Export Promotion Capital Goods (EPCG) SCHEME

Export Promotion Capital Goods (EPCG) SCHEME

History of EPCG scheme:
EPCG (Export Promotion Capital Goods) scheme was first introduced in 1990 under the Import Export Policy 1990-93. It is almost 30 years now. The scheme is the most tried and tested scheme for promotion of Exports. This scheme led to the growth of exports as the custom duties were really very high during that period. It helped the exporters in technological up gradation as well as reducing the initial cost of capital goods.This scheme has primarily helped exporters to become more competitive as it reduces the initial cost on capital goods. The introductory remarks to Import and Export Policy 1990-93 were “for sometime past there had been a persistent demand from the trade and industry to introduce a scheme whereby capital goods could be imported at Zero Duty for strengthening the export production base, accompanied by suitable export obligation. While it has not been possible at this stage to agree to demand for duty free import of capital goods for export production, Government has decided to allow such import a concessional rate of duty, subject to suitable export obligation being accepted by the exporter. This represents a major step forward towards making our export internationally competitive.”

In terms of above declarations, provisions were made vide para 197 of Policy 1990-93 which states that “with a view to reduce the incidence of high capital cost on export prices and thereby making export competitive in the international market, import of new capital goods upto a maximum CIF value of Rs. 10 crores will be permitted at concessional rate of customs duty of 25% of CIF value of capital goods imported. The above facility will be available to registered Manufacturer exporters, who have been regularly exporting for a period of not less than three years. The applicant will have to take an Export obligation equivalent to three times the value of the capital goods permitted for import and the obligation will have to be fulfilled within a period of 4years from the date of import of capital goods.

The EPCG scheme was introduced when general rate of customs duty on import of capital goods was very high. As customs duty on capital goods was cut, DGFT formulated new schemes from time to time under EPCG and one such scheme was for import of capital goods at 15% duty with E.O. of 4 times to be fulfilled in 5 years announced in 1992 and this duty was further lowered to 10% in 1997, 5% & in 2000than Zero Duty EPCG for few sectors and 3% Duty EPCG for all sectors. From April 2013, the government has merged Zero Duty EPCG and 3% EPCG Scheme into one scheme which is now known as Zero Duty EPCG Scheme covering all sectors.

Current EPCG Scheme:
New Capital Goods can be imported @ Zero Customs Duty under EPCG scheme.

The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services and enhance India’s manufacturing competitiveness. EPCG Scheme allows import / indigenous procurement of capital goods (except those specified in negative list) for pre-production, production and post-production at zero customs duty. Import of items which are restricted for import shall be permitted under EPCG Scheme only after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters. If the goods proposed to be exported under EPCG authorization are restricted for export, the EPCG authorization shall be issued only after approval for issuance of export authorization from Exim Facilitation Committee at DGFT Headquarters.

Obligation under EPCG:
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 Authorization.

Import Validity of EPCG:
EPCG shall be valid for import for 24 months from the date of issue of Authorization. Re-validation of EPCG Authorization shall not be permitted.

What are Capital Goods:
Capital goods for the purpose of the EPCG scheme in CKD/SKD condition shall include: Capital Goods” means 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, horticulture, horticulture, viticulture, poultry, sericulture and viticulture as well as for use in services sector. 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.

Actual User Condition:
Imported capital goods shall be subject to Actual User condition till export obligation is completed and Export Obligation Discharge Certificate (EODC) is granted.

Fulfillment of Export Obligation (EO) under EPCG:
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 FOR value.

  • EO shall be fulfilled by the authorization holder through export of goods which are manufactured by him or his supporting manufacturer / services rendered by him, for which the EPCG authorization has been granted.
  • 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 including extended period, if any; except for certain categories. Such average would be the arithmetic mean of export performance in the preceding three licensing years for same and similar products.
  • In case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than the EO stipulated.
  • Shipments under Advance Authorization, DFIA, Drawback scheme or reward schemes under Chapter 3 of FTP; would also count for fulfillment of EO under EPCG Scheme.
  • Export shall be physical export. However, supplies as specified in paragraph 7.02 (a), (b), (e), (f) & (h) of FTP shall also be counted towards fulfillment of export obligation, along with usual benefits.
  • EO can also be fulfilled by the supply of ITA-I items to DTA, provided realization is in free foreign exchange.
  • Royalty payments received by the Authorization holder in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge under EPCG.
  • Incentive for early EO fulfillment. In cases where Authorization holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original Export obligation period specified, remaining export obligation shall be condoned.
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