Notified Goods: Detecting Illegal Imports

Section 11C(2): no person shall, after the notified date, acquire possession of or otherwise deal with notified goods except at a place intimated under sub-section (1) or under this sub-section, and a person who acquires such goods after that date must, before acquiring them, deliver an intimation of the place where they will be kept.

Section 11C(3): a person may, after delivering an intimation, change the place so intimated on giving a fresh intimation.

Section 11D provides the precaution to be taken on acquisition. No person shall acquire possession of, or otherwise deal in, any notified goods unless he has reason to believe that the goods are not goods which have been illegally imported. The provision converts the ordinary trader into a checkpoint: a purchaser who buys without asking is not merely imprudent, he is in breach of the section.

Section 11E requires accounts. Every person who owns, possesses or controls notified goods, at any time after the notified date, must maintain in the prescribed form a true and complete account of the goods, keep it at the intimated place, and preserve it for the prescribed period. Where a person has more than one intimated place, separate accounts are kept for each.

Section 11F requires vouchers. No person shall sell or otherwise transfer any notified goods unless every such sale or transfer is evidenced by a voucher in the prescribed form and containing the prescribed particulars. This is the provision that produces the paper trail; sections 11C and 11E establish where goods are and what they are, and section 11F establishes where they went.

Section 11G is the exemption, and it prevents the chapter becoming absurd. Sections 11C, 11E and 11F do not apply to notified goods which are in personal use of the person by whom they are owned, possessed or controlled, or which are kept in the residential premises of such person for his personal use. It also excludes goods in the custody of specified public bodies. Without section 11G every household holding gold jewellery would owe accounts and vouchers.

How the chapter is enforced

The duties are not free-standing exhortations; breach feeds the confiscation and penalty machinery.

Section 111(p) makes any notified goods in relation to which any provision of Chapter IVA or of any rule made under this Act for carrying out the purposes of that Chapter has been contravened liable to confiscation.

Section 112 then attaches a penalty to any person who does or omits to do any act which renders goods liable to confiscation, or who abets such an act.

And section 123, the reversed burden, frequently applies to the same commodities. Gold is both the classic notified good under Chapter IVA and the classic section 123 good, so a dealer found with unaccounted gold faces a double difficulty: the accounts he was required to keep are absent, and the burden of proving the goods are not smuggled is on him.

Distinguishing Chapter IVA from the section 11 prohibition

Worked example

Gold is notified under section 11B. Hemant Jewellers of Zaveri Bazaar holds stock on the notified date exceeding the prescribed value.

On the notified date, Hemant must within seven days deliver a statement under section 11C(1) to the proper officer, stating the place where the gold is kept. If he later wishes to move stock to a second shop, he must intimate that place under section 11C(2) before acquiring goods there, or change his intimated place under section 11C(3).

When he buys from a supplier, section 11D requires that he must not acquire possession unless he has reason to believe the gold is not illegally imported. Buying from an unknown seller offering an unusually low price, without documents, is precisely what the section forbids.

While he holds stock, section 11E requires a true and complete account in the prescribed form, kept at the intimated place and preserved for the prescribed period, with separate accounts for each intimated place.

When he sells, section 11F requires every sale or transfer to be evidenced by a voucher in the prescribed form.

Suppose officers visit and find 900 grams for which no account entry exists. The consequences are cumulative. The goods are liable to confiscation under section 111(p) as notified goods in relation to which Chapter IVA has been contravened. Hemant is liable to penalty under section 112. And because gold is a section 123 good, the burden of proving that it is not smuggled lies on him, which he cannot discharge by asserting a purchase he cannot document, because Collector of Customs, Madras v. D. Bhoormull, (1974) 2 SCC 544, permits the department to rely on the totality of the circumstances, including unexplained possession.

Contrast the gold chain his wife wears. It is in personal use and kept at residential premises, so section 11G excludes sections 11C, 11E and 11F entirely, and no account, intimation or voucher is owed for it.

What it does NOT mean

It does not mean notified goods are prohibited goods. Notification under section 11B does not prohibit anything; it imposes record duties on lawful holders. Prohibition is section 11.

It does not mean the chapter applies to all valuable goods. It applies only to goods specified in a notification under section 11B, and only where the Central Government is satisfied, having regard to the magnitude of illegal import, that it is expedient to specify them.

It does not mean a private person's jewellery is caught. Section 11G exempts goods in personal use and goods kept at residential premises for personal use.

And it does not mean a breach is merely penal. It renders the goods themselves liable to confiscation under section 111(p), which is a consequence in rem and is often the more serious one.

Quick revision

• The theory: interception at the frontier cannot catch clandestine landings, so Chapter IVA follows smuggling-prone goods inland and makes their holders keep records, so that unaccounted stock is itself evidence.
• Section 11A defines illegal import (import in contravention of this Act or any other law), intimated place, notified date and notified goods.
• Section 11B: the Central Government may, having regard to the magnitude of the illegal import of goods of any class or description and being satisfied that it is expedient, specify such goods by notification.
• Section 11C: intimation. (1) a person owning, possessing or controlling notified goods above the prescribed value on the notified date must within seven days deliver a statement of the place of storage; (2) after that date, no person may acquire or deal in such goods except at an intimated place, and must intimate before acquiring; (3) an intimated place may be changed on fresh intimation.
• Section 11D: no person shall acquire or deal in notified goods unless he has reason to believe they are not illegally imported.
• Section 11E: maintain a true and complete account in the prescribed form at the intimated place, separately for each place, preserved for the prescribed period.
• Section 11F: no sale or transfer except under a voucher in the prescribed form.
• Section 11G: sections 11C, 11E and 11F do not apply to goods in personal use or kept at residential premises for personal use, nor to goods in the custody of specified public bodies.
• Enforcement: contravention of the chapter makes the goods liable to confiscation under section 111(p) and attracts penalty under section 112; the same commodities are usually section 123 goods, so the burden of proof shifts as well.

