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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 ..... runelveli in the State of Madras. The contracts of sale are made by correspondence on approval of samples sent by the assessees to the foreign buyers. The contracts are C.I.F. or C.F. and the price is payable by draft upon bank credit to be opened by the buyer. The course of dealing between the assessees and the foreign buyers was as follows: After the contract for a quantity of goods was finalized by correspondence 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 delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the taxing authorities on the basis that the sales took place within the Province did not lie in the civil court, was not raised in the Court of First Instance, nor in the High Court. Counsel for the State of Madras has also stated before us that he does not desire to contend in this case that the suit was, in view of the adjudication by the taxing authorities, not maintainable. We therefore proceed to deal 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 78 per ton in 1 Cwt. (ballots) C and F United Kingdom Post Shipment, June/July from Cochin freight paid of deducted and credit reduced accordingly-Freight basis 22nd May, 1945. Insurance including war risk with unlimited transhipment covered in London. Such shipping documents are to be delivered on payment of the bills which should bear the clause-'Drawn under N.B.I. credit number 83 cabled 24th May, 1945'. 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 invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not undertake any liability by intimating the opening of the letter of credit and the assessees were expressly in- formed that they (the assessees) would not be released from their liability under the Bills of Exchange drawn by them. The assessees negotiated the Bills through their bankers after receiving an intimation of the opening of credit. Counsel for the State of Madras submits that the property in the goods which were 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 transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the buyer, the intermediary banker may negotiate the beneficiary's bills. In such a case he stands qua the issuing banker as principal to principal, for either he succeeds to the rights of the beneficiary under the credit or, if he negotiates relying on the credit alone, as acceptor of the offer it contains. If the instructions call upon the intermediary banker to pay or to negotiate the beneficiary's bills, the intermediary banker 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. B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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