Risk Transfer is not Sale

The Passing of Risk Does Not Determine the Passing of Property

The department's apparent assumption that the retention of risk by the assessee until the cylinders reached the customer's premises implies that the property in the goods had not passed at the factory gate is legally incorrect. 

The Sale of Goods Act, 1930, clearly distinguishes between the passing of property and the passing of risk. Section 26 of the Act lays down the general rule that "unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not". 

However, this rule is subject to exceptions and agreements to the contrary. The fact that the assessee might have contractually agreed to bear the risk of loss or damage during transit until delivery does not, by itself, mean that the property in the goods had not already passed to the buyer at the time of constructive delivery at the factory gate. The passing of risk is a matter of agreement between the parties and is distinct from the transfer of ownership. The department has not provided any evidence to suggest that the property in the goods did not pass to the customers at the factory gate. The emphasis in the order solely on the assessee's responsibility for safe delivery ignores this crucial distinction. 

Furthermore, whether the assessee insured the goods during transit is also irrelevant to the determination of when the property passed. Insurable interest does not necessitate ownership; an interest in damage-free transit is sufficient. 

Hence factory gate cannot be extended to customer delivery site just because the contract needs doorstep delivery with transport & insurance.