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Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Study Material
Diploma in Criminology & Criminal Administration
Socio-Economic Crimes
Unit 3
Adulteration of Food Stuffs, Drugs and Cosmetics.
Food Stuffs:
Food adulteration rate in India has almost doubled over the last 5 years according to data
sourced from FSSAI annual reports. Food adulteration rate in India stood at 13% in 2011-12
which increased to 23% in 2016-17. Adulteration is a legal term meaning that a food product
fails to meet the legal standards. One form of adulteration is an addition of another substance
to a food item in order to increase the quantity of the food item in raw form or prepared form,
which may result in the loss of actual quality of food item. It is the process in which the quality
of food is lowered either by the addition of inferior quality material or by extraction of valuable
ingredient. It not only includes the intentional addition or substitution of the substances but
biological and chemical contamination during the period of growth, storage, processing,
transport and distribution of the food products, is also responsible for the lowering or
degradation of the quality of food products.
Laws in force
Now coming to the laws that governs food adulteration in India we have:
Indian Penal Code
Food Safety and Standards Act, 2006
Food Safety and Standards (Licensing and Registration of Food Businesses)
Regulation, 2011.
Food Safety and Standards (Packaging and Labelling) Regulation, 2011.
Food Safety and Standards (Laboratory and Sampling Analysis) Regulation, 2011.
Food Safety and Standards (Food Product Standards and Food Additives) Regulation,
2011.
Recent rulings of court
Make milk adulteration punishable with life imprisonment: SC
The observation by an apex court bench of Justice K.S. Radhakrishnan and Justice A.K. Sikri
came after taking note of Uttar Pradesh, West Bengal and Odisha having made the sale of
adulterated milk, contaminated with synthetic material, an offence punishable with life
imprisonment.
Delhi Kirana Shop Owner imprisoned under the Prevention of Food Adulteration Act
The accused was running a small kirana shop in Delhi. Officials from the Food Adulteration
Department, in 1993, detected salt as an adulterant in 450 gram of red chilli powder sample
taken from his shop. A second test by the Central Forensic Science Laboratory also showed
ash content and pointed towards adulteration
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
He has been sentenced to 3 months imprisonment under Prevention of Food Adulteration Act,
1954 by a Supreme Court bench comprising of Justice A.K. Sikri and Justice B.S. Chauhan
FOOD SAFTY AND STANDARD AUTHORITY OF INDIA
Food Safety and Standards Authority of India (FSSAI) is an autonomous body established
under the Ministry of Health & Family Welfare, Government of India the FSSAI has been
established under the Food Safety and Standards Act, 2006 which is a consolidating statute
related to food safety and regulation in India. FSSAI is responsible for protecting and
promoting public health through the regulation and supervision of food safety
FSSAI was established by Former Union Health Minister Dr Anbumani Ramadoss,
Government of India on 5 September 2008 under Food Safety and Standards Act, 2006. The
FSSAI consists of a chairperson & 22 members. The FSSAI is responsible for setting standards
for food so that there is one body to deal with and no confusion in the minds of consumers,
traders, manufacturers, and investors. Ministry of Health & Family Welfare, Government of
India is the Administrative Ministry of Food Safety and Standards Authority of India. The
following are the statutory powers that the FSS Act, 2006 gives to the Food Safety and
Standards Authority of India (FSSAI).
1. Framing of regulations to lay down food safety standards
2. Laying down guidelines for accreditation of laboratories for food testing
3. Providing scientific advice and technical support to the Central Government
4. Contributing to the development of international technical standards in food
5. Collecting and collating data regarding food consumption, contamination, emerging
risks etc.
6. Disseminating information and promoting awareness about food safety and nutrition in
India
Consumers can connect to FSSAI through various channels or call Toll free Number
1800112100. Recently an online platform called ‘Food Safety Voice’ has been launched which
helps consumers to register their complaints and feedbacks about food safety issues related to
adulterated food, unsafe food, substandard food, labelling defects in food and misleading
claims & advertisements related to various food products. A GAMA portal for concerns
regarding misleading claims and advertisements too is operated.
Punishments for food adulteration
Under section 272 of Indian Penal Code which says as under: -
“Whoever adulterates any article of food or drink, so as to make such article noxious as food
or drink, intending to sell such article as food or drink, or knowing it to be likely that the same
will be sold as food or drink, shall be punished with imprisonment of either description for a
term which may extend to six months, or with fine which may extend to one thousand rupees,
or with both.”
But for the State of Uttar Pradesh and State of West Bengal it is punishable with life
imprisonment
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Under Food Safety and Standards Act, 2006 the penalty for selling misbranded or sub-standard
food right now is between Rs 3 – 5 lakhs. The punishment for unsafe food that has resulted in
death is life imprisonment and a fine of Rs 10 lakh and that for unsafe food resulting in grievous
injury or death-like situation is an imprisonment of 6 years and a fine of Rs 5 lakh.
The FSSAI regulations provide for various punishments to persons who do adulteration of food
or food products as under:
Import, manufacture, storage, sale or distribution of any food article which is
adulterated by allowing its quality or purity to fall below the prescribed standard, or is
misbranded, or in contravention of any provision of the Act or Rules. The penalty for
this offense is a minimum imprisonment of six months that may extend up to 3 years
and a minimum fine of Rs 1000.
Import, manufacture, storage, sale or distribution of any adulterant not injurious to
health. Penalty is minimum imprisonment of six months that may extend up to 3 years
and minimum fine of Rs 1000.
Preventing a Food Inspector from taking a sample or exercising his Penalty is minimum
imprisonment of six months that may extend up to 3 years and minimum fine of Rs
1000.
