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FSSAI introduces comprehensive food recall framework

February 27, 2017
VOL II
ISSUE No. 05
February 27, 2017

FSSAI introduces Comprehensive Food Recall Framework

Introduction

In 2015, India’s apex food regulator, the Food Safety and Standards Authority of India (FSSAI), had ordered recall of energy drinks, Tzinga, Cloud 9, Monster Energy from the market declaring ingredients in these energy beverages were not safe. Around the same time what shook the nation was the recall of popular two-minute noodles, Maggi, produced by Swiss food giant Nestle due to high content of lead and a food additive

Until now, India has had no food recall regulations though the process for drafting such regulations . The row over the Maggi hassle triggered the Food Safety and Standards Authority of India (FSSAI) to expedite the process and to finally come up with the Food Safety and Standards (Food Recall Procedure) Regulations, 2017. Prior to this, food recall was governed by Section 28 of the Food Safety and Standards Act, 2006 . This provision is narrow and does not lay down a comprehensive process on the overall process of food recall.

Objective and scope of the Regulations:

The objective of the Regulation is to ensure removal of food under recall from all stages of the food chain, ensure dissemination of information to concerned consumers and ensure retrieval, destruction or reprocessing of food under recall. This Regulation is applicable to food or food products that are determined or prima facie considered unsafe and/or as may be specified by FSSAI from time to time. All food business operators are covered under these Regulations.

Highlights of the Regulations:

Initiation of food recall:

Food recall maybe initiated by food business operators or competent authorities may direct food business operators to initiate the same. Recall process may also be initiated as a result of reports or complaints from any stakeholder, and the food business operator shall determine whether there is a need to recall. Upon no response from the food business operator, the complainant shall inform FSSAI who shall determine if there is a need to recall.

Recall Plan:

Manufacturers, importers and wholesale suppliers now have to maintain an up-to-date recall plan. The only exceptions are restaurants, caterers and takeaway joints unless they have multi-outlet food business chains with integrated manufacturing and distribution network.

Food recall system:

The food business operator shall maintain the food distribution records which include the names and addresses of suppliers and customers, nature of food, date of purchase, date of delivery, lot number, batch code, pack size, brand name, date of manufacture, date of expiry and best before date, and shall maintain such records for a period of one year from best before date or the expiry date, as applicable.

Communication:

The food business operators initiating a food recall have to promptly inform food business operators in the food chain including manufacturers, processors, distributors, sellers, importers and exporters. Communication should also be made to consumers in the affected area through print or electronic area.

Responsibility of food business operator

Food business operators have to act to avoid or reduce risks posed by specific batch or lot of food which they have supplied and remove such food from sale or distribution. Recovered food should be stored by food business operator and labelled as “Recalled Product Not Fit for Human Consumption”. In addition, the food business operators also have to submit periodic status reports (weekly or otherwise specified) to FSSAI regarding the progress of the recall. They will also need to retain complete documentation on food recall for inspection by the FSSAI or State food safety commissioners. The recall may be terminated upon request of food business operator.

Takeaway: >

The Regulations have exceedingly widened the scope of the recall provision in the Food Safety and Standards Act, 2006. However, the question still remains whether the new provisions are fool proof. The Regulations do not speak about a traceable and transparent management system. An effective traceability system allows a food business operator to locate food articles through the food chain, since without this safeguard, food recall could be difficult, extensive and time consuming. Further, there is no timeline mentioned for communication of food recall to consumers and those involved in the food chain. Often, food is not returned to the food business operator and may be wrongfully sold or distributed. Therefore, there arises a requirement of an Incident Team to compile accurate figures on food not returned.

Despite these lacunae, the new Regulations are a welcome move. Food recall is an important link in ensuring food safety to the consumer and the Regulations ensure food recall is now backed by regulatory control. The FSSAI has introduced a systematic approach to food recall which will go a long way in providing assurance to consumer.

[1] Food safety body asks some energy drinks brands to recall products, the Hindu Business Line, published on 13 May, 2015 available at http://www.thehindubusinessline.com/companies/food-safety-body-asks-some-energy-drinks-brands-to-recall-products/article7202256.ece

[2] UP tests more Maggi samples after ordering recall, The Times of India, published on 21 May, 2015 available at

http://timesofindia.indiatimes.com/business/india-business/UP-tests-more-Maggi-samples-after-ordering-recall/articleshow/47373467.cms

[3] Maggi row: FSSAI prepares national food recall framework, sends proposal to WTO, The Economic Times, published on 6 June, 2015 available athttp://economictimes.indiatimes.com/industry/cons-products/food/maggi-row-fssai-prepares-national-food-recall-framework-sends-proposal-to-wto/articleshow/47560982.cms

[4] Section 28 states that a food business operator may initiate procedures to withdraw food and inform competent authorities.

