Export Promotion Capital Goods (EPCG) Scheme


The Export Promotion Capital Goods (EPCG) Scheme in new Foreign Trade Policy 2015-20, has been  operationalized  on 1st April, 2015. Under EPCG scheme of Foreign Trade Policy, import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Authorization is permitted at nil/concessional rate of Customs duty. The Export Promotion Capital Goods scheme under FTP enables up gradation of technology of the indigenous industry. EPCG Authorizations are issued by Regional Licensing Authority of Director General of Foreign Trade on the basis of nexus certificate issued by an independent chartered engineer. 
As per the Foreign Trade Policy 2009-14 amended later time to time in annual supplements, the EPCG Authorization holder is permitted to import capital goods at 0% or 3% Customs duty. Under the 0% duty EPCG Authorization holder is required to undertake export obligation equivalent to 6 times of the duty saved amount on the capital goods imported within a period of 6 years reckoned from the date of issue of Authorization. Under the 3% duty EPCG scheme, the Authorization holder has to fulfill EO equivalent to 8 times of the duty saved amount on the capital goods imported in 8 years. 
Under EPCG scheme, the capital goods imported are subject to actual user condition and the goods imported cannot be transferred or sold till the fulfillment of export obligation. In order to ensure that the capital goods imported under EPCG scheme are utilized in the manufacture of resultant export product, after importation and clearance of capital goods from Customs area at importing location, the Authorization holder is required to produce certificate from the jurisdictional Central Excise Authority or Chartered Engineer confirming installation of such capital goods in the declared premises. At present, a period of 6 months is allowed for the purpose of installation of capital goods and commencement of production. This period may be extended by the Assistant/Deputy Commissioner of Customs. 
At present, before operationalization of new Foreign Trade Policy 2014-19, the EPCG Authorizations are issued to manufacturer exporters and merchant exporter with or without supporting manufacturer, and service providers. EPCG scheme is also available to a service provider who is designated or certified as a Common Service Provider by the DGFT or State Industrial Infrastructural Corporation in a Town of Export Excellence. EPCG authorization issued to a Common Service Provider gives details of the users and the quantum of export obligation which each user has to fulfill. The CSP as well as the specific users are under an obligation to fulfill the export obligation under EPCG scheme. 
At present, up to 50% of the EO may also be fulfilled by export of other goods manufactured or service provided by the importer or his group company or managed hotel, which has the EPCG Authorization, subject to the condition that in such cases, additional EO imposed shall be over and above the average exports achieved by the importer or his group company or managed hotel in preceding three years for both the original and the substitute products or services  
The EPCG Authorization specifies the value,quantity or both of resultant export product to be exported against it. In the case of manufacturer,merchant or service exporters, such export obligation is required to be fulfilled by exporting goods manufactured or capable of being manufactured or services rendered by the use of capital goods imported under the scheme. 
         After the introduction of Export Promotion Capital Goods scheme by Foreign Trade Policy and subsequent amendments and supplements ordered in different circulars till 18th January, 2011, the EPCG Authorization holder is required to file a bond with or without bank guarantee with the Customs prior to commencement of import of capital goods. Bank guarantee equal to 100% of the differential duty in case of merchant exporters and 25% in case of manufacturer exporters is required to be submitted except in case of a few exempted categories to ensure fulfillment of specified export obligation as well as to secure interest of revenue. 
Now, EPCG Authorization can also be obtained for annual requirement with a specific duty saved amount and corresponding export obligation. It indicates the export products through which export obligation shall be fulfilled. 
As per present Foreign Trade Policy 2009-14 supplemented by different notifications time to time, the normal validity period of zero duty EPCG Authorization is 9 months and that of 3% EPCG Authorization is 24 months. The licensing Authority may revalidate authorization for six months at a time and maximum up to 12 months from the date of expiry of validity. For the purpose of monitoring export obligation, the EPCG Authorization holder is required to indicate the details of EPCG Authorization on the Shipping Bill and Commercial invoice,in case of deemed exports. After fulfillment of specified export obligation, the Authorization holder submits relevant export documents along with EPCG Authorization to the DGFT authorities for the purpose of obtaining EO discharge certificate. After obtaining export obligation discharge certificate from DGFT, the Authorization holder produces the same before Customs for the purpose of obtaining redemption of bond and Bank Guarantee filed by EPCG Authorization holder.
 For the purpose of monitoring and ensuring on export obligation fulfillment by EPCG Authorization holder, block wise export obligation is also specified by licensing authority based on the guidelines of Foreign Trade Policy amended time to time.
 Present Foreign Trade Policy allows EPCG authorization holder to extend block-wise period for any block or overall period of fulfillment of export obligation up to a period of two years on payment of composition fee equal to 2% of proportionate duty saved amount on unfulfilled export obligation for each year of extension. The Licensing authority grant further extension in the overall period of EO up to a period of further two years if the authorization holder pays 50% of differential duty on the unfulfilled portion of export obligation and agrees to fulfill other conditions as may be specified by the Regional Authority (Licensing Authority) for this purpose.
       At present, the EPCG holder under zero duty scheme can avail only one extension of two years in export obligation period shall be available subject to conditions mentioned. 
As per the present Foreign Trade Policy, under an EPCG scheme, exports in discharge of export obligation are entitled to duty neutralization schemes like Drawback, Advance Authorization, DFIA etc. as well as benefits of reward schemes such as FPS, FMS, VKGUY etc. in accordance with the terms and conditions of those schemes. But as per Foreign Trade Policy amended time to time with annual supplements, benefits under reward schemes like TUFS and SHIS can not be in the year in which the zero duty authorization has been issued. 
EPCG scheme is one of the best export promotion schemes introduced by government under Foreign Trade Policy where in import of capital goods can be effected at nil or concessional import customs duties based on the conditions specified in the customs notifications and export obligations. However, EPCG authorization holder has to fulfill export obligation against the scheme specified, action is taken by the authorities to recover the import customs duty on defaulters through an institutional mechanism.

Friday, 04th Sep 2015, 09:42:24 AM

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