STATE OF MADRAS Vs. RAMALINGAM AND COMPANY

JUDGEMENT

(1.) THIS appeal arises out of 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 1945-46, 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.

(2.) 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 on 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, Triunelveli, 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 sale 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 recognized 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 the buyer is Hindley and Co. , show the nature of the transactions. Exhibit A-8 contains a copy of the original letter of credit held by the National Bank of INdia, Tuticorin, and the terms are mentioned there.

(3.) IN Chitty on Contracts, 21st Edn. , the nature of letters of credit, their varieties and the relationship between the banker and seller, the exporter and the purchaser are described at page 185 onwards. IN paragraph 350 at page 196, it stated that where the correspondent does not assume sole liability but forwards to the exporter with or without confirmation a letter of credit issued by the originating banker an agency relationship is more easily imputed. IN para 353, the relationship between the originating or the correspondent banker and the exporter is discussed. From the observations of goddard, Lord Justice, in J. H. Raymer and Co. v. Hambro's Bank Ltd. 1943 (1)KB 37) one can see the exact jural relationship that exists between the originating banker and the importer, and it is to the effect that the originating banker is employed by the importer on a remuneration to pay money for the importer under certain conditions. The result would be that the bank which opens the letter of credit is an agent of the importer for the payment of the price of the goods to the exporter, when the documents of shipping are handed over to the negotiating bank, which is an agent of the originating banker. The position, therefore, is this. The importer in a foreign country employs a bank in his place by supplying it with funds or securities to be deposited to open a letter of credit and in doing so, the originating banker becomes an agent of the importer. IN turn the originating banker may use their agents as negotiating bankers to pay the money to the exporter.