Theoretical overview
Contract of sales: section 4(1) defines the contract of sales as under:
A contract of sales is a contract whereby the seller transfer or agrees to transfer the property in the goods to the buyer for a price.
Essentials of a contract to sale:-
- Contract b/w the seller & the buyer:-it is a contract b/w the seller n buyer. The seller is the person who sells the goods & buyer is the person who buys the goods. The seller and buyer should be two different person. Therefore if the person who purchased his own goods, it is not sale.
- Subject matter of contract is goods:- section 2(7) defines goods is any kind of movable property other than actionable claims and money; and also includes stocks & share, growing crops, grass and things attached to the part of land which are agreed to be served before sale.
- Transfer of the property in the goods:- in the contract of sale there is a transfer of property in the goods from the seller to buyer. Transfer of property i.e ownership in the goods from the seller to the buyer is the essence of the contract. If there is neither the transfer of property of good nor agreement to transfer the same cannot be considered to be a contact of sales. According to section 4(3) if the property is transfer at the time of making the contract is known as sales but if on the other hand transfer of property in goods takes place at a future time then contract is called agreement to sale.
- Price:- the consideration for contract of sale has to be price. a/c to section 2(10) price means money consideration for sale of goods.
To prove valid sale under the sales of goods act there must be convincing evidence of:
- Agreement b/w the competent parties.
- The price of the goods.
- Passing of the property in goods.
Importance difference
| sales | Agreement to sale |
| According to section4(3) of sale of goods act ‘the property in good is transfer from the seller to buyer it is called a sales.’ | According to section4(3) of sale of goods act the transfer of property in goods is to take place at future or subject to some conditions thereafter to be fulfilled the contract is called an agreement to sell. |
| Transfer of ownership of goods take place immediately. | Transfer of ownership of good take place at future time or subject to fulfillment of some condition. |
| In sale risk transfer with the ownership from the seller to owner. | in agreement to sell the seller has to bear the risk of loss. |
| The buyer has the right to use of goods he buys | Does not give the buyer the right to use the goods till the ownership of goods is transferred to the buyer. |
| The property is with buyer n the seller cannot re-sell the goods | The property in the goods remains with the seller and hence he can re-sell the goods if the buyer commits a breach of his contract. |
| It is a present sale | It is a future sale. |
Relevant sections
- section 4(1) defines the contract of sales: contract of sale is a contract whereby seller transfer or agrees to transfer of the property of goods to the buyer for a price.
- section 2(7) defines goods is any kind of movable property other than actionable claims and money; and also includes stocks & share, growing crops, grass and things attached to the part of land which are agreed to be served before sale.
- a/c to section 2(10) price means money consideration for sale of goods.
- Section 4(3) of sale of goods act ‘the property in good is transfer from the seller to buyer it is called a sales and the transfer of property in goods is to take place at future or subject to some conditions thereafter to be fulfilled the contract is called an agreement to sell.
Important case law
In Camera House, Bombay v. State of Maharashtra (1969), the Bombay High Court ruled that providing a print, processing film, and taking a picture in a studio are all separate transactions. Therefore, it is obvious that the first two contracts call for the use of a photographer’s artistic talent and labour. However, the final contract for providing copies of it to clients is a contract of sale.
New India sugar mills v. commissioner of sales tax, J.C Shah and JJ. In their majority decision held that supply of sugar by sugar factory is compliance with the orders of sugar controller of India under sugar and sugar products control order 1946 did not result in a contract of sale of goods and hence that transaction could not be subject of sales tax. Hidayatullah in his dissenting opinion however observed that in such a case there was implied contract of sale b/w the parties. In his view a compelled sale is nevertheless a sale.
Vishnu Agencies v. commercial tax officer the supreme court overruled its earlier decision in the new india sugar mile case expressed its agreement with the dissenting judgement of Hidayatullah j. in that case and held that transaction of supply of cement by a distributor to a permit holder in terms of provisions of West Bengal cement control act and the West Bengal cement control order amounts to sale and the same is eligible to sales tax.
Points to remember
- Acc to section 4(1) a contract of sales is a contract whereby the seller transfer or agrees to transfer the property in the goods to the buyer for a price.
- it is a contract b/w the seller n buyer.
- if the property is transfer at the time of making the contract is known as sales but if on the other hand transfer of property in goods takes place at a future time then contract is called agreement to sale.
- Transfer of ownership of goods take place immediately in sales
- Transfer of ownership of good take place at future time or subject to fulfillment of some condition in agreement of sales.
