EPCG is a scheme announced by Govt of India to promote the production of quality products/services exported from India. Under this scheme, according to the Foreign Trade Policy (2015 – 20 RE 17), a company can import capital goods from other countries without any duty (0% duty). As the scheme suggests that it is for the promotion of exports, the Govt has levied an “Export Obligation” on the importer of capital goods. According to the present policy, the export obligation is six times the duty saved amount, which can fulfill in six years period.
The scheme is a boon to exporters of India. Since businesses do not have to pay vast amounts of duty upfront for the imported machinery. With the best technology available at their disposal they can manufacture best quality goods and services at a faster rate (in few cases), which will attract higher demand and better prices in the International market.
- North East States and Jammu & Kashmir:If your business belongs to these areas, you only have to fulfill 25% of the actual Export Obligation.
- Indigenous Sourcing:If you are procuring Capital Goods from India under EPCG scheme, the export obligation is 25% less than what you will have to fulfill, if you imported the capital goods from a different country.
- Green Technology:If you are importing “Green Technology” machinery then the Export Obligation is only 75% of the actual amount.
- Fast Track:If you complete 75% of the export obligation including the Average Export Obligation within 3 years or less, the remaining export obligation will be condoned off.
- Post Export EPCG Duty Credit Scrips:This option can be availed by the importer, where, he will import the Capital Goods by paying the duty and after completing the export obligation in the stipulated time the Authorisation holder can avail duty credit scrip from the DGFT. Export obligation in this case will be fixed at 85% of the actual export obligation.
Who can apply for this scheme
- Manufacturer Exporter:Any manufacturer who exports his own products can apply for this scheme. If the manufacturer has supporting manufacturers and capital goods have to be installed in their premises, even then the EPCG scheme can be applied by the main manufacturer.
- Merchant Exporter:Merchant exporters who have tie ups with manufacturers can apply for EPCG scheme for importing capital goods in the Manufacturer’s premises. However, the name of the manufacturer shall be endorsed on the EPCG Authorization.
- Service Providers:Service providers who are designated / certified as a Common Service Provider by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a Town of Excellence.
- Validity:The EPCG Authorisation will be valid for 18 months. The importer has to import the capital goods within this period.
Types of exports considered for Fulfillment of EO
- All Physical Exports including SEZ exports
- Deemed Exports
- Shipments Under Advanced Authorization, DFIA, Drawback schemes
- Supply of ITA 1 items to DTA, with condition that realization is in free foreign exchange
- Royalty payments and R&D services
Important Provisions in the scheme
- Block Wise fulfillment of EO:Provision for fulfilment of Export obligation is given in two blocks. 50% in 1st to 4th years and remaining 50% in 5th and 6th years.
- EOP extension:The export obligation period (EOP) can be extended by maximum two years in order to meet the Export Obligation requirement under the scheme, subject to conditions by DGFT.
- Clubbing:Two or more EPCG Authorisations of the same authorization holder can be clubbed if they are issued by the same RA. In such cases the export obligation is refixed based on the total duty saved on all authorizations. The Export Obligation period will be counted from the 1st Authorization.
- Re-export / replacement and repair of capital goods:The scheme facilitates provision for Re-export / replacement and repair of damaged or otherwise not fit for use capital goods. Various rules are applicable for such processes and have to be approved by the RA and Jurisdictional Customs Authority
- Regularisation:Incase the Authorization holder fails to fulfill the export obligation, he can pay back the customs duty along with applicable interest as prescribed by the Customs Authority.
Important Points to be remembered
- Average Export Obligation:Is the average of the export values achieved in previous three years. The average export obligation mentioned above should be fulfilled over and above the specific Export Obligation. Average Export Obligation should be maintained on yearly basis until fulfillment of Specific Export Obligation.
- Monitoring of Records:Every year on or before 30th of April, the Authorization Holder should submit the report of export proceeds to the RA.
- Transitional Arrangements:For Authorizations issued prior to the implementation of the present Foreign Trade Policy, the rules and conditions of the EPCG are governed by the policy which is in effect on the day of EPCG issue.
- Actual User condition:The capital goods imported shall be used as per the conditions mentioned in the Authorization until issue of the Export Obligation Discharge Certificate (EODC).
- Realisation of export proceeds:All exports shall be in freely convertible foreign exchange except for deemed exports. In case of exports to SEZs the realization should be from the foreign currency account of the SEZ company.