Waste yarn sales in manufacturing may count as business sales, but resale relief fails when statutory product description changes.

Waste yarn regularly generated during the warping and sizing process may be treated as a subsidiary product or bye-product sold in the course of business where it arises continuously in manufacture and is sold from time to time; the small sale value and limited change in composition do not alter that character. Resale relief is unavailable where the sold goods no longer retain the statutory description of the goods originally purchased, so cotton yarn that becomes waste yarn and falls within a different schedule entry does not satisfy the resale test. The assessment treatment of such sales is therefore supported on both the business-sale and resale issues.

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Issues: (i) Whether waste yarn generated during the warping and sizing process was a casual sale or a sale in the course of business; (ii) Whether the sale of such waste yarn qualified as a resale for deduction purposes.

Issue (i): Whether waste yarn generated during the warping and sizing process was a casual sale or a sale in the course of business.

Analysis: The waste yarn arose regularly in the course of the manufacturing process once yarn was put on the warping machines. The Tribunal applied the principle that where a subsidiary product or bye-product is turned out regularly and continuously in the factory and is sold from time to time, an intention to carry on business in that product may reasonably be attributed to the assessee. The fact that the waste yarn did not undergo a major change in composition and that the sale proceeds were comparatively small did not alter the character of the sales.

Conclusion: The sales of waste yarn were sales in the course of business and not casual sales, against the assessee.

Issue (ii): Whether the sale of such waste yarn qualified as a resale for deduction purposes.

Analysis: Resale under the statutory definition required the goods to remain within the description of the purchased goods in Schedule B, Part I. Cotton yarn, when purchased, fell within Schedule B, Part I, Entry 2, but the waste yarn had moved out of that description and was covered by Schedule C, Entry 1. The statutory test for resale was therefore not satisfied.

Conclusion: The sale of waste yarn did not qualify as a resale for deduction purposes, against the assessee.

Final Conclusion: The appeal failed on both the principal and alternative contentions, and the assessment treatment of the waste yarn sales was sustained.

Ratio Decidendi: A product regularly and continuously obtained in the course of manufacture and sold from time to time may be treated as a subsidiary product or bye-product, and its sale may be regarded as a sale in the course of business; resale relief is unavailable where the sold goods no longer retain the statutory description of the goods originally purchased.

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