Composite manufacturing rebate cannot be proportionately curtailed merely because one finished product is tax-free.

Where cotton seed was used as raw material in a composite manufacturing process yielding oil, oil-cake and residue, rebate of tax under the Haryana sales tax adjustment provisions could not be reduced merely because part of the output was tax-free. The Court applied the earlier interpretation of section 15A read with rule 24A and held that, once the entire raw material is consumed in manufacture, the rebate is available on the full tax paid and no proportional apportionment is required on the basis of exempt final products. The excess tax paid at the first stage was therefore refundable, and the reference was answered for the assessee.

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Issues: Whether the dealer was entitled to full rebate of tax paid on cotton seed used as raw material in the manufacture of oil, oil-cake and residue, despite a part of the output being tax-free, and whether the excess tax paid at the first stage was refundable under section 15A of the Haryana General Sales Tax Act, 1973 read with rule 24A of the Haryana General Sales Tax Rules, 1975.

Analysis: The statutory scheme provided adjustment or refund of tax paid on goods used in manufacture. The relevant question was whether the rebate could be restricted proportionately because one manufactured product was exempt from tax. The Court applied the earlier interpretation that the rule does not require apportionment where the raw material is used in a composite manufacturing process and the purchased goods cannot be severed as having gone only into taxable output. Once the entire raw material is used in manufacture, the presence of a tax-free product does not justify reduction of the rebate on a proportional basis.

Conclusion: The dealer was entitled to rebate on the entire tax paid on the cotton seed and to refund of the tax paid in excess at the first stage. The questions referred were answered in favour of the assessee.

Final Conclusion: The reference was allowed and the assessee obtained full relief on the tax adjustment issue.

Ratio Decidendi: Where raw material is used in a composite manufacturing process, rebate under the governing sales tax adjustment rule cannot be curtailed by proportional apportionment merely because one of the manufactured products is exempt from tax.

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