Objective
EPCG Scheme is introduced with the objective to facilitate import of CapitalGoods for producing quality goods and services and enhance India’s manufacturing competitiveness.
Goods Allowed & Duties Exempted under EPCG
EPCG Scheme allows import of Capital Goods (except those specified in negative list in Appendix 5 F) for pre-production, production and post-production at zero customs duty.
Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess upto 31.03.2021 only, leviable thereon under the subsection(7) and subsection (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as provided in the notification issued by Department of Revenue.
Alternatively, the Authorisation holder may also procure Capital Goods from indigenous sources in accordance with provisions of Paragraph 5.07 of FTP.
Validity
Authorisation shall be valid for import for 18 months from the date of issue of Authorisation. Revalidation of EPCG Authorisation shall not be permitted.
- Name of supporting manufacturer(s) shall be endorsed on the EPCG Authorisation before installation of the capital goods in the factory / premises of the supporting manufacturer (s).
EPCG Scheme Coverage
EPCG Scheme covers:
- Manufacturer exporters with or without supporting manufacturer(s),
- Merchant exporters tied to supporting manufacturer(s) and service providers.
- Service provider who is designated / certified as a Common Service Provider (CSP) by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a Town of Export Excellence (TEE) subject to provisions and conditions of Foreign Trade Policy 2015-2020.
Nexus Certification
RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 5A, issue EPCG authorisation. Reasonable wastage, if any, anticipated at the time of installation of capital goods will also be certified by the Chartered Engineer in the nexus certificate and the same would be mentioned in the condition sheet of the EPCG authorisation at the time of issue. For issuance of such certificate, the Chartered Engineer shall act only in the domain of his/her competence.
Nexus Certification
RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 5A, issue EPCG authorisation. Reasonable wastage, if any, anticipated at the time of installation of capital goods will also be certified by the Chartered Engineer in the nexus certificate and the same would be mentioned in the condition sheet of the EPCG authorisation at the time of issue. For issuance of such certificate, the Chartered Engineer shall act only in the domain of his/her competence.
Certificate of Installation
of Capital Goods
Export Obligation (EO)
Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes and cess saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorisation.
(a) Authorization holder shall produce, within six months from date of completion of import, to the concerned RA, a certificate from the jurisdictional Customs authority or an independent Chartered Engineer, at the option of the authorisation holder, confirming installation of capital goods at factory/premises of authorization holder or his supporting manufacturer(s). The RA may allow one time extension of the said period for producing the certificate by a maximum period of 12 months with a composition fee of Rs. 5000/-. Where the authorisation holder opts for independent Chartered Engineer’s certificate, he shall send a copy of the certificate to the jurisdictional Customs Authority for intimation/record.
The authorization holder shall be permitted to shift capital goods during the entire export obligation period to other units mentioned in the IEC and RCMC of the authorization holder subject to production of fresh installation certificate to the RA concerned within six months of the shifting.
(b) In the case of import of spares, the installation certificate shall be submitted by the Authorization holder within a period of three years from the date of import.
Conditions for EO Fulfilment
EO shall be fulfilled by the authorisation holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorisation has been granted.
Revalidation of EPCG Authorisation shall not be permitted.
In case Integrated Tax and Compensation Cess are paid in case on imports under EPCG, incidence of the said Integrated Tax and Compensation Cess would not be taken for computation of net duty saved provided Input Tax Credit is not availed.
Import of items which are restricted for import shall be permitted under EPCG Scheme only after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters.
Authorisation shall be valid for import for 18 months from the date of issue of Authorisation.
If the goods proposed to be exported under EPCG authorisation are restricted for export, the EPCG authorisation shall be issued only after approval for issuance of export authorisation from Exim Facilitation Committee (EFC) at DGFT Headquarters.
Additional Conditions
for EO Fulfilment
In addition to conditions in paragraph 5.04 of FTP, the following conditions shall also be applicable for fulfilment of export obligation
- Name of the supporting manufacturer as well as the exporter shall be indicated on export documents.
- EPCG authorisation holder may export either directly or through third party (ies)
- In case the Authorization Holder wants to export through a third party, export documents viz., shipping bills / Bill of exports etc. shall indicate name of both authorization holder and supporting manufacturer, if any, along with EPCG authorization number. BRC, GR declaration, export order and invoice should be in the name of third party exporter. The goods exported through third party should be manufactured by the EPCG Authorisation Holder or the supporting manufacturer where the capital goods imported under the authorisation have been installed. Proceeds realised through normal banking channel from third party exporters account to the authorisation holder’s account on account of such exports only shall be counted towards fulfilment of export obligation.
