What Counts as Goods: Actionable Claims, Money and Collectible Coins, Software, Electricity and Digital Goods under the Sale of Goods Act, 1930

Section 2(7) excludes two things from the definition of goods, actionable claims and money, and leaves everything else to the words every kind of movable property. Most cases are easy. The hard ones lie at the edges: intangible things such as software and electricity, rights that look like goods but are really claims, and coins that are money in one person's hands and a collector's item in another's. The courts have answered these questions largely in tax cases, where the meaning of goods decides whether a transaction can be taxed as a sale, but the reasoning governs the Sale of Goods Act equally.

Which boundary cases are goods, which are not, and the test the courts apply

1. Actionable Claims

Section 3, Transfer of Property Act, 1882, definition of actionable claim

“Actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief.

An actionable claim is a right that can be enforced only by action, not a thing that can be delivered. It is transferred under Section 130 of the Transfer of Property Act, by a signed instrument, and not by a contract of sale of goods. Debts, the benefit of a contract, and an interest in goods held by someone else are all actionable claims.

📖 Sunrise Associates v. Government of NCT of Delhi, (2006) 5 SCC 603

Facts: Lottery tickets were sold by distributors, and the States sought to levy sales tax on them as goods. An earlier decision, H. Anraj v. Government of Tamil Nadu (1986), had split a lottery ticket into a right to participate in the draw, which it treated as goods, and a right to win a prize, which it treated as an actionable claim.

Held: A Constitution Bench overruled H. Anraj. A lottery ticket confers a single composite right, the chance to win a prize, which is a claim to a beneficial interest enforceable only by action. It is an actionable claim and therefore not goods. The paper ticket merely evidences the right; it is not the thing bought.

Ratio: A lottery ticket is an actionable claim and not goods. Where the value lies in a right enforceable by action, the document evidencing it does not make the transaction a sale of goods.

For tax purposes the position has since been altered by statute. The Central Goods and Services Tax Act, 2017 defines goods to include actionable claims, and lottery, betting and gambling are taxed accordingly. That definition operates for GST only and does not change the meaning of goods under the Sale of Goods Act.

2. Money and Collectible Coins

Money is excluded because it is the medium of payment, not the subject of a sale. When a person pays currency for goods, the currency is the price. Exchanging currency for currency of another denomination or country is not a sale of goods.
Coins and notes as objects are different. A rare coin bought by a collector for its rarity, or an old currency note bought as a curiosity, is bought as a commodity and not as a means of payment.
The leading illustration is English. In Moss v. Hancock, [1899] 2 QB 111, a gold coin exhibited and kept as a curiosity was held to be goods and not currency, because it had passed out of circulation as money in the hands of its holder.
The test is the use to which the object is put in the transaction. The same coin is money when spent and goods when sold as a collector's item.

3. Software and Digital Goods

In Tata Consultancy Services v. State of Andhra Pradesh, (2005) 1 SCC 308, a Constitution Bench held that canned software sold on a medium is goods, because it is capable of abstraction, consumption, use, transmission, transfer, delivery, storage and possession. Because the reasoning rests on the attributes of the thing rather than the medium, it has been relied on to argue that software does not cease to be goods merely because it is transferred electronically, though that point was not the one directly decided.

Canned or packaged software is generally goods, following TCS.
Custom software developed for a client is closer to a contract for services, where the product is incidental to the skill.
Digital downloads, e-books and music files raise the same question: a licence to use may be a service or the transfer of a right, rather than a sale of goods, and much depends on the terms. The law here is still developing and should be checked against current authority before being relied on.
Access to software as a service, such as a cloud subscription, is ordinarily a service.

4. Electricity

📖 Commissioner of Sales Tax, Madhya Pradesh v. Madhya Pradesh Electricity Board, AIR 1970 SC 732

Facts: The Electricity Board supplied electricity to consumers, and the question was whether electricity was goods so that the supply could be taxed as a sale.

Held: The Supreme Court held that electricity is goods. It is capable of abstraction, consumption and use, it can be transmitted, transferred, delivered, stored and possessed in the same way as other movable property, and it has all the attributes of goods even though it is not tangible.

Ratio: Tangibility is not essential to goods. Electricity, being capable of being transmitted, delivered, stored and possessed, is movable property and goods.

The same attribute test was applied in TCS to software. By contrast, in Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, the Court held that the electromagnetic waves used in telecommunication are not goods, and that a telephone connection is a service, because the subscriber is not delivered anything he can possess or deal with.

5. The Position Stated Shortly

Section 2(7) excludes actionable claims and money, and otherwise covers every kind of movable property.
An actionable claim is a debt or a beneficial interest in movables not in the claimant's possession, transferred under the Transfer of Property Act.
Sunrise Associates: a lottery ticket is an actionable claim, not goods.
Money used as currency is the price and not goods; a coin sold as a curiosity may be goods, as in Moss v. Hancock.
TCS: canned software is goods; custom software and access services are closer to services.
M.P. Electricity Board: electricity is goods, since tangibility is not essential.
BSNL: telecommunication is a service, and the waves are not goods.
The CGST Act's wider definition of goods is for tax only and does not alter the Sale of Goods Act.