THE NATIONAL LAW INSTITUTE UNIVERSITY

BHOPAL

“Goods” under the Sale of Goods Act, 1930

THIRD TRIMESTER

SUBMITTED BY: SUBMITTED TO:

Yashwant Manothiya 2018BALLB105

Sanya IreneN 2018BALLB97

Raksha Rai 2018BALLB119 Ms. Neha Sharma

SECTION - ‘B’ Assistant professor

 ACKNOWLEDGEMENT

We take this opportunity to thanks everyone who helped out in completing my project directly or
indirectly. We show a special gratitude towards Ms. Neha Sharma, Assistant professor, Law of
Contracts, without whose guidance and support, we would have been unable to complete this
project. We would also like to thank NLIU’s library, which helped a lot in learning more about
my project’s topic.
 CONTENTS

RESEARCH FRAMEWORK ........................................................................................................................... 4

INTRODUCTION ..................................................................................................................................................... 5

DIFFERENCE BETWEEN THE ENGLISH LAW AND THE INDIAN LAW.......................................................................... 6

ELECTRICITY AS “GOODS” ...................................................................................................................................... 7

LOTTERY TICKETS AS “GOODS” .............................................................................................................................. 9

MONEY AS “GOODS” ........................................................................................................................................... 10

SOFTWARE PROGRAMS AS “GOODS” .................................................................................................................. 11

CONCLUSION ....................................................................................................................................................... 16

BIBLIOGRAPHY ..................................................................................................................................................... 17
 RESEARCH FRAMEWORK

Statement of purpose

‘Goods’ have been defined under section 2(7) of the Sale of Goods Act, 1930, to include every
kind of movable property, including stocks, shares, crops, grass, severable objects, etc. It is
supplemented by the definitions of movable and immovable property under Section 3(36) and
Section 3(26) of the General Clauses Act, 1897. This paper lays down certain dilemmas that
have not been resolved despite the definitions and examines the case laws that may shed light on
the same. It also examines the difference between English and Indian law on this issue.
Primarily, it seeks to clarify whether certain commodities such as electricity, lottery tickets,
software programs, money. etc can be included within the definition of “goods”.

Aims &Objectives

1. To differentiate between the position of law in England and India.

2. To determine the position of the following with regard to the definition of the term
“goods” :

a. Electricity
b. Lottery tickets
c. Money
d. Software

ResearchMethodology

Doctrinal method of research has been undertaken. The topic for the research study and the
nature of the topic is theoretical and descriptive. So the conduct, the research study & the type of
research suitable is descriptive research only. In the research and theoretical articles, effective
use of secondary analysis of published results has been made.

Introduction

‘Goods’ is defined as per Section 2 (7) of the ‘Act’ as: “Every kind of movable property other
than actionable claims and money; and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be severed before sale or
under the contract of sale.”

“Movable Property” is defined as per section 3(36) of the General Clauses Act
1897:“Movable property” is defined as “property of every description except immovable
property”. “Immovable Property” is defined as per section 3(26) of the same Act reads as:
“Immovable property shall include land, benefits to arise out of land, and things attached to the
earth, or permanently fastened to anything attached to the earth.”

A conjoint reading of sections gives clear definition that anything that is attached to the land
maybe termed as “movable property”, provided that there is an element of severability
involved. 1 The element of severability is important and this element can be established by
ascertaining the nature of the property, intention of the parties and the terms of the contract
between them.For instance, timber falls under the ambit of “goods” as per S.2 (7) 2 because
timber trees are severed from the land for the purpose of sale and hence they become a
commercial commodity. 3 In a case 4 it was held that property as per the act means general
property over the goods and not merely a specific property.The usage of the word ‘includes’
further expands the definition, as it includes in the definition not only goods of the prescribed
nature but it also imports those things that are specifically provided by the interpretation clause.

1
Pollock &Mulla, The Sale of Goods Act, 33 (Satish J Shah ed., 8th ed., 2011).
2
Sale of Goods Act, 1930
3
Kanakapalam Estate v. State of Kerala, (1989) 73 STC 336.
4
Tata Consultancy Services v. State of Andhra Pradesh (2005) 1 SCC 308
Difference between the English law and the Indian law

In English law as per S. 61(1) of the Sale of Goods Act 1979, “goods” include personal
chattels5 which can be further divided into “choses in possession” and “choses in action”.As per
the English law only the former is included in the definition of “goods” whereas the latter which
include commodities like shares, debentures, bills of exchange, and other negotiable instruments
are excluded from the definition as they all are actionable claims.6On the other hand in India, the
definition as elucidated in S.2(7)7is much wider in scope than the English definition as it includes
stocks and shares as within the scope of “goods”.

