Are you planning to import Machinery, equipment, or capital goods for your export business? Then you must definitely explore the EPCG Scheme offered by the Indian Government.
The Export Promotion Capital Goods (EPCG) Scheme is a flagship initiative under India’s Foreign Trade Policy (FTP) aimed at facilitating the import of capital goods without any payment of import duty.
With the new FTP 2023 in place, let’s walk through the key provisions and benefits of the EPCG Scheme.
Objective
The primary objective of the EPCG Scheme is to enable Indian manufacturers to import capital goods at zero customs duty, thereby helping them produce high-quality goods and services and boosting India’s manufacturing competitiveness by reducing the cost of capital goods procured.
Key Features of the EPCG Scheme
Zero Customs Duty Imports
The EPCG Scheme allows import of capital goods for pre-production, production, and post-production at zero customs duty. This includes machinery, equipment, and other capital goods essential for manufacturing.
Export Obligation (EO)
To avail the benefits of the EPCG Scheme, exporters must fulfill an Export Obligation (EO) which is equivalent to six times the duties, taxes, and cess saved on the import of capital goods. This EO must be fulfilled within six years from the date of authorization.
For example, if you take an EPCG License and save yourself Rs. 10 Lakh in customs duty on the import of machinery for your manufacturing plant, then you would have to export goods worth Rs. 60 Lakhs using the imported machinery. This requirement of making exports worth Rs. 60 Lakhs is your Export Obligation (EO), which you must fulfill within six years from the date of issue of the EPCG License.
There are two kinds of Export Obligation that an importer needs to fulfil against an EPCG License:
- Specific Export Obligation
The specific EO requires that the value of exports must be Six times the duty saved on the imported capital goods.
- Average Export Obligation (AEO)
In addition to the specific EO, exporters must also maintain an Average Export Obligation (AEO). This is calculated as the arithmetic mean of export performance in the preceding three licensing years for the same or similar products.
Export performance, over and above the Average Export Obligation shall be counted towards fulfilment of Specific Export Obligation.
Suppose a company exported goods worth Rs. 30 Lakhs, Rs. 40 Lakhs, and Rs. 50 Lakhs in the past three years. The AEO would be calculated as follows:
= 40 Lakhs
If the company imports capital goods under the EPCG Scheme, it must maintain this AEO of Rs. 40 Lakhs in addition to meeting the specific EO.
Export Performance over and above Rs. 40 Lakhs during the EO period of Six years from the license date shall be counted towards meeting the Specific EO
Block-wise Fulfillment
The EO (i.e. six times the duty saved) must be fulfilled in two blocks:
- First Block (1st to 4th year): 50% of the specific EO
- Second Block (5th to 6th year): Balance 50% of the specific EO
Eligibility Criteria : Who can avail EPCG Scheme
The EPCG Scheme can be availed by:
- Manufacturer exporters
- Merchant exporters tied to supporting manufacturers or service providers
Imported capital goods must be used by the actual user until the EO is completed and the Export Obligation Discharge Certificate (EODC) is granted.
Compliance and Reporting under EPCG Scheme
Exporters are required to submit an annual report on Export Obligation (EO) fulfillment by June 30th each year. The report should include details of exports made to meet the EO.
Validity and Revalidation
EPCG Authorisation is valid for import for 24 months from the date of issue. Revalidation of the authorization is not permitted.
Customs Bond and Bond Vacation
Authorisation holder also needs to submit a customs bond for the duty saved on import of Capital Goods under EPCG Scheme.
Upon fulfilling the EO, Authorisation holder must apply online for an EODC (Export Obligation Discharge Certificate) from the DGFT. Once received, the EODC is submitted to Customs for the vacation of the customs bond.
Special Provisions and Incentives
Incentives for Early EO Fulfillment
To encourage faster fulfillment of export obligations, if an authorization holder meets 75% or more of the specific EO and 100% of the AEO within half or less than half the original EO period, the remaining EO is waived, and the authorization is redeemed.
Reduced EO for Green Technology and Specific Regions
Exporters of green technology products and manufacturers located in North Eastern regions and UTs of Jammu & Kashmir and Ladakh benefit from reduced EO requirements:
- Green Technology Products: Specific EO is 75% of the standard EO.
- North East and UTs: Specific EO is 25% of the standard EO.
Extension of EO Period
The EO period can be extended beyond the standard six years by the Regional Authority (RA), subject to the payment of a composition fee.
Record Maintenance
EPCG authorization holders must maintain records of exports and services rendered towards EO fulfillment for two years from the date of redemption.
The EPCG Scheme under FTP 2023 continues to offer significant benefits to Indian manufacturers and exporters, helping them compete globally by providing access to advanced capital goods at zero customs duty. By fulfilling the export obligations and complying with the scheme’s provisions, exporters can leverage these benefits to enhance their manufacturing capabilities and contribute to India’s economic growth.
If you’re a manufacturer or exporter, understanding and utilizing the EPCG Scheme can be a game-changer for your business. Stay compliant, fulfill your export obligations, and take advantage of the incentives offered to maximize your growth potential.
