Introduction

Modern food supply chains represent complex, multi-tiered networks involving numerous entities from primary producers to end retailers. In India, where traditional and modern food systems coexist, determining legal responsibility for food safety violations presents significant challenges for regulators, legal practitioners, and food business operators. The Food Safety and Standards Act, 2006 (FSS Act) established a comprehensive regulatory framework for food safety in India but leaves important questions regarding liability distribution across complex supply chains. This article examines how the FSS Act allocates legal liability among various stakeholders in multi-tier food supply chains, analyzing statutory provisions, corporate liability mechanisms, practical responsibility distribution, defense strategies, and evolving judicial interpretations. Understanding these legal dimensions is crucial for food business operators seeking to manage compliance risks and for regulators designing effective enforcement strategies.

Statutory Basis for Multi-Tier Liability

The Food Safety and Standards Act, 2006 provides the primary legislative foundation for food safety liability in India. Several key provisions establish the basis for multi-tier liability across food supply chains. Section 3(n) of the Act defines “food business” broadly as “any undertaking, whether for profit or not and whether public or private, carrying out any of the activities related to any stage of manufacture, processing, packaging, storage, transportation, distribution of food, import and includes food services, catering services, sale of food or food ingredients.” This expansive definition encompasses virtually every entity in the food supply chain, creating a comprehensive regulatory scope.

Section 27 of the FSS Act establishes the fundamental liability framework, stating that “A food business operator or importer shall be liable for any article of food which is imported, manufactured, stored, sold or distributed by him.” This provision creates direct liability for food business operators regarding products under their control, regardless of their position in the supply chain. Notably, the provision does not limit liability to only the entity directly responsible for a violation, creating the potential for overlapping liability among multiple supply chain participants.

Section 66 of the Act specifically addresses attribution of liability in cases involving multiple parties, stipulating that “Where an offense under this Act which has been committed by a company, every person who at the time the offense was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offense and shall be liable to be proceeded against and punished accordingly.” This provision extends liability beyond the corporate entity to individual officers, creating personal accountability for food safety violations.

The 2008 Food Safety and Standards Rules further clarify liability frameworks, with Rule 2.1.2 specifying that “A food business operator, shall be liable for any failure to comply with any of the general hygienic and sanitary practices, requirements and any other requirements” specified in various schedules. This explicit attribution of liability to operators reinforces the FSS Act’s approach to holding food businesses accountable for compliance throughout their operations.

Corporate Liability Provisions

Corporate liability within multi-tier food supply chains presents particular complexity due to the involvement of various legal entities with different organizational structures. Section 66 of the FSS Act establishes a comprehensive framework for corporate liability, ensuring that both companies and their responsible individuals face appropriate legal consequences for food safety violations.

The provision establishes that when a company commits an offense under the Act, every person who was in charge of and responsible for the company’s business conduct at the time shall be deemed guilty alongside the company itself. This creates a dual liability structure targeting both the corporate entity and its decision-makers. However, the provision includes an important qualification: “Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offense was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offense.”

This knowledge and due diligence defense provides important protection for corporate officers who implement appropriate food safety systems. The burden of proof, however, rests with the individual seeking to establish this defense, creating a strong incentive for proactive compliance efforts.

For multi-location companies, the first proviso to Section 66 creates a more targeted liability approach: “Provided that where a company has different establishments or branches or different units in any establishment or branch, the concerned Head or the person in-charge of such establishment, branch, unit nominated by the company as responsible for food safety shall be liable for contravention in respect of such establishment, branch or unit.” This provision allows large corporations to designate specific individuals as food safety officers for particular facilities, concentrating liability on those with direct oversight responsibility rather than distant corporate executives.

The penalty structure under the FSS Act establishes graduated penalties based on offense severity. Sections 50 through 67 outline specific penalties for various violations, ranging from manufacturing adulterated food to misleading advertisements. For instance, under Section 51, manufacturing or selling sub-standard food carries a penalty up to five lakh rupees, while Section 59 establishes that unsafe food causing death can result in imprisonment for a term “which shall not be less than seven years but which may extend to imprisonment for life” and a fine extending to ten lakh rupees. This graduated approach creates proportionate consequences based on violation severity and resulting harm.

A landmark Supreme Court ruling in Ram Nath v. State of Uttar Pradesh (Criminal Appeal No. 472 of 2012) significantly impacted the enforcement landscape by establishing FSSAI’s primacy in food safety enforcement. The Court held that the FSS Act should prevail over general provisions of the Indian Penal Code regarding food adulteration, noting that “there were various exhaustive and procedural provisions in the FSSAI which dealt with offences concerning unsafe food.” This ruling reinforced the comprehensive nature of the FSS Act’s liability framework and clarified jurisdictional questions regarding food safety enforcement.