‘Goods’ is defined in English law as per Section 61 (1) of the ‘Sale of Goods Act, 1979’ as:

“Goods” includes all personal chattels other than things in action and money, and in Scotland all
corporeal movables except money; and in particular “goods” includes emblements, industrial
growing crops, and things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale and includes an undivided share in goods.

The following discussion primarily focuses on the point that whether certain types of
commodities can be included within the definition of “goods” or not.

 Electricity as “goods”
 Lottery tickets as “goods”.
 Software Programs as “goods”
 Money as “goods”

Difference between the English and the Indian law will be made clear over the discussion when
the above mentioned articles are discussed in detail.

5
See Benjamin’s Sale of Goods, 64 (M. Bridge et al. eds., 8th ed. 2010) (elucidating that “goods” as per the English
definition covers all “those tangible, movable items that we call things in possession.”).
6
Id.
7
Sale of Goods Act, 1930.
 Electricity as “Goods”

Electricity does not come under the definition of “goods” as per English law.There have been
judicial decisions in England where electricity has been referred to as ‘thing’ and an ‘article’and
also as ‘tangible personal property’, but there has been no judicial decision which includes
electricity within the definition of ‘goods’ for the purpose of Sale of Goods Act. Moreover, the
legal possession of electrical energy is a challenging proposition as “it is capable of being kept or
stored only by changing the physical or chemical state of other property which is itself the
subject of possession.”

In India however, the situation is quite different. In the Calcutta High Court case ofAssociated
Power Co. v. R.T. Roy it was held that electricity comes under the ambit of ‘goods’ under the
article 366 (12) of the Constitution8as well as S. 2 (7) of the ‘Act’. This proposition was affirmed
in a Madras High Court case where the learned judge held that electricity was under the
definition of ‘goods’ since it is capable of delivery, and it does not matter whether it is a tangible
or intangible form of energy. 9 The Law Commission of India in its 8th report proposed that
electricity and water should be included in the definition of ‘goods’ under S. 2(7) of the Sale of
Goods Act, 1930 stating that, firstly under S.39 of the Indian Electricity Act, ‘electricity’ can be
subject matter of theft. Secondly, Art. 287 of the Constitution prohibits the State Legislatures to
impose a tax on the ‘consumption or sale of electricity’ which implies that electricity can be sold
just like any other commodity. The Supreme Court while discussing about the definition of
‘goods’ as mentioned in the Madhya Pradesh Sales Tax Act (2 of 1959), found that the definition
included all kinds of movable property discussing that S.61 (1) of English Sale of Goods Act
1979 prescribes only personal chattels as “goods” whereas the definition under S.2 (7) of the
Indian Sale of Goods Act 1930 is much wider as it includes all ‘movable property’).

8
Constitution of India, art.366 (12) (defining goods as, “goods includes all materials, commodities, and articles.”
Hence, going by this definition it can be argued that since electrical energy is capable of being brought and sold, it
will come under the ambit of a ‘commodity’ or an ‘article’).
9
Kumbakonam Electric Supply Corp Ltd. v. Joint Commercial Tax Officer, AIR 1964 Mad 477.
The court further held that:

“The term “movable property” when considered with reference to “goods” as defined for the
purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is not
tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot
cease to be movable property when it has all the attributes of such property……It can be
transmitted, transferred, delivered, stored, possessed etc., in the same way as any other movable
property.”10

However, Pollock &Mulla, in their commentaries, have expressed their concerns over the
applicability of the ‘Act’ for electricity because, there is no contractual obligation on part of the
public authority to supply ‘electricity’, rather it is a statutory obligation on part of the authority
providing these ‘goods’. The supply of such commodities would not amount to a ‘sale’ for the
purposes of the ‘Act’. As a result, any breach or failure on part of the public body to supply
electricity would be dependent upon the terms of the statute governing the public body.

Thus, on one hand it can be said that ‘electricity’ comes under the definition of ‘goods’ however
the applicability of the ‘Act’ in case of sale of electricity is a dubious proposition.

