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Samsung challenges $520 million tax demand over alleged

import

misclassification

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Samsung says Reliance Jio imported similar equipment

without

tariffs until 2017

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Samsung claims tax authority rushed decision, denied fair

hearing

By Aditya Kalra and Arpan Chaturvedi

NEW DELHI, May 4 (Reuters) - Samsung has asked an Indian

tribunal to quash a $520 million tax demand for allegedly

misclassifying imports of networking gear, arguing officials

were aware of the practice as India's Reliance imported the same

component in a similar manner for years, documents show.

Samsung becomes the second major foreign company

in recent months to challenge an Indian tax demand.

Volkswagen has sued Prime Minister Narendra Modi's

government in court for a record demand of $1.4 billion for

misclassifying its component imports.

In the Samsung case, tax authorities in January asked

Samsung to pay $520 million for evading the 10-20% tariffs by

misclassifying imports of a key mobile tower equipment, which it

then sold to billionaire Mukesh Ambani's telecom giant, Reliance

Jio, from 2018 to 2021.

In its 281-page challenge at the Customs Excise and Service

Tax Appellate Tribunal in Mumbai, Samsung criticises Indian

authorities for being "fully aware" of the business model as

Reliance had a "long-established practice" of

importing the same equipment without any tariff payments for

three years until 2017.

Samsung's India unit says it discovered during an Indian tax

investigation that Reliance had been warned about the practice

way back in 2017, but Reliance did not inform the South Korean

company about it and tax officials never questioned Samsung.

"The classification adopted by the appellant (Samsung) was

known to the authorities, however the same was never questioned

... Department was fully aware," Samsung says in its April 17

filing, which is not public but was seen by Reuters.

"Reliance Jio officials did not inform" Samsung about the

tax warning of 2017, it adds.

Samsung and India's tax authority did not respond to Reuters

queries.

Further details of Reliance's 2017 warning from tax

authorities are not public and were not disclosed in the Samsung

filing. Reliance didn't respond to Reuters queries.

Other than $520 million demand Samsung faces, Indian

authorities have also imposed an $81 million fine on seven of

its employees, taking the total tax demand to $601 million. It's

not clear if Samsung employees are separately challenging the

fines.

The tax demand represents a substantial chunk of last year's

net profit of $955 million for Samsung in India, where it is one

of the largest players in the consumer electronics and

smartphones market.

In defending its tariff declarations, Samsung also argues in

its filing that the tax authority passed the order in January

"in a hurry" and it was not provided "a fair opportunity" to

present its case, despite the "huge stakes" involved.

The Samsung case concerns imports of a component called

"Remote Radio Head", a radio-frequency circuit enclosed in a

small outdoor module, that tax officials say is "one of the most

important" parts of 4G telecoms systems.

The case against Samsung alleges it misclassified the

component's imports worth $784 million from Korea and Vietnam

between 2018 to 2021, to maximise profits.

Investigators found that Samsung "transgressed all business

ethics and industry practices or standards in order to achieve

their sole motive of maximising their profit by defrauding the

government exchequer," the January order stated.