True bypass is only applicable where there is circuitry in the pedal that you'd want your input signal to completely avoid, isn't it? This is an A/B pedal, not an effect or an fx loop, so the wiring inside simply lets you select between the two outputs.
Yes, it could be used as a mute. If output A is going to, say, your amp. And output B is left disconnected. Then selecting B would mute the signal going to your amp.