 


CBDT Guidelines on Place of Effective Management


Introduction

On January 24, 2017, the Central Board for Direct Taxes (hereinafter referred to as “CBDT”) issued a circular enumerating the Guidelines for Determining the Place of Effective Management (hereinafter referred to as “POEM Guidelines”) of a company [1]. Section 6(3) of The Income Tax Act, 1961 (hereinafter referred to as the “IT Act”) was amended by the Finance Act, 2015 and defines the term “Place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance, made.

The amended definition was scheduled to come into effect from April 1, 2016 but The Finance Act, 2016, changed the effectiveness of the amendment to April 1, 2017 and hence, will apply to Assessment Year 2017-18 and subsequent assessment years.

Situation Prior to Amendment

Prior to the amendment, the situation was a bit different, as under Section 6(3) of the IT Act, a Company was said to be resident in India if –

  • it was an Indian Company; or
  • during the previous year the control and management of its affairs was situated wholly in India.

The Bombay High Court in Narottam and Pereira Ltd. Vs Commissioner of Income Tax (1953 23 CompCas 185 Bom) had observed that while construing the expression “control and management” it was necessary to bear in mind the distinction between doing of business and control and management of business. The Court observed that the entirety of business activities by a Company may be conducted outside India, while the control and management of that business may be wholly within India. Therefore, it did not matter where business activities were conducted and income has been earned. The relevant factor was where the controlling and directing power or the seat of head and the brain of the company lay.

However, under the old definition, the expression ‘control and management’ resulted in ambiguities and loopholes which led to tax avoidance and double taxation.

To address these concerns the Ministry of Finance, amended Section 6(3) of the IT Act to provide greater clarity in the Taxation Process.

Place of Effective Management in Tax Treaties-

The “place of effective management approach” is known to be an effective approach for avoiding tax evasion by foreign companies in India. Many other jurisdictions have adopted this approach in their tax laws such as China, Russia, South Africa, and Australia[2] and most of the tax treaties entered into by India recognizes the concept of “place of effective management” for determination of residence of a company as a tie-breaker rule for avoidance of double taxation.

Important Provisions of the POEM Guidelines

  • The POEM guidelines shall not apply to Companies whose turnover is INR Fifty Crore or less during a Financial Year.
  • Some Factors that determine Place of Effective Management
    Identification or ascertaining the person or persons who actually make the key management and commercial decisions for conduct of the Company’s operations and the determination of place where these decisions are in fact being taken. The following factors may be taken into account in the determination:
    • The location where a company’s Board regularly meets and makes decisions may be the company’s place of effective management. If the Place of Effective Management of a Company engaged in active business outside India shall be presumed to be outside India, if the majority of meetings of the Board of the company are held outside India.
    • The location of a Company’s Head Office will be a very important factor in the determination of the Company’s Place of Effective Management as the Head Office represents the place where decisions are made.
    • In case of delegation of duties by the Board to an executive committee, the location where the members of the committee are resident and where their meetings are conducted will be taken into account.
    • The place where the Directors or the Persons taking the decisions or the majority of them usually reside may also be a relevant factor.
    • Other factors that may be considered include the place where main and substantial activity of the company is carried out; or place where the accounting records of the company are kept.

    • For the purpose of determining the Place of Effective Management, the average of the data of the previous year and two years prior to that shall be taken into account. In cases where a Company has been in existence for a shorter period, the data of such period shall be taken into account. It is pertinent to note that no single principle will be decisive in itself and such determination will done based on the facts and circumstances of each case.

  • Active Business Outside India

    A company is said to be engaged in ‘active business outside India’ if-

    • Passive income is not more that 50% of its total income; and
    • Less than 50% of its total assets are situated in India; and
    • Less than 50% of total number of employees are situated in India or are resident in India; and
    • The payroll expenses incurred on such employees is less than 50% of the total payroll expenditure
    • ‘Passive income’ in this context means any income from the transaction purchase and sale to or from subsidiary or associated companies which shall also include income by way of royalty, dividend, capital gains, interest or rental income. (Income by interest as passive income is excluded in case of companies engaged in business of banking or is a public financial institution.)

