Law of Sales and Principles of VAT

This is a book on the law of sales and on principles of the imposition of sales tax or VAT.

All of us, young or old, rich or poor, enter into transactions related to sale or purchase of goods every day—we purchase when we buy a newspaper, a carton of milk or a motor car. A newspaper vendor sells goods as does the shopkeeper. The book discusses the law on the subject: the right of the seller to receive payment and the right of the buyer to receive goods of the kind and quality he wants. Though the transaction is usually quite straightforward and simple, there are endless variations that arise when goods are to be delivered later, or when the sale is on credit, each of which can create legal problems.

The various legal problems arising in such transactions are fully examined, including: the meaning of ‘goods’ and ‘documents of title’; the distinction between contracts of sale, sales proper, between sales and other relationships resembling sales such as agency and hire purchase; the obligations of the parties relating to the time of delivery and the quality and suitability of goods; the inter se rights of the sellers and the buyers as to when property in the goods and title to the goods passes; the rights and remedies of the unpaid seller and the buyer who has not received the goods in time, or at all, or who has received goods which are not of the kind or quality he had agreed to buy. Auction sales are a special kind of sale and the book discusses the rights of all the parties involved: the seller, the auctioneer, and the auction purchaser.

Virtually, all sales attract sales tax, generally known as VAT, a tax generally imposed in India by the state legislatures. The Constitution regulates and restricts the power of states to levy sales tax. These topics are exhaustively considered in the work as also the concept of ‘deemed sales’, ie, transactions which, in law, are not sales but on which sales tax or VAT can be imposed. The book will be very useful to determine when sales tax or VAT can be levied, though it does not consider the formalities which the seller of goods is required to comply with under the VAT laws.

Contents
Preface ................................................................................................. vii
Contents ............................................................................................... xi
Table of Cases ...................................................................................... xxi
CHAPTER 1
Introduction .................................................................................. 2
1.1 INTRODUCTION ........................................................................... 2
1.2 SCHEME OF BOOK ...................................................................... 3
1.3 CONSTITUTIONAL POSITION .......................................................... 4
1.4 HISTORY OF LEGISLATION: ENGLAND ............................................. 5
1.5 HISTORY OF LEGISLATION: INDIA .................................................. 6
1.6 INTERNATIONAL CONVENTIONS ..................................................... 7
CHAPTER 2
Sale and Contract of Sale .............................................................. 7
2.1 INTRODUCTION ........................................................................... 8
2.2 STATUTORY PROVISIONS ................................................................ 8
Sale of Goods Act 1930 ............................................................ 8
Indian Contract Act 1872, Section 29 ..................................10
2.3 APPROACH OF COURTS ................................................................11
2.4 MEANING OF ‘SALE’, AND SALE OF GOODS ..................................12
2.5 SALE AND AGREEMENT FOR SALE .................................................16
Self-Service Stores ...................................................................19
2.6 THERE MUST BE TWO PARTIES TO A SALE .................................19
Supply of Food and Drink by Clubs to Members .................21
2.7 PRICE: SALE MUST BE FOR MONEY CONSIDERATION .....................22
2.8 SALE PRICE ................................................................................25
General ...................................................................................25
Taxes: General .........................................................................27
2.9 DETERMINATION OF PRICE .........................................................35
Price to be Determined by Valuer .........................................37
2.10 EFFECT OF SECTION 64A, SALE OF GOODS ACT 1930. .............38
CHAPTER 3
Formalities of Contract: Validity and Legality .............................. 41
3.1 INTRODUCTION .........................................................................41
3.2 STATUTORY PROVISIONS ..............................................................42
3.3 APPLICABILITY OF THE INDIAN CONTRACT ACT 1872 .................44
3.4 PROVISIONS OF THE INDIAN CONTRACT ACT 1872 ....................44
Formation of Contract ............................................................44
Capacity to Contract ..............................................................45
Offer and Acceptance .............................................................46
Self-service Stores ....................................................................46
Consent ..................................................................................47
Free Consent ...........................................................................49
3.5 ‘STAUTORY’ SALES ......................................................................50
3.6 PROVISIONS OF THE INDIAN CONTRACT ACT 1872 ....................52
Legality and Validity of the Contract ....................................52
Illegal Contracts .....................................................................53
Lack of Consideration .............................................................54
Agreements in Restraint of Trade ...........................................54
Uncertainty .............................................................................54
Wagering Contracts ................................................................55
3.7 SECTIONS 7 AND 8, SALE OF GOODS ACT .................................55
CHAPTER 4
Other Basic Concepts: ‘Goods’; ‘Documents of Title’ ................. 57
4.1 INTRODUCTION .........................................................................58
4.2 STATUTORY PROVISIONS ..............................................................59
4.3 ‘GOODS’ ...................................................................................62
General ...................................................................................62
Actionable Claims ..................................................................63
Body (Human) .......................................................................64
Copyright ...............................................................................64
Debentures .............................................................................65
Decree .....................................................................................65
