EPCG Scheme and CENVAT Credit
14 January 2009
Essar House, Mahalaxmi
By K. R. Choudhary
14 January 2009
EPCG and CENVAT
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Part A
Export Promotion Capital Goods Scheme
(EPCG)
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The General Provisions
1. Under the EPCG scheme, an Authorization holder can
import Capital goods (i.e. plant, machinery, equipment,
components and spare parts of the machinery) at a
concessional rate of Customs Duty of 3%
2. Capital goods can be imported for pre-production,
production and post production Works
3. Capital goods imported in CKD / SKD to be assembled in
India
4. Spares, tools, spare refractories and catalysts for existing
plant and machinery
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The General Provisions (continued)
5. The capital goods imported under EPCG scheme may be
transferred to any of the Units / Group Companies of the
applicant
6. Import of spares of Capital goods including refractory,
catalyst as required for installation and maintenance of
Capital is permitted, without any limits. Jigs, fixtures, dies,
moulds will be allowed to the extent of 100% of CIF value
of Authorization
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The General Provisions (continued)
7. Second-hand Capital goods can also be imported
under EPCG Scheme. However, second-hand
Capital goods of Indian Origin are not permitted
under the EPCG scheme
8. Merchant exporters can also import Capital goods
under EPCG scheme, provided the goods are
installed in the factory of their supporting
manufacturer
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The General Provisions (continued)
9. EPCG Authorization holder can opt for technological
up-gradation of existing Capital goods imported under
EPCG Authorization after five years and when
minimum export obligation of 40% of earlier EPCG
Authorization is fulfilled.
10. An application for the grant of an Authorization may be
made to the Regional Authority
11. Installation Certificates: The Authorization holder shall
produce from the concerned Central Excise Authority
within 6 months from the date of completion of Imports
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The General Provisions (continued)
12. Authorization holder who are not registered with Central
Excise Authorities and service providers can give a
certificate either from the jurisdictional Excise authority or
an independent Chartered Engineer
13. In case of spares, the installation certificate shall be
submitted within three years from the date of import
14. EPCG Authorization is issued with validity period of 36
months
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The General Provisions (continued)
15. The import is permitted only through a specified port of
registration
16. Exports can be made from any of the ports specified
17. For clearance at a port other than port of registration, TRA
(Telegraphic Release Advise) is required
18. EPCG scheme will be issued on basis of nexus between
goods allowed and products exported as certified by a
Chartered Engineer
19. Authorization issued after date of shipment but before
clearance from Customs bonded warehouse is acceptable
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The General Provisions (continued)
20.Replacement of Capital Goods: The Capital goods imported under
the scheme and found defective may be exported and Capital goods
in replacement thereof be imported under the scheme. In such cases,
while allowing export, the Customs shall credit the Duty benefit
availed which can be debited again at the time of import of such
replaced Capital goods
21.The import of refurbished spares shall be permitted under
EPCG scheme
22. An EPCG Authorization holder may, on the basis of firm contract
between the parties, source the Capital goods from a domestic
Leasing Company
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Duty
1. Customs Duty @ 3% is payable
2. HE & SHE Cess on Customs Duty are payable @ 2% and 1%
respectively
3. Special CVD (SAD) of 4% is not payable
4. An importer can either claim exemption of CVD or pay CVD in
cash
5. If an importer avails of the option to pay CVD in cash, the
incidence of CVD would not be taken for computation of Net Duty
saved provided the CENVAT Credit of CVD has not been taken
6. If the goods are not exported as per obligation, differential
Custom Duty plus 15% interest is payable
7. Since Customs Duty @ 3% is payable on imported goods, 3%
Duty has to be paid even in cases of domestic procurement
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Fulfillment of Export Obligations
1. The Authorization holder under the EPCG scheme
shall fulfill the export obligation over the specified
period in the following proportions:
Period from the date of issue of Minimum export obligation to
Authorization
be fulfilled
Block of 1st to 6th year
50%
Block of 7th and 8th Year
50%
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Fulfillment of Export Obligations
(continued)
2. In respect of Authorization, on which the value of Duty saved is
Rs.100 Crores or more, the export obligation shall be fulfilled
over a period of 12 years in the following proportion:
Period from the date of issue of
Authorization
Minimum export
obligation to be
fulfilled
Block of 1st to 10th year
50 %
Block of 11th and 12th year
50 %
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Export Obligations
1. The export obligation of a particular Block of year may be set off by