Giving a false warranty in writing in respect of any food article. Penalty is minimum
imprisonment of six months that may extend up to 3 years and minimum fine of Rs
1000
Import, manufacture, storage, sale or distribution of any food article which is
adulterated or any adulterant which is injurious to health is being used is punishable
under Law. Penalty is minimum imprisonment of one year that may extend up to 6
years and minimum fine of Rs 2000
Sale or distribution of any food article containing any poisonous or other ingredients
injurious to health, which is likely to cause death or grievous bodily harm. Penalty is
minimum imprisonment of three years that may extend up to life and minimum fine of
Rs 5000.
Food Adulteration laws in India has become more and more stronger by passage of time we
have seen a drastic change of position of India from where it was once a minor offence
punishable with imprisonment for 3 month or fine only to life imprisonment as it affect society
at large so it should be punished accordingly.
Laws on Food Adulteration
Food adulteration is the process by which the value of the food or its produces is abridged
through the accumulation of an alien or inferior substance or the elimination of a vital element.
Food adulteration is of 3 types:
Intentional adulteration
Incidental adulteration
Natural adulteration
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Intentional adulteration means expressively adding some unwanted substances to the food or
removing/replacing some of the items and making it of poor quality. This is done for making
additional profits by decreasing the cost of production or by increasing the quantity. Intentional
adulterants comprise sand, marble chips, stones, mud, chalk powder, water, foreign seeds, and
leaves, etc. Many of these can easily be detected.
Incidental adulteration Sometimes food gets incidentally or unintentionally polluted in fields
(e.g. crops) during growth and harvesting, storage, processing, transportation and handling by
the producers as well as by the consumer. Pesticides and insect residues, metals, droppings of
rodents, larvae of insects, the microorganism may enter the food at any stage.
Natural adulteration occurs due to the presence of certain chemicals or harmful substances
naturally occurring in foods e.g. lead from water pipes joints mixes into the water. Pesticides
seep into the soil with water which is taken up by the plants grown on such soil. Some types of
fish, some ranges of pulses, mushrooms, etc. are poisonous for human consumption.
Laws governing the food industry
The Indian food processing industry is controlled by several laws that govern the aspects of
sanitation, licensing and other authorizations that are required to start-up and run a food
business. The legislation that dealt with food safety in India was the Prevention of Food
Adulteration Act, 1954 (hereinafter referred to as “PFA”. The PFA had been in place for over
50 years and there was a necessity for change due to varied reasons which include the changing
requirements of our food industry.
The act brought into force in place of the PFA is the Food Safety and Standards Act, 2006
(FSSA) that dominates all other food-related laws. It specifically repealed eight laws which
were in operation prior to the enforcement of FSSA:
The Prevention of Food Adulteration Act, 1954
The Fruit Products Order, 1955
The Meat Food Products Order, 1973
The Vegetable Oil Products (Control) Order, 1947
The Edible Oils Packaging (Regulation) Order, 1998
The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order, 1967
The Milk and Milk Products Order, 1992
Essential Commodities Act, 1955
Need for the new act:
FSSA recruits the synchronization of India’s food regulations as per universal ethics. It
inaugurates a new national regulatory body, the Food Safety and Standards Authority of India
(FSSAI), to develop science-based principles for food and to regulate and monitor the
manufacture, processing, storage, distribution, sale and import of food so as to guarantee the
accessibility of safe and wholesome food for human feeding. All food imports will, therefore,
be subject to the provisions of the FSSA and rules and regulations which as notified by the
Government on the 5th of August 2011 will be applicable.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Background
The adulteration of food is a subject in the Concurrent List of the Constitution Prior to 1954,
there were quite a few state laws to control the quality of the food. However, there was a change
in the provisions of different states and this posed problems in trade between different
provinces. The need for Central legislation was felt. Thus, the Prevention of Food Adulteration
Act, 1954 was enacted by the Union legislature to wrestle the problem of food adulteration
which was extensive in the country. This Act was in action until it was abolished in 2006 by
the Food Safety and Standard Act, 2006.
Laws at present: -
CENTRAL LEGISLATION
There were many defects in the Prevention of Food Adulteration Act, 1954. Thus, to eliminate
those flaws and unite the laws relating to food safety and standards, the Parliament enacted the
Food Safety and Standards Act, 2006 (hereafter referred to as ‘FSSA’). Section 91 of the Act
authorizes the Central Government to make rules under the Act. Some of these rules enacted
by the Government which controls the standard of food products are:
Food Safety and Standards (Licensing and Registration of Food Businesses)
Regulation, 2011.
Food Safety and Standards (Packaging and Labelling) Regulation, 2011.
Food Safety and Standards (Laboratory and Sampling Analysis) Regulation, 2011.
Food Safety and Standards (Food Product Standards and Food Additives) Regulation,
2011.
Provision under food safety and standard act, 2006
The Food Safety and Standard Act, 2006 is an inclusive legislation dealing with several aspects
with respect to the regulation of food safety. The provisions under the Act can be divided into
various heads.
Establishment of various authorities and their responsibilities
The FSSA establishes various authorities for the effective implementation of the provisions of
the Act.
Food Safety and Standard Authority of India (FSSAI) is established under Section 4 of
the Act. It is the most important authority which supervises and regulates food safety
and standards.
The Act provides that it’s head office shall be in Delhi.
Moreover, it can also establish offices in any other place.
FSSAI is a body corporate having perpetual succession, common seal and the
right to own and dispose of the property in its own name. Like any other body
corporate, it can sue and be sued in its own name.
It consists of a chairperson and 22 members selected by a Selection Committee
constituted by the Central Government.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
The Act also provides for the appointment of Chief Executive Officer by the
Central Government. He is the legal representative of the Food Authority.
