Declared goods processing and resale treatment depend on whether goods remain within the same Schedule B entry

Processing declared goods does not amount to manufacture for resale purposes where the purchased and processed goods continue to fall within the same complete Schedule B entry. The expression "description thereof" in section 2(26)(iii) and rule 3(xviii) refers to the whole Schedule B entry, not merely a sub-entry, so the statutory resale treatment is preserved when the goods remain within that entry. Long-standing departmental practice cannot control a contrary statutory interpretation, and an earlier view may be displaced after the Supreme Court clarifies the law. The note states that the substantive tax issues favoured the assessee, while the stare decisis-based objection failed.

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Issues: (i) Whether re-rolling ingots or rolling scrap into M.S. rounds amounted to manufacture so as to deny the assessee the benefit of resale under section 2(26)(ii) read with rule 3(xviii). (ii) Whether the expression "description thereof" in section 2(26)(iii) and rule 3(xviii) refers to the whole entry in Schedule B or only to the sub-entry of the particular goods purchased. (iii) Whether the Tribunal was justified in departing from the department's earlier interpretation on the ground of stare decisis after the Supreme Court's decision in Pyare Lal Malhotra.

Issue (i): Whether re-rolling ingots or rolling scrap into M.S. rounds amounted to manufacture so as to deny the assessee the benefit of resale under section 2(26)(ii) read with rule 3(xviii).

Analysis: The resale definition in section 2(26)(ii) excludes only those cases where something is done to purchased goods which amounts to or results in manufacture. Rule 3(xviii) further provides that goods specified in any entry in Schedule B do not cease to fall within manufacture merely because they are subjected to a process, so long as the process does not take them out of the description of the entry. The relevant entry in Schedule B treated iron and steel as one complete entry, and the goods purchased and the goods sold both fell within that same entry. The processing therefore did not take the goods out of the relevant description and the transaction remained within the statutory concept of resale.

Conclusion: The conversion of ingots or scrap into M.S. rounds did not amount to manufacture for the purpose of denying resale treatment, and the assessees were entitled to the deduction claimed. The finding is in favour of the assessee.

Issue (ii): Whether the expression "description thereof" in section 2(26)(iii) and rule 3(xviii) refers to the whole entry in Schedule B or only to the sub-entry of the particular goods purchased.

Analysis: The expression "entry" in the Act and Rules was construed to mean the entire entry and not a sub-entry, unless the statute expressly indicated otherwise. The wording of section 2(26)(iii) and rule 3(xviii) was held to refer to the description of the goods within the whole entry in Schedule B. Since the purchased goods and the processed goods both remained within entry 3 of Part I of Schedule B, the activity did not take them out of the statutory description. The construction urged by the department would have made rule 3(xviii) ineffective and inconsistent with the legislative scheme.

Conclusion: The words "description thereof" refer to the entire entry and not merely to a sub-entry. The issue is answered in favour of the assessee.

Issue (iii): Whether the Tribunal was justified in departing from the department's earlier interpretation on the ground of stare decisis after the Supreme Court's decision in Pyare Lal Malhotra.

Analysis: Long-standing departmental practice cannot override the correct interpretation of the statute, especially where a superior authority or court declares the earlier view to be wrong. The department's change of view was prompted by the Supreme Court's decision and was not arbitrary. The Tribunal, as a superior appellate authority, was not bound to perpetuate an incorrect departmental interpretation merely because it had prevailed earlier.

Conclusion: The Tribunal was justified in rejecting the earlier departmental view. The issue is answered in favour of the department and against the assessee.

Final Conclusion: The references were answered by holding that the assessees were entitled to treat the disputed sales and purchases as resales, but the challenge based on prior departmental practice failed. The common result was that the assessees succeeded on the substantive tax issues while the plea based on stare decisis was rejected.

Ratio Decidendi: For purposes of the Bombay Sales Tax Act, processing declared goods does not amount to manufacture if the processed goods continue to fall within the same complete Schedule B entry, and the expression "entry" in the exclusionary rule refers to the whole entry unless the statute clearly indicates a sub-entry.

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