Manufacture by processing waste cotton supported sales tax exemption under the industrial policy scheme.

Conversion of waste cotton into cotton was treated as manufacture because the resulting product was distinct in name, character and use from the raw material. The exemption scheme for small-scale industries extended relief on raw materials and finished products for the prescribed period and did not require a separate distinction between manufacture and processing. An eligibility certificate issued by the competent industrial authority supported the assessee's claim, and the sales tax authority could not refuse the concession on the ground that no manufacture was involved. The reassessment order denying the sales tax exemption was therefore quashed.

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Issues: Whether converting waste cotton into cotton amounts to manufacture and whether the assessee was entitled to sales tax exemption under the Industrial Policy Resolution despite the sales tax authority's contrary view.

Analysis: The exemption scheme for small-scale industries granted relief on raw materials and finished products for the prescribed period without expressly drawing a distinction between manufacture and processing. The activity of obtaining cotton from waste cotton produced an article distinct in name, character and use from the raw material, and therefore amounted to manufacture rather than mere processing. The eligibility certificate issued by the competent industrial authority supported the assessee's entitlement, and the sales tax authority could not deny the exemption on the narrow premise that no manufacturing was involved.

Conclusion: The activity constituted manufacture and the assessee was entitled to the sales tax exemption. The reassessment order denying the concession was unsustainable and was quashed.

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