The Act provides that the Food Authority shall establish various other authorities.
A Central Advisory Committee for ensuring cooperation between the Food
Authority and the enforcement agencies.
Scientific Panels in order to deliberate on certain matters in consultation with
representatives of the concerned industry along with consumer representatives.
Scientific Committee to advice the Food Authority on various issues by giving
their scientific opinion.
The Act empowers the State Government to appoint a Commissioner of Food Safety
for the State for effective implementation of the provisions at the State level.
The Commissioner of Food Safety is given the authority to appoint a Designated
Officer for each district.
The Commissioner is also empowered to appoint Food Safety Officers.
Offences and penalties
Section 48 lays down the offences. It provides the conditions where a person shall be liable for
interpreting any food item hazardous by a number of means such as adding to it an article or
substance or removing certain essentials from the food which results in a weakening of its
quality.
FSSA provides for penalties and punishments for contravening the provisions of the Act.
The Act consists of a comprehensive list of offences in which the penalties shall be imposed.
1. A penalty for selling of food which is not of the quality as per the regulations under the
Act. The penalty, in this case, shall not exceed five lakh rupees.
2. A penalty for manufacturing for sale, storing, selling, distributing, importing food of
sub-standard quality which may extend to five lakh rupees.
3. A penalty for manufacturing for sale storing, selling, distributing or importing
misbranded food products which may extend to three lakh rupees.
4. The Act prohibits misleading or deceptive advertisements and there is a penalty for the
same which may extend to ten lakh rupees.
5. A penalty is also prescribed for manufacturing, storing, selling, distributing or
importing a food product containing extraneous material and such penalty may extend
to one lakh rupees.
6. The Act imposes a penalty on the food business operator or importer who fails to
comply with the provisions of the Act which may extend to two lakh rupees.
7. There is a penalty which may extend to one lakh rupees for manufacturing or processing
food in unhygienic or unhealthy conditions.
8. The Act also imposes a penalty for the possession of adulterant.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
9. Further, the Act also lays down that if no separate penalty is provided and an act is in
contravention to the provisions or regulations of the Act, then a penalty shall be
imposed which may extend to two lakh rupees.
According to section 2(a) of the prevention of food adulteration act, 1954, an article of
food is said to be adulterated if:
It contains any other substance which disturbs or is so processed as to affect injuriously
nature, substance or quality;
Any low-grade or inexpensive substance that has been replaced wholly or partly in the
article so as to affect injuriously nature, substance or quality;
Any essential component of the article that has been wholly or partly distracted so as to
affect injuriously nature, substance or quality.
Procedure to complain
Whenever any person comes to know or sees that any person is committing food adulteration,
the consumer can file his complaint at;
Tier 1: Manufacturer/ shopkeeper
Tier 2: Local Health Authority of India or district commissioner of the food safety authority of
the state/ union territory
Tier 3: Consumer Forum
The consumer forum is existent at three levels, namely at the district level, state level, and the
national level. The grievances have the original jurisdiction at the district level and appellate
jurisdiction at the state and the national level.
Consumers can also connect to FSSAI (The Food Safety and Standards Authority of India)
which is a legislative body to control the rules and regulations which are specified in the Food
Safety and Standards Act. Recently launched an online platform called the ‘Food Safety Voice’
where consumers can register their complaints and food safety issues about adulterated food.
I as a consumer can definitely approach the Manufacturer or the shopkeeper or Local Health
Authority of India or district commissioner of the Food Safety Authority of the state/ union
territory or Consumer Forum. It is the duty of the manufacturer/producer/wholesaler to hear
my grievances and shall provide compensation for the same before the expiry of the period of
six months.
Compensatory remedies that the victim of food adulteration can avail
1. As per the Food Safety and Standards Act, 2006, the following remedies can be availed
to the victims under section 65 of the act stated above;
2. Any person who by himself or any other person manufactures a food article which may
be harmful to the consumer or his death shall be made liable to pay the victim a fine
which may be exceeded to
i) Not less than five lakh rupees in case of death;
ii) Not exceeding three lakh rupees in case of grievous injury;
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
iii) Not exceeding one lakh rupees in all other cases of injury.
Provided that the compensation needs to be paid before six months and in case of death, an
interim relief should be sent to the victim’s family within a period of thirty days.
The food adulteration laws have been growing with the changing needs of the time. Earlier
there were different laws for different provinces that were revoked and combined by the
Prevention of Food Adulteration Act, 1954. However, even this Act could not stand the test of
time and had to be revoked due to numerous defects. The Food Safety and Standards Act, 2006
and the regulations made under the Act broadly deal with the issue. However, it is important
for the authorities under the Act to be cautious so that actual results are achieved.
Effects:
Leads to chronic health problems: There are many mineral oils which when added to the
food items can result in paralysis, cancer etc. If pregnant women eat such food items it might
lead to abortion or even damage the brain of the baby. Sometimes zinc substances result in
vomiting or in severe cases it can result in diarrhoea. Food colours that are added to the items
can be the reason of liver damage, allergies and lots more. Thus, you can say that adulteration
can bring down your health and affect the quality of life.
Increases the impurity in the food: As adulteration alters the composition of the food item,
it increases the impurities thus making them imperfect for the consumption. If you consume
such impure stuff you are bound to have side effects which can either be short-term or a long-
term one.
Lack of nutritional value: Ready-made food is made using poor quality ingredients which not
only brings down the nutritional content but can have a change in taste as well if kept for a long
time. So, you compromise with the taste as well as your health.
