Functional use test for capital goods: imported hand tools used in manufacture were treated as unrestricted capital goods.

Used hand tools imported with machine tools were treated as capital goods under the Foreign Trade Policy because the definition in paragraph 9.12 was read functionally and inclusively to cover plant, machinery, equipment and accessories used directly or indirectly in manufacture or production. The absence of an express reference to hand tools, or their physical size, was not decisive. The policy's own provisions, including paragraphs 5.2 and 6.5.1, supported treating tools as capital goods, and prior decisions recognised tools as equipment. On that basis, such hand tools were not restricted for import under paragraph 2.17.

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Issues: Whether used hand tools imported along with machine tools fell within the scope of "capital goods" under the Foreign Trade Policy so as to avoid restriction and licence requirement for import.

Analysis: The definition of "capital goods" in paragraph 9.12 of the Foreign Trade Policy was read as an inclusive and functional definition covering plant, machinery, equipment and accessories required for manufacture or production, directly or indirectly. The absence of an express reference to hand tools was held not decisive, since the policy did not exclude equipment by size and the relevant test was whether the goods had utility in manufacture or production. Support was drawn from other policy provisions, including paragraph 5.2 and paragraph 6.5.1, where tools were specifically treated as capital goods, and from prior decisions recognising that tools may fall within the concept of equipment.

Conclusion: Used hand tools imported for industrial use were held to be covered by the expression "capital goods" and not to be restricted for import under paragraph 2.17 of the Foreign Trade Policy.

Ratio Decidendi: Under the Foreign Trade Policy, whether an article qualifies as capital goods depends on its functional use in manufacture or production, directly or indirectly, and not on whether it is expressly described as a hand tool or on its physical size.

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