Electricity ...............................................................................65
Electromagnetic Waves and Radio Frequencies .....................66
Fixtures ...................................................................................66
Import Entitlements and Licenses .........................................68
Loom Hours ...........................................................................70
Lottery Tickets ........................................................................70
Money ....................................................................................70
Motor Vehicles .......................................................................71
Newspapers ............................................................................71
Partnership Property, Share In ...............................................71
Shares and Stock .....................................................................72
Ships 72
Software ..................................................................................72
Steam ......................................................................................73
TV Signals ..............................................................................73
Telephone Equipment and Connection .................................73
Trademarks .............................................................................74
Water ......................................................................................74
4.4 ‘DOCUMENTS OF TITLE’ ...........................................................74
General ...................................................................................74
Bill of Lading ..........................................................................75
Consignment Note (Way Bill) ...............................................77
Delivery Order .......................................................................77
Mate’s Receipt ........................................................................78
Multimodal Transport Document .........................................78
Post Office Intimation ............................................................78
Railway Receipt......................................................................78
Registration Book ...................................................................79
Warehouse Receipt .................................................................79
Way Bill ..................................................................................80
Wharfinger’s Certificate ..........................................................80
CHAPTER 5
Sale and other Legal Relationships .............................................. 81
5.1 INTRODUCTION .........................................................................82
5.2 SALE AND AGENCY ....................................................................83
5.3 SALE AND BAILMENT .................................................................86
Sale or Return Transactions ....................................................88
5.4 SALE AND HIRE PURCHASE .........................................................88
5.5 SALES AND LOAN ......................................................................92
5.6 SALE AND PLEDGE .....................................................................92
5.7 SALE AND WORKS CONTRACTS ..................................................93
General ...................................................................................93
Indian Decisions ....................................................................95
Works Contracts .....................................................................95
Sale Contracts ...................................................................... 103
Two Contracts or Two Parts of Contract ............................. 107
English Decisions ................................................................ 107
5.8 SALE AND SERVICE IN RESTAURANTS AND HOTELS ................... 109
CHAPTER 6
Levy of Sales Tax by States: Constitutional Provisions—I .........111
6.1 INTRODUCTION ...................................................................... 112
6.2 CONSTITUTIONAL PROVISIONS AND THE PROVISIONS OF THE CENTRAL
SALES TAX ACT 1956 ........................................................ 114
Article 245 .......................................................................... 114
Article 269 .......................................................................... 114
Article 286 .......................................................................... 114
Articles 287 and 288 .......................................................... 115
Articles 301, 303, 304 ........................................................ 116
Article 366(12) ................................................................... 116
Entries in the Seventh Schedule ......................................... 116
Central Sales Tax Act 1956 ................................................. 116
6.3 EFFECT OF ENTRY 54, LIST II, SEVENTH SCHEDULE TO THE
CONSTITUTION .................................................................. 117
6.4 SALES OUTSIDE THE STATE ..................................................... 118
6.5 INTER-STATE SALES ................................................................. 121
General; And History Of The Law ..................................... 121
Statutory Provisions ............................................................. 123
Article 286 Applies To Deemed Sales ................................. 124
Basic Principles Relating To Section 3 ................................ 125
Rate of Tax ........................................................................... 134
Burden of Proof ................................................................... 134
Appropriate State ................................................................ 135
Central Sales Tax Appellate Authority ................................ 136
6.6 SALES IN THE COURSE OF EXPORT OR IMPORT ........................ 136
General ................................................................................ 136
Occasioning Export or Import ............................................ 139
Export .................................................................................. 140
Crossing the Customs Frontiers of India ............................ 140
Sales Occasioning Export .................................................... 140
Sales by Transfer of Documents After Goods Cross the
Customs Frontiers of India ............................................ 143
Last Sale Before Export: General ......................................... 144
Last Sale Before Export: Same Goods .................................. 146
Supply of Goods to Foreign-going Ships or Aircraft ........... 148
Sales Occasioning Imports .................................................. 149
Sales by Transfer of Documents Before Goods Cross
the Customs Frontiers of India ...................................... 151
6.7 DECLARED GOODS ................................................................. 152
General ................................................................................ 152