10
Commissioner of Sales Tax, Madhya Pradesh v. Madhya Pradesh Electricity Board, AIR 1970 SC 732.
 Lottery tickets as “Goods”

As per Black’s Law Dictionary, ‘lottery’ is defined as ‘a chance for a prize for a price’.11For the
purposes of the ‘Act’ lottery tickets are clearly a movable property, however it has been a matter
of debate that whether they are an actionable claim

Actionable claim as defined under S.3 of Transfer of Property Act, 1882 defining actionable
claim, “’actionable claim’ means a claim to any debt, other than a debt secured by mortgage of
immoveable property or by hypothecation or pledge of moveable property, or to any beneficial
interest in moveable property not in the possession, either actual or constructive, of the claimant,
which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial
interest be existent, accruing, conditional or contingent.”

In the Supreme Court case of H. Anraj v. Government of T.Nit was held that a lottery ticket
primarily involved two rights: (1) the right to participate in the draw and (2) the right to win the
prize, depending on chance. In that case it was held that the former right was a “transfer of a
beneficial interest in movable goods” and hence was a sale within the meaning of Art 366 (29-
A)(d) of the Constitution whereas the latter right was a chose in action and thus not “goods” for
the purpose of levy of sales tax.

Quoting Sabyasachi Mukherjee, J, “the right to participate in the draw under a lottery ticket
remains a valuable right till the draw takes place and it is for this reason that licensed agents or
wholesalers or dealers of such tickets are enabled to effect sales thereof till the draw actually
takes place and therefore lottery tickets, not as physical articles but as slips of paper or
memoranda evidencing the right to participate in the draw can be regarded as dealer’s
merchandise and therefore goods which are capable of being bought or sold in the market.”

11
Black’s Law Dictionary 947 (6th ed. 1991) (stating the essential elements of a lottery as “consideration, prize and
chance”).
However, the ruling of this decision was challenged in a later Supreme Court verdict ofSunrise
Associates v. Government of NCT of Delhi.12It was held that sale of a lottery ticket amount to a
sale of an actionable claim. The conclusion of the Court was based on the reasoning that there
was no difference between right to win and right to participate in a lottery draw, as no purchaser
pays the consideration for a right to participate in the draw, instead he pays it for the right to win.

Thus, the classification by H. Anraj case (supra) of the right to participate as right in
praesenti and the right to win as a right in futuro, was incorrect as both these rights are in
futuro.13 As a result the earlier judgment was overruled to that extent and “lottery tickets” were
excluded from the definition of “goods”.

Moneyas “Goods”

Money is specifically excluded from the definition of “goods” under S.2 (7) of the ‘Act’, because
it is the medium of exchange used at the time of sale of goods.14 Hence, money is not regarded as
a “chattel but as something ‘sui generis’.However, a coin which was intended to be sold as an
item of curiosity will be said to be a “good”, as it was passed on as a commodity and not as a
currency.15

12
(2006) 5 SCC 603.
13
Pollock &Mulla, The Sale of Goods Act, 38 (Satish J Shah ed., 8th Ed., 2011).
14
Pollock &Mulla, The Sale of Goods Act, 40 (Satish J Shah ed., 8th ed., 2011).
15
Moss v. Hancock, [1899] 2 Q.B. 111.
 Software programsas “Goods”
Software program is a set of orders or commands which are given to computer to perform a
given task. Debate topic here is that “can software programs – as do they are developed by
human minds can they be treated as goods under this ACT or not ?

In the case of TCS v. State of Andhra Pradeshthe Supreme Court held that a software program
on a CD or a floppy drive would be a “good” for the purposes of levy of sales tax. Quoting S.B.
Sinha, J, “definition of ‘goods’, as under the Sale of Goods Act 1930, is of a wide import and it
includes both tangible as well as intangible properties. It would become goods provided it has the
attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c)
capable of transmitted, transferred, delivered, stored and possessed. If a software whether
customized or non-customized satisfies these attributes, the same would be goods

One of the landmark cases in this regard was the case of St Albans City and District Council v.
International Computers Ltd16 where Sir Iain Glidewell observed that a hardware device has no
use of its own unless it is supplemented with a software and it was only because of necessity that
software was contained in a physical medium like a disk or a floppy furthermore, in case the disk
is sold and there is a defect with the program, then there would be a prima facie liability against
the disk manufacturer as well. Thus, he held that the tangible disk and the software program both
will be included within the definition of “goods”.