      If any of the above conditions that are mentioned above are not met, then the income of such a Company will be presumed to be domestic income and shall be taxable in India. The CBDT has further clarified that this test has been provided to target shell companies and the companies which are created for retaining income outside India although real control and management is located in India[3]

  • For the purpose the average of the data of the previous year and two years prior to that shall be taken into account. In case of a company in existence for a shorter period the data of such period shall be taken into account.
  • Factors not considered to be conclusive evidence
    • A foreign subsidiary of an Indian Company will not be considered to have its Place of Effective Management in India simply due to its status as a subsidiary.
    • It is pertinent to note that having a permanent establishment of a Foreign Company in India is different from ‘Place of Effective Management in India’. Having a Permanent Establishment means that income related to permanent establishment is taxable in India but having Place of Effective Management in India means that the worldwide income of Foreign Company is taxable in India . Therefore, a Foreign Company having a Permanent Establishment in India will not mean that the Company’s management occurs in India.
    • Residence of one or more directors of the Foreign Company in India or the existence of auxiliary support functions being situated in India will not be conclusive evidence for establishing POEM in India.

Observations

The POEM Guidelines have been formulated keeping in view the increasing role of technology in carrying out business activities. The Guidelines take into account use of modern technology such as video conferencing and telecommunications which allow Companies to hold meetings with members without requiring them to be physically present in a conference room for a particular meeting.

It is reiterated that the principles are for guidance only and none of the principles are decisive in itself. Any determination of the Place of Effective Management will depend upon the facts and circumstances of each case. It may be noted that an entity may have more than one place of management, but it can have only one Place of Effective Management at any point of time for the determination of residential status as per the guidelines. Since tax is to be paid on a yearly basis a Company’s Place of Effective Management will be determined on a year-to-year basis.

[1]http://www.incometaxindia.gov.in/News/Circular06_2017.pdf

[2]https://www.sircoficai.org/downloads/cpe-materials/PoEM-Training-1.pdf

[3]http://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/588/

CBDT-Guiding-Principles-determination-Effective-Management-POEM-Company-24-1-2017.pdf

[4]Retrieved from https://www.bloombergquint.com/union-budget-

india/2017/01/24/tax-department-issues-place-of-

effective-management-rules-to-stop-evasion-by-foreign-companies

 


SEBI-Integrated Reporting by listed entities

An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term. The primary purpose of an integrated report is to explain to providers of financial capital how an organization creates value over time[1]. The Securities Exchange Board of India has issued this circular in exercise of the powers conferred under Section 11 read with Section 11A of the Securities and Exchange Board of India Act, 1992. The key principles which are required to be reported by the entities pertain to areas such as environment, governance, stakeholder’s relationships, etc.

Circular No-SEBI/HO/CFD/CMD/CIR/P/2017/10-SEBI

Business Responsibility Report is a disclosure of adoption of responsible business practices by a listed company to all its stakeholders. This report contains a standardized format for companies to report the actions undertaken by them towards adoption of responsible business practices. The disclosure is important as these companies have accessed funds from the public, have an element of public interest involved, and are obligated to make exhaustive disclosures on a regular basis. The Securities Exchange Board of India on February 6, 2017 vide Circular No-SEBI/HO/CFD/CMD/CIR/P/2017/10-SEBI[2], has mandated the requirement of submission of Business Responsibility Report (hereinafter referred to as ‘BRR’) for top 500 listed entities (hereinafter known as “Entities”) under Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (“SEBI LODR”). This Circular encourages the Entities to use Integrated Reporting as a framework to improve the quality and relevance of the information.

The object of an Integrated Report is to provide a concise communication about how an organization’s strategy, governance, performance and prospects create value over time. The integrated reporting will help the shareholders and interested stakeholders in making investment decisions.

The International Integrated Reporting Council (hereinafter known as ‘IIRC’) has prescribed Guiding Principles for the preparation of an integrated report[3]. The Integrated Report should:

  • Provide an insight into the organization’s strategy and should be future oriented.
  • Provide an insight of the organization’s relationships with its key stakeholders.
  • Show a holistic picture of the combination, interrelatedness and dependencies between the factors that affect the organization’s ability to create value over time.
  • Disclose information which substantively affect the organization’s ability to create value over the short, medium and long term.
  • Be concise.
  • BeBe reliable and complete.
  • Be presented-
    • On a basis that is consistent over time; and
    • In a way that enables comparison with other organizations.

The Circular prescribes that entities should disclose all forms of capital in the Integrated Report so as to enable the Stakeholders in making informed investment decisions. IIRC has categorized the forms of capital as financial, manufactured, intellectual, human, and social and relationships and natural capital.

