New Delhi: Indian tax authorities have issued a demand of 653 crore to Xiaomi Technology India Pvt. Ltd. for alleged violation of Customs Act saying the company did not include royalty and licence fee in the value of its imports.

Finance ministry said in a statement on Wednesday that by not adding “royalty and licence fee" into the transaction value, Xiaomi India was allegedly evading Customs duty as the beneficial owner of such imported mobile phones and parts. The investigation was carried out by the Directorate of Revenue Intelligence (DRI).

“After completion of the investigation by the DRI, three show-cause notices have been issued to Xiaomi Technology India Pvt. Ltd. for demand and recovery of duty amounting to Rs. 653 crore for the period 1 April 2017 to 30 June 2020, under the provisions of the Customs Act, 1962," the ministry said in the 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., a related party, under contractual obligation, the ministry statement alleged.

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, the ministry said.

Finance ministry did not allege any wrong doing on the part of Qualcomm or Xiaomi’s overseas associate, a related party. In response to a query from Mint, Xiaomi Spokesperson said, “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 necessary documentation." Emails sent to Qualcomm Technologies Inc. and to Beijing Xiaomi Mobile Software Co. Ltd. (a related party) on Wednesday remained unanswered at the time of publishing.

 

The ministry also alleged that evidence indicated that Xiaomi’s contract manufactures too did not include the amount of royalty paid in the assessable value of the goods imported by them. This, the ministry said, is in violation of Section 14 of the Customs Act, 1962 and Customs valuation (determination of value of imported goods) Rules 2007. 

Abhishek Rastogi, partner at Khaitan & Co., said the inclusion of royalty, license fee, promotion expenses and other post importation expenses remain a subject matter of valuation dispute and are taxable when these expenses are a condition of sale. “The inclusion is completely fact driven and is based on contractual agreement between parties", said Rastogi. 

According to Sandeep Chilana, managing partner at Chilana & Chilana Law Offices, it appears that Xiaomi India was paying certain royalties and license fee directly or indirectly, which DRI has alleged to be a condition of sale for import of goods including parts and components. Whether such payments were actually a ‘condition of sale’ or not would have to be factually determined by the authorities based on documents, said Chilana. 

 

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