1956 (3) TMI 31 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Ultra vires and illegal collection of sales tax.
2. Determination of the place of sale.
3. Passing of property in goods.
4. Role of letters of credit and banks in international trade.
5. Interpretation of the Sale of Goods Act.

Issue-wise Detailed Analysis:

1. Ultra Vires and Illegal Collection of Sales Tax:
The plaintiff claimed that the collection of Rs. 10,485-3-4 as sales tax by the Government of Madras for the year 1945-46 was ultra vires and illegal. The plaintiff argued that their export trade during that period was not assessable to sales tax prior to the amendment by Act XXV of 1947. The lower court agreed with the plaintiff and decreed a refund of Rs. 10,325.

2. Determination of the Place of Sale:
A key issue was whether the sale took place within the State of Madras or outside it. The plaintiff contended that the sale occurred outside India as the title in the goods passed to the foreign buyers only upon payment in foreign countries. The court had to decide if the sale took place within Madras, making the sales tax applicable.

3. Passing of Property in Goods:
The court examined when the property in the goods passed to the buyer. According to the Sale of Goods Act, the property in goods is transferred to the buyer at the time intended by the parties. The court analyzed whether the property passed when the goods were shipped and the bill of lading was handed over to the negotiating bank in India or when the buyer paid for the goods in the foreign country.

4. Role of Letters of Credit and Banks in International Trade:
The case detailed the process involving letters of credit and the role of banks. The plaintiff's transactions involved foreign banks opening letters of credit with local banks in India. The court had to determine whether the foreign banks acted as agents of the buyer or the seller. The court concluded that the issuing bank acted as the agent of the buyer, and the negotiating bank in India paid the seller as the agent of the issuing bank.

5. Interpretation of the Sale of Goods Act:
The court referred to various sections of the Sale of Goods Act to determine when the property in the goods passed to the buyer. Section 19 states that the property in specific or ascertained goods is transferred to the buyer when the parties intend it to be transferred. Sections 20 to 24 provide rules for ascertaining this intention. The court found that the seller reserved the right of disposal of the goods until payment was made, as indicated by the bill of lading being made out in the seller's name.

Conclusion:
The court held that the title in the goods passed to the purchaser when 95% of the purchase money was paid, meaning the sale took place in India. Consequently, the collection of sales tax by the Government of Madras was valid. The appeal was allowed, and the suit was dismissed without costs.