- The EPCG authorization holder shall submit the following additional documents for discharge of EO through third party (ies):
-
A copy of agreement entered into between the authorization holder and the ultimate exporter undertaking to export the goods manufactured by the authorization holder/supporting manufacturer for fulfilment of the export obligation against the EPCG authorization in question.
-
Proof of having dispatched the goods from authorization Holder‟s factory premises to the ultimate exporter/port of export viz. (a) ARE 1 certificate issued by Central Excise / Tax invoice for export prescribed under the GST rules with due authentication by the Customs verifying the exports along with the shipping bill number, date and EPCG authorization number or (b) Invoice duly incorporating the relevant EPCG authorization number & date at the time of dispatch in case the unit is not registered with Central Excise / GST.
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Lorry Receipt (LR) /Logistical evidence for transportation of goods from the premises of the authorization holder to the third party/port of export.
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An undertaking from the 3rd party on a stamp paper, declaring that the products exported for fulfilment of EO by them on behalf of the license holder as per details given in the statement of exports, were manufactured by the license holder.
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Financial evidence for having received proceeds through normal banking channel from third party exporter‟s account to the authorization holder‟s account on account of such exports towards such third party supplies.
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Disclaimer certificate from third party that they shall not use such proceeds towards EO fulfilment of any EPCG authorization (s) obtained by them.
Block-wise Fulfilment of EO
(a)The Authorisation holder under the EPCG scheme shall, while maintaining the average export obligation, fulfil the specific export obligation over the prescribed block period in the following proportions:
(b) Where EO of the first block is not fulfilled in terms of the above proportions, except in cases where the EO prescribed for first block is extended by the RA subject to payment of composition fee of 2% on duty saved amount proportionate to unfulfilled portion of EO pertaining to the block, the Authorization holder shall, within 3 months from the expiry of the block, pay duties of customs (along with applicable interest as notified by DOR) proportionate to duty saved amount on total unfulfilled EO of the first block.
| Period from Date of Issue of Authorisation | Minimum EO to be fulfilled |
|---|---|
|
Block of 1st to 4th year |
50% |
|
Block of 5th and 6th year |
Balance EO |
(c)The Authorisation holder would intimate the RA on the fulfilment of the export obligation, as well as average exports, within three months of completion of the block.
Reduced EO for Green Technology Products
For exporters of Green Technology Products, Specific EO shall be 75% of EO as stipulated in Para 5.01. There shall be no change in average EO imposed, if any, as stipulated in Para 5.04. The list of Green Technology Products is given in Para 5.29 of HBP.
Reduced EO for North East Region and Jammu &Kashmir
For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Jammu & Kashmir, specific EO shall be 25% of the EO, as stipulated in Para 5.01. There shall be no change in average EO imposed, if any, as stipulated in Para 5.04.
Incentive for early EO fulfilment
With a view to accelerating exports, in cases where Authorisation holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the Authorisation redeemed by RA concerned. However no benefit under Para 5.21 of HBP shall be permitted where incentive for early EO fulfilment has been availed.
Calculation of Average EO
- EO under the scheme- EO under the scheme shall be, over and above, the average level of exports achieved by the applicant in the preceding 3 licensing years for the same and similar products within the overall EO period including extended period, if any. Such average would be the arithmetic mean of export performance in the preceding 3 licensing years for same and similar products.
- Indigenous sourcing of Capital Goods: In case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than the EO stipulated in Para 5.01
- Shipments under various schemes: Shipments under Advance Authorisation, DFIA, Drawback scheme or reward schemes under Chapter 3 of FTP; would also count for fulfilment of EO under EPCG Scheme.
- Physical export: Export shall be physical export. However, Deemed Exports supplies as specified in paragraph 7.02 (a), (b), (e), (f) &(h)of FTP shall also be counted towards fulfilment of export obligation, along with usual benefits available
under paragraph 7.03 of FTP.
- Supply of ITA-I items: EO can also be fulfilled by the supply of ITA-I items to DTA, provided realization is in free foreign exchange.
- Royalty payments: Royalty payments received by the Authorisation holder in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge under EPCG.
- Payment in rupee terms: Payment received in rupee terms for such Services as notified in Appendix 5D shall also be counted towards discharge of export obligation under the EPCG scheme.
- Direct imports :In case of direct imports, EO shall be reckoned with reference to actual duty saved amount. In case of domestic sourcing, EO shall be reckoned with reference to notional Customs duties saved on FOR value.
Relief in Average EO
(a) To provide relief to exporters of those sectors where total exports in that sector/product group has declined by more than 5% as compared to the previous year, average export obligation for the year may be reduced proportionate to reduction in exports of that particular sector/product group during the relevant year as against the preceding year.
However, in case export decline is continuous over consecutive years, the base year for calculation of eligibility and calculation of reduction in average export obligation will be taken as the year after which the exports have shown
continuous decline.
