Export exemption for Nepal sales: substitute documentation must be accepted, not rigid insistence on bills of export.

Sales of petroleum products to Nepal under a treaty-based export procedure were treated as sales in the course of export and therefore fell within the constitutional and statutory exemption from tax under the Bihar Finance Act, 1981. The court also noted that, where the Nepal export procedure replaced the ordinary bill of export with substitute documentation handled through the relevant authorities, insisting on retained bills of export was unrealistic. The taxing authority was required to assess the claim on the evidence actually produced and verify the exported quantity, rather than reject exemption for non-production of bills of export.

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Issues: (i) Whether sales of petroleum products to Nepal were sales in the course of export and therefore exempt from tax under the Bihar Finance Act, 1981; (ii) whether the authorities were justified in insisting on production of bills of export despite the substitute procedure prescribed for such exports.

Issue (i): Whether sales of petroleum products to Nepal were sales in the course of export and therefore exempt from tax under the Bihar Finance Act, 1981.

Analysis: Article 286 of the Constitution of India prohibits a State from taxing sales that take place in the course of export. Section 7(1)(c) of the Bihar Finance Act, 1981 gives effect to that constitutional protection and exempts such sales from tax. On the facts, the exports were carried out under the treaty between India and Nepal and the agreement between the two public sector instrumentalities, and the transaction was treated as export-oriented sale.

Conclusion: The sales to Nepal were covered by the constitutional and statutory export exemption and were not taxable under the Bihar Finance Act, 1981.

Issue (ii): Whether the authorities were justified in insisting on production of bills of export despite the substitute procedure prescribed for such exports.

Analysis: Rule 13(2) of the Central Excise Rules, 1944 permits export of specified goods to Nepal subject to a prescribed procedure, and section 50 of the Customs Act, 1962 contemplates a bill of export for land exports. The prescribed Nepal export procedure, however, substituted the ordinary bill of export with a multi-copy documentary system handled through Indian and Nepalese authorities. In that setting, insisting on production of bills of export retained by the exporter was considered unrealistic, and the authorities were required instead to examine the evidence actually produced and verify the quantity exported.

Conclusion: The insistence on substitute bills of export was unjustified, and the matter required reconsideration on the merits of the exemption claim and the exported quantity.

Final Conclusion: The impugned order was set aside and the claim for exemption was sent back for fresh adjudication without insisting on production of the substitute bills of export.

Ratio Decidendi: Where exports are made under a special treaty-based procedure to Nepal, the taxing authority cannot deny export exemption merely for non-production of bills of export if the prescribed substitute documentation is beyond the exporter's retained control and the claim must be tested on the evidence actually available.

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