ppeal No 23 of 1954
Appeal under article 1331 of the Constitution of India from the Judgment and Decree dated the 28th February 1952 of the High Court of Judicature at Allahabad in Writ Application No 7297 of 1951
C P Lal for the appellant
N C Chatterjee Radhey Lal Aggarwal with him for the respondent
May 3
The Judgment of the Court was delivered by VENKATARAMA AYYAR J
This is an appeal by the Sales Tax Officer Pilibhit against the judgment of the High Court of Allahabad granting firstly a writ of certiorari quashing certain assessment orders made against the respondent and secondly a writ of prohibition in respect of certain other proceedings for 244 assessment of tax under the provisions of the Uttar Pradesh Sales Tax Act Act XV of 1948
The respondent is a firm doing business in forward contracts and was assessed in respect of such contracts to a tax of Rs 1082 8 0 for the year 1948 1949 by an order dated 27th February 1950 Exhibit A and to a tax of Rs 7369 for the year 1949 1950 by an order dated 23rd May 1950 Exhibit B
For the period 1st April 1950 to 31st January 1951 the respondent paid a sum of Rs 845 4 0 as tax
Assessment proceedings were also started by the appellant in respect of certain forward contracts relating to gur and peas
The respondent challenged the legality of these proceedings and of the assessment orders on the ground that the Act in so far as it imposed a tax on forward contracts was ultra vires the powers of the Provincial Legislature
The learned Judges agreed with this contention and issued a writ of certiorari quashing the orders of assessment Exhibits A and B and a writ of prohibition in respect of the proceedings for assessment of tax on forward contracts in gur and peas
The matter now comes before us in appeal under a certificate of the  High Court under article 1331 of the Constitution
Under the Government of India Act 1935 the Pro vincial Legislature derived its power to impose a tax on the sale of goods under entry 48 in List 11 of the Seventh Schedule and the Uttar Pradesh Sales Tax Act XV of 1948 was enacted in exercise of this power
Section 2h of the Act defines sale as follows  Sale means within its grammatical variations and cognate expressions any transfer of property in goods for cash or deferred payment or other valuable consideration and includes forward contracts but does not include a mortgage hypothecation charge or pledge
 It is the extended definition of sale as including forward contracts in this section that is relied on as conferring authority on the appellant to make the orders in Exhibits A and B The point for decision in this appeal is whether the power to impose a tax on the sale of goods under entry 48 includes a power to impose a tax on forward contracts
245 Under the statute law of India which is based on English law on the subject a sale of goods and an agreement for the sale of goods are treated as two distinct and separate matters
Section 4 of the Indian Sale of Goods Act Act III of 1930 runs as follows 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
 It will be noticed that though the section groups both sales and agreements to sell under the single generic name of contracts of sale following in this respect the scheme of the English Sale of Goods Act 1893 it treats them as separate categories the vital point of distinction between them being that whereas in a sale there is a transfer of property in the goods from the seller to the buyer there is none in an agreement to sell
When the contract is to sell future goods and under section 63of the Sale of Goods Act even if the seller purports to effect a present sale of future goods the contract operates as an agreement to sell the goods there can be no transfer of title to the goods until they actually  come into existence  and even then the conditions laid down in section 23 of the Act should be satisfied before the property in the goods can pass
That was also the law under the repealed provisions in Chapter VII of the Indian Contract
Act 1872
Section 77 of the Contract Act defined sale as follows Sale is the exchange of property for a price
It involves the transfer of the ownership of the thing sold from the seller to the buyer
 246 Section 79 enacted that Where there is a contract for the sale of a thing which has yet to be ascertained made or finished the ownership of the thing is not transferred to the buyer until it is ascertained made or finished
 The corresponding provisions of the English Act are sections 1 16 and rule 5 of section 18
Section I is as follows 1A 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 money consideration called the price
There may be a contract of sale between one part owner and another
2A contract of sale may be absolute or conditional
3Where 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
4An 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
 Section 16 enacts that Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained
 Section 18 rule 5 provides for the passing of property is future goods after they are ascertained
The distinction between a sale and an agreement to sell under section 1 of the English Act is thus stated by Benjamin on Sale Eighth Edition 1950 In order to constitute a sale there must be 1An agreement to sell by which alone the property does not pass and 2 an actual sale by which the property passes
It will be observed that the definition of a contract of sale above cited includes a mere agreement to sell as well as an actual sale
 247 This distinction between sales and agreements to sell based upon the passing of the property in the goods is of great importance in determining the rights of parties under a contract
The position is thus stated in Halsbury s Laws of England Volume 29 page 15 paragraph 13 An agreement to sell or as it is often stated an executory contract of sale is a contract pure and simple whereas a sale or as it is called for distinction an executed contract of sale is a contract plus a conveyance
Thus by an agreement to sell a mere jus in personam is created by a sale a jus in rem is transferred
Where goods have been sold and the buyer makes default in payment the seller may sue for the contract price but where an agreement to buy is broken usually the seller s only remedy is an action for unliquidated damages
