Inventory Sale Agreement (Pakistan)

An Inventory Sale Agreement in Pakistan defines what each party must do under the deal and the consequences of failing to perform.

The Sale of Goods Act 1930 (as applicable in Pakistan) defines a contract of sale as a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a price. Where property is to pass at a future time or subject to some condition to be fulfilled, the contract is called an agreement to sell. Section 19 of the Sale of Goods Act 1930 provides that in a contract for the sale of specific or ascertained goods, property passes when the parties intend it to pass — making the transfer of title clause in the Inventory Sale Agreement a critical term. Section 20 provides that where there is an unconditional contract for the sale of specific goods in a deliverable state, property passes to the buyer when the contract is made.

Implied conditions and warranties under the Sale of Goods Act 1930 apply to every contract of sale unless expressly excluded. Section 14 of the Sale of Goods Act 1930 implies a condition that the seller has the right to sell the goods. Section 15 implies a condition that the goods shall correspond with the description. Section 16 provides implied conditions as to quality or fitness — including that goods sold in the course of a business are of merchantable quality. Parties may exclude or modify these implied terms in the Inventory Sale Agreement, subject to the general principles of the Contract Act 1872.

For sales tax purposes, the sale of goods in Pakistan is subject to Sales Tax under the Sales Tax Act 1990 (for goods) at the standard rate of 17% (as amended by annual Finance Acts), levied on the value of the supply. Sales tax-registered sellers must issue a valid Sales Tax Invoice for each taxable supply. Buyers who are registered with the Federal Board of Revenue (FBR) for sales tax can claim input tax credit on purchases. Some categories of goods — particularly food items, agricultural produce, pharmaceutical products on the Fourth Schedule to the Sales Tax Act 1990 — are exempt from sales tax or subject to reduced rates.

Withholding tax on payments for goods is governed by Section 153(1)(a) of the Income Tax Ordinance 2001 — a prescribed person making payment for the sale of goods must withhold advance income tax at the applicable rate. The Inventory Sale Agreement should clearly allocate this withholding tax obligation between the parties and confirm the seller's FBR registration and ATL (Active Taxpayers List) status, which determines the applicable withholding rate under Section 153.

For inventory sold as part of the acquisition of a going concern or business under the Business Transfer Rules, the transaction may have additional implications under the Companies Act 2017 (for corporate sellers), the Income Tax Ordinance 2001 (capital gains and business income treatment), and the provincial Sales Tax on Services Acts (for associated service elements). The Inventory Sale Agreement must be carefully structured to reflect the true economic substance of the transaction.

An Inventory Sale Agreement in Pakistan is needed whenever a business sells a significant quantity of goods to another business or buyer outside a standard purchase order transaction, and the parties require a thorough written contract documenting the specific terms of the sale, title transfer, and payment arrangements.

An Inventory Sale Agreement is needed when a manufacturing company in Pakistan sells its entire stock of finished goods or raw materials to another manufacturer, trader, or distributor — for example, a textile mill in Faisalabad selling surplus fabric inventory to a garment exporter, or a pharmaceutical manufacturer selling excess API (Active Pharmaceutical Ingredient) inventory to another producer. The agreement must document specifications, quantities, quality standards, and delivery logistics.

An Inventory Sale Agreement is required when a business is undergoing insolvency, winding-up, or financial restructuring and its inventory is being liquidated to pay creditors under proceedings before the Islamabad High Court's Company Bench or provincial High Courts under the Companies Act 2017. A formal Inventory Sale Agreement protects the liquidator, the buyer, and creditors by documenting the transaction clearly.

An Inventory Sale Agreement is needed when a retailer, wholesaler, or distributor is selling off end-of-season stock, discontinued product lines, or overstocked items in bulk to a secondary market buyer — common in Pakistan's retail and FMCG (Fast-Moving Consumer Goods) sectors. The agreement must address pricing (often at a discount to cost), inspection rights, and the seller's liability for defects in goods already marked down.

An Inventory Sale Agreement is required when a business is acquired through an asset purchase rather than a share purchase — the buyer acquires specific assets of the target company including inventory, equipment, and intellectual property rather than purchasing the company's shares. In an asset purchase under Pakistani law, a separate Inventory Sale Agreement documents the inventory component of the transaction, which may have different tax treatment from other asset classes.