Thus you can say that adulteration is definitely not good. There can be a number of reasons of
adulteration like the wrong packaging, use of insecticides or pesticides on the food, use of
preservatives and lots more. One can do nothing about it but just take measures and try to use
quality products only for cooking. This will ensure healthy cooking and you will be able to stay
away from various kinds of health problems. So, avoid ready-made food but healthy food
prepared at home.
DRUGS & COSMETICS:
DRUGS AND COSMETICS ACT, 1940
This act was passed to regulate the import, manufacture, distribution and sale of drugs and
cosmetics. The Drugs Enquiry Committee had recommended that such &law be made and
accordingly the Central Legislative Assembly in 1937 after obtaining the requisite resolutions
from the Provincial legislatures empowering the Central Legislature to pass an Act for
regulating the control of drugs had enacted this Act. The object was also to have a
comprehensive measure to provide for the uniform control of the manufacture and distribution
of. drugs as well as of its import. The Act was later extended to regulate cosmetics also. It was
thereafter made applicable to medicines and substances used or prepared in accordance with
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
the Ayurvedic or Unani systems of medicines as it was found that these preparations had, been
commercialised and proper components were not being used or imitations were being used.
Chapter I of the Act deals with application of the Act and definitions of terms used. Chapter I1
deals with the establishment of a Board of Technical Experts to advise the Central and State
Governments on technical matters. The Central Drugs Laboratory and the Drugs consultation
Committee have been set up. Chapter III provides for the control of the import of drugs with
executive power in the Central Government. Chapter IV deals with the ', regulation and control
of the manufacture, sale and distribution of drugs and cosmetics. Chapter IV-A deals with
provisions relating to Ayurvedic, Siddha or Unani drugs. Chapter VI deals with the
miscellaneous provisions.
The Drug Technical Advisory Board
The Board has been set up by the Central Government to advise it and the State Governments
of technical matters arising out of the administration of this Act and for carrying out other
functions assigned to it by this Act. It consists of Director-General of Health Services as
Chairman, the Drugs Controller, Directors of Central Drugs Laboratory, Central Research
Institute, NRI, Medical Council of India, Pharmacy Council of India, Nominees of the Central
Government, Pharmacy teachers, representatives of pharmaceutical industry, etc. The Board
may make Bye-laws for its own regulation and function through Sub-committee.
Central Drugs Laboratory
This is established bv the Central Government under the Control of a Director to carry out
functions laid down under the Act. Rules provide for the procedure tor admission of samples
of drugs or cosmetics for analysis or test, forms of reports, fees to be paid, etc.
The Drugs Consultative Committee
This has been constituted by the Central Government as an advisory committee to advise the
Central, State Governments and the Board on any matter pending to secure uniformity in the
administration of this Act. It has representatives of the Central and State Governments.
Import of Drugs and Cosmetics
All drugs have to conform to the standard prescribed in the Second Schedule to the Act and
then qualify to be described as of standard quality. The Central Government has the power to
add to or amend the Second Schedule.
A drug will be deemed to be misbranded if:
1. it is so occurred, coated, powdered or polished that damage is concealed or'if it is made
to appear of better or greater therapeutic value than it really is, or
2. it is not labelled in the prescribed manner
3. its label or container or anything accompanying the drug bears any statement, design or
device which makes any false claim for the drug or which is false or misleading.
A drug shall be deemed to be adulterated if:
1. if it consists, in whole or in part, of any filthy, putrid or decomposed substance; or
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
2. if it has been prepared, packed or stored under insanitary conditions whereby it-may
have been contaminated with filth or whereby it may have been rendered injurious to
health; or
3. if its container is composed in whole or in part, of any poisonous or deleterious
substance which may render the contents injurious to health; or
4. if it bears or contains, for purposes of colouring only, a colour other than one which is
prescribed; or
5. if it contains any harmful or toxic substance which may render it injurious to health; or
6. if any substance has been mixed therewith so as to reduce its quality or strength.
A Cosmetic shall be deemed to be misbranded-
if it contains a colour of label which is not prescribed or bears\a false or misleading statement.
The Central Government has power to prohibit import of drugs or cosmetics not of standard
quality, or which are misbranded, adulterated or spurious or which are imported in violation of
the terms of licence, or in which the contents are not disclosed or which has harmful
ingredients. Small quantities can be imported for test, analysis or personal use. The Central
Government may impose such prohibition against import in public interest and make Rules to
that effect. Customs officials can detain and seize any drug or cosmetics which was prohibited
from being imported. Any person who imports any drug or cosmetic which is prohibited shall
be punishable with imprisonment up to three years and with a fine of Rs 5000. The
consignments of drugs and cosmetics in such cases will be liable to confiscation.
RACKETEERING
When you think about the term racketeering, you might immediately think about the mob or
Mafia. However, it can really be applied to any activity run in an organized way. Law
enforcement tries to stop the activities by cutting off the money supply.
Basically, it's a structured criminal organization doing illegal activities in multiple states and
often countries.
Definitions of racketeering
a. Common definition of Racketeering:
Racketeering, often associated with organized crime, is the act of offering of a dishonest service
(a "racket") to solve a problem that wouldn't otherwise exist without the enterprise offering the
service. Racketeering as defined by the RICO act includes a list of 35 crimes. Racketeering
describes a pattern of engaging in illegal business activities, or extorting money from people.
This is most commonly associated with organized crime, in which mob families, gang leaders,
and others, who own and control the illegal activities.
b. Legal Definition of Racketeering:
Traditionally, obtaining or extorting money illegally or carrying on illegal business activities,
usually by Organized Crime. A pattern of illegal activity carried out as part of an enterprise
that is owned or controlled by those who are engaged in the illegal activity. The latter definition
derives from the federal Racketeer Influenced and Corruption Organizations Act (RICO), a set
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
of laws (18 U.S.C.A. § 1961 et seq. [1970]) specifically designed to punish racketeering by
business enterprises. According to the federal Racketeer Influenced and Corruption
Organizations Act (RICO), a pattern of racketeering activity requires a minimum of two acts
of racketeering activities. Racketeering, as it is commonly understood, has always coexisted
with business. In the United States, the term racketeer was synonymous with members of
organized-crime operations.
c. Who is a Racketeer?