Similarly if an agreement to sell be broken by the seller the buyer has only a personal remedy against the seller
The goods are the property of the seller and he can dispose of them
They may be taken in execution for his debts and if he becomes bankrupt they pass to his trustee in bankruptcy
But if there has been a sale and the seller breaks his engagement to deliver the goods the buyer has not only a personal remedy against the seller but also the usual proprietary remedies in respect of the goods them selves such as the actions for conversion and detinue
Again if there be an agreement for sale and the goods perish the loss as a rule falls on the seller while if there has been a sale the loss as a rule falls upon the buyer
 Thus there having existed at the time of the enactment of the Government of India Act 1935 a welldefined and well established distinction between a sale and an agreement to sell it would be proper to interpret the expression sale of goods in entry 48 in the sense in which it was used in legislation both in England and India and to hold that it authorises the imposition of a tax only when there is a completed sale involving transfer of title
This conclusion is further strengthened when regard is hood to the nature of the levy Section 3 of the Act 248 provides for a tax being imposed at three pies in the rupee on the turnover of the assessee and turnover is defined in section 2 i as the aggregate of the proceeds of sale by a dealer and that would consist of the price and any charges paid at the time of the delivery of the goods as provided in Explanation I
The substance of the matter is that the sales tax is a levy on the price of the goods and the reason of the thing requires that such a levy should not be made unless the stage has been reached when the seller can recover the price under the contract
It is well settled that an action for price is maintainable only when there is a sale involving transfer of the property in the goods to the purchaser
Where there is only an agreement to sell then the remedy of the seller is to sue for damages for breach of contract and not for the price of the goods
The law was thus stated in Colley vs Overseas Exporters1 In former days an action for the price of goods would only lie upon one or other of two counts
First upon the indebitatus count for goods sold and delivered which was pleaded as follows Money payable by the defendant to the plaintiff for goods sold and delivered by the plaintiff to the defendants  Bullen and Leake Precedents of Pleading 3rd ed p 38
This count would not lie before delivery Boulter vs Arnott2
The count was applicable when upon a sale of goods the property has passed and the goods had been delivered to the purchaser and the price was payable at the time of the action brought
Secondly upon the indebitatus count for goods bargained and sold which was pleaded as follows Money payable by the defendant to the plaintiff for goods bargained and sold by the plaintiff to the defendant  Bullen and Leake p 39
This count was applicable where upon a sale of goods the property had passed to the purchaser and the contract had been completed in all respects except delivery and the delivery was not a part of the consideration for the price or a condition precedent to its payment
If the property had not passed the count would not lie Atkinson vs Bell3
In my view the law as to the 1 at 309 310 2 1833 1 Cr  M 333
3   249 circumstances under which an action will lie for the price of goods has not been changed by the Sale of Goods Act 1893
 That is also the law in this country under section 55 of the Sale of Goods Act
The only exception to this rule is when under an agreement between the parties the price is payable on a day certain irrespective of delivery and that is not material for the purpose of the present discussion
The position therefore is that a liability to be assessed to sales tax can arise only if there is a completed sale under which price is paid or is payable and not when there is only an agreement to sell which can only result in a claim for damages
It would be contrary to all principles to hold that damages for breach of contract are liable to be assessed to sales tax on the ground that they are in the same position as sale price
The power conferred under entry 48 to impose a tax on the sale of goods can therefore be exercised only when there is a sale under which there is a transfer of property in the goods and not when there is a mere agreement to sell
The State Legislature cannot by enlarging the definition of  sale  as including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution Act and the definition of sale in section 2h of Act XV of 1948 must to that extent be declared ultra vires
For the same reason Explanation III to section 2h which provides that forward contracts shall be deemed to have been completed on the date originally agreed upon for delivery and section 3 B which enacts that Notwithstanding anything contained in section 3 the turnover of any dealer in respect of transactions of forward contracts in which goods are not actually delivered shall be taxed at a rate not exceeding rupees two per unit as may be prescribed  must also be held to be ultra vires
In the result the decision of the High Court must be affirmed and this appeal dismissed with costs


Summary:
Held that there is a well defined and well established distinction between a sale and an agreement to sell
The words Taxes on the sale of goods in entry No 48 List II Schedule VII of the Government of India Act 1935 confer power on the Provincial Legislature to impose a tax only when there has been a completed sale and not when there is only an agreement to sell
Accordingly section 2b of the Uttar Pradesh Sales Tax Act XV of 1948 enlarging the definition of sale so as to include forward contracts must to that extent be declared ultra vires
For the same reason Explanation III to section 2h which provides that forward contracts shall be deemed to have been completed on the date originally agreed upon for delivery and section 3B of the Act must also be held to be ultra vires
Colley vs Overseas Exporters 1921 3 K B 302 at 309 310 referred to