(b) The sectors /product groups for which this relaxation is to be allowed shall be conveyed by the DGFT to all the
RAs within seven months of the end of the previous financial year, and the RAs shall re- fix the annual average EO for
previous year accordingly for exporters in that sector / product group.
Relief in Average EO
(a) To provide relief to exporters of those sectors where total exports in that sector/product group has declined by more than 5% as compared to the previous year, average export obligation for the year may be reduced proportionate to reduction in exports of that particular sector/product group during the relevant year as against the preceding year.
However, in case export decline is continuous over consecutive years, the base year for calculation of eligibility and calculation of reduction in average export obligation will be taken as the year after which the exports have shown continuous decline.
(b) The sectors /product groups for which this relaxation is to be allowed shall be conveyed by the DGFT to all the RAs within seven months of the end of the previous financial year, and the RAs shall re- fix the annual average EO for previous year accordingly for exporters in that sector / product group.
Issuance of Advance Authorisation for Import of Inputs
Indigenous manufacturer intending to supply capital goods to EPCG authorisation holder may apply to RA for issuance of Advance authorisation for import of inputs including components required for manufacture of capital goods to be supplied to EPCG authorization holder.
Realization of Export Proceeds
Export proceeds shall be realized in Freely Convertible Currency except for deemed exports supplies under Chap. 7.
Exports to SEZ units /Supplies to Developers/ Co-Developers irrespective of currency of realization would also b counted for discharge of Export Obligation.
Realization in case of supplies to SEZ units shall be from foreign currency account of the SEZ unit.
Actual User Condition
Imported Capital Goods shall be subject to Actual User Condition till export obligation is completed and EODC is
granted.
Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier
A person holding an EPCG authorisation may source capital goods from a domestic manufacturer. Such domestic manufacturer shall be eligible for deemed export benefits under paragraph 7.03 of FTP and as may be
provided under GST Rules under the category of deemed exports.
Such domestic sourcing shall also be permitted from EOUs and these supplies shall be counted for purpose of fulfilment of positive NFE by said EOU as provided in Para 6.09 (a) of FTP..
Frequently Asked Questions
(FAQ's)
(i) Capital goods under the definition provided under Para 9.08 of FTP 2015-20, including those in CKD/ SKD condition.
(ii) Computer systems and software as parts/components of the capital goods
(iii) Spares and tools, moulds, dies, fixtures, jigs and refractories
(iv) Catalysts procured for the initial charge and one additional charge
(v) Capital goods for Project Imports, if notified by the Central Board of Excise and Customs (CBEC)
Export Promotion Capital Goods (EPCG) scheme is a scheme which allows an exporter to import of capital goods
including spares for pre-production, production and post-production at Zero Customs duty, for exports.
Also, IGST on import of capital goods under EPCG is exempted till 31 st March 2021.
- Manufacturer exporters with or without supporting manufacturer(s),
- Merchant exporters tied to supporting manufacturer(s) and
- Service Providers including Common Service Provider (CSP)
Yes, in such case, there will be no average export obligation.
EPCG Authorization holder may source Capital Goods from domestic manufacturers also.
Domestic Manufacturers will be eligible for Deemed Export Benefits under Chapter 7 of the FTP.
Specific EO shall be 25% less than the stipulated EO.
The issuing authorities are the Regional Licensing Authorities of Director General of Foreign Trade (DGFT), Ministry
of Commerce & Industry.
An online application in Form ANF 5A is filed online at dgft.gov.in using digital signature with the Company and
personal details.
1. Treasury Receipt Challan (if fee has not been paid electronically) evidencing payment of application fee in terms
of Appendix 2L.
2. Self-certified copy of MSME/IEM/LOI/IL in case of products or a self-certified copy of Service Tax Registration in
case of Service Providers. (in case of Service Providers, who are not registered with Service Tax authorities, a
declaration in this regard will be submitted as a part of the application (declaration no. 6), service tax registration is
not required to be submitted. In such cases RCMC from EPC concerned will suffice).
3. Certificate from a Chartered Engineer in the format given in Appendix 5A.
4. Certificate of Chartered Accountant / Cost Accountant / Company Secretary in Appendix 5B.
EO under EPCG shall be fulfilled by the Authorisation Holder through export of goods which are manufactured by
him or his supporting manufacturer / services rendered by him, for which the EPCG authorisation has been granted
EO is reckoned with reference to actual Duty saved in case of direct import.
On domestic sourcing, EO is reckoned with reference to notional Customs Duties saved on FOR value.
Import of second hand capital goods is not permitted under the EPCG scheme.