Racketeer is a person who engages in dishonest and fraudulent business dealings, a person who
makes money through illegal activities, a person(s) who obtains money by an illegal enterprise
usually involving intimidation or a a person who gets money or advantages by using force or
threats. The legal definition of a racketeer is; a person that engages in racketeering d. Breaking
down 'Racketeering' A common example of a racket would be if a group of people cut the tires
of cars on a specific street, and then that same group, or one in concert with the one cutting
tires offered "protection" to the owners of the cars for a price. This fits the definition of a racket
because without the organization’s slashing of tires in the first place, the demand for
"protection" would be low or non-existent. Other examples of racketeering activity include
extortion, money laundering, loan sharking, obstruction of justice and bribery.
Forms of Racketeering
A racket can have several forms. It may involve an illegal business. Or a legal business in
which the organization breaks the law to help it succeed. Many crimes support a racketeering
charge. A racketeering activity is any act, or threat to act involving:
Murder, Kidnapping, prohibited chemical Dealing in manufacture or distribution of a
controlled Bribery, Loan Sharking, Extortion, Arson, Robbery, Counterfeiting Embezzlement,
Fraud, Theft, Drug Trafficking, Dealing in Obscene Matter.
A lawful business may cover the racket's illegal acts. Everything appears lawful.
Types of Racketeering
Protection Racketeering
Protection racketeering is when a criminal organization coerces someone to pay money for
protection. Often the organization's members provide the protection from harm coming from
not paying the protection fee. Extortion is unlawfully obtaining money by coercion.
Labour Racketeering
Labour racketeering is illegally using unions or employee benefit plans for personal profit.
Organizations may bribe and coerce union officials for control of workers' benefit plan funds.
Labour costs go up, and consumers and workers’ pay in the end.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
BLACK- MARKETING & HOARDING:
The meaning of term “Black Marketing” is an illegal transaction of distribution and
production of the goods and services, which are prohibited by law such as – drug trade,
prostitution, illegal currency transactions, human trafficking etc. The purpose behind these
transactions is generally to evade the tax levied by government of country. These kinds of
transactions usually done through cash only so that they can hide from the eyes of government.
These kinds of transactions also lead to money laundering. The people find this way easy to
earn more money within less time period. The “Black Market” can be identified by four kinds
of economy –
1. The illegal economy
The meaning of illegal economy means when the people indulged in such activities which are
related to production and distribution of the goods and services, prohibited by law to evade the
taxes and earn money through simpler way. The purpose behind to prohibit such transaction is
to protect the society against wrong but some people for their personal benefit harm the society
as a whole.
2. The unreported economy
These are the activities consists of those transactions which should be reported to the
government of country but actually are not so reported. These kind of transactions takes places
without the interference of the government of country so this is called as unreported economy.
The purpose behind these illegal transactions is also to evade the tax.
3. The unrecorded economy
This is in regards with the unrecorded income of people. According to the National income and
product account (account managed by government of nation to identify the income of whole
economy), some amount is to be expected as the income of economy must be recorded in such
account every year, but actually are not so recorded because of black marketing through
evading tax.
4. The informal economy
The informal economy includes that part of economy which is not taxed. This is called as
informal economy. I t doesn’t cover the benefits and authority as rights provided by the
government to the society in some transactions, such as – Property relationships, commercial
licensing, labour contracts, financial credit, Social security system etc.
Meaning of “Hoarding”
The term of meaning “Hoarding” is the purchase of large quantity of commodity with the
intention to sell it in future when it is understock or not available in the market at a higher price.
We can say this as a kind of monopoly over market, when people do not have any option to
purchase the same commodity with other buyer due to shortage of the same. This way the
concept of hoarding is somehow related to black market as this kind of transactions are also
prohibited by law. The same way as black marketing, people indulged in the hoarding business
to maximize their profit by the unfair means of business. This commodity is generally a basic
goods used in commerce by large number of people. The term hoarding is different from
cartelization as in cartelization there are number of suppliers or manufacturer who come
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
together and try to limit the supply of goods for some time so that at the event of shortage of
such commodity they all can monopoly over the market and maximize their profits through
raising the prices of the goods. On the other hand, in the process of Hoarding, there is individual
participant who try to capture the market but the hoardings can easily be converted in to process
of cartelization by come to an agreement by number of suppliers or sellers to limit the supply
of any particular commodity used by public at large.
This is what the all about the concept of Hoarding and its direct relation with the Black
marketing. Further we will discuss below the laws made by the government to prohibit
such kind of illegal activities.
The prevention of Black Marketing and maintenance of supplies of Essential Commodities
Act, 1980 –
The prevention of black marketing and maintenance of supplies of essential commodities Act,
1980 was enacted on 12th February, 1980 and came into force on 5th October 1979. This Act
prohibit the participants to get indulge into black marketing or hoarding transactions by its
provisions under which there are provisions for punishment against such persons who commits
the same.
This Act empowers the state government or central government or an officer of rank not below
the Joint secretary representing centre or state govt. in case has a reason to believe that a person
is committing an against provisions of the Act shall make an order for detaining such person.
This Act also gives the similar power of district magistrates and commissioner of police to take
any action against such participants.
Section 3 (2) – Any order taken by an officer under this Act shall be brought into the notice of
government along with relevant details.
