INDIA. Mumbai: The Enforcement Directorate (ED) on Friday stated that the competent authority has confirmed its seizure order of Rs.5551.27 crore passed against Chinese mobile phone maker Xiaomi India, under the provisions of FEMA, on charges of illegally transferring money outside India in the guise of royalty.
This is the highest number of seizure orders confirmed by the authorities in India to date.
Xiaomi India is a trader and distributor of mobile phones in the country under the brand name MI. The company procures the fully manufactured mobile sets and other products directly from the manufacturers in India.
The ED, in a statement, said that the Competent Authority appointed under Section 37A of the Foreign Exchange Management Act (FEMA) 1999 has confirmed its seizure order of Rs. 5551.27 crore dated April 29th, passed against Xiaomi India under the FEMA.
The ED had initiated an investigation in connection with the illegal remittances made by the company in the month of February this year. The ED seized the amount on April 30, after which it requested approval from the competent authority.
A competent authority is an officer appointed by the Central Government to adjudicate an ED seizure order. This officer should not be lower than the rank of joint secretary.
The competent authority in this case was the Chief Commissioner of Customs, Chennai, who heard the matter from both sides.
In the Karnataka high court, Xiaomi challenged the ED’s seizure of the funds in its bank accounts.However, Justice S. G. Pandit of the Karnataka High Court rejected the petition on July 05, this year.
Xiaomi India is a wholly-owned subsidiary of the China-based Xiaomi Group. It started its operations in India in 2014 and started remitting the money from 2015. It remitted foreign currency equivalent to Rs. 5,551.27 crore to three foreign-based entities in the guise of royalty.
They included one Xiaomi group company and two US-based companies not related to Xiaomi. According to ED, the remittances to the US-based companies were also done for the ultimate benefit of Xiaomi group companies.
Xiaomi India had contended in the court that it had lawfully paid royalties to “Qualcomm” and “Beijing Xiaomi Mobile Service Software Company Limited” for using proprietary licenced intellectual property (IP), particularly Standard Essential Patents.
The company also claimed that it had disclosed royalty payments to the Income Tax authorities beginning in 2016.
However, the ED maintained that Xiaomi India does not use any Qualcomm or Beijing Xiaomi Ltd technology or intellectual property, and thus the issue of paying royalties does not arise.
The ED stated that Xiaomi India did not avail any service from the three foreign-based entities to whom such amounts were transferred. Under the cover of various unrelated documentary façades created amongst the group entities, the company remitted this amount in the guise of royalty abroad. The company also provided misleading information to the banks while remitting the money abroad.
The ED also stated that Xiaomi India only buys mobile phones from the manufacturers within India, the completely manufactured mobile phones that are box-packed and ready to sell to the distributors without adding any technology or any other value to the purchased phones.
As such the amounts transferred outside India in the guise of royalty is contrary to section 4 of the FEMA.
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