Restrictions under Section 15 ............................................. 155
6.8 SALES TAXES IN CONTRAVENTION OF ARTICLES 301-304 OF THE ..
CONSTITUTION .................................................................. 157
General ................................................................................ 157
Exemption of Local Goods from Tax ................................... 160
Lower Rate of Tax on Local Goods ...................................... 161
Legislation in the Public Interest ........................................ 161
CHAPTER 7
Levy of Sales Tax by States: Constitutional Provisions—II ........163
7.1 INTRODUCTION ...................................................................... 163
7.2 CONSTITUTIONAL PROVISIONS RELATING TO DEEMED SALES ..... 164
7.3 GENERAL EFFECT OF 46TH AMENDMENT ................................ 168
7.4 ENLARGED MEANING OF SALE ................................................. 169
Valuable Consideration ....................................................... 170
7.5 TRANSFER OF PROPERTY IN WORKS CONTRACTS ...................... 172
General ................................................................................ 172
Supreme Court Decisions ................................................... 173
Contract With Photographer .............................................. 175
Effect Of Service Tax ............................................................ 177
Supply Of Lifts .................................................................... 177
Maintenance-cum-Service Contracts .................................. 177
Land Development Contracts ............................................. 178
Deductions From Total Consideration ................................ 178
High Court Decisions ......................................................... 179
7.6 HIRE PURCHASE TRANSACTIONS ............................................... 182
7.7 TRANSFER OF RIGHT TO USE GOODS ..................................... 184
Supreme Court Decisions ................................................... 185
High Court Decisions ......................................................... 186
7.8 SUPPLY OF FOOD AND DRINK BY CLUBS AND BODY OF PERSONS .....
ASSOCIATIONS TO MEMBERS ............................................... 189
7.9 SUPPLY OF FOOD AND DRINK IN HOTELS AND RESTAURANTS .. 189
CHAPTER 8
Freedom of Parties to Exclude Implied Terms ............................191
8.1 INTRODUCTION AND SECTION 62 ........................................... 191
8.2 EFFECT OF THE PROVISION AND DECISIONS ............................ 191
CHAPTER 9
Stipulations as to Time Constitutional Provisions—II ..............195
9.1 INTRODUCTION ...................................................................... 195
9.2 STATUTORY PROVISIONS ........................................................... 195
Section 11; Section 55, INDIAN CONTRACT ACT 1872 ......... 195
Section 32 ............................................................................ 196
Section 35 ............................................................................ 197
Section 36 (2) ...................................................................... 197
9.3 WHEN TIME OF PERFORMANCE IS OF THE ESSENCE OF THE...........
CONTRACT ........................................................................ 197
9.4 TIME OF DELIVERY ................................................................ 200
9.5 TIME FOR PAYMENT................................................................ 201
CHAPTER 10
Stipulations as to Quality, Fitness, etc ........................................205
10.1 INTRODUCTION ...................................................................... 205
10.2 STATUTORY PROVISIONS ........................................................... 206
Sections 12 to 17 ................................................................ 206
10.3 CONDITIONS AND WARRANTIES ............................................... 209
10.4 STIPULATIONS AS TO TITLE AND QUIET ENJOYMENT ................ 212
Condition as to Title ........................................................... 213
Warranty that the Goods are Free of Undisclosed
Encumbrances................................................................ 214
Warranty of Quiet Enjoyment ............................................ 215
10.5 SALE BY DESCRIPTION ............................................................. 215
10.6 STIPULATIONS AS TO QUALTIY AND FITNESS ............................. 219
General ................................................................................ 219
Particular Purpose for which the Goods are Required ........ 220
Reasonably fit for the Purpose for which Goods
are Bought ...................................................................... 221
If Goods are Bought by Description, They Must of
Merchantable Quality ................................................... 223
Warranty or Condition Annexed by Usage of Trade ........... 225
10.7 SALE BY SAMPLE ..................................................................... 226
CHAPTER 11
Effect of Contract of Sale—I: Transfer of Property Between Seller
and Buyer ....................................................................229
11.1 INTRODUCTION ...................................................................... 230
11.2 STATUTORY PROVISIONS ........................................................... 230
Section 18 ............................................................................ 230
Section 19 ............................................................................ 231
Section 20 ............................................................................ 231
Section 21 ............................................................................ 231
Section 22 ............................................................................ 231