An Inventory Sale Agreement is needed when an importer or customs clearing agent sells bonded goods — goods held in customs-bonded warehouses under the Customs Act 1969 and licensed by the Pakistan Customs under the Federal Board of Revenue — to a buyer who will clear them through customs. The agreement must address customs duty obligations, import permit requirements under applicable regulatory frameworks (DRAP for pharmaceuticals, PEC for certain equipment), and the timing of customs clearance.

An Inventory Sale Agreement is required when a government department, state-owned enterprise (SOE), or public sector organisation sells surplus or obsolete inventory through a procurement or tender process under the Public Procurement Regulatory Authority (PPRA) Rules 2004, confirming competitive and transparent disposal of public assets.

A thorough Inventory Sale Agreement in Pakistan under the Sale of Goods Act 1930 and the Contract Act 1872 must include the following essential elements to clearly define the transaction and provide remedies in case of non-performance.

Party Identification: Full legal names, addresses, NTNs (National Tax Numbers registered with FBR), and STNs (Sales Tax Registration Numbers if applicable) of the seller and buyer. For corporate entities, the SECP registration number and the authorised signatory's name, designation, and authority (board resolution or power of attorney). For individuals, the NADRA CNIC number.

Inventory Description: A precise description of the goods being sold — product name, brand, model, SKU codes, specifications, grade, batch numbers, manufacture dates, expiry dates (for perishable goods or pharmaceuticals regulated by DRAP), quantities (in units, kilograms, litres, or other appropriate measure), and any applicable Pakistan Standards and Quality Control Authority (PSQCA) standards. An inventory schedule as an attached exhibit is strongly recommended for large or diverse inventory lots.

Price and Payment Terms: The total purchase price in Pakistani Rupees (PKR) — or foreign currency if permitted under State Bank of Pakistan (SBP) foreign exchange regulations; whether the price is fixed or subject to adjustment based on final counted/weighed quantities; payment timeline (advance payment, upon delivery, deferred payment, instalment schedule); and accepted payment methods (bank transfer, crossed cheque drawn on a scheduled bank).

Sales Tax and Withholding Tax: Whether the price is inclusive or exclusive of Sales Tax under the Sales Tax Act 1990 at the applicable rate; the obligation of the seller to issue a valid Sales Tax Invoice if registered; the applicable withholding tax rate under Section 153(1)(a) of the Income Tax Ordinance 2001 and which party is responsible for withholding and depositing with FBR.

Title and Risk Transfer: When title (ownership) and risk in the goods transfer from seller to buyer — either at the time of signing, upon delivery at the seller's premises (ex-works), upon delivery at the buyer's premises (delivered duty paid), or upon payment of the full purchase price (retention of title). The transfer of risk determines which party bears the cost of loss or damage to goods in transit under Section 26 of the Sale of Goods Act 1930.

Delivery Terms: Delivery location, delivery timeline, packaging requirements, transport arrangements (who arranges and pays for transport), and insurance obligations during transit. For hazardous or temperature-sensitive goods, specific handling and transport requirements under Pakistan's environmental and health regulations must be specified.

Inspection and Acceptance: The buyer's right to inspect the goods before or after delivery; the inspection period (typically 7 to 14 days after delivery); the procedure for rejection of non-conforming goods (written notice within the inspection period, with specific defects identified); and the seller's obligation to replace or credit rejected goods.

Warranties and Exclusions: Whether the seller provides any warranty as to quality, fitness for purpose, or conformity with description beyond the implied conditions under the Sale of Goods Act 1930; any express exclusions of implied warranties (subject to reasonableness); and the seller's liability for patent defects versus latent defects.

Goods and Services Tax Compliance: Confirmation that the seller's GST registration (if applicable under the Sales Tax Act 1990 or provincial Sales Tax on Services Acts) is current and that valid Sales Tax Invoices will be issued for all taxable supplies, enabling the buyer to claim input tax credit with FBR.

Forms-legal.com provides this Inventory Sale Agreement (Pakistan) template as a practical starting point for business-to-business inventory transactions. For large inventory sales, acquisitions involving bonded goods, or transactions in regulated sectors (pharmaceuticals under DRAP, food under PSQCA, chemicals under applicable environmental laws), parties should engage an Advocate with commercial law experience to confirm all regulatory requirements are met.