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IN THE HIGH COURT OF JUDICATURE AT MADRAS
Govinda Menon and Ramaswami, J.
The State of Madras through the District Collector of Tirunelveli
Versus
Messrs. Ramalingam & Co., through one of the Partners, A.V. Samuel
Appeal No. 256 of 1951.
Decided On : 05 March 1956
SALES TAX - EXPORT TRADE - ASSESSMENT - VALIDITY - WHETHER EXPORTS WERE ASSESSABLE TO SALES TAX PRIOR TO AMENDMENT BY ACT XXV OF 1947 - WHETHER SALE TOOK PLACE WITHIN THE STATE OF MADRAS - WHETHER THE INTENTION OF THE PARTIES WAS THAT THE TRANSFER OF PROPERTY SHOULD TAKE PLACE WITHIN THE STATE OF MADRAS - WHETHER THE ISSUING BANKER ACTED AS AN AGENT OF THE BUYER OR AS AN AGENT OF THE SELLER - WHETHER THE STIPULATION IN THE LETTER THAT THE INTERMEDIARY BANKER ACCEPTED NO LIABILITY FOR THE UNDERTAKING BY THE LONDON BUYER ON THE FOOT OF WHICH AN IRREVOCABLE LETTER OF CREDIT WAS OPENED DID NOT RELEASE THE TUTICORIN SELLER FROM THE LIABILITY ATTACHING TO THE DRAWER OF A BILL OF EXCHANGE STOOD IN THE WAY OF THAT TRANSFER OF PROPERTY WITHIN THE STATE OF MADRAS.
Fact of the Case:
The plaintiff, a firm of fibre dealers, exported fibre and other raw products to foreign countries. The foreign buyers opened irrevocable letters of credit in favour of the plaintiff for 95% of the net invoice amount with a London bank. The London bank instructed a branch bank in Madras to open an irrevocable credit in favour of the plaintiff for specific sums in sterling as against bills to be drawn payable 90 days after sight and to be accompanied by invoices, full sets of on board bills of lading made out to order and blank endorsed representing shipments of specified quantity of fibre. The plaintiff complied with these conditions and despatched the goods. The London bank contacted the buyer who had opened an irrevocable letter of credit with them; and the goods have been cleared and the balance minus the commission, etc., due to the seller in Tuticorin had been paid. The plaintiff filed a suit for the recovery of a sum of Rs. 10,485-3-4 collected by the Government of Madras as sales-tax from the plaintiff for the year 1945-1946, on the ground that such collection was ultra vires and illegal, because the export trade of the plaintiff during that period was not assessable to any sales-tax prior to the amendment by Act XXV of 1947. The lower Court agreed with the contentions raised by the plaintiff with regard to a refund of the sum of Rs. 10,325 and decreed the suit to that extent. The State of Madras, through the District Collector, Tirunelveli, is the appellant herein.
Finding of the Court:
The Court held that the sale took place within the State of Madras and that the intention of the parties was that the transfer of property should take place within the State of Madras. The Court further held that the issuing banker acted as an agent of the buyer and not as an agent of the seller and that the stipulation in the letter that the intermediary banker accepted no liability for the undertaking by the London buyer on the foot of which an irrevocable letter of credit was opened did not release the Tuticorin seller from the liability attaching to the drawer of a Bill of Exchange stood in the way of that transfer of property within the State of Madras.
Issues: 1. Whether the exports were assessable to sales tax prior to the amendment by Act XXV of 1947? 2. Whether the sale took place within the State of Madras? 3. Whether the intention of the parties was that the transfer of property should take place within the State of Madras? 4. Whether the issuing banker acted as an agent of the buyer or as an agent of the seller? 5. Whether the stipulation in the letter that the intermediary banker accepted no liability for the undertaking by the London buyer on the foot of which an irrevocable letter of credit was opened did not release the Tuticorin seller from the liability attaching to the drawer of a Bill of Exchange stood in the way of that transfer of property within the State of Madras?
Ratio Decidendi: 1. The intention of the parties, as shown by the terms of the contract, the conduct of the parties and the circumstances of the case, determine the time when, and the conditions subject to which, the property in the goods is to be transferred. 2. In the instant case, the intention of the parties was that the transfer of property should take place within the State of Madras. 3. The issuing banker acted as an agent of the buyer and not as an agent of the seller. 4. The stipulation in the letter that the intermediary banker accepted no liability for the undertaking by the London buyer on the foot of which an irrevocable letter of credit was opened did not release the Tuticorin seller from the liability attaching to the drawer of a Bill of Exchange stood in the way of that transfer of property within the State of Madras.
Final Decision: The appeal was allowed and the suit was dismissed.
In the plaint, a list of several exports giving the names of the constituents and the net turnover deducting the freight, and the nature of the contracts have been given and it is stated that the order of assessment of exports detailed there was wholly ultra vires and beyond the powers of the Government. The lower Court agreed with the contentions raised by the plaintiff with regard to a refund of the sum of Rs. 10,325 and decreed the suit to that extent. The State of Madras, through the District Collector, Tirunelveli, is the appellant herein.
Exhibit A-7 contains a list of exports to various foreign countries and the amount of money for which each transaction was entered into. There are 17 transactions listed therein to the total tune of over Rs. 10 lakhs. Items 1 to 5 in that document deal with contracts for selling fibre to firms in London and Exhibits A-8 to A-12 also relate to these contracts. Items 6 to 8 are with respect to the sale of goods to firms in Australia and Exhibits A-13 to A-15 deal with them. Items 9 and 10 are purchases by Egyptian firms and Exhibits A-16 and A-17 relate to them. Items 11 to 13 are with respect to sale of goods to New York firms, and Exhibits A-18 to A-20 deal with them. Items 14 to 17 deal with the sales of goods to Colombo and we are not concerned with those transactions in this appeal. It is conceded by the appellant that the appeal does not relate to the three transactions with Colombo and one of the transactions with Egypt.
According to P.W. 1, one of the partners of the plaintiff-firm, the mode of transactions is in the following manner. Contracts are entered into by correspondence with foreign firms for the sale of quantities of fibre, which are purchased by the plaintiff in open markets in India, or they order manufactured goods. After the goods are shipped, the plaintiff obtains a bill of lading made out in their name as shippers, and draw a bill of exchange along with the bill of lading and invoice. At the instance of the foreign buyer a recognised exchange bank in that country opens a letter of credit with a local bank for a certain sum of money, and when goods are shipped the plaintiff draws a bill of exchange payable 90 days hence, presents the same with the invoice and the shipping documents, to the local bank, who would pay 95 per cent. of the amount stated on the invoice, and the documents are handed over to the local bank, who would forward them to the foreign bank on whose instance, they have agreed to pay the money; when the goods reach the foreign port, and the shipping documents along with the bill of exchange and the invoice are received by that foreign bank, the buyer pays the invoice amount on the bills after taking delivery of them and recovers the goods when they are unloaded. It is also stated that the bill of lading is made out in the name of the consignor as the shipper, and also endorsed in blank. The prices fixed are either C.I.F. that is cost, insurance and freight; or C.F. that is cost and freight alone insurance to be paid by the purchaser. It is stated that there is no actual delivery of goods but only of documents of title to the goods, to the foreign buyer. The contracts are stated to be D.P., that is demand on payment. Where the contracts are C.I.F., price includes insurance money paid by the seller, it is C.F. where the buyer pays the insurance charges. It is stated by P.W. 1 that the credit opening bank opens credit on behalf of the purchasers, and those banks are not known to the sellers at all.
Exhibits A-9 to A-12 which deal with the export of goods to London, where
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