Section 23 ............................................................................ 231
Section 24 ............................................................................ 232
Section 25 ............................................................................ 232
Section 26 ............................................................................ 233
Section 2(3) ......................................................................... 233
Section 2(6) ......................................................................... 233
Section 2(14) ....................................................................... 234
Sections 4(2), (3), (4) ......................................................... 234
11.3 GOODS MUST BE ASCERTAINED .............................................. 234
11.4 PROPERTY PASSES WHEN INTENDED TO PASS ........................... 235
11.5 SALE OF SPECIFIC GOODS IN A DELIVERABLE STATE ................. 237
11.6 SALE OF SPECIFIC GOODS TO BE PUT IN DELIVERABLE STATE ... 239
11.7 SPECIFIC GOODS IN DELIVERABLE STATE WHERE SELLER HAS TO
DO SOMETHING TO ASCERTAIN PRICE ................................ 240
11.8 SALE OF UNAPPROPRIATED GOODS AND APPROPRIATION............. 240
Appropriation By Act Of Seller ......................................................... 241
Appropriation By Delivery To Buyer Or Carrier Or
Other Bailee For Transmission To Buyer ...................................... 244
11.9 GOODS SENT ON APPROVAL OR ‘SALE OR RETURN’ ................ 247
11.10 RESERVATION OF RIGHT OF DISPOSAL ..................................... 250
11.11 RISK PASSES WITH PROPERTY .................................................. 253
11.12 SALE OF PART OF BULK (ENGLISH LAW) ................................. 258
CHAPTER 12
Effect of Contract of Sale-II: Transfer of Title ...........................261
12.1 INTRODUCTION ...................................................................... 261
Sales By Agent Of Necessity ............................................... 263
12.2 STATUTORY PROVISIONS ........................................................... 263
Section 27 ............................................................................ 263
Section 28 ............................................................................ 264
Section 29 ............................................................................ 264
Section 30 ............................................................................ 264
12.3 OWNER ESTOPPED FROM DENYING SELLER’S AUTHORITY
TO SELL ............................................................................ 265
12.4 SALE BY MERCANTILE AGENT .................................................. 267
12.5 SALE BY CO-OWNER IN EXCLUSIVE POSSESSION ......................... 270
12.6 SALE BY PERSON IN POSSESSION UNDER
VOIDABLE CONTRACT ......................................................... 270
12.7 SALE BY SELLER IN POSSESSION ............................................... 271
12.8 SALE BY BUYER IN POSSESSION ................................................ 273
CHAPTER 13
Performance of the Contract ......................................................275
13.1 INTRODUCTION ...................................................................... 276
13.2 STATUTORY PROVISIONS ........................................................... 276
Sections 31, 2(2) ................................................................. 276
Section 32 ............................................................................ 277
Section 33 ............................................................................ 277
Section 34 ............................................................................ 277
Section 35 ............................................................................ 278
Section 36 ............................................................................ 278
Section 37 ............................................................................ 279
Section 38 ............................................................................ 279
Section 39 ............................................................................ 279
Section 40 ............................................................................ 280
Section 41 ............................................................................ 280
Section 42 ............................................................................ 281
Section 43 ............................................................................ 281
Section 44 ............................................................................ 281
13.3 BASIC DUTIES OF SELLER AND BUYER ..................................... 282
13.4 DELIVERY AND PAYMENT ARE CONCURRENT CONDITIONS ......... 282
13.5 DELIVERY ............................................................................... 283
13.6 PART DELIVERY ...................................................................... 284
13.7 BUYER TO APPLY FOR DELIVERY .............................................. 285
13.8 RULES AS TO DELIVERY .......................................................... 285
13.9 DELIVERY OF WRONG QUANTITY ............................................ 287
13.10 INSTALMENT DELIVERY ........................................................... 290
13.11 DUTIES OF SELLER ................................................................. 291
General: Delivery To Carrier Or Wharfinger ...................... 291
CIF And Other Standard Contracts ................................... 293
13.12 BUYER’S RIGHT TO EXAMINE GOODS ....................................... 301
13.13 ACCEPTANCE .......................................................................... 302
13.14 BUYER NOT BOUND TO RETURN REJECTED GOODS ................. 303
13.15 LIABILITY OF BUYER FOR NEGLECTING OR
REFUSING DELIVERY ........................................................... 304
CHAPTER 14