Distribution of Liability in Food Supply Chains under FSS Act

The practical liability distribution in multi-tier food supply chains reflects both statutory provisions and real-world operational dynamics. The FSS Act creates distinct but often overlapping responsibilities for different supply chain participants, establishing a comprehensive safety net to ensure consumer protection.

Manufacturer responsibilities constitute the foundation of food safety liability. Under Section 26 of the FSS Act, manufacturers must ensure that articles of food manufactured, stored, sold, or distributed are in compliance with the requirements of the Act and regulations. This creates primary liability for safety, quality, and labeling compliance. Manufacturers must also implement appropriate recall procedures when issues arise, as specified in the Food Safety and Standards (Food Recall Procedure) Regulations, 2017. These regulations establish detailed responsibilities for identifying, notifying, and retrieving non-compliant products, creating significant liability exposure for manufacturers who fail to implement effective recall systems.

Distributor and retailer obligations create a second tier of liability. While distributors and retailers may have less direct control over product formulation or manufacturing conditions, they bear significant verification and due diligence responsibilities. Section 25 requires importers to ensure imported food articles comply with the Act and regulations. Similarly, Section 27 establishes that food business operators are liable for food articles they distribute or sell. This creates an affirmative obligation to verify the compliance of products they handle rather than merely serving as passive intermediaries.

A notable judicial interpretation of “responsibility to know” in multi-tier distribution systems emerged in a 2019 case involving contaminated spices distributed through multiple intermediaries. The Food Safety Appellate Tribunal rejected a distributor’s defense that they were unaware of adulteration, establishing that distributors have an affirmative duty to verify product quality through appropriate testing rather than relying solely on supplier assurances. The tribunal stated: “The distributor cannot escape liability merely by claiming lack of knowledge when reasonable testing would have revealed the non-compliance.”

This cascading liability model creates overlapping responsibilities, potentially holding multiple entities accountable for the same violation. This approach reflects a regulatory philosophy prioritizing consumer protection through comprehensive oversight rather than limiting liability to single points of failure within complex supply chains.

Defense Mechanisms and Due Diligence

Given the extensive liability exposure created by the FSS Act, effective defense mechanisms and due diligence strategies are essential for food business operators seeking to manage legal risks. The FSS Act provides certain statutory defenses, most notably the “due diligence” defense established in the proviso to Section 66, which exempts individuals from liability if they can prove “the offense was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offense.”

The legal standards for establishing adequate precautions have been clarified through adjudicatory decisions. Food Safety Appellate Tribunals have generally required documentation of systematic approaches rather than casual or occasional quality checks. A comprehensive due diligence defense typically includes: (1) documented quality assurance programs; (2) regular supplier audits; (3) appropriate testing protocols; (4) staff training records; (5) traceability systems; and (6) documented corrective actions when issues arise.

The Food Safety and Standards (Food Recall Procedure) Regulations, 2017 establish specific documentation requirements that factor into liability defenses. These include maintenance of distribution records, batch/lot identification systems, supplier verification documentation, customer complaint handling procedures, and recall capability demonstrations. Compliance with these documentation requirements not only facilitates effective recalls but also helps establish due diligence defenses if safety issues arise.

A notable case illustrating a successful defense based on documented quality control systems involved a retailer facing penalties after selling a product subsequently found to contain unauthorized additives. The retailer successfully defended against penalties by demonstrating comprehensive supplier verification protocols, including supplier certification requirements, periodic testing of high-risk products, and prompt action upon discovering the violation. The adjudicating officer accepted this defense, noting that “the respondent has established systems reasonably expected to prevent such violations and took appropriate action upon discovery.”

For food business operators, implementing robust preventive controls and documentation systems serves dual purposes: preventing food safety violations and establishing legal defenses if issues arise despite precautions. The emphasis on documented systems rather than mere assertions of care reflects the FSS Act’s focus on verifiable compliance rather than good intentions.

Recent Judicial Interpretations

Recent judicial interpretations have significantly shaped the landscape of liability distribution in multi-tier food supply chains, clarifying statutory ambiguities and establishing important precedents for future enforcement actions. Supreme Court precedents have particularly influenced the scope of liability in food supply chains.

The previously mentioned Ram Nath v. State of Uttar Pradesh case established the primacy of the FSS Act over the Indian Penal Code in food adulteration matters, but it also addressed broader questions about the comprehensiveness of the FSS Act’s liability framework. The Court emphasized that the FSS Act “has various exhaustive and procedural provisions” dealing with food safety offenses, and Section 89 provides an overriding effect over other food-related laws. This ruling reinforced the Act’s status as a specialized, comprehensive regime for food safety enforcement, including its liability provisions.

High Court interpretations have shown some regional variations in liability enforcement approaches. For instance, the Bombay High Court has generally taken a strict approach to distributor liability, frequently upholding penalties against distributors even when they claim lack of knowledge about product defects. In contrast, the Delhi High Court has occasionally shown greater receptivity to due diligence defenses, particularly for retailers who can demonstrate comprehensive supplier verification systems.

