Passing of property under an irrevocable letter of credit determined that the export sale was completed in Madras.

Under an irrevocable letter of credit, the passing of property in exported goods depends on the parties' intention as gathered from the contract and surrounding circumstances. Where the negotiating bank pays the seller against the shipping documents, the bank acts as the buyer's agent for payment and the seller does not retain title merely because the bank disclaims liability. On these facts, title passed in Madras when the documents were negotiated and payment was made. The sale was therefore completed within Madras, making it an intra-State sale liable to sales tax there rather than an outside sale.

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Issues: (i) Whether the property in the exported goods passed in Madras when the negotiating bank paid the seller against the shipping documents under an irrevocable letter of credit. (ii) Whether, on the facts, the sales were completed within Madras so as to attract sales tax.

Issue (i): Whether the property in the exported goods passed in Madras when the negotiating bank paid the seller against the shipping documents under an irrevocable letter of credit.

Analysis: The transfer of property in goods depends on the intention of the parties, to be gathered from the contract, conduct, and surrounding circumstances. Under the Sale of Goods Act, the seller may reserve the right of disposal where the bill of lading is taken to the seller's order, and property does not pass if the seller retains control pending payment. On the facts, the foreign buyer procured an irrevocable credit, the issuing bank acted as the buyer's agent for payment, and the seller was paid 95% of the price on shipment against the prescribed documents. The reservation in the bank's advice that it assumed no liability did not alter the legal effect of the transaction or show any reservation of title by the seller.

Conclusion: The property in the goods passed in Madras when the documents were negotiated and payment was made through the banking arrangement.

Issue (ii): Whether, on the facts, the sales were completed within Madras so as to attract sales tax.

Analysis: Since the parties intended title to pass on shipment against the letter of credit and the seller had done all that was required to complete the bargain once the documents were negotiated, the sale was completed at Madras. The contractual form, including the C.I.F. and C.F. arrangements, supported the inference that the seller had not retained the goods outside the State. The transaction was therefore not an outside-sale but an intra-State sale within the taxing territory.

Conclusion: The sales were completed within Madras and were liable to sales tax there.

Final Conclusion: The assessment on the disputed export transactions was valid, the plaintiff was not entitled to refund, and the State's appeal succeeded.

Ratio Decidendi: Where, under an irrevocable letter of credit, the seller is paid against the shipping documents and the banking arrangement shows the buyer's agent paying the price on shipment, the parties' intention is that property passes at that point and the sale is completed where payment and appropriation occur.

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