Export Promotion Capital Goods (EPCG) Scheme under Foreign Trade Policy 2015-20 has been announced by the government to promote export through the increasing quality of production of India’s manufacturer by importing input capital goods at zero duty and taxes.
Contents of this article
- What are the Imported Capital Goods under the Scheme?
- Export obligation under the Scheme
- How to apply for EPCG Scheme
- Post Export EPCG Duty Credit Scrip
Export Promotion Capital Goods Scheme under Foreign Trade Policy 2015-20 was applicable till 31st March 2020 but in awake of Covid-19 the government has extended the FTP 15-20 till 30th September 2021.
The government has announced this scheme to enhance the quality of production which in turn makes Indian exporters manufacturers more competitive in global markets.
The scheme mainly provides the layout under which the exporters can import capital goods for making quality and competitive goods for the global export of their final product.
Under the Scheme, EPCG Authorizations are issued with actual user conditions with an import validity of 24 months to import capital goods at zero customs duty. Previously Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess up to 30 Sep 2021 only.
EPCG Authorization holders are also requiring to fulfill certain export obligations. One of them is to export of value equivalent to 6 times of duty saved on the importation of such capital goods within 6 years from the date of issuance of the authorization.
What are the Imported Capital Goods under the Scheme?
Under the scheme beneficiary can import capital goods at zero custom duty. The export promotion capital goods scheme can be availed on the import of capital goods during the pre-production, production, and post-production stage. Let us discuss Capital Goods covered under this scheme.
- Capital goods as defined under Chapter 9 of the FTP 2015-20.
- Computer systems and software as parts/components of the capital goods.
- Spares and tools, molds, dies, fixtures, jigs, and refractories.
- Catalysts procured for the initial charge plus one additional charge.
- Capital goods for project imports, if notified by the Central Board of Excise and Customs.
Capital goods as defined under Chapter 9 of FTP 2015-20:
Any plant, machinery, equipment, or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up-gradation, or expansion.
It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality, and pollution control. Capital goods may be for use in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, and viticulture as well as for use in the services sector.
Export obligation under the Scheme:
Exporter of the Scheme is 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 the date of issue of Authorization. Authorization. If a holder of the EPCG authorization is unable to meet the stipulated export obligation, the importer of the capital goods is required to pay customs duties along with interest on it as prescribed.
Calculation of Export Obligation (EO)
• The export obligation is to be fulfilled by the authorization holder through the export of products manufactured by themselves or through their supporting manufacturer/services.
• The export obligation under EPCG shall be over and above the average export volume for the previous three licensing years for the product(s) similar to it within the EO period, including extensions if any.
• While calculating the EO volume, shipments made under the advance authorization, duty-free import authorization (DFIA), drawback scheme, MEIS, and SEIS will also be considered.
• Royalty payment for R&D services received in freely convertible currency and foreign exchange is also considered while calculating exports under the EPCG scheme.
• Deemed exports, are considered as a fulfillment towards EO.
• Only 25% of EO is required for units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and J&K.
• If the authorization holder completes 75% of the EO in less than half of the EO period, the remaining 25% is waived.
• Only 75% of the EO is required for the export of green technology products.
• In case of direct imports, EO shall be reckoned with reference to actual duty saved amount. In the case of domestic sourcing, EO shall be reckoned with reference to notional Customs duties saved on FOR value.
How to apply for EPCG Scheme?
To obtain a License under EPCG, an application has to be made online to DGFT. An application can be made at the Directorate General of Foreign Trade.
Documents required for Application
- Copy of Import Export Code (IEC)
- Registration cum Membership Certificate (RCMC)
- Registration certificate from Tourism Department
- Pan Card
- Excise Registration (if registered)
- GST Registration Certificate
- Performa Invoice of Capital goods
- list of products to be exported using the above machinery with HSN code.
- Certificate of Chartered Accountant indicating the last three financial year turnover in USD & INR only for the above-mentioned export products.
- Certificate of Chartered Engineer showing the nexus between the capital goods and the products to be exported.
Post Export EPCG Duty Credit Scrip
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).
- Specific EO shall be 85% of the applicable specific EO under the EPCG Scheme. However, average EO shall remain unchanged.
- Duty remission shall be in proportion to the EO fulfilled.
- All provisions for utilization of scrips issued under FTP shall also be applicable to Post Export EPCG Duty Credit Scrip(s).
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