When we hear the term Export Promotion Capital Goods (EPCG), many think it is linked with import of capital goods/plant and machinery and export of manufactured goods by such importer directly, to meet the Export Obligation (EO).
Have we ever thought, what if a manufacturer imports machinery, produces goods, and sells them within India to another company, which then exports such goods?
Many manufacturers invest heavily in technology-driven plant and machinery and use it primarily for domestic supplies. Since they are not exporting themselves, they typically pay full customs duty on imported machinery, an expense that cannot be claimed as credit and becomes part of the product cost.
However, Chapter 5 of FTP 2023 opens a door here. As per Para 5.04, the EPCG authorization holder may fulfil its export obligation either directly or through third parties. This means if your domestically sold goods are eventually exported by your buyer (without further processing), you can still count those exports toward your EO.
This provision broadens the EPCG scheme’s applicability, allowing manufacturers to collaborate with exporters to import duty free.
Documentation & Conditions
The following documentation and conditions must be satisfied [1]:
1. Shipping Bills/Bills of Export must clearly mention the EPCG authorization holder’s name and authorization number.
2. GST Invoices and e-BRCs should be in the name of the third-party exporter.
3. The goods must be manufactured by the EPCG authorization holder using the imported capital goods.
4. The goods manufactured by the authorisation holder must be exported as such (without further processing) by the third party.
5. Export proceeds must flow through normal banking channels i.e. from the exporter’s account to the EPCG holder’s account.
6. The third-party exporter must provide a disclaimer certificate confirming that these exports are not being claimed under any other EPCG authorization.
7. The EPCG holder must maintain the following additional records:
i. Proof of dispatch (ARE-1 or GST invoice verified by Customs)
ii. Logistical evidence (LRs or transport documentation)
iii. Exporter’s undertaking (on stamp paper, confirming the goods were manufactured by the EPCG holder)
iv. Financial proof (banking documents showing receipt of export proceeds)
Let’s take an example:
- Company X imports machinery under EPCG and manufactures specialized automotive components in India.
- Company Y, an exporter, buys these components from X and exports them as is to a foreign buyer.
As long as the above mentioned documentation trail is complete and the proceeds flow from Y’s account to X’s account, the value of such proceeds flowing to X will count towards X’s export obligation under EPCG.
Key Practical Points:
1. The EPCG holder remains responsible for compliance, even if exports are made through another entity.
2. Both parties must coordinate closely to ensure data alignment between GST returns, shipping bills, and e-BRCs.
3. The phrase “without further processing” means the goods should be exported in the same form in which they were purchased. Mere packaging, labelling, or repacking might be permissible, but no alteration in the product’s essential character.
4. Maintain audit-ready documentation. Any mismatch in proceeds or discrepancies in authorization numbers can delay EO closure.
Conclusion:
Manufacturers who believed EPCG benefits were only for direct exporters should take a fresh look. With careful structuring and documentation, even domestic supplies to exporters can help fulfil export obligations under FTP 2023. This not only reduces the cost of capital goods but also encourages collaboration between domestic manufacturers and export houses, strengthening India’s overall export ecosystem.
Note:
[1] Para 5.10 (b) of HBP 2023
Author Bio
very good write up with detailed explanation