Introduction:
A statutory order is a section of the law that adds to an existing section of the legislation. Statutory order is a type of Subordinate legislation. They are listed by the year they were passed as well as the number of times they were passed. Non-publication can be used as a defence. Frequently, they are accompanied by a helpful but unofficial explanatory comment.
The limitations on the normal rights of dealers and consumers to supply and obtain goods, the obligations imposed on the parties, and the penalties prescribed by the control order convert the contract of sale into a statutory transaction, leaving no room for parties to make their own terms and conditions and thus eradicating the contract of sale. Statutory transactions are those in which goods are supplied as a result of a statutory requirement. Because the consensual ingredient that forms the basis of the contract is missing, a statutory transaction would not constitute a sale of goods.
Statutory transactions are imposed when essential goods are in short supply or when a social or other disturbance occurs that makes the smooth supply of a commodity difficult, if not impossible, so the government takes the initiative and directs those in possession of the commodity to supply the commodity at a price determined by the government.
Under the Essential Commodities Act of 1955, many types of orders are issued with the goal of making items available to consumers at a reasonable price. Such orders may stipulate that a licence for dealing in the commodity be obtained, as well as a permit for obtaining the commodity. The permit holder can obtain essential items from the listed dealer at a fixed price, up to the quantity for which the permit is given.
Nature of Supply of Goods and Service
Although the goods and services tax is commonly referred to as a “destination-based consumption tax,” there is no statute that explicitly states this. The notion inherent in the provisions of “site of supply” more than makes up for the lack of a declaration. In the GST Law, both goods and services are defined.
Actionable claim, growing crops, grass, and items attached to or constituting part of the land that are agreed to be separated before supply or under a contract of supply are all considered “goods.”
Services include acts involving the use of money or its conversion from one form, currency, or denomination to another form, currency, or denomination for which a separate fee is charged, whether through cash or any other mechanism.
When a supply is made up of certain activities or transactions, it is called a supply.
They are classified as either a supply of goods or a supply of services as referred to in Schedule II under the requirements of section 7 (1) of the CGST Act. Schedule II of the CGST Act, 2017 lists a few acts or transactions that are to be classified as either a supply of goods or a supply of services only if they constitute a supply in accordance with section 7 of the Act. Any transfer of title in goods, for example, is a supply of goods, whereas any transfer of right in things without transfer of title is a service.
How to Build a Contract In a Statutory Transaction?
The insistence on strict construction rather than asking whether a contract can be claimed to exist because of the parties’ disparity will never lead to judicial reasoning that is more enlightened in this regard. Such a technique also has the problem of embarrassing attempts at true construction of contracts concluded at arm’s length between business parties of equal standing and making their drafting impracticable.
Construction, at its best, is a transitory solution since it allows the powerful offeror to rewrite his contract to obtain the desired end. Such terms are excluded by a severe construction procedure against the offeror where the document does not appear to be contractual in nature, where the offeree’s attention to the conditions is not sufficiently directed to them, or where notice of them is supplied after the contract has been signed.
Statutory Transactions and Contract of Sale
Section 4 of Sale and Goods Act, 1930 defines “A contract of sale of goods is a contract wherein the seller transfers or agrees to transfer the property in goods to the buyer for a price,”.
The following four essentials are outlined in the definition above:
There Must be Two Parties
At least two parties are required, i.e. one buyer and one seller. A person cannot purchase his or her own possessions. In the case of a joint owner, there is an exception. Partners are not considered different individuals for the purposes of selling partnership property. They can’t be both a seller and a buyer at the same time. A partner, on the other hand, may sell or buy things from the firm. A part-owner, on the other hand, can sell his share to another part owner.
The “Goods” Must be the Subject of the Sale
The contract’s subject matter must be goods. “Any kind of movable property other than actionable claims and money,” according to Section 2(7) of the Act, “including stock and shares, growing crops, grass, and anything attached to or forming part of the land that are agreed to be removed before the sale or under titling.”
Transmit of Property in the Goods
In a contract of sale, ownership is transferred. A contract of sale transfers the general property from the seller to the buyer. Only the specific property of the items is transferred when they are pledged, i.e., possession of the goods is passed to the pledgee while ownership rights remain with the pledger.
Price as a Factor of Consideration
In a contract of sale, money is unavoidably a factor of consideration. As an example, if items are offered in exchange for goods, they will be referred to as barter rather than sale. Similarly, if there is no consideration, it is a gift rather than a sale. However, the consideration could be split between money and products.
Statutory Transaction and Contractual Liberty
The sale contract is “consensual, bilateral, and commutative,” according to Potheir. It is not correct to say that every transaction involving the transfer of property and money is a sale. A sale is always a voluntary transaction; even when the term “sale” is used in the broader sense of “pure conveyance,” there must be an earlier or contemporaneous agreement to sell.
