Xiaomi India Assets worth $725 million were seized by Enforcement Directorate (ED) over forex violations. The state organization claimed that Xiaomi India remitted the equivalent of INR 55.5 billion to three foreign-based entities. This was in violation of foreign exchange laws.
ED began investigation in February for illegal remittances. Xiaomi India posted a response, stating all royalty payments and statements to the bank are legit and truthful. Moreover, they also stated that they are commited to working closely with government authorities to clarify any misunderstandings.
Decision Challenged By Xiaomi
Xiaomi filed a challenge against the decision in the High Court of the Karnataka state. On Thursday, after hearing Xiaomi’s lawyers, a judge put Enforcement Directorate’s decision of seizure on hold. Lawyers appearing for the Chinese company submitted that the payment of Technology Royalty, paid to three companies situated outside India, is not in contravention of section 4 of FEMA act.
Furthermore, they stated that these payments have been held lawful by the income tax department. Moreover, he submitted that the condition precedent for invoking section 37A of FEMA is that the amount shall be lying in an account in a foreign location and should be available for bringing it back to India. It was also contended that Royalty payments have been from 2016 till date.
Furthermore, these payments have been through authorised dealers. In the absence of material of such amount, the seizure is not sustainable. In addition, Xiaomi’s representative stated that similar payments to the same company have been made by other manufacturers. No action was taken against them for violation of foreign exchange.
He also said that the writ petition is maintainable, though alternative remedy of appeal is provided since FEMA Appellate Tribunal has not been constituted. None appeared for the responding party. Following which the court delayed the hearing till the 12th of May.