The order shall remain into force for not more than twelve days after making it within which
the State govt. shall approve the order.
The State government shall within seven days’ report to central government along with the
grounds of order where after detention order under Section 3(2) shall be carried.
Even if the order of detention was carried out outside the territorial jurisdiction of the
government making order, it shall not be invalid merely on this ground.
Section 4 – According to this Section if a person is found to avoid order of detention or is
absconding, the Government or officer shall draft a report in writing to Metropolitan Magistrate
or Judicial magistrate first Class who shall order against such person under section 82, 83, 84
and 85 of Code of Criminal Procedure which shall apply against the person and his property.
Provisions of section 4 are also applicable once the authorities have an apprehension of
absconding of person against whom orders of detention have been made.
In case of failure to make an appearance before the court such person shall be imprisonment
extending one year and with fine or both. These offences fall within the category of cognizable
offences. The detained person should be aware of the grounds of detention and shall be given
an opportunity of fair representation.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Section 9 – This Section deals with the appointment of an advisory board consisting of three
persons who is, are qualified or had been judge of a High Court, along with one another member
who is, or has been Judge of High Court. This is the duty of the State government to refer the
detained person before advisory board along with the representation of grounds of detention,
where after the advisory board shall look into all aspects of the matter brought in front of it.
The advisory board shall draft a report after giving an opportunity to detained person, which
shall be acted upon by the government. The report can either ask the government to revoke the
detention orders or shall further continue the detention. The maximum period of detention shall
be of six months from the date of detention. The order of detention may be revoked under
provisions of section 21 of the General Clauses Act, 1897 only after confirmation from State
or Central Government. Person detained may be temporarily released after imposing necessary
conditions on release of such person one such condition may be filing of bond along with
sureties. In case a person breaches conditions of release his bond shall be forfeited. The Act
protects all acts and actions taken in good faith under the provisions of the Act.
Thus, the Act is an effort to bring into hold of law person who in order to suffice their greed
keep essential commodities out of the reach for other people.
This is all about the laws made by the government of country to prevent the participants from
indulging into such kind of illegal activities as black marketing and hoardings, which is harmful
for the economy of the nation. These kind of activities only provides the benefit to the
participant in monetary terms but except the participants the whole society suffers a lot and
also it has an adverse effect on the economy of the country because the money and the tax hide
by the participants are actually the public money which can be use fairly by the government
for the benefit of society.
There are some transactions such as Monopoly, Cartelization, Black marketing, Hoarding are
directly or indirectly interrelated. These offences fall under the category of illegal and
cognizable offences. These transactions lead to money laundering, which is the current issue
in the country.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Evasion and Avoidance of Lawfully Imposed Taxes
Remember the last time you purchased something without asking for a bill from the
shopkeeper? While it seems trivial, it is one of the most elementary of the steps for tax evasion.
It allows the shopkeeper to not show the amount as part of the income with tax authorities and
in turn avoid paying taxes on this much amount. Now think about the whole lot of people who
do not care or purposefully doesn’t demand a bill from shopkeeper and do the math; voila; too
much money for the shopkeepers without paying any taxes, isn’t it?
The loss however is to the Government and in turn the people of the state as the money so
collected through the taxes would have been utilized for development activities to make our
life better
Tax Avoidance vs. Tax Evasion
Whether you are an individual (be it Sole Proprietor or a Salaried profession) or an entity (be
it Company, Partnership or an LLP), taxes are one of the major components which decide the
bottom line of your financial performance
The Income Tax Act in India allows for multiple opportunities to reduce the tax liabilities in
accordance with the law. For individual, it might mean for e.g. income tax saving on Home
Loan, House Rent Allowance etc. For a Business, it could be allowing for the depreciation of
the plants and machinery or amortizing the investments on new Software. Utilizing such
avenues allowed by the law to reduce the tax liability is termed as Tax Avoidance.
In contrast to Tax Avoidance, Tax Evasion is an illegal activity where the intent is primarily to
hide income and avoid paying the true tax liability.
Tax evasion and tax avoidance are sometimes misunderstood considerably. While a
Government allows various avenues in its tax structure through which an individual or an entity
can save on their tax liability, purposefully trying to show income lower than actual in order to
reduce the tax liability is a crime to the state and their people. Tax evasion is a crime as per
every state law, including India and can attract severe penalties.
Known methods of Tax Evasion
As the laws are advanced to control the menace of tax evasion, the tax evaders are devising
new methods to cut corners with the loopholes they are still able to find in the tax laws. Some
of the most common methods in practice with the tax evaders are:
Non-payment of the dues – willingly or unwillingly not paying the due taxes to the
Government is a form of tax evasion. In India, this is one of the most common scenarios
in rural and suburban areas
Inaccurate financial statements, fake documents, false returns – a rather more
sophisticated way of tax evasion is by forging documents, submitting
inaccurate/incomplete information to the authorities to showing lower tax liability than
the true payable
Smuggling – this form of tax evasion is in use when the goods are moving from one
place to another across state or country borders. For e.g. Gold.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Bribery – Corruption within the Government system is one of the subtle reasons for
tax evasion so rampant in the society. Some tax evaders use this method to make their
income disappear and thus prevent being taxed upon
Tax Havens/ Offshore Wealth – Recent news on Panama papers leak is a classic
example here. Tax evaders tend to utilize the tax havens, countries which have lower
taxes and which do not disclose the account holder’s whereabouts to the home country.
This way the home country is deprived of collecting the actual tax dues from the
taxpayer.