The Indian Contract Act of 1872 stipulates that a contract must be based on voluntary consent. As defined in Section 14, free consent is assent that is not obtained through coercion, undue influence, fraud, deception, or mistake, as specified in Sections 15 to 18. Because force by law is not coercion within the meaning of the section, the consent to the agreement was free within the meaning of the provision. Second, in the public interest, people who practise specific professions or have a monopoly or near-monopoly rights should be required to serve the public on occasion.
One of the most distinctive characteristics of a statutory transaction is the lack of a bargaining aspect, as well as the fact that the parties have no choice but to comply with the conditions of the statute or order. The limitations on the normal rights of dealers and consumers to supply and obtain goods, the obligations imposed on the parties, and the penalties prescribed by the control order convert the contract of sale into a statutory transaction, leaving no room for parties to make their own terms and conditions.
Case Laws
[1]State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.
In the event of a supply crisis, various orders were made under the Essential Commodities Act of 1955 to make items available to consumers at a reasonable price. The issue, in this case, was whether a transaction under such an order for controlled pricing amounts to a sale in legal terms and if what is often referred to as a “Compulsory Purchase Order” is actually a “Compulsory Purchase Order” in legal terms.
Observation: It was noted that in order to determine whether there was any agreement or consensuality between the parties, consideration must be given to their actions at or near the time the items were transferred. Such transactions are entered into with the parties’ voluntary consent. When the allottee presents his permission to the dealer, he expresses his desire to purchase the commodity from the dealer under the permit’s terms. When the dealer acts on the permission after it is presented, he is implying that he agrees to supply the commodity to the allottee on the terms that he has willingly agreed to trade in the community. His actions also show that he is in agreement. Despite the fact that both parties must comply with the legal rules governing the transaction, they agree to conduct it on statutory terms, with one agreeing to supply the commodity to the other on those terms and the other consenting to take it from him on such terms. As a result, it is incorrect to assert that the transactions between the dealers and the allottees are not consensual.
[2]Commissioner of Sales Tax Bihar v. New India Sugar Mills Ltd.
The Supreme Court was debating a case involving the 1946 Sugar Products Control Order. The edict forbade sugar producers from selling or promising to sell or deliver their product to anybody other than a licenced dealer. Every purchaser or dealer was expected to follow the controller’s directives regarding production, sales, stock, or distribution as they were given from time to time under clause 5 of the said order.
Any violation of the order’s provisions was made punishable. The controller made allotments to the various states and issued orders to factory owners to supply sugar to the states in accordance with the state government’s instructions under the said order. The state of Bihar attempted to stop New India sugar mills from supplying sugar to the state of Madras under the aforementioned directive.
According to the majority, a contract of sale presupposes the exercise of volition on the side of the contracting parties, and there was no such exercise of choice in obeying the controller’s directives. The court disagreed with the notion that such transactions constitute a sale.
In a dissenting opinion, Justice Hidayatullah J. stated that this type of transaction cannot be taxed because it amounts to a sale, while in a dissenting opinion, HIDAYATULLAH J. stated that this type of transaction can be taxed because it amounts to a sale. This dissenting decision of Justice Hidaytullah is significant in the realm of statutory transaction because, while it is not the majority judgement that has been followed in subsequent cases, numerous judgments have adopted the minority position of Justice Hidaytullah as a principle.
Conclusion
Statutory transactions vary from conventional contracts in that they are more accurately described as “contracts by law”. In such cases, a portion of consent is not individualised separately for each contract, which is referred to as “Consent anterior to contract,” while another portion of consent is given while framing such an agreement, implied or express, under the authority of the law, which is referred to as “Consent concurrent with the contract.”
Finally, it can be said that a transaction in which one party is required by law to transfer property in goods to the other party is still a sale, contractual in nature, and hence subject to the Sale of Goods Act, 1930.
In many other judgments, Justice Hidaytullah’s dissenting opinion in the New India Sugar Mills case has been confirmed as good law, and his viewpoint has been crucial in establishing the notion of statutory transaction.
References:
1. http://www.legalservicesindia.com/article/1082/Statutory-transaction-and-contract-of-sale.html
2. https://www.lawctopus.com/academike/statutory-transactions/
3. https://indiankanoon.org/doc/1425329/
Other Sources:
[1] https://www.studocu.com/in/document/national-law-university-delhi/contract-law-ii/gannon-dunkerley-vs-state-of-madras/2350247
[2] https://www.legitquest.com/case/the-state-of-bihar-v-new-india-sugar-mills-ltd/F1903
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