the excess exports made in the preceding Block of the years
2. Royalty payment received from abroad and testing charges received
in free foreign exchange will be counted for discharge of export
obligation under the EPCG scheme
3. In respect of Capital goods imported for technological up-gradation,
export obligation will be six times the Duty saved
4. Agricultural units will have export obligation of 6 times the Duty
saved
5. In respect of EPCG authorization for Rs 100 Crores or more, the
export obligation shall be required to be fulfilled over a period of 12
years
6. Sick companies under BIFR and units under the Agricultural Export
Zone can fulfill export obligation in 12 years
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Export Obligations (continued)
7. Exports of goods / services by Group Companies will also be considered
towards fulfillment of export obligations
8. Shipments made under Advance Authorization, DFRC, DEPB and
Drawback are all counted for fulfillment of EPCG obligations
9. Supply by EPCG Authorization holder to a SEZ unit or Developer / Co-developer will be counted towards discharge of export obligation
(required under EPCG scheme), even if payment is received in Indian
currency or any other currency
10. If 75% of the export obligation is completed in half or less than half the
prescribed period, Companies will be freed from their obligation in the
remaining period – in the form of incentives for fast track Companies
11. Waiver of export obligation can be granted by a committee in case of
non-fulfillment due to unforeseen reasons or circumstances beyond
control
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Export Obligations (continued)
12. Monitoring of fulfillment of export obligations is assigned to DGFT
and Customs will redeem the bond/bank guarantee on the basis of
DGFT’s EO Discharge Certificate
13. The goods imported shall not be disposed of or transferred by sale
or lease or any other manner till export obligation is completed
14. If export obligation is not fulfilled or partially fulfilled, Customs Duty
with interest is payable which is proportionate to export obligation
not fulfilled BUT machinery should not be confiscated and penalty
need not be imposed
15. In case, EPCG Authorization holder fails to fulfill the prescribed
export obligation, he shall pay Duties of Customs plus 15% interest
per annum to the Customs authority
16. Case wise waiver of export obligation in case of force majeure /
unforeseen circumstances have also been provided for
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Clubbing of EPCG Authorizations
1. Clubbing of EPCG Authorizations: The clubbing of two or more
EPCG Authorizations of the same Authorization holder would be
permitted subject to the following conditions:
 The EPCG Authorizations have been issued during the same
licensing year
 The EPCG Authorizations have been issued under the same
Customs Notification
 The EPCG Authorization must be for the export of the same
product / same service
2. No clubbing would be permitted in the case of expired EPCG
Authorizations
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Clubbing of EPCG Authorizations
(continued)
3. On clubbing, Authorizations for all purposes shall be deemed to be
a single EPCG Authorization issued under the said Customs
Notification and the export obligation period for the clubbed
Authorization shall be reckoned from the date of issuance of the first
Authorization
4. However, in cases where the clubbed CIF/Duty saved value
exceeds Rs 100 Crores, no corresponding benefit of increase in
export obligation period shall be admissible
5. The total export obligation for the Authorizations so clubbed would
be refixed taking into account the total Duty saved or total CIF value
of imports as the case may be of the clubbed Authorizations
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Indigenous Sourcing of Capital Goods
1. The EPCG Authorization holder intending to source Capital goods
indigenously, shall make a request to the Regional Authority for
invalidation of the EPCG Authorization for direct import
2. The EPCG Authorization holder shall also give the name and
address of the person from whom he intends to source the Capital
goods
3. At the time of issuance of Authorization or subsequently, the
Regional Authority shall make the Authorization invalid for direct
import and issue an invalidation letter - in duplicate - to the EPCG
Authorization holder
4. The Regional Authority shall simultaneously grant permission to the
EPCG Authorization holder to procure the Capital gods indigenously
in lieu of direct import
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Indigenous Sourcing of Capital Goods
(continued)
5. The indigenous manufacturer intending to supply Capital goods
to the EPCG Authorization holder may apply to the Regional
Authority for the issuance of Advance Authorization for import of
inputs including components required for the manufacture of
Capital goods to be supplied to the EPCG Authorization holder
6. The supplier of indigenous goods is entitled to all benefits of
deemed export on production of certificate from the respective
Assistant Commissioner of Customs and Central Excise
Authorities
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Indigenous Sourcing of Capital Goods
(continued)
7. The supplier of Indigenous goods is also entitled to the refund of
TED (Terminal Excise Duty). This is the duty which is paid by him
