Nearly 75% of the Rs 5,500 crore in royalties paid to foreign companies by Xiaomi Technology India Private Limited went to US mobile technology company Qualcomm Inc for using patented technology, the Chinese technology company has argued. mobile phones in the Karnataka High Court on Wednesday in a plea against an exchange breach case brought by the Enforcement Directorate (ED).
The ED issued an order on April 29 for the seizure of Xiaomi Technology India’s bank accounts on the grounds that royalty payments of more than Rs 5,500 crore to foreign accounts made by the company since 2016 were in violation exchange management law. (FEMA), 1999.
Xiaomi India contacted the Karnataka High Court in May, saying the technology royalty paid to three foreign companies was not against FEMA. On May 5, the court stayed the ED’s order for the seizure of Xiaomi’s bank accounts in India, but limited royalty payments from them to foreign accounts by the company.
On Wednesday, lawyers for Xiaomi India argued that no case had been established against the company under FEMA Section 4 and Section 37A by the ED to facilitate the seizure of its active in India.
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Xiaomi India’s lawyers have argued that the condition under which FEMA Section 37 A (which allows the seizure of assets in India for exchange violations) can be invoked is that the foreign currencies must be in a place outside India and available to be brought back to India. India.
Xiaomi India’s lawyers argued that funds transferred from India to a Chinese counterpart of the company were used to pay royalties to Qualcomm Inc in the United States for licensing their technology which is used in the production of Xiaomi phones sold in India.
“An amount of Rs 5,551 crore was paid in the form of royalties to various companies and out of this amount, Qualcomm Inc received Rs 4,450 crore,” Xiaomi Technology India’s lead attorney told the High Court. Two other companies, including an overseas-based software technology arm of Xiaomi, also received smaller royalties, the lawyer said.
“The royalty is paid to a Chinese counterpart and this, in turn, is paid to Qualcomm. There is no doubt that the royalties go to Qualcomm,” said Xiaomi’s lawyer.
The company argued that the payments were deemed lawful by the Income Tax Service (IT) and that these payments were made during the period 2015-2016. Xiaomi India argued that the IT department recognized its business as a value-added business.
Xiaomi India argued that there was no evidence that the company held foreign currency outside the country, which amounts to a violation of FEMA.
The Chinese phone maker argued that similar payments by other mobile phone makers and resellers in India to the US company for using the same technology had not been questioned by Indian authorities and that no action had been taken against them for violating FEMA.
On May 5, the Karnataka High Court suspended the ED’s April 29, 2022 order on “the condition that the petitioner operates the bank accounts which are seized under the contested order solely for the purpose of covering the expenses related to the performance of day-to-day business activities”.
The court order said that the stay order “shall not confer any right on the petitioner to make payment in the form of royalty or any other form to the companies located outside India.”
The ED has requested that the stay order be quashed and the case is posted for a rehearing next week.