New Delhi: The Supreme Court has sought response from the customs department on Xiaomi‘s appeal against a customs tribunal ruling that held the Chinese firm liable for alleged customs duty evasion of ₹653 crore on royalty payments linked to imported smartphone components.
Xiaomi has challenged the Customs, Excise and Service Tax Appellate Tribunal’s November decision that held the company guilty of undervaluation of the components. It said the assessable import value of the components should have included royalty payments-ranging between 2% and 5%-that Xiaomi paid to overseas technology licensors like Qualcomm USA.
Xiaomi in its appeal before the Supreme Court stated that the tribunal’s order incorrectly treated it as the “beneficial owner” of the imported component as the obligation to pay import duties was with the contract manufacturers who physically imported the goods. The company argued that its royalty payments were independent of the import transaction.
The customs department issued three show cause notices to Xiaomi for recovery of duty amounting to ₹653 crore (excluding interest and penalty) for the period April 1, 2017 to June 30, 2020. The Principal Commissioner of Customs (Air Cargo) upheld the demand, which was based on an investigation by the Directorate of Revenue Intelligence (DRI).
According to the department, documents seized during DRI searches at Xiaomi’s premises indicated that it paid royalty and licence fee to Qualcomm and to Beijing Xiaomi, a related party of the Indian unit, but did not add it in the transaction value of the goods imported by the company and its contract manufacturers.
