Xiaomi contested a ruling made by Indian tax authorities that mandated the company to pay $72 million on tariffs in the form of royalty payments, news agency Reuters reported on Wednesday, citing legal documents.
An Indian tax tribunal had ruled that import tax that the smartphone company paid to import parts from China into India was undervalued for a minimum of three years up to 2020, as those did not include the 2% to 5% royalties the company paid to foreign companies such as Qualcomm to use their tech parts.
The firm's business model has revolved around importing parts from China, paying the custom duties and assembling them into devices.
Xiaomi argued in its challenge to the Supreme Court that the tax tribunal was mistaken in stating that it was the "beneficial owner" of the components, while asking the company to pay dues with regards to royalties. Xiaomi has requested for the ruling to be revoked.
The company said that the tribunal's ruling has extensive implications as it shows "an implicit mistrust of the entire contract manufacturing industry," according to a filing from the firm on Jan. 15, accessed by Reuters but not made publicly available.
Xiaomi argued that the tribunal's decision "grievously injures the established practices of (the) manufacturing sector."
The company's former contract manufacturers — Flextronics Technologies India, an arm of the US-based Flex, and Bharat FIH, a unit of Taiwan's Foxconn which makes products for firms like Apple, Sony and Microsoft — are also against the tax tribunal's ruling at the top court, Reuters said, citing people in the know.
If the Supreme Court rules in the tax tribunal's favour, it may set a precedent for increased scrutiny regarding royalty pacts that firms importing goods in India have, lawyers speaking to the news agency said. This makes the case one which will be watched closely by global investors making a notable bet on India, they added.
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