Auction Sales ..............................................................................305
14.1 INTRODUCTION ...................................................................... 305
14.2 STATUTORY PROVISIONS ........................................................... 306
Section 64 ............................................................................ 306
14.3 WHEN AUCTIONS ARE COMPULSORY: TRUST AND
STATE PROPERTY ................................................................ 308
14.4 LAW RELATING TO AUCTIONS .................................................. 309
Nature of an Auction .......................................................... 309
Conditions of Auction Prevail ............................................. 310
When Bids Can be Withdrawn........................................... 310
Highest Bid Need Not be Accepted ................................... 311
Bids Below Reserve Price ..................................................... 311
When Auction Sale Complete and Property Passes ............ 312
Bidding by Seller and other Irregularities in BIDDING ........ 313
Agreement Between Bidders ............................................... 314
Resale of Goods ................................................................... 314
14.5 POSITION OF AUCTIONEER ...................................................... 315
Seller Having No Title to Goods Sold ................................ 315
Secret Profit by Auctioneer ................................................. 315
Warranty of Quality of Goods Sold .................................... 316
Payment of Price .................................................................. 316
Withdrawal of Advertised Goods from Auction ................. 317
CHAPTER 15
Right of Seller Against Goods .....................................................319
15.1 INTRODUCTION ...................................................................... 319
15.2 STATUTORY PROVISIONS ........................................................... 320
15.3 EXPLANATIONS OF TERMS....................................................... 324
Meaning of Unpaid Seller ................................................... 324
Meaning of ‘Seller’ .............................................................. 325
Rights of Unpaid Seller: General ........................................ 326
Effect of Sub-sale of Pledge by Buyer ................................. 326
15.4 LIEN OVER GOODS ................................................................ 327
15.5 RIGHT TO STOP GOODS IN TRANSIT ....................................... 329
15.6 EFFECT OF EXERCISE OF RIGHT OF LIEN OR STOPPAGE
IN TRANSIT ........................................................................ 332
15.7 RIGHT OF RE-SALE ................................................................ 333
CHAPTER 16
Suits for Breach of Contract .......................................................337
16.1 INTRODUCTION ...................................................................... 338
16.2 STATUTORY PROVISIONS ........................................................... 339
Sale of Goods Act 1930 ....................................................... 339
Provisions of the Indian Contract Act 1872 ....................... 342
Provisions of the Specific Relief Act 1963 .......................... 345
16.3 SUIT BY SELLER FOR PRICE ..................................................... 346
16.4 SUITS FOR DAMAGES BY SELLER AND BUYER:
GENERAL PRINCIPLES .......................................................... 347
Basic Rule ............................................................................ 347
Plaintiff must Suffer Loss as a Result of the Breach ............ 349
Damages must be Computed on Basis Most
Advantageous to Defendant ............................................ 350
Loss must be Caused by the Breach ................................... 350
Meaning of ‘Market’ ........................................................... 351
Claim for Expenditure Incurred by the Plaintiff ................ 353
Remoteness .......................................................................... 353
Mitigation ........................................................................... 354
Liquidated Damages and Penalty ........................................ 355
Clauses Excluding or Limiting Liability ............................. 355
16.5 ANTICIPATORY BREACH OF CONTRACT ..................................... 355
16.6 SUIT BY SELLER FOR DAMAGES: NON-ACCEPTANCE OF GOODS . 358
16.7 SUIT FOR DAMAGES BY BUYER: NON-DELIVERY;
DELAYED DELIVERY ............................................................ 359
Non-delivery ....................................................................... 359
Delay in Delivery ................................................................ 360
16.8 SUIT FOR SPECIFIC PERFORMANCE BY BUYER ............................. 361
16.9 SUIT BY BUYER FOR DAMAGES; BREACH OF WARRANTY ............ 364
16.10 CLAIM FOR INTEREST .............................................................. 368

Atul M Setalvad was educated in Bombay and London. He is a Senior Advocate practising since 1958, principally in the Bombay High Court and also in the Supreme Court as well as other courts and tribunals. His fields of interest are all branches of civil law, with particular interest in constitutional law, administrative law, law of contracts, law of arbitration and laws relating to indirect taxes. He has appeared in many public interest matters in the field of environment protection, opposing fundamentalism, and the protection of human rights.
He has edited Mulla’s Stamp Act, co-edited Mulla’s Transfer of Property Act, contributed the title Contracts in Halsbury’s Laws of India, has written Introduction to Law and Conflict of Laws, both published by LexisNexis Butterworths, and Law of Trusts and Charities published by Universal Law Publishers.