Chinese smartphone big Xiaomi has moved India’s Supreme Court in a closely seen legal battle that could redefine how contract manufacturing is taxed in the country.

At the heart of the dispute is a $72 million customs demand figure that could more than double with penalties and interest if the company loses.

And the consequences go far beyond one smartphone brand.

What Is the Case About it?

For years, Xiaomi’s contract manufacturers in India imported smartphone components from China, paid customs duties, and assembled the devices locally.

However, in November, an Indian tax tribunal ruled that the declared import values were undervalued because they did not include 2% to 5% royalty payments Xiaomi made to foreign technology firms like Qualcomm.

According to the tribunal, those royalties paid for critical technologies used in components — should have been included when summing customs duties.

Xiaomi has strongly contested this ruling.

Why Xiaomi Is Challenging the Order

In its Supreme Court filing, Xiaomi argues:

It is not the “beneficial owner” of the imported components.

Import duties should be paid by the contract manufacturers — not Xiaomi.

Royalties paid for technology are separate from the physical import of goods.

The company claims the tribunal’s decision reflects an “implicit mistrust” of India’s contract manufacturing ecosystem and could disrupt established industry practices.

A Precedent-Setting Case for Manufacturing in India

The outcome of this case could have major consequences for companies operating under India’s “Make in India” manufacturing push.

Xiaomi’s former contract manufacturers:

Flextronics Technologies India (unit of Flex)

Bharat FIH (unit of Foxconn)

are also reportedly challenging the tribunal’s ruling.

Legal experts say a verdict favouring Indian authorities could empower customs officials to tax additional royalty payments across sectors such as:

Pharmaceuticals

Automobiles

Electronics manufacturing

🇮🇳 Why This Matters for India’s Investment Climate

India has been aggressively courting global manufacturers.

Companies like:

Apple

Samsung

Volkswagen

have either expanded or are contesting tax disputes in India.

A ruling that broadens customs powers could impact investor sentiment at a time when Prime Minister Narendra Modi is positioning India as a global manufacturing hub.

Xiaomi’s Growing Headaches in India

The $72 million demand could exceed $150 million with interest and penalties — a serious concern considering Xiaomi India reported profits of just $31.7 million in FY 2023–24.

The company is also battling another major challenge:

Around $610 million of Xiaomi India’s funds have been frozen since 2022 by the Enforcement Directorate over alleged illegal remittances — allegations Xiaomi denies.

Meanwhile, its smartphone market share in India has fallen sharply:

31% in early 2018

12% by December 2025

The legal battle now adds further uncertainty.

What Happens Next?

During the recent hearing, Xiaomi’s lawyer argued that the tribunal ruling could “lead to chaos.”

The Supreme Court has asked the Indian government to respond to Xiaomi’s plea.

The final judgment will determine:

Whether royalties linked to technology must be included in customs valuation

How far Indian customs authorities can extend their powers

The future tax structure for contract manufacturing in India

The Big Question

Is this simply a $72 million tax dispute?

Or a defining moment that could reshape how India taxes global manufacturing partnerships?

As the Supreme Court weighs its decision, investors, manufacturers, and policymakers across the globe are watching closely.

The verdict could redefine the rules of doing business in India.