The Circular advises the entities to adhere to the following – 

  • Integrated Reporting may be adopted on a voluntary basis from the financial year 2017-18 by top 500 companies.
  • The information related to Integrated Reporting may be provided in the annual report separately or by incorporating in Management Discussion & Analysis or by preparing a separate report (annual report prepared as per IR framework).
  • In case the company has already provided the relevant information in any other report prepared in accordance with national/international requirement / framework, it may provide appropriate reference to the same in its Integrated Report so as to avoid duplication of information.
  • The companies may host the Integrated Report on their website and provide appropriate reference to the same in their Annual Report.

Observations

The Listed Companies have access to funds from the public, they have an element of public interest involved and are therefore obligated to give disclosure to its shareholders and key stakeholders on a regular basis. This Circular has initiated a process by which the Entities integrate reporting with its business decisions.
Securities Exchange Board of India with its continuous effort to protect the interest of the public has asked top 500 listed entities to voluntarily adopt the integrated reporting framework from next financial year. It will be interesting to see how Entities adopt and implement the reporting framework, although SEBI has given a period of 1 year to implement such reporting framework

[1]http://www.sebi.gov.in/cms/sebi_data/attachdocs/1486375066836.pdf

[2]http://www.sebi.gov.in/cms/sebi_data/attachdocs/1486375066836.pdf

[3]http://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf

 


Delhi High Court Gives Internet ‘Intermediaries’ A ‘Safe Harbour’, Revolutionizing Internet Space In India

On December 23, 2016, the Division Bench of the Delhi High Court, passed its final order in the case of Myspace Inc. Vs. Super Cassettes Industries Ltd.larising out of an appeal filed by MySpace related to contentions made against it for having ‘knowledge’ of copyright infringement and the grant of permanent injunction to broadcast works of Super Cassettes Industries Ltd. (SCIL) by the Single Judge. The Court held that intermediaries cannot be held liable for infringement unless the ‘actual knowledge’ on part of intermediaries can be proved and the mere act of facilitating expression over internet does not amount to infringement. For this purpose the Court also differentiated between ‘actual knowledge’ and ‘general awareness’ in case of such intermediaries.

Brief Facts-

  • MySpace is an USA based Internet Service Provider (ISP) which is used for the purpose of social networking and sharing of multimedia files over the internet.
  • SCIL, on the other hand is a Company which owns popular music labels such as T-Series.
  • With the advent of technology the sharing of multimedia files is not limited to CDs, DVDs and Cassettes, and viewers now seek easy ways to have access to such files through the internet. In such a scenario copyright infringement over the internet was inevitable.
  • “Intermediary” has been defined in the Information Technology Act, 2000 (hereinafter “IT Act, 2000”) as any person who on behalf of another person receives, stores or transmits electronic record or provides any service thereof and includes inter alia telecom service providers, network service providers, internet service providers, web-hosting service providers.
  • A civil suit was filed before the Single Judge of the Delhi High Court in 2004 by SCIL against MySpace for allegedly infringing their copyright under Section 51 of the Indian Copyright Act, 1957. SCIL claimed that as MySpace permitted uploading and viewing of copyright content free of cost, the ease of access is discouraging the viewers to purchase CDs and DVDs available in the market leading to immeasurable loss of revenues. Further, SCIL alleged that MySpace is obtaining revenues in form of advertisement from such infringing works. The Single Judge, after hearing the pleadings held Myspace liable and restrained them from dealing with the SCIL’s works in future and held that the ‘safe harbor’ as laid down under Section 79 of The IT Act, 2000, is not available for intermediaries in case of copyright infringement. The Single Judge further held that “there is no reason to axiomatically make each and every work available to the public solely because the user has supplied them unless the defendants are so sure that it is not infringement.”
  • The Single Judge’s judgement would have the effect that intermediaries were attached with a liability whether or not any fault could be attributed to them. Even though a given intermediary did apply for all available means to prevent publication of potentially infringing content, it would be liable for any illegality in the content though it was impossible to detect.
  • Aggrieved by the Single Judge’s decision MySpace filed an appeal before the Division Bench of the Delhi High Court.

Contentions by SCIL (Respondents)  

  • The Respondents argued that MySpace has both knowledge as well as control over the content shown on its website in the same manner like that of a mall owner.
  • Moreover, MySpace permanently stores data on its site to make it available for the audience, therefore excluding such storage from being ‘transient storage’.
  • The very moment the site (Myspace or any other ISP) takes licence from the uploader to modify the uploaded works, it becomes fully aware of the content being of infringing nature. The provision of notice and the ‘Take down System’ provided by the site would not mitigate the infringement caused.

