By Raju Vernekar
Mumbai, Oct 1:
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 Technology India Private Limited, under the provisions of FEMA, on charges of illegally transferring money outside India in the guise of royalty.
This is the highest amount of seizure order in India which has been confirmed by the Authority till date.
M/s Xiaomi India, is a trader and distributor of mobile phones in the country under the brand name MI. The company procures the completely manufactured mobile sets and other products 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 29 passed against Xiaomi India under the FEMA. The ED had initiated 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. Such an officer should not be below the rank of a joint secretary. The competent authority in this case was the Chief Commissioner of Customs, Chennai, who heard the matter from both the sides.
The Xiaomi had challenged the seizure of amount in its bank accounts by ED, in the Karnataka high court. However Justice S G Pandit of the Karnataka High Court rejected the petition on July 05 this year.
Xiaomi India, is a wholly-owned subsidy of China-based Xiaomi groups. 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 royalty to “Qualcomm” and “Beijing Xiaomi Mobile Service Software Company Limited” for using proprietary licensed intellectual property (IP), particularly Standard Essential Patents. The company had also claimed that it had disclosed to the Income Tax authorities the payment of royalty from 2016 onwards.
However the ED maintained that Xiaomi India does not use any technology or intellectual property of Qualcomm or Beijing Xiaomi Ltd and hence the question of paying royalty does not arise.
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 façade created amongst the group entities, the company remitted this amount in 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 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.