Export Promotion Capital Goods (EPCG) Scheme -A Brief Study

Export Promotion Capital Goods (EPCG) Scheme is a scheme launched by DGFT in the Foreign Trade Policy 2015-2020 under chapter 4. The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services and enhancing India’s manufacturing competitiveness.

EPCG Scheme allows import of capital goods for pre-production, production and post-production at 0% customs duty. Capital goods for the purpose of the EPCG scheme shall include:

• Capital Goods as defined in Chapter 9 of FTP 2015-2020 including in Completely Knocked Down/Semi Knocked Down condition thereof;
• Computer systems and software which are a part of the Capital Goods being imported;
• Spares, moulds, dies, jigs, fixtures, tools & refractories; and
• Catalysts for initial charge plus one subsequent charge.

Import of capital goods for Project Imports notified by Central Board of Excise and Customs is also permitted under EPCG Scheme.

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.

Following conditions shall apply to the fulfilment of EO:

• 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.

• 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.

• Shipments under Advance Authorisation, Duty Free Import Authorisation (DFIA), Drawback scheme or reward schemes such as MEIS and SEIS; would also count for fulfillment of EO under EPCG Scheme.

• 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.

• Deemed Exports (provided under Chapter 7 of FTP 2015-20) shall also be counted towards fulfillment of export obligation, along with usual benefits available for deemed exports.

• Authorisation shall be valid for import for 18 months from the date of issue of Authorisation. Revalidation of EPCG Authorisation shall not be permitted.

Coverage  

• EPCG scheme covers:

• Manufacturer exporters with or without supporting manufacturer(s),
• Merchant exporters tied to supporting manufacturer(s) and service providers.

• 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).

• Export Promotion Capital Goods (EPCG) Scheme also covers a 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 subject to provisions and conditions of Foreign Trade Policy 2015-2020.

Application Form  

• An application for grant of an authorisation may be made by Registered Office or Head Office or a Branch Office or Manufacturing Unit of an eligible exporter to RA concerned in ANF 5A along with documents prescribed therein.

• 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.

Certificate of Installation of Capital Goods  

• Authorization holder shall produce, within 6 months from date of completion of import, a certificate confirming installation of capital goods at factory/premises of authorization holder or his supporting manufacturer(s) from the jurisdictional Customs authority or an independent Chartered Engineer (at the option of the authorisation holder), to the concerned RA.

• 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/-.

• The authorization holder shall be permitted to shift capital goods during this period to other units mentioned in the IEC and RCMC of the authorization holder subject to production of fresh installation certificate.

• 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.

Indigenous Sourcing of Capital Goods

• 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 Chapter 7 of FTP 2015-2020.

• Such domestic sourcing shall also be permitted from Export Oriented Units.

Calculation of Export Obligation  

• 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 Freight on Road (FOR) value.

Block-wise Fulfilment of EO  

• The Authorisation holder under the EPCG scheme shall, while maintaining the average export obligation, fulfill the specific export obligation over the prescribed block period in the following proportions:

Period from the date of issue of Authorisation	Minimum export obligation to be fulfilled
Block of 1st to 4th year	50%
Block of 5th and 6th year	Balance EO

• The Authorisation holder would intimate the Regional Authority on the fulfilment of the export obligation, as well as average exports, within three months of completion of the block, by secured electronic filing using digital signatures.

• Authorisation holder shall submit to RA concerned by 30th April of every year, report on fulfilment of export obligation by secured electronic filing using digital signatures/ or hard copy thereof.
  

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, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned.

Reduced EO for Green Technology Products  

For exporters of Green Technology Products, Specific EO shall be 75% of EO.

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.

(The author of this article is a Practicing Company Secretary and can be reached at ankitasinglaandassociates@gmail.com)

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without express written permission of the author.