Over time, as the laws have changed, the tax evasion has also evolved to become more
sophisticated. This along with the current tax setup (although some of this is going to change
with the rollout of the Goods and Services Tax, GST, in the near future) in India, which includes
taxation at multiple junctures in form of indirect taxes, provides multiple avenues for possible
tax evaders to devise ways to reduce their actual tax liabilities
Penalties for tax evasion in India
The Income Tax Act, in India, identifies penalties for the taxpayers for various acts of omission,
wilful neglect and purposeful evasion of taxes due in any financial year. For corporate, it also
identifies penalties for lapses in maintaining the right documentation and compliance
requirements in a financial year. Below are some of the examples and relevant sections of the
identified penalties
1. Section 270A of the act makes the taxpayer liable for penalty if the taxpayer tries to
reduce the tax liability by reducing the reportable income (under reporting the income).
The penalty can be up to 200% of the tax payable on the unreported income
2. Section 271A imposes a penalty of Rs. 25000 to a taxpayer in case of failure to maintain
the book of accounts as per the requirements in section 44AA
3. Penalty can be imposed by an assessing officer for default in payment of taxes from a
taxpayer, as per section 220 (1), 221 (1) of the income tax act
Legal cases
The Hasan Ali case
Hasan Ali Khan , born c. 1954, is an alleged money launderer and Hawala trader; accused of
stashing multibillion USD into Swiss accounts (tax haven), thereby evading taxes from Indian
Tax authorities to the tune of c. 910 billion USD.
Hasan was arrested in March 2011, after Supreme Court intervened and asked the then
Government and Enforcement Directorate on the reasons for not acting against Hasan despite
sufficient evidence against him on allegations under Hawala transactions from 2007 onwards.
ED charged Hasan under the Prevention of Money Laundering Act, 2002, with allegations of
helping an arm dealer to launder USD 300m generated through arms dealing, through his UBS
account.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Hasan denied all the charges on him and a legal battle with the Government of India and ED
ensued. The ED has cited Rs. 34000 Crores as the taxes due from Hasan for his income in
2007-08.
Vodafone
In 2007, Vodafone International Holdings B.V. based in Netherlands, purchased Hutch Essar
in India through a complex tax avoidance strategy. The idea of this strategy was to avoid paying
capital gains tax in India through non-resident companies in the deal. The non-resident
companies were their own subsidiaries operating outside India. Vodafone International
Holding B.V. purchased 67% controlling shares of CGP International based in Cayman Islands,
which was a subsidiary company of Hutchison Telecommunication International Limited
(HTIL). CGP already had a controlling share in Hutch Essar in India before the deal and by the
transfer of 67% controlling share of CGP, Vodafone International Holdings B.V., acquired the
controlling stake in Hutch Essar India.
Following this deal, Income tax authorities issued show cause notice to Vodafone International
Holdings B.V. and in turn VIH filed a writ in High court challenging the same, which was
dismissed by high court with a view that Vodafone International Holdings B.V. must pay
capital gains tax, as the sale of shares from CGP to VIH B.V. qualifies as capital transfer and
attracts capital gains tax of nearly Rs.12000 crores. Pursuant to High Court’s dismissal, VIH
filed a Special Leave Petition in Supreme Court of India challenging the High Court’s order.
In 2012, Supreme Court of India held that the High Court’s view lacked authority of law and
was quashed, as the transaction took place between two non-resident Companies of
India. Hence, Vodafone acquired Hutch Essar India without paying capital gains tax.
Reliance India Limited
Before 1995, Reliance was infamously known as zero tax company in India, as it used to pay
zero or close to zero tax each year.
A zero-tax company is “a business that shows a book profit and pays dividends to investors
but does not pay taxes.”
It continued to exploit the loopholes in taxation system in India in order to avoid tax through
subsidiaries, which used to make raw materials and other components in countries with low
tax rates and Indian parent company purchased these raw materials at prices more than the
tangible cost thereby reducing their net income and subsidiaries escaped from paying taxes in
India.
Reliance enjoyed its successful strategies of Tax Avoidance only till 1996-1997, when in order
to combat the menace of “Zero Tax Companies”, “Minimum Alternative Tax” was introduced
in India and concept of Corporate Income Tax was added. However, that did not deter the
Reliance India Limited in their ventures of Tax Avoidance. In order to check the efficiency of
Income Tax department in assessing big business houses, in March, 2018, Central Auditor
General of India conducted an integrated audit of Reliance India Limited along with its other
group entities.
According to the news report, during audit it was found that RIL used many methods to avoid
taxation including “the merger and demerger of group entities, transactions with related parties,
layering of transactions with subsidiary companies”, in order to lower the tax burden.
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Google India
Google is the world’s favourite search engine and has plethora of companies functioning under
it. There is one extremely clever and elaborate tax avoidance strategy, which is used by many
large corporations including Google, which is called the “Double Irish with a Dutch
Sandwich”.
It is a dubious trick used by Google to avoid taxes through subsidiaries in Netherland and
Ireland. In this technique large corporations use a combination of Irish and Dutch subsidiary
companies to shift profits to low or no tax jurisdictions. It further involves sending profits first
through one Irish company, then to a Dutch company and finally to second Irish company,
headquartered in a tax haven. This particular technique allows many corporations to reduce
their overall corporate tax rates dramatically. Using this technique, Google has successfully
saved billions of dollars.
Similarly, Google India which is a subsidiary of Google International LLC and is an authorised
distributor of Google Ireland’s ‘AdWords’ programme to Indian advertisers. Google AdWords
is Google’s advertising system in which advertisers bid on certain keywords in order for their
clickable ads to appear in Google’s search results. Google Ireland owns the ‘AdWords’
technology and as it merely authorized Google India to use it, the revenue will come back to
Google Ireland, where google has to pay tax way less than India.
