Tax evasion case: Xiaomi moves Karnataka High Court to challenge FD seizure

Xiaomi India has petitioned the Karnataka High Court to contest the income-tax department's second attachment order, which seeks to take the Chinese smartphone company's Rs 3,700 crore fixed deposits for alleged tax fraud, a report by Economic Times (ET) said.

The I-T department issued this attachment order on December 29, 2022, on the same grounds as the previous one, stating that Xiaomi continues to remit money abroad under the guise of royalties, resulting in tax evasion.

In its petition, the company claimed that the latest order is similar to the previous attachment order issued by the department in August 2022, which was later annulled by the high court for violating the law of proportionality.

The court has asked that the case be assigned to the division bench, which is currently hearing the company's previous writ petition contesting the earlier attachment order.

A Xiaomi India spokesperson told ET that the company is awaiting the high court's written order.

The spokesperson stated that its operations in India are in perfect accordance with all local norms and regulations, and that it will remain in complete compliance at all times.

After hearing both sides, Justice BM Shyam Prasad said that the two orders may have some overlap despite having distinct bases. “Therefore, this court is of the considered view that for complete and effective adjudication without protraction, this writ petition may have to be placed before the division bench which is seized of the aforesaid writ petition,” the judge said in an order passed on April 19, 2023.

The matter will be listed at the earliest, subject to the chief judge of the Karnataka High Court's directives, the court had said.

The case is running in parallel with the Enforcement Directorate (ED's) seizure order against Xiaomi, seizing over Rs 5,500 crore from the company's bank accounts. While the company challenged the order in the high court, the court ruled in favour of the ED and directed Xiaomi to appeal to the Foreign Exchange Management Act (FEMA) appellate tribunal.

Meanwhile, the I-T department has filed an appeal against the court's rejection of the prior attachment order.

Xiaomi India's market share in the Indian handset industry has been steadily falling as a result of the legal problems. According to a recent research from Counterpoint Research, the former market leader has dropped to third place after experiencing a 44 per cent year-on-year (YoY) fall in shipments.