Rs. 653 Crores Customs Duty Evasion: Show Cause Notice to ‘Xiaomi India’

DRI has issued three show cause notices to Xiaomi India, demanding short paid duty of Rs. 653 crore on imported mobile phones during the period 01/04/2017 to 30/06/2020, for evasion of Customs duty under the provisions of the Customs Act/ Valuation Rules, as the royalty and licence fee paid by was not included in the assessable value and Xiaomi India was evading Customs duty.

Based on intelligence inputs, the Directorate of Revenue Intelligence (DRI) initiated investigations against M/s Xiaomi Technology India Private Limited (Xiaomi India) and its contract manufacturers for alleged evasion of customs duty using undervaluation measures, i.e. by not adding ‘royalty and licence fee’ into the  assessable transaction value for payment of the duty. Finally the 

DRI searches at Xiaomi India premises led to recovery of incriminating documents indicating that Xiaomi India was remitting ‘royalty & licence fee’ to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd. under a contractual obligation which were also confirmed by one of the directors in the recorded statement obtained from key persons of the errant company. The ‘royalty and licence fee’ was not being added since 01/04/2017 in the transaction value of the imported goods by Xiaomi India and its contract manufacturers.

Further, the DRI noted that Xiaomi India is engaged in sale of MI brand mobile phones, which are either directly imported by Xiaomi India or are assembled in India by importing parts and components of mobile phones by contract manufacturers of Xiaomi India. These manufactured phones are sold exclusively to Xiaomi India by the contract manufacturers, in terms of the contract agreement.

DRI gathered conclusive evidence during the searches and investigations that neither Xiaomi India nor its contract manufactures were including the amount of royalty and licence fee so paid by the Xiaomi India, in the assessable value of the goods imported by Xiaomi India and its contract manufacturers, in violation of Section 14 of the Customs Act, 1962 and Customs Valuation (Determination of Value of Imported Goods) Rules 2007. 

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