CIF sale under irrevocable credit: title passes on tender of shipping documents, despite post-delivery rejection rights.

In a c.i.f. sale financed by an irrevocable letter of credit, property in unascertained goods passes when the seller unconditionally appropriates the goods to the contract by shipping them and tendering the bill of lading and related documents against payment, without reserving the right of disposal. Rights allowing the buyer to reject for non-conformity or to claim for quality or moisture defects do not, by themselves, postpone transfer of title, because they do not make inspection or acceptance a condition precedent to passing of property. On that basis, the sales were treated as having taken place outside India, and the profits were treated as arising outside India.

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Issues: Whether, on the terms of the contracts and the course of dealing, the sales were effected outside India so that the profits arose outside India.

Analysis: In a sale of unascertained goods, property passes when the goods are unconditionally appropriated to the contract with the assent of the parties. Under a c.i.f. arrangement supported by an irrevocable letter of credit, the seller ships the goods, obtains the shipping documents, and tenders them against payment. Where the seller does not reserve the right of disposal and hands over the bill of lading and related documents to the bank in exchange for the invoice value, the seller parts with control of the goods and the appropriation is complete. Clauses giving the buyer rights to reject goods for non-conformity or to raise claims for quality or moisture do not postpone the passing of property, because they do not make inspection or acceptance a condition of transfer of title.

Conclusion: The sales in question took place outside India and the profits arose outside India; the answer to the referred question was in the affirmative, in favour of the assessee.

Ratio Decidendi: In a c.i.f. sale financed by an irrevocable letter of credit, property in the goods passes when the seller, without reserving the right of disposal, tenders the shipping documents against payment, and post-delivery rights of rejection or claim do not by themselves prevent title from passing.

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