According to Potheir the contract of sale is “consensual, bilateral and commutative”, it means that the sale must be consensual that means parties must give their free consent because forced purchase and procurement is acquisition.
Statutory transactions are those transactions in which supply of goods is done by virtue of a statutory obligation. Statutory transaction would not be a sale of goods as the consensual element which forms the basis of contract is absent.
A contract of sale is consensual because the necessary parties agree to the terms and conditions with their free consent. A Forced sale or purchase is an acquisition and outside the scope of the definition of sale (such as compulsory acquisition of property by the state).
This statutory transaction directly places a danger on the principle of ‘contractual liberty’ which has been given in section 62 of the sale of goods act 1930.
Exclusion of implied terms and conditions.-
Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.
When essential goods are in short supply, various types of orders are issued under the Essential Commodities Act, 1955, with a view to make the goods available to the people at a fair price. A transaction which is effected in compliance with the obligatory terms of a statute may nevertheless be a sale in the eyes of law.
In cases of the two so called statutory transaction whether they amount in law to sale or not could depend upon whether the liberty of contract in relation to fundamentals of the transaction is completely excluded by the provision of the statute or order.
The provision is merely an application of the general maxim “Expressam facit cessare tacitum” which means that “The express mention of one thing implies the exclusion of another” thus sanctifying the principle of contractual liberty which allows parties to the contract to add any number of conditions in their agreement.
Another legal maxim from which section 62 draws its legitimacy is “Modus et convenitio vincunt legem” which means that “The form of agreement and the convention of parties overrule the law” this maxim also strengthen the principle of contractual liberty by approving the principle of parties autonomy in making laws for themselves.
WHY STATUTORY TRANSACTION IMPOSED?
Statutory transaction is imposed when essential goods are in short supply or at the time of any social or other disturbance takes place which renders smooth supply of a commodity difficult if not impossible so government takes the initiative of directing those who are in possession of commodity to supply the commodity at a price which is decided by government. Various types of orders are issued under the essential commodities act 1955 with a view to making the goods available to the consumer at a fair price. Such orders may lay down the requirements of holding a license for dealing in the commodity and getting a permit for obtaining the commodity. The permit holder can obtain the supply of the essential goods, to the extent of quantity for which permit is granted, from the named dealer at a controlled price.
SECTION 4. SALE AND AGREEMENT TO SELL
(1)A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.
(2)A contract of sale may be absolute or conditional.
(3)Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4)An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.
Essentials:
- There must be two parties:- There must be at least two parties, i.e., Seller and Buyer. In absence of one party, sale cannot be completed. Seller cannot purchase its own products.
- Subject matter of Sale must be “Goods”:- The most essential requirement for sale is the goods. “Goods” is defined in section 2(7) of SOGA.
- Transfer of Property In Goods:- The goods must be transferred in sale, means the ownership of goods should be transferred.
- Consideration in Price:- Consideration in a contract of sale has necessarily to be money. Thus, if for instance, goods are offered as consideration for goods, it will not amount to sale, but it will be called barter. Similarly, in case there is no consideration, it amounts to gift and not sale.
SALE AND STATUTORY TRANSACTION
A sale is necessarily a consensual transaction and if the parties have no volition or option to bargain, there can be no sale, the limitations on the normal rights of dealers and consumers to supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed by the control order did militate against the position that eventually the parties must be deemed to have completed the transaction under an agreement by which one party bound itself to supply the stated quantity of goods to the other at a price not higher than the notified price and the other party consented to accept goods on the terms and conditions mentioned in the permit or the order of in its favor by the concerned authority.
In case of statutory transaction, this transaction is not necessarily a consensual transaction the limitations on the normal rights of dealers and consumers to supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed by the control order converts the contract of sale in to statutory transaction thus leaving no scope for parties to make terms and conditions for themselves and thus eradicating the principle of contractual liberty.
RELEVANT CASE LAWS
Vishnu Agencies (P) Ltd. v. Commercial Tax Officer (1978) 1 SCC 520 : AIR 1978 SC 449
Facts: The Petitioner is the existing company under companies act, operates as an agent and deals in the distribution of the cement. According to its case, since 1948 cement has been and is a controlled commodity and its distribution is completely regulated by the West Bengal Cement Control Act, 1948 (XXVI of 1948) hereinafter referred to as the Cement Control Act and the orders thereunder made under section 3 (2). Section 3 (1) inter alia provides for regulation of production, supply and distribution of cement for ensuring equitable supply and distribution of cement at fair prices in West Bengal. The authorities used to issue permits (specimens annexed to the petition and marked ‘A’) by which a specified quantity of cement is allotted to a permit holder to be delivered by the petitioner at the price specified therein. The validity of the permit is for 15 days and as soon as the amount of price of cement is deposited with the stockist, he is bound to deliver to such permit holder the specified quantity of cement at the specified price. The petitioner contends that no volition or bargaining power to left to the petitioner in such transactions and there is no element of mutual assent or agreement between the registered stockist and permit holder which would make the transaction a sale under the Sales Tax Act. If however it is contended that such transactions are sales within the meaning of the Sales Tax Act, the definition of sale in the said Act is ultra vires the legislative competency of the provincial legislature under the Government of India Act, 1935 or of the State legislature under the Constitution.
