DRI to recover Rs 653 cr from Xiaomi, 3 notices issued; cracks down on customs duty evasion [details]

The Directorate of Revenue Intelligence (DRI) on Wednesday said that it has issued three show cause notices to cell phone company Xiaomi Technology India Private Limited for the recovery of customs duty amounting to Rs 653 crore for the period 01.04.2017 to 30.06.2020, under the provisions of the Customs Act, 1962.

A senior DRI official said that based upon an intelligence that cell phone company Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, an investigation was initiated against it and its contract manufacturers.

The DRI official said that during the investigation, searches were conducted at the premises of Xiaomi India, which led to the recovery of incriminating documents.

"The incriminating documents seized from the office of Xiaomi indicated that the company 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," said the DRI official.

Xiaomi evading customs duty

The DRI official said 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.

DRI official said 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.

Evidence gathered during the investigation 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 it and its contract manufacturers, which is in violation of Section 14 of the Customs Act, 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," said the DRI official.

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