EPCG Scheme : All you need to know about Export Promotion Capital Goods Scheme

The objective of the Scheme

The objective of the EPCG Scheme is to facilitate the import of capital goods for producing quality goods and services and enhancing India’s manufacturing competitiveness.

While advance licenses/authorizations were neutralizing the duty/tax incidence on ‘inputs’, the exporters earlier had no scheme to neutralize the duties/taxes paid on capital goods. Therefore, the EPCG Scheme aims at the procurement of capital goods duty/tax-free for exporters.

Introduction

EPCG Scheme facilitates import of capital goods for producing quality goods and services at zero customs duty.

Capital goods for the purpose of the EPCG scheme

1. Capital goods as defined in Chapter 9 of FTP 2015-2020 including in completely knocked down/semi-knocked down condition thereof.
2. Computer systems and software are a part of the capital goods being imported.
3. Spares, molds, dies jigs, fixtures, tools & refractories.
4. Catalysts for initial charge plus one subsequent charge.

Import of capital goods for projects notified under Project Imports Regulations, 1986 is also permitted under EPCG Scheme.

Concessions

1. Exemption from the whole of basic customs duty (BCD)
2. Exemption from additional customs duty/CVD and SAD/CVD in lieu of VAT/local taxes (non-GST goods)
3. Exemption from IGST and compensation cess on GST goods up to a date notified by CBIC.

Also read: 25 FAQs related to Supply under GST

Export Obligation [EO]

Import under EPCG Scheme shall be subject to a specific export obligation equivalent to 6 times of duties, taxes, and cess saved on capital goods, to be fulfilled in 6 years reckoned from the date of issue of authorization. In the case of indigenous sourcing of capital goods, specific EO shall be 25% less than the stipulated EO (i.e. 5.4 times of notional duties, taxes and cess saved).

EO under the Scheme shall be, over and above, the average level of exports achieved by the applicant in the preceding three licensing years for the same and similar products within the overall EO period. Such average would be the arithmetic mean of export performance in the preceding three licensing years for the same and similar products.

Block-wise Fulfilment of EO

The authorization 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:

The authorization holder would intimate the Regional Authority on the fulfillment of the export obligation, as well as average exports, within three months of completion of the block, by secured electronic filing using digital signatures. The authorization holder shall submit to RA concerned by 30th April of every year, report on the fulfillment of export obligation by secured electronic filing using digital signatures/ or hard copy thereof.

The incentive for early EO fulfillment

In cases where the authorization holder has fulfilled 75% or more of specific export obligation and 100% of average export obligation during 3 years or less than 3 Years reckoned from the date of issue of authorization, the 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.

Validity

• EPCG authorization shall be valid for import for 18 months from the date of issue of authorization. Revalidation of EPCG authorization is not permitted.
• Export obligation period of 6 years is reckoned from the date of issue of the authorization

Coverage

EPCG Scheme covers:

• Manufacturer exporters with or without supporting manufacturer(s).
• Merchant exporters tied to supporting manufacturer(s).
• A service provider who is designated/certified as a Common Service Provider (CSP) by the DGFT.

Additional items for import under EPCG Scheme for service providers

EPCG Scheme is available for manufacture as well for service providers like the hospital, hotel, university, etc., Following are the additional benefits to service providers under the EPCG scheme:

Export Obligation (EO) conditions

Following conditions shall apply to the fulfillment of EO:

• The authorization holder shall fulfill the EO by the export of goods or services which are manufactured or rendered by him or his supporting manufacturer.
• Shipments under the advance authorization, DFIA, drawback scheme or reward schemes under Chapter 3 of FTP would also be counted for the fulfillment of EO under EPCG Scheme.

EPCG-Miscellaneous Provision

• Import of restricted items is permitted under EPCG Scheme only after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters.
• Export of restricted items is permitted under EPCG Scheme only after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters.
• Import of capital goods for project imports is permitted under EPCG Scheme.
• Imported capital goods shall be subject to actual user condition till export obligation is completed and EODC is granted, which means imported capital goods is non-transferable till export obligation is completed and EODC is granted.

Application Form

Application for grant of authorization shall be made in Form ANF 5A along with ‘nexus certificate’ from an independent Chartered Engineer (CEC) in Appendix 5A.

Documents required for EPCG License

The issuing authority is the licensing authority – Director General of Foreign Trade (DGFT). Form ANF 5B is to be filled along with self-certified copies of the followings:

1. Import Export Code (IEC)
2. Registration cum Membership Certificate (RCMC)
3. Digital signature
4. Registration certificate from Tourism Department
5. PAN Card
6. Excise Registration (if registered)
7. GST Registration Certificate
8. Proforma Invoice
9. Brochure
10. Self-certified copy + Original Certificate of Chartered Accountant
11. Self-certified copy + Original Certificate of Chartered Engineer

Conditions for claiming a concessional rate of import duties

1. The importer executes a bond in such form and for such sum and with such surety or security as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs binding himself to comply with all the conditions of Customs notification as well as to fulfill an export obligation.
2. The CSP(common service provider) shall execute the bond with bank guarantee and the bank guarantee shall be equivalent to 100% of the duty foregone, and the bank guarantee shall be given by CSP or by any one of the users or a combination thereof, at the option of the CSP.
3. The capital goods imported, assembled, or manufactured are installed and put to use, after their import, in the importer’s factory or premises.
4. Where the specified capital goods imported are found defective or unfit for use, the said goods may be re-exported to the foreign supplier within three years from the date of clearance of said goods.