In the TCS case (supra) a special mention was given to ‘canned software’17where it was held by
the learned judge that once a software is uploaded on a medium like a CD or a floppy drive, it
ceases to be a work of intellectual creation. This is primarily because each of these mediums
becomes a marketable commodity in itself.Inadvent Systems Ltd. V Unisys Corp, 925 F. 2d 670
drawing an analogy to a “compact disc recording of an orchestral rendition. The music is

16
[1995] FSR 686.
17
Supra note 31. (“Canned “software” means that is not specifically created for a particular consumer. The sale or
lease of, or granting a license to use, canned software is not automatic data processing and computer services, but is
the sale of tangible personal property. When a vendor, in a single transaction, sells canned software that has been
modified or customized for that particular consumer, the transaction will be considered the sale of tangible personal
property if the charge for the modification constitutes no more than half of the price of the sale.”)
produced by the artistry of musicians and in itself is not a “good,” but when transferred to a
laser-readable disc becomes a readily merchantable commodity. Similarly, when a professor
delivers a lecture, it is not a good, but, when transcribed as a book, it becomes a good.

“Marketability” of a commodity was the determining factor whether it is a “good” or not. It has
also been held that “operational software” which was uploaded on a hard-disk does not lose its
character as a tangible good.

It has also been a matter of debate as to inclusion of computer software within the definition of
“goods” as defined in section 218 of the Uniform Commercial Code, 1952. It is argued that since
“custom designed” computer software is a product of a labor intensive process and it must be
considered as a service rather than a good. However, sale of most of the software programs
resemble sales of any other consumer product available for consumption, and it is usually sold
through separate pre-existing packages.

On the other hand contracts for providing data processing services have been held to be contracts
for services rather than contracts for “goods”.Arguing that data processing transactions are based
on the skill and ability of the person handling these programs rather than the computer software
itself. Thus, these contracts cannot be regarded as sale of “goods”).

With the help of the above discussion it is clear that despite of being an intangible commodity,
“computer software” can be included in the definition of “goods” for the purposes of the ‘Act’.

18
U.C.C. Law §.2-103 (k) : “”Goods” means all things that are movable at the time of identification to a contract for
sale. The term includes future goods, specially manufactured goods, the unborn young of animals, growing crops,
and other identified things attached to realty as described in Section 2-107. The term does not include information,
the money in which the price is to be paid, investment securities under Article 8, the subject matter of foreign
exchange transactions, or choses in action.”
Tangibility:

Under some legal regimes, the criterion of tangibility is crucial for determining whether the
object in question is goods. Tangibility is usually defined as having a physical form or being
capable of being perceived by the senses.

This notion has played a significant role in the current debate and it has even been stated that
tangibility is the "stumbling block" to the classification of software as goods.

Furthermore, in St Albans DC v International Computers, Sir lain Glidewell distinguished

between software per se and software contained on a computer disc. In his opinion, instances of
the former would not be "'goods' within the statutory definition", whereas a: "computer disc onto
which a program designed and intended to instruct or enable a computer to achieve particular
functions has been encoded" would be. A clear implication of this decision is that, to be treated
as goods, software must be contained on a tangible medium. It is probably because of the
requirement that property must pass under a sale. Most legal systems define a sales contract as an
agreement for the transfer of property in goods for money, usually called the price, and such a
transfer generally requires a transfer of possession. In the case of pure intangibles, however, it is
often argued in both common and civil law systems that either alienation or a possession of an
intangible is impossible or that intangibles are not capable of being owned because they cannot
physically be possessed. It would seem, therefore, that some form of tangibility requirement is
indeed necessary.

This does not alter the fact that software is a tangible product, as the Supreme Court of Louisiana
recognized when it agreed that: "in defining tangible, 'seen' is not limited to the unaided eye,
'weighed' is not limited to the butcher or bathroom scale, and 'measured' is not limited to a
yardstick". Hall J. then asserted: "The software itself, i.e. the physical copy, is not merely a right
or an idea to be comprehended by the understanding. The purchaser of computer software neither
desires nor receives mere knowledge, but rather receives a certain arrangement of matter that
will make his or her computer perform a desired *166 function. This arrangement of matter,
physically recorded on some tangible medium, constitutes a corporeal body."
Movability:

Something that is not movable cannot be transferred without losing its capacity to be exclusively
possessed. Unless it can be so possessed, its aspiring owner cannot exclude others from it.