Contentions by MySpace (Appellants)

  • MySpace, on the other hand, argued that it was simply a licensee of users who uploaded content and the licence so granted was limited in the sense that MySpace is only allowed to alter user-generated content so as to make it viewable.
  • If the intermediary is fulfilling all the conditions (due diligence, choosing of audience/receiver, etc.) set out in Section 79 of the IT Act, 2000 for exemption from the liability, such strict liability need not be attached with the intermediary on mere notion that they had ‘knowledge’ of infringement.

Observations of the Division Bench

  • The first issue raised was whether MySpace could be said to have actual knowledge of the infringement. Both under the Copyright Act and IT Act, 2000 actual knowledge and not mere apprehension is necessary to attract offence and prove mens rea (intention or motive). Also the provision for safeguard devices like notice and take down provision would not imply actual knowledge. The Court observed that MySpace neither had ‘actual knowledge’ nor had ‘reason to believe’ that the uploaded content infringed copyright of SCIL in any manner.
  • The second point of discussion was whether MySpace shall be given protection (safe harbour) as an intermediary under the IT Act, 2000, i.e. should it be given exemption from liability for any third party information, data or communication link made available or hosted by it. The Court observed that MySpace very well qualified the definition of intermediary as it acts as a portal for information. The intent of the IT Act, 2000 is to regulate the liability of intermediary in terms of globally accepted standards and in no way curtails the rights guaranteed under the Copyright Act. If the intermediary follows certain minimum standards and has post infringement safety measures on its site it shall act as an affirmative defense to claim such exemption under Section 79 of the IT Act, 2000.
  • Furthermore, the two sections of the IT Act, 2000 – Sections 79 and 81 must be read harmoniously to give effect to both. Section 79 has an overriding effect; it begins with the words “Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-section (2) and (3),” which means that irrespective of any other law, an intermediary is guaranteed a ‘safe harbour’ if only conditions of Section 79 are fulfilled. Proviso to Section 81 on the other hand states that “nothing in this Act shall restrict any person from exercising any right under the Copyright Act or the Patent Act.” The intent of Section 79 regulates the liability in respect of intermediary while the Copyright Act grants and controls rights of a copyright owner. The object of proviso attached to Section 81 is only not to debar the copyright and patent holders to pursue legal remedies under the IT Act, 2000.
  • Both the Acts –Copyright Act and IT Act, 2000 should be read together to encourage investment, research and development in the telecommunications sector. The intermediary would be attached with liability only if they themselves post infringing content or upon actual knowledge or notification of appropriate government they fail to expeditiously remove or disable access to an unlawful content.

Decision of the Division Bench 

The Court, while considering all factors, and in view of equity decided that Super Cassettes shall provide details of ‘specific work’ in which it holds copyright along with the URL/Links on MySpace site to MySpace as and when they detect any infringement so that the contents can be removed/blocked by MySpace within the statutory limit of 36 hours provided under Information Technology (intermediaries guidelines) Rules, 2011. 

Suggestions by the Division Bench 

The Court observed that the rapid growth of technology required a change in the legislative and judicial approaches. The Court suggested that for setting up a mutually acceptable information exchange between rights holders and intermediaries, a four step mechanism may be set up. The four step mechanism would include-

  • Notice and Take down- In this method an infringement notice is issued to the intermediary by the content owner, and the intermediary in furtherance of the notice takes down the content of the subscriber from the URL/link and restricts it from further display.
  • Notice and Notice- Once an intermediary receives notice from a content owner it passes on the notice to the infringing subscriber.
  • Notice and Disconnection- it is also called “Three Strikes Model” evolved by the French Government. According to this method, once an infringing subscriber is found to be uploading infringing content more than 3 times, the intermediary can go ahead and terminate the services of such intermediary.
  • Filtering- in this method, tools are used to identify and remove the infringing content automatically by the intermediary.

Concluding Remarks-

The internet is a virtual space of undefined boundaries. It is true that copyright owners have the right to modify, sale or distribute their work and protect their work from any infringement, but in the wake of technology it is essential that the provisions of IT Act, 2000 and Copyright Act are read harmoniously. To attribute strict liability to intermediary industry would most likely lead to its shutdown, especially where the content is of this magnitude and size. For instance, if WhatsApp and other social media portals were held liable for each infringement given the magnitude of information broadcasted on them, this would mean closure of the website and the businesses. Such strict liability attached to intermediaries would also mean restriction of free speech and expression to the content uploader. This judgment has clarified the position of claim of a copyright holder with respect to the intermediaries, while also giving some protection to the intermediaries to function smoothly.

[1]FAO(OS) 540/2011

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