Read the contract before computing an adjustment
Section 64A of the Sale of Goods Act, 1930 supplies a default rule for certain post-contract tax changes on goods where the terms do not show a different intention. The section creates a price adjustment between the parties, independent of who is liable under the tax law. On qualifying facts, the seller can add the effective imposition or increase to the price, while the buyer can deduct the effective decrease or remission. Verify the statutory conditions and the tax paid or payable on the affected goods before changing the contract balance.
Read the applicable text: India Code: Sale of Goods Act, 1930, section 64A.
Identify the contract and tax to which the rule applies
Preserve the binding contract date and test the price terms, including what the parties agreed about existing taxes and changes. Subsection (1) addresses a sale or purchase without a payment stipulation where the tax was not chargeable when the contract was made, or a tax-paid contract where the tax was chargeable then. Subsection (2) covers duties of customs or excise on goods and taxes on the sale or purchase of goods. For customs duty, check the levy and applicable date for the transaction rather than treating the contract date as the assessment date. The examples address duty; analyse the particular levy before extending the rule to any GST or other charge.
Prove that the change took effect for these goods
Compare the instrument introducing the change with the applicable assessment or clearance records. Identify the effective date, goods, quantities, and the amount of duty paid or payable. A notification announcing a higher rate does not establish a higher duty on a lot that remains subject to the old rate. The date the vendor sends an invoice is also insufficient to establish the applicable duty.
Separate the duty delta from other costs
Start with the same affected goods and isolate the statutory duty change from currency movements, higher freight, brokerage, storage and changed quantities. If a contract separately adjusts these costs, run that computation on its own evidence and check for overlap. A buyer or seller may owe tax to the authorities under the applicable tax law independently of which party bears the cost under the contract.
Finish with an auditable settlement
Reconcile the prior contract price, qualifying increase or decrease and new balance. Record the contractual or statutory basis, the goods and the evidence, then use documentation consistent with the independently applicable tax and invoicing rules. Review claims and responses within applicable contract procedures; reconcile provisional demands when supporting assessments change.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Post-contract increase
Assume a tax-paid contract price of ₹900,000 and a qualifying increase in duty actually payable from ₹48,000 to ₹63,000, with no contrary allocation. The seller’s price addition is ₹15,000 and the adjusted price is ₹915,000.
Illustrative example 2: Decrease already effective
Duty included in a tax-paid contract price of ₹750,000 falls from ₹50,000 to ₹32,000 for the goods. On qualifying facts the buyer may deduct ₹18,000, leaving ₹732,000.
Illustrative example 3: First imposition
Assume ₹500,000 was agreed when the duty was not chargeable, with no payment stipulation or contrary intention. A subsequent qualifying imposition makes ₹24,000 payable on the goods. The resulting price is ₹524,000.
Illustrative example 4: Only one lot affected
Three lots together cost ₹600,000. Only 80 units in one lot incur a qualifying increase of ₹75 per unit. The increase is ₹6,000 and the adjusted contract price is ₹606,000.
Illustrative example 5: Exclude unrelated freight
A seller claims ₹26,000, comprising ₹19,000 in qualifying additional duty and ₹7,000 higher freight. With a ₹400,000 starting price and no independent freight adjustment, the section 64A price is ₹419,000.
Illustrative example 6: Express allocation overrides the default
A contract price is ₹320,000 and its clear terms require the seller to absorb post-contract customs duty increases. On these facts an ₹11,000 increase leaves the contract price at ₹320,000; the duty payable under tax law is a separate matter.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm that the agreement is for sale or purchase of goods | Signed agreement and scope or goods schedule. |
| 2 | Establish when the binding contract was made | Execution records, acceptance and incorporated terms. |
| 3 | Read the tax wording and order of precedence | Price clause, tax change clause and signed variations. |
| 4 | Identify the relevant category of tax | Legislation imposing the charge. |
| 5 | Establish the original tax position | Prior assessment basis and contract price build-up. |
| 6 | Check the effective instrument and its application | Notification and effective-date analysis for each lot. |
| 7 | Prove what is actually paid or payable | Assessment, duty calculation and payment records. |
| 8 | Isolate the qualifying difference | Lot and quantity worksheet excluding unrelated costs. |
| 9 | Choose and approve settlement documentation | Contract notice, adjustment computation and independent invoice review. |
| 10 | Reconcile the revised outstanding balance | Ledger, payment or credit documents and dispute record. |
Sixteen practitioner FAQs
1. Does section 64A always override the contract?
No. It operates subject to a different intention appearing from the contract.
2. What are the statutory categories of tax?
Customs or excise duty on goods and tax on their sale or purchase.
3. Does it apply automatically to every GST charge?
No. Analyse the particular charge and contract; this working addresses qualifying duty.
4. Is the seller’s quote date necessarily the contract date?
No. Verify when the binding agreement arose.
5. Is a new rate enough to claim extra price?
No. Show that the higher duty is paid or payable on those goods.
6. Can the buyer deduct an effective remission?
Yes on qualifying facts; measure the remission actually applicable to the goods.
7. Do higher logistics charges count as increased duty?
No. Evaluate those charges separately under the agreement.
8. What if the contract has an express duty clause?
Apply the agreed allocation where it establishes a different intention.
9. What if only some units incur higher duty?
Restrict the calculation to the affected units.
10. Does an internal estimate prove payable duty?
No. Support it with the statutory basis and the relevant assessment or clearance evidence.
11. Can the adjustment include an amount already built into the price?
Do not add it twice. Reconcile the original price basis to the assessed change.
12. Does commercial allocation transfer legal liability for the tax?
No. Liability under the tax law must be determined separately.
13. What if a provisional assessment later changes?
Reconcile the revised legally payable amount and revisit settlement under the contract.
14. Should a purchase-order amendment be checked?
Yes. Confirm whether it validly changes the price or risk allocation.
15. Does section 64A itself dictate the invoice or credit-note form?
No. Check the applicable tax and invoicing provisions separately.
16. What should the final working establish?
The contract rule, affected goods, effective statutory change and revised amount due.