Adjudicating Officer decisions under the FSS Act have created a substantial body of administrative case law regarding liability distribution in multi-tier food supply chains. These decisions frequently address practical questions about reasonable expectations for different supply chain participants. For instance, a 2023 decision by an Adjudicating Officer in Gujarat established that while small retailers cannot reasonably be expected to conduct laboratory testing of all products, they must at minimum verify FSSAI licensing of suppliers, maintain basic traceability records, and conduct visual inspections for obvious defects or labeling issues.

Another important judicial interpretation addressed liability for imported ingredients used in domestically manufactured products. In a 2022 case involving a food manufacturer using imported additives that were later found to violate standards, both the importer and the manufacturer using the ingredients faced penalties. The adjudicating authority rejected the manufacturer’s argument that they should not be liable for ingredient non-compliance, stating that “manufacturers bear responsibility for verifying the compliance of all ingredients used in their products, regardless of source.”

Collectively, these judicial interpretations have reinforced several key principles: (1) FSS Act liability provisions create overlapping responsibilities across the supply chain rather than isolating liability to single entities; (2) all supply chain participants have affirmative verification obligations proportionate to their role and resources; and (3) documented due diligence systems provide the most effective liability defense for food business operators.

Conclusion and Future Directions

The distribution of legal liability in multi-tier food supply chains under the FSS Act reflects a regulatory philosophy prioritizing comprehensive consumer protection through overlapping responsibility structures. Rather than limiting liability to entities directly causing violations, the Act creates cascading obligations that hold multiple supply chain participants accountable for ensuring product safety and compliance. This approach recognizes the complexity of modern food systems and the difficulty of isolating safety responsibility to single points in interconnected networks.

For food business operators, several implications emerge from this liability framework. First, contractual risk allocation through indemnification provisions and insurance requirements becomes essential for managing liability exposure, though such arrangements do not eliminate statutory obligations to regulators. Second, supplier verification programs take on heightened legal significance, serving not merely as quality assurance measures but as essential components of liability defense. Third, documentation systems must be designed with potential legal proceedings in mind, maintaining records that would satisfy adjudicating authorities’ expectations for due diligence evidence.

From a regulatory perspective, the multi-tier liability approach creates both advantages and challenges. The overlapping responsibility model reduces the likelihood of safety gaps by creating multiple checkpoints throughout the supply chain. However, this approach also raises questions about enforcement efficiency and proportional punishment. When multiple entities face penalties for the same violation, regulators must balance accountability against potential market disruptions and enforcement resource limitations.

Legal practitioners advising food business clients must develop nuanced strategies tailored to their clients’ specific supply chain positions. Manufacturer representation requires particular attention to product development protocols, hazard analysis, and recall capabilities. Distributor and retailer representation necessitates focus on supplier verification systems, traceability documentation, and prompt response procedures for suspected violations. For all supply chain participants, proper allocation of food safety responsibilities among personnel and documentation of training programs are essential defensive elements.

Looking forward, several emerging trends may influence liability distribution in food supply chains. First, the increasing emphasis on food traceability technologies, particularly blockchain systems, may create new evidentiary standards for establishing supply chain knowledge and control. Second, growing regulatory focus on food fraud may expand liability considerations beyond traditional safety concerns to include authenticity verification obligations. Third, the expansion of e-commerce food sales introduces new intermediaries like online marketplaces and delivery services into liability considerations.

As these developments unfold, the fundamental principle established by the FSS Act will likely endure: food safety responsibility is distributed across the entire supply chain, with each participant bearing obligations proportionate to their role and control. This distributed liability approach recognizes that food safety in modern, complex supply chains requires vigilance at every stage from farm to fork, with legal consequences for those who fail to fulfill their designated responsibilities.

References

1. Food Safety and Standards Act, 2006, No. 34, Acts of Parliament, 2006 (India).

2. Food Safety and Standards Rules, 2008, Gazette of India, Part III, Sec. 4 (India).

3. Food Safety and Standards (Food Recall Procedure) Regulations, 2017, Gazette of India, Part III, Sec. 4 (India).

4. Ram Nath v. State of Uttar Pradesh, Criminal Appeal No. 472 of 2012, Supreme Court of India.

5. Lexology. (2024, March 7). FSSAI prevails over IPC – Supreme Court. 

6. Tax2win. (2025, February 3). All About FSSAI Rules & Regulations.

7. IndiaFilings. (2025, April 16). FSSAI Penalty and Offenses.

8. Drishti IAS. (n.d.). Food Safety and Standards Authority of India (FSSAI).

9. Department of Food Safety, Delhi. (n.d.). Frequently Asked Questions. 

10. Food Safety Appellate Tribunal, Maharashtra, Appeal No. 17 of 2019 (Distributor Liability Case).

11. Adjudicating Officer Decision, Gujarat, Case No. AD-GJ/23/2023 (Retailer Due Diligence Standards).

12. Adjudicating Officer Decision, Case No. IMP/22/187/2022 (Imported Ingredients Liability).

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Introduction

In the complex web of global trade, a sophisticated shadow economy has emerged, operating at the boundaries of legality and often crossing into illicit territory. This parallel system of trade manipulation extends from the bustling ports of Malaysia to the remote reaches of Tajikistan, involving a complex network of intermediaries, shell companies, and creative documentation practices. Understanding this shadow economy is crucial for comprehending how modern international trade really works, beyond official statistics and regulatory frameworks.