Issue: Whether the transaction between petitioner and permit holders constitute sales under sales tax act?
Whether the petitioner is liable to pay tax on the transactions?
Judgement: The court considered the definition of section 2(g) of the sales tax act and interpretation of sales of goods in SOGA, 1930. It is observed that the transaction between petitioner and the permit holders lack mutual assent and freedom of action, and therefore do not meet the criteria for a sales under sales tax act.
The Court ruled in favor of petitioner , holding that supplies of cement under permit issued under Cement Control act are not sales under the sales tax act and accordingly, no sales tax is payable in respect thereof. Court concluded that the transaction between petitioner and the permit holder is not sales under the sales tax act and no sales tax to be payable. It is on the favor of the petitioner.
Coffee Board, Karnataka v. Commissioner of Commercial Taxes AIR 1988 SC 1487
Facts: This case is before the Supreme Court where the appellant, Coffee Board had filed an appeal against the decision of the High Court. The appellant had bring in question section 25(i) of the Coffee Act, 1942. This section provides for single channel for sale of coffee grown in the registered estates. Thus as per the act, there is an obligation on the coffee growers to deliver all its produce, except internal sale quota, to the coffee board. Similarly, the board is under compulsion to purchase the coffee. The board contends that according to provision of the Coffee Act, ‘mandatory delivery’ of coffee do not constitute a sale transaction between the board and the coffee growers and thus they are liable to any purchase tax.
On the other side, the respondent herein-the Commissioner of Commercial Taxes had invoked section 6 of the Karnataka Sales Tax Act, 1957 and claimed that according to this provision the board is under a liability to pay tax.
Therefore in this case scope and extent of the expression ‘sale’ and its applicability for determining the rights, responsibility and duties of the appellant is in dispute.
Issue: Whether compulsory delivery of coffee to the appellant as per Section 25(i) of Act of 1942 is ‘sale’ or ‘purchase’ agreement?
Whether the Coffee Board only a ‘trustee’ or ‘agent’ of growers and thus not liable to pay tax?
Judgement: It was held by the division bench of Karnataka HC that compulsory delivery of coffee by the board constitutes a component of consent. Since an element of ‘consent’ exists in the compulsory sales, though negligible and by way of either expressed or implied then that would be regarded as a sale or purchase transaction. And thus, there is an agreement of ‘sale’ or purchase’ between the board and the coffee growers according to Sales of Goods Act, 1930 (SOGA).
Since there is element of ‘sale’ or ‘purchase’, the board is not free from tax liabilities under relevant tax laws. Thereafter it was held by the HC that any sales thereafter were not ‘in the course of export’ or local sales within the State of Karnataka but ‘for export’.
Thus, the appellant cannot attract Article 286 of the Constitution for exemption of tax liability.
The SC upheld the decision of the HC and held that the imposition of tax on the appellant was correct.
While dismissing the appeal of the Coffee Board, the SC also held that Coffee Board does not act as a trustee or an agent of the coffee growers. It was held by the Division Bench of Karnataka that compulsory delivery of coffee by the board constitute a component of consent and thus there is an agreement of ‘sale’ or ‘purchase’ between the board and the coffee growers according to Sales of Goods Act.
Chittermoi Naraian Das V. Commissioner of sales tax U.P
In this case Supreme Court reviewed the earlier decision in a case arising under the Uttar Pradesh wheat procurement policy(Levy) order 1959. The court found that the obligation to deliver wheat of the quantity arose out of the statue, that the order took no account of the volition of the parties ,that the state govt was directed to pay for the wheat supplied at control rates, that the obligations arose not out of any contract, but from a statutory order and held that in such a situation the volition of the parties was most completely excluded and the transactions were therefore not sales.
The court found that the order made no provision in respect of of the place and manner of supply of wheat and payment at the controlled price. The decision is clearly distinguishable since the provision of the wheat procurement order were constructed by the courts as being in the nature of compulsory acquisition of property, obliging the dealer to supply the wheat from day to day.
However criticism made in Chitter Mal’s case of the decision of Allahbad high court which held that so long as there was freedom to bargain in some areas, the transaction could amount to sale though effected under a statue
Chitter Mal’s case was held no longer a good law in case of State of Punjab and Ors. V.Dewan’s breweries Ltd.
The true legal position is that so long as mutual assent, express or implied, is not totally excluded, the transaction will amount to sale. The court therefore held that majority decision in New India sugar mills is not good law.
