India on Wednesday imposed an $87.8 million fine on the local unit of Chinese smartphone giant Xiaomi after an investigation found that the company had evaded custom duties.
A statement issued by the Indian Finance Ministry said that Xiaomi India's payments of royalty and licence fees to Qualcomm USA and Beijing Xiaomi Mobile Software Co Ltd were not added to the transaction value of imports by the company and its contract manufacturers.
"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 statement read.
During the investigation carried out by the revenue intelligence unit, one of the directors of Xiaomi India confirmed the payments to the US and a Chinese firm.
The ministry added that three show-cause notices have been issued to Xiaomi for the tax demand and recovery of 6.53 billion rupees ($87.8 million) from April 2017 to June 2020.
Xiaomi India has issued a statement saying it is currently reviewing the notice in detail.
"As a responsible company, we will support the authorities with all necessary documentation", the firm said.
Last month, the Chinese Embassy in New Delhi said it was "concerned" about raids by Indian tax inspectors on the offices of Chinese mobile firms.
The Chinese official further asked the Indian authorities to ensure an "open, fair and a non-discriminatory business environment" for Chinese enterprises operating in the south Asian nation.