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TMI Blog1962 (2) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the price ascertained the foreign buyer opened with his own bankers an irrevocable Letter of Credit in favour of the assessees for 95 per cent. of the net invoice value. Intimation of the opening of the Letter of Credit was then given to the assessees through a bank operating in the Province of Madras. The assessees then shipped the goods, obtained Bill of Lading in their own names and lodged the ship- ping documents endorsed in blank with their own bankers together with the invoice and Bill of Exchange for 95 per cent. of the invoice value. The assessees then discounted the bills through their own bankers. The shipping documents were forwarded to the foreign banker who on presentation paid 95 per cent. of the invoice amount. The Bill of Lading was then delivered by the foreign banker to the buyer and the goods were unloaded. For the year 1945-46 the Commercial Tax Officer, Tirunelveli, determined for the purpose of computing tax liability under the Madras General Sales Tax Act, 1939, the turnover of the assessees at Rs. 15,61,200. The Commercial Tax Officer rejected the claim of the assessees that the amount of Rs. 15,22,000 in respect of overseas transactions was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the only question which was debated before us at the Bar: whether the export sales which are the subject-matter of dispute in this appeal were completed within the Province of Madras. The dispute relates to turnover in respect of seventeen export transactions with merchants in different destinations overseas. As typical of the transactions the files relating to the shipments to Messrs Begbie Philips and Hayley, London, and Messrs Hindley and Company, London, were tendered in evidence and the case proceeded to trial on the footing that those transactions were typical of all other transactions. On April 16, 1945, the Mercantile Bank of India wrote a letter in connection with the shipment to Messrs Begbie Philips and Hayley, London, about a contract of sale of five tons palmyra fibre. The letter is in the following terms: "Dear Sirs, Without any responsibility on the part of this bank we beg to advise receipt of a telegram from our London office reading: 'We open irrevocable credit favour Ramalingam Company, Tuti- corin, GBP400 (four hundred pounds) drafts on Mercantile Bank of India Limited, 60 d/st. invoices, full set shipped bills of lading order bank endorsed certificate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bills fulfilling the above mentioned conditions must be negotiated on or before-Extended till 30th April, 1946. Please note that the bank accepts no liability for the above under- taking and this advice does not release you from the liability attaching to the drawer of a Bill of Exchange. The above message is continued by us on behalf of the opening bank for your information but without any responsibility on our part except for the correctness of this copy of the telegram as received by us. When negotiating bills please produce this letter to have the amounts recorded on the back hereof. I am, Dear Sirs, Yours faithfully, (Signed)...... Manager." On receipt of intimation the assessees shipped the goods and handed over the Bill of Lading and the invoice to their own bankers, accompanied by a Bill of Exchange for the amount for which the Letters of Credit was opened by the foreign banker. The assessees then discounted the bills for the amount for which credit was opened. The taxing authorities taxed these transactions, because, in their view, the sales were effected in the Province of Madras and not outside. The assessees in the plaint in paragraph IV clause (e) stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the subject-matter of sale passed in Tuticorin when the assessees received an amount which represented the price of the goods against delivery of the Bills of Lading endorsed in blank with authority to complete the endorsement. In substance, the plea is that the foreign bank opening the letter of credit is an agent of the buyer, and that bank authorizes its own branch to pay the price to the shippers and by the arrangements made by opening the letter of credit, price is paid to the vendor in his own country against the Bill of Lading endorsed in blank. It is necessary to appreciate the true nature of the commercial letter of credit extensively used in foreign trade. During the last few decades, expansion of international trade involving overseas transactions has raised problems of peculiar difficulty. The parties to a contract to supply goods in such trade are generally unknown to each other and the contract is the result of correspondence between the parties. Often neither the seller nor the buyer is prepared to trust the other. Again, between the delivery of the goods on board the ship and its ultimate delivery at the destination, the seller is reluctant to tie up his funds. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is the issuing banker's agent. Under the terms of the contract between the assessees and the foreign buyer the price was to be paid "by draft after 90 days under bank credit to be opened by the buyer for 95% of the net invoice amount." By the letter of credit the foreign banker guaranteed to pay the amount in London. The issuing bank intimated the opening of the letter of credit, but there is no evidence of any express directions to its agent in India to pay or negotiate the draft. The letter of credit was general; and it was open to any bank on the faith thereof to negotiate the bill issued by the assessees. The payment made by the intermediary bank was not and could not therefore be on behalf of the issuing bank much less on behalf of the buyer. By negotiating the bill, the banker of the assessees became the acceptor of the offer contained in the letter of credit of the issuing bank, and as such acceptor obtained the Bill of Lading, the invoice and the Bill of Exchange and presented them for payment. This arrangement was not an arrangement for payment of price on behalf of the buyer. It appears clear from the two letters dated April 4, 1945, and May 28, 1945, that the banks ..... X X X X Extracts X X X X X X X X Extracts X X X X
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