Also Like: FAQs: Levy of and Exemption from GST

Certificate of Installation of Capital Goods

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

Appendix and Aayat Niryat Form (ANF) applicable for EPCG scheme

FAQs on EPCG

Whether supply of goods against EPCG authorization is exempt under GST.

Ans. Supply of goods against EPCG authorization is deemed export but not exempted upfront and hence supply against EPCG is liable to GST; however, the recipient or supplier has the option either to avail input tax credit or refund of GST paid.

Whether capital goods imported against EPCG authorization can be transferred/sold.

Ans. Import of capital goods against EPCG authorization shall be subject to actual user condition till export obligation is completed and EODC is granted, hence capital goods cannot be transferred or sold till export obligation is completed and EODC is granted.

Whether benefits of project import regulation and EPCG can be availed simultaneously.

Ans. Yes, concessional benefits under project import regulations and exemption under EPCG can be availed simultaneously and export obligation will be calculated with respect to the concessional tax saving as prescribed under project import regulation.

Whether second-hand capital goods can be imported under EPCG authorization.

Ans. The FTP of 2015-20 relating to EPCG provided that second-hand capital goods shall not be permitted to be imported under EPCG Scheme. This clause was deleted during the annual review of the policy in 2020. Correspondingly the Appendix-5F prohibiting the import of goods subject to conditions under EPCG has now been deleted.

Whether two or more EPCG authorizations can be clubbed together.

Ans. Yes, subject to the following conditions:

1. All the authorizations have been issued to the same authorization holder.
2. Application for clubbing shall be made to the Regional Authority of the DGFT in Form ANF-5C.
3. Export products of all the authorizations shall be the same or similar.
4. The total export obligation would be re-fixed taking into account the total duty saved amount of the clubbed authorizations.
5. On clubbing, authorizations for all-purpose shall be deemed to be a single EPCG authorization.
6. The export obligation period shall be reckoned from the first authorization issue date.
7. The average obligation shall be highest among all the clubbed authorizations.
8. Clubbing would be permitted during valid EOP including an extended period if any.

Whether the Regional Authority is empowered to extend the export obligation period under EPCG.

Ans. Two extensions of one year each in the export obligation period may be considered by RA concerned:

1. on payment of composition fee equal to 5% and 10% respectively of proportionate duty saved amount on unfulfilled export obligation for the first/second year of extension; or
2. on enhancement in export obligation imposed to the extent of 10%/ 20% respectively of the total export obligation imposed under the authorizations for first/second year of the extension.

as the case may be, at the choice of the exporter.

Whether furniture and carpets can be imported duty-free under the EPCG scheme by a hotel.

Ans. EPCG scheme is available for manufacturers as well as for service providers like hotels, hospitals, etc., Further, furniture and carpets are allowed to be imported duty-free under the EPCG scheme by the hotel industry only not for the manufacturing company.

Whether construction material like cement, steel & computer and printers are allowed to be imported under EPCG Scheme.

Ans. No, as these items are prohibited under Appendix-5F.

Can a deemed exporter claim EPCG?

Ans. Yes.

Can a person hold an EPCG authorization source capital goods from a domestic manufacturer?

Ans. Yes.

How the export obligation is determined when capital goods sourced from India?

Ans. In the case of domestic sourcing, the export obligation shall be reckoned with reference to notional customs duties saved on FOR value.

Can an Exporter claim EPCG after export (post export EPCG)?

Ans. Yes. Post export EPCG duty credit scrip(s) shall be available to exporters who intend to import capital goods on full payment of applicable duties, taxes, and cess in cash and choose to opt for this scheme. Basic customs duty paid on capital goods shall be remitted in the form of freely transferable duty credit scrip(s).

Can a new exporter avail of this scheme?

Ans. Yes, in such a case, there will be no average export obligation.

What are the benefits of domestic sourcing?

Ans. Domestic manufacturers will be eligible for deemed export benefits. Specific EO shall be 25% less than the stipulated EO. Domestic sourcing of capital goods will neutralize GST by refund route to the supplier or recipient till the date notified and extended by Government.

Is there any exemption from maintenance of average export obligation?

Ans. Exporters of (i) Handicrafts, (ii) Handlooms, (iii) Cottage & Tiny sector, (iv) Agriculture, (v) Aqua-culture (including Fisheries), Pisciculture, (vi) Animal husbandry, (vii) Floriculture & Horticulture, (viii) Poultry, (ix) Viticulture, (x) Sericulture, (xi) Carpets, (xii) Coir, and (xiii) Jute are exempted.

What is the installation certificate and where is it required to be submitted?

Ans. Installation certificate confirms the installation of capital goods at factory/premises of authorization holder or his supporting manufacturer. It may be obtained from Jurisdictional Customs Authority or Chartered Engineering. It is required to be submitted to RA within 6 months from the date of completion of imports.

Whether exports made through a third party will be considered for EO.

Ans. Yes, where the names of both authorization holder and supporting manufacturer are indicated in the export documents like shipping bill/ bill of exports etc. along with EPCG authorization number.

Whether a capital good imported by one unit can be transferred to another unit.

Ans. The transfer of capital goods from one unit of the company to its another unit may be allowed by the EPCG Committee in DGFT subject to the condition that both the addresses are mentioned in IEC and RCMC and submission of fresh installation certificate is done within 6 months of such transfer.

Whether export under EPCG Scheme is eligible for MEIS and other Schemes.

Ans. Yes, the MEIS benefit is over and above all Schemes under the Policy.

What should be done after fulfilling of export obligation?

Ans. An application on the prescribed form ANF 5C along with the specified documents is required to be submitted to licensing authority for redemption.