The scale of trade manipulation has grown dramatically with globalization, enabled by increasingly sophisticated financial networks and the complexities of modern supply chains. What began as simple schemes to avoid tariffs has evolved into complex operations involving multiple jurisdictions, elaborate corporate structures, and sophisticated methods of concealing the true nature of transactions.

The Architecture of Shadow Trade Economy

The shadow trade economy operates through an intricate network of relationships between legitimate businesses, shell companies, and specialized intermediaries. These networks have developed sophisticated methods for disguising the origin, nature, and value of goods moving through international trade channels. The system relies on exploiting gaps between different national regulations, utilizing free trade zones, and manipulating documentation requirements.

At its core, this shadow economy depends on the ability to create layers of transactions that obscure the true nature of trade flows. A single shipment might pass through multiple jurisdictions, changing ownership several times on paper while physically moving directly from origin to destination. This complexity makes tracking and controlling illicit trade increasingly challenging for regulatory authorities.

Global Trade Manipulation Networks

The Shadow Economy of Global Trade operates through manipulation networks that span continents and involve a wide range of players, from small trading companies to major multinational corporations. These networks are central to sustaining illicit trade flows by exploiting regulatory gaps and legal loopholes. Key nodes in the shadow economy of global trade often include:

Free trade zones in the UAE, Singapore, and Panama serve as crucial transit points where goods can be repackaged and relabeled. Financial centers in places like Hong Kong and Switzerland provide the banking infrastructure to manage complex transaction chains. Trading hubs in countries with less stringent oversight become critical links in circumvention schemes.

Methods Used in Trade Manipulation

Trade manipulation techniques have evolved far beyond simple misrepresentation of goods. Modern schemes employ sophisticated methods including:

Product transformation centers in intermediate countries perform minimal processing to claim new origin status. Complex ownership structures involving multiple shell companies obscure true ownership and control of goods. Documentation chains create paper trails that appear legitimate while masking actual trade flows.

The sophistication of these methods often makes it difficult to distinguish legitimate trade from manipulation schemes.

Key Players Driving the Shadow Trade Economy

The shadow trade economy involves various specialized players:

Professional trade intermediaries who understand how to navigate regulatory requirements and exploit loopholes. Documentation specialists who create paper trails that appear legitimate while concealing actual operations. Banking professionals who structure financial transactions to avoid detection.

These specialists often operate within seemingly legitimate businesses while facilitating trade manipulation schemes.

Regional Trade Manipulation Hubs

Certain regions have emerged as crucial nodes in the shadow trade economy. The UAE, particularly Dubai, serves as a major hub for reexporting and relabeling goods. Its free trade zones and limited oversight make it ideal for disguising the origin of products.

Malaysia and Singapore play similar roles in Asia, while countries like Belarus and Turkey have become important transit points for evading sanctions on Russia. Each hub develops specialized expertise in handling particular types of transactions or goods.

Economic Impact of the Shadow Trade Economy

The shadow trade economy has significant implications for legitimate business and international commerce. It distorts competition by allowing some players to avoid tariffs and regulations that others must follow. This creates unfair advantages and undermines the effectiveness of trade policies designed to protect domestic industries or enforce international standards.

The economic impact extends beyond lost tariff revenue to affect market prices, investment decisions, and industry competitiveness across multiple sectors.

Technology and Trade Manipulation

Modern technology plays a dual role in trade manipulation. While digital systems create new opportunities for concealment through cryptocurrency transactions and complex digital documentation, they also provide tools for detecting and preventing manipulation:

Blockchain technology offers potential for creating transparent, traceable supply chains. Artificial intelligence can help identify suspicious patterns in trade data. Advanced tracking systems can monitor physical movement of goods more effectively.

Regulatory Challenges in the Shadow Economy

Current regulatory frameworks struggle to address modern trade manipulation schemes. The World Trade Organization lacks effective enforcement mechanisms for addressing sophisticated evasion techniques. National customs authorities often lack resources and coordination to track complex international schemes.

The challenge is compounded by varying standards and enforcement capabilities across different jurisdictions, creating opportunities for regulatory arbitrage.

Future of Trade Transparency

Emerging technologies and regulatory approaches offer potential solutions for increasing trade transparency:

Distributed ledger technologies could create immutable records of trade transactions. Advanced analytics can better identify suspicious patterns and relationships. International cooperation frameworks might improve enforcement coordination.

