Push button telephone instruments were not capital goods because they did not participate in manufacturing under the notification.

Push button telephone instruments were held not to qualify as capital goods under Notification No. 123/81 because the notification gave no definition and the term had to be read in the broader statutory and policy context. Capital goods were understood as plant, machinery, equipment or accessories used for production, directly or indirectly, while Rule 57-Q reflected the need for participation in manufacture. Telephone instruments were part of a communication system and aided efficient operations, but they did not directly or indirectly participate in the manufacturing process of the assessee's product. The appeal was rejected.

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Issues: Whether push button telephone instruments qualified as capital goods under Notification No. 123/81.

Analysis: The notification did not define capital goods, so the expression had to be understood from the broader statutory and policy context. Capital goods were described in the import and export policy as plant, machinery, equipment or accessories required for production directly or indirectly, while the requirement of participation in manufacture was recognised in Rule 57-Q of the Central Excise Rules, 1944. Telephone instruments formed part of a communication system and, though useful for efficient operations, they did not directly or indirectly participate in the manufacturing process of the assessee's product.

Conclusion: Push button telephone instruments were not capital goods for the purpose of the notification, and the appeal was rejected.

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