The Directorate of Revenue Intelligence (DRI) has said that the Indian arm of Chinese mobile manufacturer Xiaomi has evaded customs duty of Rs 653 crore via undervaluation of imports.

Acting on intelligence, the DRI had launched an investigation against Xiaomi India and its contract manufacturers, the finance ministry said in a statement on Wednesday. The duty evasion took place between April 2017 and June 2020.

“During the investigation, it emerged that the ‘royalty and licence fee’ paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software, 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 ministry said.

Xiaomi India sells the Mi brand of mobile phones, which are either imported by Xiaomi India or assembled in the country by importing parts and components by the company’s contract manufacturers. Mi brand phones manufactured by contract manufacturers are sold exclusively to Xiaomi India, under the contract agreement.

Evidence gathered by the DRI indicated that neither Xiaomi India nor its contract manufacturers had included the amount of royalty paid by Xiaomi India in the assessable value of the goods imported by them, which is in violation of Section 14 of the Customs Act, 1962, 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,” the ministry said.