EPCG Authorization Schema

Export promotion capital Goods (EPCG)

EPCG stand for Export Promotion Capital Goods. The objective of this scheme is to facilitate the import of capital goods with the purpose of producing quality goods and services to enhance India’s export competitiveness. This scheme allows import of capital goods for pre-production, production and post-production at Zero Custom Duty.

Capital Goods imported under EPCG Authorization for physical Export are also exempt form IGST and Compensation Cess, leviable thereon.

Since overall objective of this EPCG Scheme is to Increase the manufacturing of quality goods as well as increase the export of Indian goods. Therefore, this Scheme impose an Export obligation on importer of capital Goods that is equivalent Six-time (6) duties, taxes and Cess saved on Capital Goods and importer shall be subject to Average Export Obligation (AEO).

Now we will try to understand the whole scheme with some important question like who can avail the benefit of this scheme, what will be the export obligation, what will be the validity of Authorization, is there any restriction on importers availing the Benefit of this Scheme and what type of Capital good has been covered under this Scheme.

1. What type of Capital Good are covered under this EPCG Scheme?

As per FTP policy Capital Goods means any Plant, Machinery, equipment or accessories required for Manufacture or production, either directly or indirectly of goods or for rendering services, including those required for replacement, Modernization, technological up-gradation or expansion.

It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instrument for testing, research and development, quality and pollution control.

Following Capital Goods are covered under the EPCG Scheme and may be imported by an importer to avail the benefit of EPCG

a. Capital Goods as defined under chapter 11 including CKD /SKD Condition thereof

b. Computer system and software which are a part of the Capital Goods being imported

c. Spare, Modules, dies, Jigs, Fixture, tools & refractories

d. Catalysts for initial charge and for subsequent Charge

2. Who are eligible to avail the benefit of EPCG Scheme?

Following Persons are eligible to avail the benefit of EPCG Scheme

a. Manufacturer exporter with or without supporting Manufacturer’s

b. Merchant exporter tied to supporting Manufacturer and

c. Service provider including service provider designated as common service provider (CSP) Subject to prescribed condition

3. What is the actual user condition to avail the benefit of EPCG Scheme?

As per the actual user condition, the imported capital good shall be used by the Authorization holder for manufacturing of goods or rendering of service. This condition will apply till the export obligation is completed and export obligation Discharge Certificate (EOCD) is issued.

4. What is the export related condition under EPCG Scheme and how is it calculated?

EPCG Scheme has deigned to increase the export of good and services, therefor One of the conditions for grant of EPCG license is to meet the certain export targets.

Under the EPCG Scheme, there are two types of export obligation, Annual Average Export obligation(AEO) and Specific export obligation.

i. Annual Average Export Obligation (AEO): - Annual Average Export obligation means that entity must export goods and services more than the average amount that they exported in previous three licensing year for the same or similar product and services.

ii. Specific Export obligation: - Specific Export obligation is calculated as Six time the duty amount.

EPCG authorised holder must fulfil a minimum 50% of Export obligation in each block of years.

5. What is block of years or Block period?

Under the EPCG authorisation, the authorised holder is required to meet the specified obligation related to export of Goods and services. The period within which the authorised holder must fulfil the export obligation is called Block years or Block period.

This block period is generally of Six (6) years form the date of authorisation and this six-year period is further divided in two blocks

a. First Block: - The first block period is for the first four years from the date of issuance of the authorisation.

b. Second Block: - The following two years are know to be the Second Block period of authorisation.

6. Is there any exemption provision for Average Export obligation under EPCG Scheme?

In the case of export of following Goods, Exporter may get the exemption form Average export obligation

a. Handicrafts

b. Handlooms

c. Industries Covered under Khadi and village industries commission (KVIC)

d. Agriculture

e. Aquaculture (including fisheries), Pisciculture

f. Animal Husbandry and Dairying

g. Floriculture & Horticulture

h. Poultry

i. Viticulture

j. Sericulture

k. Carpets

l. Coir and

m. Jute

7. What is the validity period of EPCG Authorisation for the import of capital Goods?

The authorisation shall be valid for import for 24 Months form the date of issue of Authorisation. Revalidation of EPCG Authorisation shall not be permitted

8. What is the method to fulfil the Export obligation?

Export obligation shall be fulfilled by the Authorisation holder through export of goods which are manufactured by him or his supporting manufacturer / Service render by him for which the EPCG authorisation has been granted.

For Export of goods EPCG Authorisation holder may export either directly or through third party

9. What will be the consequence if an EPCG Authorised holder fails to fulfil the Export obligation?

In case authorised holder fails to fulfil the prescribed obligation, the authorised holder will be required to pay the customs duties along with the interest proportionate to the unfulfilled value as prescribed by customs authority.

10. When can the specific export obligation under the EPCG Scheme be reduced?

The Specific export obligation may be reduced for the EPCG authorisation holder, in the following cases

a. In cases, where Authorisation holder has completed 75%or more of specific export obligation and 100% of average export obligation till date (if any) in half or less than half of the original export obligation period specified. In that case remaining export obligation shall be condoned and the authorisation be redeemed by the RA concerned

b. For exporters of Green Technology products, in this case specific EO shall be 75% of the EO

c. For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Jammu and Kashmir in this case specific EO shall be 25% of the EO.

However, it may be noted that only one of the above benefits may be provided to Authorised holder

11. Can EPCG Authorisation holder freely import or export items that are classified as restricted?

No-

a. Import of items which are restricted for import shall be permitted under EPCG schemes only after approval form Exim Facilitation Committee (EFC) at DGFT headquarters.

b. 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 form Exim facilitation Committee (EFC) at DGFT Headquarters.

Since, EPCG scheme has been designed to allow the import of capital goods duty free in order to import high quality machines with new theologies, that can manufacture good with high quality and therefore good can compete in Export market. in order to avail the benefit of this Scheme an entity is required to meet the certain basic criteria and meet the specific export obligation in prescribed time period.