Bridge illustrates the point by comparing a diamond ring with information: the transferor of
information "retains the information that was transmitted which denies one of the features of a
property right, namely its exclusivity", whereas "a diamond ring cannot support two wearers at
the same time". Thus, the movability of a product would seem to be a good indicator of its ability
to be classed as goods for sales purposes.

Software is movable. Choses in action are not. A chose in action, such as a copyright, cannot be
moved. If the holder of that copyright has it infringed, he or she has not had that right removed
and transferred tothe infringer. On the contrary, the right crystallizes and enables him or her to
take legal action. It is entirely possible to remove, however, a piece of software from one piece
of hardware to another. Of course, such a thing can be copied and distributed, (and often is), but
the same can be said of almost any conventional chattel. The essential distinction between those
things that are movable and those that are not is the possibility of deleting them from their
source.

Some of the main challenges that have been raised with respect to provisions relating to the
contractual conformity of goods seem to be (or at least are not incapable of being) adequately
addressed by the SGA and the CISG. The calls for a specialized instrument dealing specifically
with the peculiarities of software transactions, however, cannot be ignored. Indeed, one of our
conclusions is that, although the SGA and the CISG are not incapable of governing software
transactions, a specialized set of rules may indeed be something to be seriously considered,
particularly if such rules were to exist at the international level.
 Case study: TCS v. State of Andhra Pradesh

JUDGMENT: Software may be intellectual property but such personal intellectual property
contained in a medium is bought and sold. It is an article of value. It is sold in various forms like
floppies, disksetc. Each one of the mediums in which the intellectual property is contained is a
marketable commodity. They may be a medium through which the intellectual property is
transferred but for the purpose of determining the question as regard livability of the tax under a
fiscal statute, it may not make a difference. A program containing instructions in computer
language is subject matter of a license. It has its value to the buyer. It is useful to the person who
intends to use the hardware, viz., the computer in an effective manner so as to enable him to
obtain the desired results. These mediums containing the intellectual property are not only easily
available in the market for a price but are circulated as a commodity in the market. Only because
an instruction manual designed to instruct use and installation of the supplier program is supplied
with the software, the same would not necessarily mean that it would cease to be a 'goods'. Such
instructions contained in the manual are supplied with several other goods including electronic
ones. What is essential for an article to become goods is its marketability.It is not in dispute that
when a program is created it is necessary to encode it, upload the same and thereafter unloaded.
Indian lawdoes not make any distinction between tangible property and intangible property. A
'goods' may be a tangible property or an intangible one. It would become goods provided it has
the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c)
capable of transmitted, transferred, delivered, stored and possessed. If a software whether
customized or non-customized satisfies these attributes, the same would be goods.If a canned
software otherwise is 'goods', the Court cannot say it is not because it is an intellectual property.

CRITICAL ANALYSIS:While the objectives of customs, VAT or tax laws are different, a
conflicting treatment for the same transaction from multiple authorities is creating uncertainly for
business. Given the differing views from HCs, software taxability issue is now likely to be
settled before the Apex Court, wherein SC may consider applicability of its own ruling under
Andhra sales tax law in TCS, to determine nature of software payments under IT Act.
 Conclusion

Through the course of this project I have tried to identify some of the major controversies
surrounding certain commodities and their inclusion in the definition of “goods” as per S.2 (7) of
the ‘Act’. The discussion helped to prove that “electricity” (even being an intangible good)
comes under the ambit of goods, while on the same hand lottery tickets (being movable goods
per se) are excluded because they are “actionable claims”. This helps us to show that being a
movable property in itself is not a conclusive proof of being a “good”. Also, the debate on
software programs elucidated the importance on “marketability” aspect of “goods”.

Hence, it evident that due to rapid developments in science and technology, the definition of
goods cannot be compartmentalized into straight jacket distinctions and the scope of this section
will expand over time.
 Bibliography

Websites:

1. http://wwwmanupatra.com
2. http://www.indiakanoon.com
3. http://www.shoosmiths.co.uk
4. www.google.co.in
5. www.walkermorris.co.uk

Cases:

1. St Albans City and District Council v. ICL

2. Tata Consultancy Services v. State of Andhra Pradesh
3. The Commissioner of Income Tax, International Taxation and The Income Tax
Officer TDS-I vs. Samsung Electronics Co. Ltd., India Software Operations
4. Motorola Inc., vs. Deputy C.I.T

Reports:
1. Law Commission Report [VIII]