However, implementing these solutions requires overcoming significant technical, legal, and political challenges.

Conclusion 

The shadow economy of global trade manipulation represents a crucial challenge for the international trading system. While complete elimination of trade manipulation may be impossible, significant improvements in transparency and enforcement are achievable through technology, international cooperation, and regulatory reform.

Success requires recognizing that trade manipulation is not merely a regulatory issue but reflects deeper structural challenges in the global trading system. Addressing these challenges requires balancing the benefits of free trade with effective oversight and enforcement.

Future efforts to combat trade manipulation will likely focus on:

• Implementing new technologies for tracking and verification
• Strengthening international cooperation in enforcement
• Developing more effective regulatory frameworks
• Improving transparency in global supply chains

The effectiveness of these efforts will significantly influence the future of international trade and economic relations. As technology advances and regulatory systems evolve, the battle between those seeking to manipulate trade and those working to ensure transparency will continue to shape global commerce.

The post From Malaysia to Tajikistan: The Shadow Economy of Global Trade Manipulation appeared first on Bhatt & Joshi Associates.

Introduction

The global trading system, built on complex networks of tariffs, rules of origin, and trade agreements, increasingly faces sophisticated efforts to circumvent its regulations. Tariff evasion in global trade has emerged as a significant challenge, as countries and companies develop increasingly clever methods to sidestep duties. While tariffs aim to protect domestic industries and ensure fair trade practices, the reality of modern commerce has created numerous opportunities for evasion and manipulation. These practices contribute to a growing shadow economy that undermines trade policy objectives and threatens domestic industrial interests.

Understanding these evasion tactics and developing effective responses has become crucial for maintaining the integrity of the international trading system. The challenge extends beyond simple enforcement to addressing fundamental questions about the nature of global supply chains and the effectiveness of traditional trade policies in a highly interconnected world.

Understanding Tariff Evasion

Tariff evasion in global trade operates through complex networks of intermediaries, shell companies, and transport arrangements designed to obscure the true origin and nature of traded goods. Modern supply chains, with their multiple processing stages and numerous participants, create abundant opportunities for manipulation. What might appear as legitimate trade often masks sophisticated schemes to avoid tariffs and other trade restrictions.

The scale of tariff evasion has grown significantly with globalization. The International Chamber of Commerce estimates that billions of dollars in tariff revenue are lost annually through various evasion schemes. These practices not only reduce government revenue but also undermine the effectiveness of trade policies designed to protect domestic industries and ensure fair competition.

Tariff Evasion Tactics in Global Trade

The methods used to evade tariffs have evolved far beyond simple misclassification of goods. Transshipment, perhaps the most common tactic, involves routing products through intermediate countries to disguise their origin. A Chinese product might be shipped to Malaysia, undergo minimal processing, and then be exported to the United States as a Malaysian product, avoiding higher tariffs on Chinese goods.

Product reclassification represents another sophisticated evasion strategy. Companies might slightly modify products or their descriptions to qualify for lower tariff categories. For example, steel might be slightly altered in composition or finish to qualify for a different customs classification with lower duties. These modifications often provide no functional change but create significant tariff advantages.

The Role of Global Trade Networks in Tariff Evasion

The complexity of modern trade networks facilitates tariff evasion through multiple channels. Free trade zones, originally designed to promote international commerce, often serve as staging areas for tariff evasion schemes. These zones, with their reduced oversight and special customs status, can become critical nodes in circumvention networks.

Special economic zones and tax havens play crucial roles in these arrangements. Companies establish complex corporate structures spanning multiple jurisdictions, making it difficult to trace true ownership and origin of goods. The legitimate business purposes of these zones become entangled with evasion schemes, creating significant enforcement challenges.

Case Studies in Evasion

The case of Vietnamese furniture exports provides a telling example of sophisticated tariff evasion. Following U.S. tariffs on Chinese furniture, Vietnamese exports to the United States increased dramatically. Investigation revealed that many “Vietnamese” products actually originated in China, with minimal processing in Vietnam to claim origin status. The scheme involved complex networks of suppliers, processors, and exporters working to circumvent U.S. trade restrictions.

Similarly, the automotive sector has seen elaborate schemes to exploit rules of origin under trade agreements. Under NAFTA (now USMCA), complex networks developed to route Chinese auto parts through Mexico, with minimal processing to qualify for preferential treatment. These arrangements often operate at the edges of legality, exploiting ambiguities in trade rules and enforcement capabilities.

Economic Impact of  Tariff Evasion on Domestic Industries

The economic consequences of tariff evasion extend beyond lost government revenue. Legitimate domestic manufacturers face unfair competition from goods that illegally avoid tariffs. This undermines the protective intent of trade policies and can accelerate the decline of domestic industries the tariffs were meant to protect.