Exporters of (i) Handicrafts, (ii) Handlooms, (iii) Cottage & Tiny sector, (iv) Agriculture, (v) Aqua-culture (including
Fisheries), Pisciculture, (vi) Animal husbandry, (vii) Floriculture & Horticulture, (viii) Poultry, (ix) Viticulture, (x)
Sericulture, (xi) Carpets, (xii) Coir, and (xiii) Jute are exempted.
Installation Certificate confirms installation of capital goods at factory/premises of authorization holder or his
supporting manufacturer. It may be obtained from Jurisdictional Customs Authority or Chartered Engineering.
It is required to be submitted to RA within 6 months from the date of completion of imports.
Yes, where the names of both Authorization holder and supporting manufacturer are indicated in export documents
like Shipping Bill/ Bill of Exports etc. along with EPCG authorization Number, such third party exports will be
considered for EO fulfilment under EPCG Scheme.
The transfer of Capital Goods from one unit of the company to their another unit may be allowed by EPCG
Committee in DGFT subject to the condition that both the addresses are mentioned in IEC and RCMC and
submission of fresh installation certificate is done within 6 months of such transfer.
Green technology products are: Equipment for Solar Energy De-Centralised and Grid connected Products, Bio-
Mass Gasifier, Bio-Mass or Waste Boiler, Vapour Absorption Chillers, Waste Heat Boiler, Waste Heat Recovery
Units, Unfired Heat Recovery Steam Generators, Wind Turbine, Solar Collector and parts thereof, Water Treatment
Plants, Wind Mill and Wind Mill Turbine or Engine, Other Generating Sets – Wind Powered, Electrically Operated
Vehicles – Motor Cars, Electrically Operated Vehicles – Lorries and Trucks, Electrically Operated Vehicles – Motor
Cycle and Mopeds, and Solar Cells.
Exports of these products provides for reduced Export Obligation (EO) of 75%.
It is available to exporters who intend to import on full payment of applicable duties, taxes and cess in cash and
chose to opt this Scheme.
Specific EO is 85% of the applicable specific EO. However, average EO shall remain unchanged.
A request for issuance of Duty Credit Scrip may be filed in ANF 5B in proportion of EO fulfilled within the specified
export obligation period along with proof of actual duty payment , installation certificate, proof of EO fulfillment, etc.
RA issues freely transferable duty credit scrip equivalent to proportionate EO fulfilled.
Yes, MEIS benefit is over and above all schemes under the policy.
An application on the prescribed form ANF 5C along with the specified documents is required to be submitted to
licensing authority for redemption.
Careful Consideration & Evaluation of Scheme & Consultant under EPCG
Historical Case on EPCG License:
XYZ Limited was a Manufacturer Exporter of Apparels & Made-Ups and exported them for fulfilment of EO under EPCG Scheme. The company acted in good faith and unknowingly trusted Consultant Mr. A of ABC Limited who provided them with Shipping Bills from specific exporters of Apparels & Made-Ups. They were assured that this would be counted as exports for fulfilment of their EO under the EPCG. XYZ Ltd. then submitted these shipping bills to DGFT for the purposes of discharging the export obligation. Third Party Export Procedures are common with matters relating to EPCG, so the claim was accepted at the time. On investigation, it was found that the company violated the terms of their EPCG license as they had not exported the Garments/ Made-Ups from the goods manufactured by them.
Careful Consideration & Evaluation of Scheme & Consultant under EPCG
Historical Case on EPCG License:
XYZ Limited was a Manufacturer Exporter of Apparels & Made-Ups and exported them for fulfilment of EO under EPCG Scheme. The company acted in good faith and unknowingly trusted Consultant Mr. A of ABC Limited who provided them with Shipping Bills from specific exporters of Apparels & Made-Ups. They were assured that this would be counted as exports for fulfilment of their EO under the EPCG. XYZ Ltd. then submitted these shipping bills to DGFT for the purposes of discharging the export obligation. Third Party Export Procedures are common with matters relating to EPCG, so the claim was accepted at the time. On investigation, it was found that the company violated the terms of their EPCG license as they had not exported the Garments/ Made-Ups from the goods manufactured by them.
As a result, on account of the violation of the terms and the condition of the Scheme, Capital Goods that were imported (valuing ₹ 3.80 Cr.) were confiscated under section 108 of the Customs Act 1962. XYZ Ltd has saved custom duty of ₹ 1.14 Crore. This was outstanding and became payable and needed to be paid before the goods could be used again. Apart from this, interest, repayment of earlier benefits such as the drawback granted previously and the TED Refund availed also became payable. A stiff penalty was levied and had to be paid due to non-compliance with the export obligation.
Conclusion:
Thus, though EPCG Licence could be a very lucrative and profitable option if used rightly by competent organisations, it must be a reminder of not subscribing for it without careful consideration of accurately how the export of Goods would be completed.