Resale deduction upheld where cutting newsprint reels into reams did not amount to manufacture under sales tax law.

Cutting newsprint reels into smaller reams did not amount to manufacture under the Bombay and Gujarat sales tax laws because the goods retained their essential form and the process was treated as mere cutting or processing. Resale included sale of purchased goods in the same form, or without any act amounting to manufacture, and Rule 3(x) of the Gujarat Sales Tax Rules, 1970 specifically treated cutting paper from reels into reams as outside manufacture. The activity was therefore a resale, making the deduction allowable and the disallowance, penalty, and consequential set-off orders unsustainable.

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Issues: Whether cutting tear-waste of newsprint reels into smaller reams and selling them amounted to resale of purchased goods in the same form, or whether the activity amounted to manufacture so as to deny the resale deduction and uphold the penalty and consequential set-off order.

Analysis: The relevant definition of manufacture under the Bombay and Gujarat sales tax laws covered producing, making, altering, finishing or otherwise processing goods, but the activity in question was held not to fall within that definition. The definition of resale included a sale of purchased goods in the same form in which they were purchased or without doing anything to them which amounts to, or results in, manufacture. Rule 3(x) of the Gujarat Sales Tax Rules, 1970 treated cutting paper from reels into reams as a process not included in manufacture, and newsprint was treated as paper under the relevant tariff entries. The Court also applied the principle that mere reduction in length or size, without change in form, does not destroy resale character, following the earlier steel sections decision.

Conclusion: The activity was a resale and not manufacture, so the deduction claimed by the assessee was allowable and the orders disallowing the deduction, imposing penalty, and granting set-off were rightly set aside.

Final Conclusion: The reference was answered in favour of the assessee, with costs awarded against the department.

Ratio Decidendi: Mere cutting of goods into smaller sizes, where the goods retain their essential form and the process does not amount to manufacture, does not take the sale outside the statutory concept of resale.

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