Employment impacts can be significant, particularly in manufacturing sectors competing directly with goods benefiting from tariff evasion. Communities dependent on these industries suffer as companies struggle to compete with artificially cheaper imports.

Detection and Enforcement

Modern enforcement efforts increasingly rely on data analytics and international cooperation. Customs authorities use sophisticated risk assessment systems to identify suspicious trade patterns and potential evasion schemes. However, the volume of international trade and the complexity of supply chains make comprehensive enforcement challenging.

Cooperation between customs authorities has become crucial for effective enforcement. The exchange of trade data and intelligence about evasion schemes helps identify and disrupt circumvention networks. However, differences in legal systems and enforcement capabilities can create gaps that evaders exploit.

Technology Solutions in Tariff Evasion Detection

Emerging technologies offer new tools for combating tariff evasion. Blockchain systems can provide transparent, immutable records of supply chain transactions, making it harder to disguise the true origin of goods. Artificial intelligence and machine learning help identify suspicious patterns in trade data that might indicate evasion schemes.

However, technological solutions face their own challenges. Implementation requires significant investment and international cooperation. Privacy concerns and commercial confidentiality issues must be balanced against enforcement needs.

Policy Responses to Combat Tariff Evasion

Effective responses to tariff evasion require a combination of enhanced enforcement capabilities and policy reforms. Stricter penalties for violations, improved coordination between enforcement agencies, and better resources for customs authorities form part of the solution. However, addressing structural issues in the trading system that facilitate evasion is equally important.

Reform efforts might include:

• Strengthening rules of origin requirements
• Enhancing transparency in free trade zones
• Improving international cooperation in enforcement
• Developing better tracking systems for goods in transit

Future Challenges in Tariff Evasion and Global Trade Enforcement

The future of tariff enforcement faces several key challenges. The continuing evolution of global supply chains creates new opportunities for evasion. Digital commerce and services trade present novel challenges for traditional enforcement approaches. The growing sophistication of evasion networks requires constant adaptation of detection and enforcement methods.

Climate change policies and environmental regulations may create new opportunities for tariff evasion through schemes to avoid carbon border adjustments and environmental standards. Addressing these challenges will require innovative approaches and international cooperation.

Conclusion 

The battle against tariff evasion in global trade represents a crucial challenge for maintaining effective trade policies. While complete elimination of evasion may be impossible, significant improvements in detection and enforcement are achievable through technology, international cooperation, and policy reform.

Success requires recognizing that tariff evasion is not merely a technical enforcement issue but reflects deeper challenges in the global trading system. Addressing these challenges requires balancing the benefits of free trade with effective regulation and enforcement.

The future effectiveness of trade policies will depend significantly on the ability to address tariff evasion while maintaining efficient international commerce. This balance becomes increasingly important as global trade patterns evolve and new challenges emerge in the international economic system.

The post Tariff Evasion in Global Trade: How Countries Manipulate Trade Laws to Avoid Tariffs (And What the U.S. Can Do) appeared first on Bhatt & Joshi Associates.

Introduction

Customs House Agents (CHA) play an essential role in facilitating the smooth clearance of goods through the customs process in India. In this article, we will discuss the role of a Customs House Agent and the prevailing Indian laws that govern their operations.

Who is a Customs House Agent?

A Customs House Agent is a person or an organization authorized by the Indian Customs Department to act as a representative of an importer or exporter in customs-related matters. The role of a CHA is to facilitate the clearance of goods through customs by completing various formalities, documentation, and other legal procedures required by the Customs Department. A CHA acts as a liaison between the importer/exporter and the Customs Department and assists in complying with the legal requirements for customs clearance.

The Customs House Agent Regulations, 2018 defines the CHA under Section 2 (d) as follows: 

“Customs Broker ” means a person licensed under these regulations to act as an agent on behalf of the importer or an exporter for purposes of transaction of any business relating to the entry or departure of conveyances or the import or export of goods at any Customs Station including audit” 

Registration of Customs House Agent

The Customs House Agent Regulations, 2018, govern the registration of CHAs in India. As per the regulations, any person who wants to act as a Customs House Agent must obtain a license from the Customs Department. The license is valid for five years and can be renewed thereafter. The applicant has to provide various details, including their financial standing, previous experience, and a security deposit, to obtain the license.

Roles and responsibilities of a Customs House Agent

The primary responsibility of a Customs House Agents is to ensure that the goods are cleared through customs without any delays or hassles. A CHA performs the following tasks:

1. Documentation: A Customs House Agents is responsible for preparing and submitting all the necessary documents required for customs clearance, such as bills of entry, shipping bills, and other related documents.
2. Liaising with customs officials: A Customs House Agents acts as a liaison between the importer/exporter and the customs officials. They communicate with customs officials to ensure that all formalities are completed correctly.
3. Payment of duty: A Customs House Agents is responsible for the payment of import/export duty on behalf of the importer/exporter. They also ensure that all taxes and levies are correctly calculated and paid.
4. Examination of goods: A Customs House Agents is responsible for arranging the examination of the goods by customs officials and ensuring that the examination is carried out efficiently.
5. Transport of goods: A Customs House Agents arranges for the transport of goods from the customs warehouse to the importer/exporter’s premises.