Test yourself

1. What is the object of Chapter IVA of the Customs Act, and how does it achieve it? Its object is the detection of goods which have already been imported illegally, rather than the prevention of illegal import at the frontier. The premise is practical: goods such as gold, which are valuable, compact and easily landed clandestinely along a long coastline, are indistinguishable once inland from lawfully imported goods of the same description, so an interception model cannot work. What a smuggler must do, however, is store what he has landed, hold it while he finds a buyer, and eventually sell it.

The chapter therefore attaches duties to those activities. Section 11B empowers the Central Government, having regard to the magnitude of the illegal import of goods of a class or description and being satisfied that it is expedient, to notify those goods. Section 11C then requires a person who owns, possesses or controls notified goods above a prescribed value on the notified date to intimate within seven days the place where they are kept, and requires anyone acquiring such goods afterwards to intimate the place before acquisition, with sub-section (3) permitting a change of place on fresh intimation. Section 11D forbids acquisition or dealing unless the person has reason to believe the goods are not illegally imported. Section 11E requires a true and complete account in the prescribed form, kept at the intimated place and preserved. Section 11F forbids any sale or transfer not evidenced by a prescribed voucher. Together these convert the trade into an auditable system in which goods without a paper history are conspicuous, and the officer's task becomes an audit rather than a patrol. Section 11G keeps the scheme sensible by exempting goods in personal use and goods kept at residential premises for personal use.

2. What are the consequences of contravening Chapter IVA? They operate both against the goods and against the person. Against the goods, section 111(p) provides that any notified goods in relation to which any provision of Chapter IVA, or of any rule made for carrying out the purposes of that Chapter, has been contravened are liable to confiscation. That is a consequence in rem and does not depend on establishing that the particular goods were smuggled; the contravention of the record-keeping obligation is itself the ground. Against the person, section 112 imposes a penalty on any person who does or omits to do any act which renders goods liable to confiscation, or who abets such an act.

In practice a third consequence usually operates alongside them. The commodities notified under section 11B are typically also goods notified under section 123, gold being the standard example, so where such goods are seized in the reasonable belief that they are smuggled, the burden of proving that they are not lies on the person from whose possession they were seized. A dealer who has failed to keep the accounts section 11E required is therefore doubly disadvantaged: the documents by which he might have discharged that burden are the very documents he failed to maintain, and Collector of Customs, Madras v. D. Bhoormull, (1974) 2 SCC 544, allows the department to rely on the totality of the circumstances, including unexplained possession and a refusal to account.

3. Distinguish notified goods under section 11B from prohibited goods under section 11. They are different instruments doing different work, and the confusion between them is common. A notification under section 11(1) prohibits the import or export of goods, absolutely or subject to conditions, for one of the purposes listed in section 11(2); it operates at the frontier and its breach makes the goods prohibited goods within section 2(33), liable to confiscation under section 111(d). A notification under section 11B prohibits nothing. It specifies goods, on the ground that illegal import of them is of such magnitude that it is expedient to do so, and the consequence is that persons who own, possess, control, acquire or sell those goods inside India owe duties of intimation, precaution, accounts and vouchers under sections 11C to 11F.

The differences follow from that. Section 11 binds importers and exporters at a moment; Chapter IVA binds every holder continuously after the notified date. Section 11 has no personal-use exemption; section 11G exempts goods in personal use and goods kept at residential premises for personal use. Breach of a section 11 prohibition makes the goods prohibited goods; breach of Chapter IVA makes them liable to confiscation under section 111(p) without making them prohibited goods at all. A trader may therefore deal perfectly lawfully in notified goods, which is what the chapter contemplates, provided he keeps the records it requires.

4. Anil buys a quantity of notified goods at a substantial discount from a seller he does not know, who offers no documents. He records the purchase properly in his accounts. Has he complied with Chapter IVA? No. Keeping the account satisfies section 11E, but section 11D imposes a separate and prior obligation: no person shall acquire possession of, or otherwise deal in, any notified goods unless he has reason to believe that the goods are not goods which have been illegally imported. The obligation attaches at the moment of acquisition and is not discharged by accurate record-keeping afterwards. An unknown seller, an unexplained discount and an absence of any documentation are the very circumstances in which a purchaser cannot honestly claim to have had reason to believe the goods were lawfully imported, so the acquisition itself contravenes the section.

The consequences are that the goods become liable to confiscation under section 111(p) as notified goods in relation to which a provision of Chapter IVA has been contravened, and Anil is liable to penalty under section 112. If the goods are also notified under section 123, he carries the burden of proving they are not smuggled, and the circumstances of the purchase which put him in breach of section 11D are the same circumstances which will make that burden impossible to discharge. His accounts, far from protecting him, will document the transaction which condemns it.