However, for the same transaction, Income Tax Appellate Tribunal, India, ordered Google
India to pay tax close to Rs.1457 crores which were avoided in tax by Google India for the
assessment years 2007-2006 to 2012-2013.
After losing six years long battle, Google India spokesperson in an interview said that Google
India complies with all tax laws in India and pays all applicable taxes and they will file an
appeal, as the ITAT ruling, according to Google, “is a clear departure from previous judgments
on the issue and is not in line with India’s double taxation avoidance agreements”.
Tata Industries
Tata Industries sold their shareholding in Idea cellular in 2007 to Birla TMT Holdings through
its subsidiary called Apex situated in Mauritius and through this, avoided to pay tax in India.
Income Tax officials flagged this deal and determined the capital gains tax in this deal to the
tune of INR 1,00,000 crore under Section 93 of Income Tax Act. However, Income Tax
Appellate Tribunal held that as there was no transfer of assets by a tax resident of India to a
non-resident, and they cannot be taxed on the capital gains that arose on sale of Idea shares by
its Mauritius subsidiary.
Tata Industries under its umbrella, has several charitable trusts formed for charitable purposes
called Tata Trusts. These charitable trusts such as, Jamshedji Tata Trust and Navajbhai Ratan
Tata Trust, enjoy tax exemptions under the Income Tax Act. According to Controller and
Auditor General’s report of 2013, Tata trust was earning huge profits instead of utilizing it for
charitable purposes and accumulating surplus funds. These surplus funds were then used for
creating fixed assets for earning more profits or were transferred to other trusts, rather than for
charitable purposes in order to avoid tax.
Proactive steps by Indian Government in order to curb tax avoidance
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
Tax avoidance strategies used by big business houses around the world cause a great deal of
loss to the revenue of many governments around the world, including India. In India, many
cases of tax avoidances arose in the last two decades, some of which have been discussed in
detail above, which forced the government to work out its laws and treaties with foreign
countries in order to curb tax avoidance. Indian Government framed certain rules and
guidelines in order to regulate and restrain tax avoidance through Income Tax Act, 1961 and
Finance Act, 2015.
General Anti-Avoidance Rule (GAAR) was included in Chapter X-A of Income Tax Act, 1961.
GAAR was introduced in Income Tax Act, by the Finance Act, 2012, yet came into effect from
1st day of April, 2017. The sole purpose of introducing GAAR was to curb tax avoidance
strategies through a provision “Section 96. Impermissible avoidance arrangement”, which was
imbedded in Income Tax Act. According to the provision, arrangements or deals made in order
to obtain a tax benefit were impermissible.
Amendment of section 6(3) of Finance Act, 2015 was done in order to replace a new test of
corporate residence, which provided that if place of effective management (POEM) is found to
be situated in India, then a foreign company will be a tax resident of India. Before this
amendment, for tax purposes, a company that was not a resident of India was only considered
resident, if it was controlled and managed in India.
Indian government in 2017 took various steps in order to align the rules and guidelines as per
the Base erosion and profit shifting (BEPS) suggested by The Organisation for Economic Co-
operation and Development (OECD), which could curb the menace of tax avoidance, which
includes BEPS action plan 13, 1 and 5.
Latest developments in the case
In February 2016, the Income Tax Appellate Tribunal (ITAT) has brought down the tax liability
for Hasan from Rs. 34000 Crores to c. 3 Crores now. The IT department has failed to
substantiate its claim on Hasan’s income and thus the tax liabilities. The reassessment notice
has been sent to the assessing officer.
Following this, Hasan have been granted bail (upon 14th attempt), while ED continues to
struggle to prove the allegations levied against Hasan in the charge sheet. Hasan’s lawyer has
thus claimed that he has been false implicated into the case and had suffered due to this.
Inferences
Money Laundering is something which needs to be prevented. It is very hard to be cured. As it
is defined, the laundered money is so very well integrated within the economy that it is very
hard to detect, let alone prove the origins. As with the above case, though it remains to be
proven that ED’s allegations are true or not, however, proving anything of such a scale was
always a challenge. As quite evident, ED seems to be quite helpless on proving their point and
thus may be proved wrong in the end
Impact of GST on Tax Evasion
Goods and Services Tax (GST) is a major indirect tax reform in India which is under
implementation currently. Upon implementation, it would mean a single tax on the supply of
goods and services, right from the manufacturer to the end user. It would reduce the number of
Prof. Javaid Talib
Dept. of Law
AMU
TM SFA
indirect taxes being paid at multiple points and thus make the tax system more transparent and
streamlined
One of the many advantages of GST would be avoidance of tax leakage. The GST is designed
in a way to incentivize the traders to be tax compliant to seek benefit on the tax credits in the
supply chain. This along with the comprehensive IT systems enabling GST compliance would
certainly put a check on tax leakage, tax evasion and under reporting. GST also proposes a dual
monitoring mechanism led by the Central and the State Government. So, even if one set of tax
authorities overlooks or fails to detect evasion, there is the possibility that the other overseeing
authority may not. GST also mandates a paper trail for the tax compliance which would
certainly improve the overall tax compliance within the country.
The other important aspect on the rollout of the GST would be the overall reduction of the tax
rates and thus liabilities due to systematic efficiency gains and prevention of leakages. This
would further encourage the increase in tax base for the country
It remains to be seen in the near future on how GST would help in increasing the overall tax
base in India, reducing tax evasion in the tax system and put India on a progressive path.
Suggestive Readings:
Concerned Statutes (IPC, CRPC, IEA etc.)
JPS Sirohi, Socio Economic Offences
UDHR, 1948
NCRB Report
Convention against corruption, 2003
BK Sharma and Vijay Nagpal, A Treasure on Economic and Social Offences
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