That Section 146 of the Customs Act 1962 clearly mandates the compulsory license for doing any action or acting as a Customs House Agent which is as follows:

146. Customs house agents to be licensed.—

• No person shall carry on business as an agent relating to the entry or departure of a conveyance or the import or export of goods at any customs station unless such person holds a licence granted in this behalf in accordance with the regulations.
• The Board may make regulations for the purpose of carrying out the provisions of this section and, in particular, such regulation may provide for—
  • the authority by which a licence may be granted under this section and the period of validity of any such licence;
  • the form of the licence and the fee payable therefor;
  • the qualifications of persons who may apply for a licence and the qualifications of persons to be employed by a licensee to assist him in his work as an agent;
  • the restrictions and conditions (including the furnishing of security by the licensee) subject to which a licence may be granted;
  • the circumstances in which a licence may be suspended or revoked; and
  • the appeals, if any, against an order of suspension or revocation of a licence, and the period within which such appeals shall be filed.

That the Customs Brokers Licensing Regulations, 2018 is passed vide Notification No. 41/2018-Customs (N.T.) dated 14th May, 2018 amended by Notification No. 08/2019-Customs (N.T.) dated 06.02.2019 and in the exercise of the powers conferred by sub-section (2) of section 146 of the Customs Act, 1962 (52 of 1962), and in supersession of the Customs Brokers Licensing Regulations, 2013, published vide number G.S.R. 395 (E), dated the 21st June, 2013, except as respect things done or omitted to be done before such supersession, the Central Board of Indirect Taxes and Customs has enacted the same to curb the menace.

That Regulation 3 of the  Customs Brokers Licensing Regulations, 2018, clearly mandates as follows: 

3. Customs Brokers to be licensed.—

No person shall carry on business as a Customs Broker relating to the entry or departure of a conveyance or the import or export of goods including work relating to audit at any Customs Station unless such person holds a license granted under these regulations:  Provided that no license under these regulations shall be required by-

• an importer or exporter transacting any business at a Customs Station solely on his own account;
• any employee of any person or a firm transacting business generally on behalf of such person or firm, and holding an identity card or a temporary pass issued by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be; and
• an agent employed for one or more vessels or aircrafts in order solely to enter or clear such vessels or aircrafts for work incidental to his employment as such agent.  

It is also pertinent to note that Regulation 10 of the  Customs Brokers Licensing Regulations, 2018, clearly mentions the duties and obligations of Customs Brokers which are as follows: 

47. Obligations of Customs Broker.—

A  Customs Broker shall — 

• obtain an authorisation from each of the companies, firms or individuals by whom he is for the time being employed as a Customs Broker and produce such authorisation whenever required by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

• transact business in the Customs Station either personally or through an authorized employee duly approved by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

• not represent a client in any matter to which the Customs Broker, as a former employee of the Central Board of Indirect taxes and Customs gave personal consideration, or as to the facts of which he gained knowledge, while in Government service;

• advise his client to comply with the provisions of the Act, other allied Acts and the rules and regulations thereof, and in case of non-compliance, shall bring the matter to the notice of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

• exercise due diligence to ascertain the correctness of any information which he imparts to a client with reference to any work related to clearance of cargo or baggage;

• not withhold information contained in any order, instruction or public notice relating to clearance of cargo or baggage issued by the Customs authorities, as the case may be, from a client who is entitled to such information;

• promptly pay over to the Government, when due, sums received for payment of any duty, tax or other debt or obligations owing to the Government and promptly account to his client for funds received for him from the Government or received from him in excess of Governmental or other charges payable in respect of cargo or baggage on behalf of the client;

• not procure or attempt to procure directly or indirectly, information from the Government records or other Government sources of any kind to which access is not granted by the proper officer;

• not attempt to influence the conduct of any official of the Customs Station in any matter pending before such official or his subordinates by the use of threat, false accusation, duress or the offer of any special inducement or promise of advantage or by the bestowing of any gift or favour or other thing of value;

• not refuse access to, conceal, remove or destroy the whole or any part of any book, paper or other record, relating to his transactions as a Customs Broker which is sought or may be sought by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be;

• maintain up to date records such as bill of entry, shipping bill, transhipment application, etc., all correspondence, other papers relating to his business as Customs Broker and accounts including financial transactions in an orderly and itemised manner as may be specified by the Principal Commissioner of Customs or Commissioner of Customs or the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be;

• immediately report the loss of license granted to him to the Principal Commissioner of Customs or Commissioner of Customs, as the case may be;

• discharge his duties as a Customs Broker with utmost speed and efficiency and without any delay;

• verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN),identity of his client and functioning of his client at the declared address by using reliable, independent, authentic documents, data or information;

• inform any change of postal address, telephone number, e-mail etc. to the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, of all Customs Stations including the concerned Deputy Commissioner or Assistant Commissioner of the Commissionerate who has granted the license immediately within two days;

• maintain all records and accounts that are required to be maintained under these regulations and preserve for at least five years and all such records and accounts shall be made available at any time for the inspection of officers authorised for this purpose; and
• co-operate with the Customs authorities and shall join investigations promptly in the event of an inquiry against them or their employees.

