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ED Seizes INR 5,551 Cr From Accounts Of Xiaomi India Under FEMA Provisions

ED Seizes INR 5,551 Cr From Accounts Of Xiaomi India Under FEMA Provisions

The funds have been seized as part of the investigation the agency began in February 2022 with respect to illegal remittances made by Xiaomi

Earlier in April, Manu Jain, global VP of Xiaomi, was summoned to appear before the ED

The Income Tax Department issued three show cause notices to Xiaomi India in January this year for demand and recovery of duty amounting to INR 653 Cr

The Enforcement Directorate (ED) has seized funds worth INR 5,551.27 Cr from Xiaomi India, a fully-owned subsidiary of China-based Xiaomi group, under the provisions of the Foreign Exchange Management Act (FEMA), 1999.

The federal probe agency said the money was lying in the bank accounts of the Chinese smartphone giant and has  been seized in connection with alleged “illegal outward remittances made by the company”.

The probe agency had initiated an investigation against Xiaomi in February 2022 with respect to illegal remittances made by it. 

The smartphone company “remitted foreign currency equivalent to INR 5551.27 Cr to three foreign-based entities which include one Xiaomi group entity in the guise of royalty”, the ED said in a statement. 

The amount remitted to “other two US-based unrelated entities” were also for the “ultimate benefit of the Xiaomi group entities”, it added. 

The company remitted this amount in the guise of royalty abroad, which constitutes violation of Section 4 of the FEMA, it said.

Proceedings under the FEMA are civil in nature and the final penalty, post adjudication, can be at least three times the amount contravened under the law.

Earlier in April, Manu Kumar Jain, global vice-president of Xiaomi, was summoned to appear before the ED in connection with an investigation linked to alleged contravention of the foreign exchange law.

Documents related to Xiaomi’s shareholding, source of funds, vendor contracts, and payments made to the Indian management and sent abroad were sought by the ED from Jain, who supervised its operations in India till recently, according to a PTI report.

The Income Tax (I-T) Department also issued three show cause notices to Xiaomi India in January this year for demand and recovery of duty amounting to INR 653 Cr for the period between April 1, 2017 to June 30, 2020.

Offices and manufacturing units of Xiaomi and other major Chinese players such as Oppo, OnePlus, Dixon, Foxconn, and Rising Star were raided across India by the I-T Department in December last year for alleged tax evasion.

The I-T department had conducted similar raids on Chinese telecom manufacturing company ZTE in August 2021.

Earlier, the government also banned some smartphone applications owned by Xiaomi on security grounds. 

Xiaomi India, a distributor of mobiles in India under the MI brand, began operations in the country in 2014 and has been making outward remittances since 2015, according to ED.

Market Leader In Smartphone Segment In India

Despite the controversies, Xiaomi has been leading the Indian smartphone market for the last several quarters. Despite a year-on-year (YoY) dip in smartphone shipments in India during January-March quarter of 2022, Xiaomi continued to lead the Indian smartphone market with a 21% share.

During the quarter, Xiaomi remained the top brand in India, shipping 8 Mn units, followed by Samsung, which was at second spot in terms of shipments (6.9 Mn units) and market share (18%), according to a report by market research firm Canalys.

Among other smartphone brands, Realme recorded a staggering 40% growth in shipments as the company shipped 6 Mn units during the March quarter. It was at the third position in terms of market share (16%).