Full set-off survives scrap sale where purchased material is fully used in manufacture of taxable goods.

Purchased raw material fully used in manufacturing taxable goods does not lose full set-off merely because unusable remnants are later sold as scrap. Rule 41-A of the Bombay Sales Tax Rules, 1959 allows drawback or set-off where the goods specified in the schedules are used in the manufacture of taxable goods for sale, and that requirement is satisfied even if some waste remains after the manufacturing process. The sale of remnants may amount to resale under section 2(26)(iii) of the Bombay Sales Tax Act, 1959, but it does not negate the prior use of the purchased goods in manufacture. Full permissible set-off was therefore available.

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Issues: Whether a manufacturer who uses purchased raw material to the fullest extent in the manufacture of taxable goods, but sells the unusable remnants as scrap, is entitled to the full set-off under rule 41-A of the Bombay Sales Tax Rules, 1959.

Analysis: Rule 41-A grants drawback or set-off where purchased goods specified in the relevant schedules are used in the manufacture of taxable goods for sale. The definition of "resale" under section 2(26)(iii) of the Bombay Sales Tax Act, 1959 treated sale of the remnants as a resale, but that did not alter the fact that the purchased sheets had been fully utilised to the extent possible in manufacturing laminated labels. The rule does not require that every part of the purchased material must be consumed without any waste or remnants, nor does it permit reduction of set-off merely because unusable remnants are later sold as scrap. The presence of such remnants does not show that the goods purchased were not used in the manufacture of taxable goods for sale.

Conclusion: The assessee was entitled to the full permissible set-off under rule 41-A; the question was answered in the affirmative and in favour of the assessee.

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