That Regulation 14 of the  Customs Brokers Licensing Regulations, 2018, clearly mentions the penalties which are as follows:

14. Revocation of licence or imposition of penalty—

The Principal Commissioner or Commissioner of Customs may, subject to the provisions of regulation 17, revoke the license of a Customs Broker and order for forfeiture of part or whole of security, on any of the following grounds, namely:—

• failure to comply with any of the conditions of the bond executed by him under regulation 8;
• failure to comply with any of the provisions of these regulations, within his jurisdiction or anywhere else;
• commits any misconduct, whether within his jurisdiction or anywhere else which in the opinion of the Principal Commissioner or Commissioner of Customs renders him unfit to transact any business in the Customs Station;
• adjudicated as an insolvent;
• of unsound mind; and
• convicted by a competent court for an offense involving moral turpitude or otherwise.

That in Noble Agency v. Commissioner of Customs, Mumbai [2002 (142) E.L.T. 84 (Tri. – Mumbai) wherein a Division Bench of the CEGAT, West Zonal Bench, Mumbai has observed as follows: 

“The CHA occupies a very important position in the Custom House. The Customs procedures are complicated. The importers have to deal with a multiplicity of agencies viz. carriers, custodians like BPT as well as the Customs. The importer would find it impossible to clear his goods through these agencies without wasting valuable energy and time. The CHA is supposed to safeguard the interests of both the importers and the Customs. A lot of trust is kept in CHA by the importers/exporters as well as by the Government Agencies. To ensure appropriate discharge of such trust, the relevant regulations are framed. Regulation 14 of the CHA Licensing Regulations lists out obligations of the CHA. Any contravention of such obligations even without intent would be sufficient to invite upon the CHA the punishment listed in the Regulations.”

That in V. Prabhakaran Vs CC Chennai – 2019 (365) ELT 877 (Mad.) Hon’ble jurisdictional High Court held that misuse of CHA license by lending it to unscrupulous persons for facilitating smuggling activities has to be viewed seriously. The penalty imposed in that case was upheld by the Hon’ble High Court, which is as follows: 

• 47. Here in the case on hand because of the attitude on the part of the appellant in lending his CHA license to a third party for usage without knowing the actual importer and the goods to be imported, is a serious issue and for the said purpose, since the appellant was admittedly get only Rs.1,000/- for each consignment, the appellant has not only misused the CHA license but also very recklessly and carelessly lend it to some unscrupulous perons for facilitating smuggling activities and therefore such act on the part of the appellant shall be viewed seriously.

11. That in R.S. Arunachalam Vs Commissioner of Customs (CESTAT Chennai) was pleased to hold that CHA liable for a penalty for allowing misuse of license by lending it to unscrupulous persons and the same has happened in the present case, and it was held as follows: 

• 19.The licence issued to the Customs House Agent under conditions not to commit any grave offence. If action under the Regulations not sufficient for the grave offence, the Customs House Agent is liable also to be proceeded under the Customs Act. There is no legal impediment to proceed against the Customs House Agent under the Customs Act besides action under the Regulations.”

• 22. After appreciating the facts and evidence placed before me, I am of the view that the decision of the jurisdictional High Court in the case of Shri Rama Thenna Thayalan (supra) is squarely applicable to the facts of this case. I do not find any merit in the appeals of the appellant. The impugned orders do not call for interference. The same are upheld. The appeals are dismissed.

Conclusion 

In conclusion, Customs House Agents (CHA) are important intermediaries in the smooth clearance of goods through the customs process in India. Their primary responsibility is to facilitate the clearance of goods through customs by completing various formalities, documentation, and other legal procedures required by the Customs Department. The Customs House Agent Regulations, 2018 govern the registration of CHAs in India, and they must obtain a license from the Customs Department to act as a representative of an importer or exporter in customs-related matters. CHAs must ensure that goods are cleared through customs without any delays or hassles, including documentation, liaising with customs officials, payment of duty, examination of goods, and transportation of goods. The regulations ensure that CHAs have the qualifications, restrictions, and conditions to carry out their duties, and they also lay out the circumstances in which a license may be suspended or revoked. Overall, CH As are essential to ensure that goods are efficiently and legally cleared through customs in India.

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