on procurement of indigenously manufactured goods which are
used for the production of such goods which are supplied to original
EPCG holder
8. Supply of goods will be eligible for refund of TED provided the
recipient of the goods does not avail CENVAT credit on such goods
9. For the refund of TED, the indigenous supplier has to make an
application to the DGFT, such refund normally takes one month
from the date of application
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Documents For TED Refund







Bills of Entry (photocopy), in case of imported raw materials
Original Excise Duty paid invoices
Original Invalidation letter
Original Installation certificate
Copy of EPCG set
Original certificate of non-availment of CENVAT
Purchase Order
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Part B
CENVAT Credit
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CENVAT Credit
1. As the taxable event in Excise is manufacture, all such
goods suffer Excise Duty at the hands of manufacturer
2. When such Duty paid goods are used by another
manufacturer and Duty is paid by such person, then,
the value of the goods includes Duty paid on inputs
too. Excise Duty burden on the final products fall on
Duty paid on inputs. Thus, a situation arises whereby
Duty becomes payable on Duty. This results in a
cascading effect and such process continues till the
goods reach the ultimate consumer
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CENVAT Credit (continued)
3. A manufacturer or service provider can take credit of
Duty / Tax paid on inputs or Capital goods / input
services and can adjust the same for payment of Duty /
tax on his final products or output services
4. CENVAT scheme essentially requires that final products
should be Duty paid and not exempted
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Goods / Services Eligible For
CENVAT Credit
All goods, except High Speed Diesel Oil (HSD) Light Diesel Oil
(LDO) and petrol (motor spirit), used within the factory of production /
in relation to manufacture of final products directly or indirectly and
whether contained in the final products or not. This includes:
Accessories of the final products cleared along with the final
products
Paint
Packing material (including the raw material used for making
the packing material within the factory of production)
Fuel for generation of electricity or steam used for manufacture
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Input Service
1. Several services are liable to Service tax. A manufacturer / Service
Provider procures such taxable service for his activity. If the taxable
service satisfies the definition of Input Service as per the rules,
credit of Service Tax paid is admissible
2. Input Service means any service:
 Used by a provider of taxable service for providing an output
service
 Used by the manufacturer (directly / indirectly) or in relation to
the manufacture of final products and clearance of final
products from the place of removal
3. A manufacturer / consignor can take credit on the Service Tax paid
on transportation up to buyer’s premises where sales takes place
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Specified Duties & CENVAT Credit
1. Credit thus taken is called as CENVAT Credit and is utilizable across
good and services. Duties / tax which can be availed as CENVAT
Credit are:
# Excise duty
# Education Cess on Secondary and Higher Education Cess on
Excise duty
# Additional Customs Duty
# Service Tax
# Education Cess and Secondary Higher Education Cess on
taxable services
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Utilization of Credit
For payment of Excise Duty on any final products
(including waste & scarp)
For payment of Duty on inputs removed as such or
inputs removed after being partially processed under
Invoice
For payment of Service Tax on any Output Service
Credit of Education Cess / Secondary and Higher
Secondary Cess paid on inputs or Capital goods or
inputs services can be utilized for payment of such
Cess
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Capital Goods Removed After Use
If the CENVAT availed Capital goods are removed after
use, the manufacturer / Service Provider shall pay an
amount equal to the Credit taken on such Capital
goods reduced by 2.5% for each Quarter of a year or
part thereof from the date of taking credit
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Capital Goods Removed After Waste
If the Capital goods are cleared as waste and
scrap, the manufacturer shall pay an amount
equal to the Duty leviable on the transaction value
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CENVAT Credit – Documents Needed
The documents that can be used for taking CENVAT Credit
are as follows :
An invoice by a manufacturer for clearance of Inputs
or Capital goods from his factory or from his depot
 A supplementary invoice
A Bill of Entry
A Challan evidencing payment of Service Tax
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Conditions For CENVAT Credit
1. Credit eligibility and time limit: CENVAT Credit becomes eligible
once the Duty / Tax is paid
# there is no time limit to utilize the CENVAT Credit
# Credit is available immediately on receipt on user
factory / premises of output service provider
# Credit in respect of input service shall be allowed on or after the
day on which payment is made which is the value of input service
and the Service Tax paid or payable as indicated in the Invoice /
Bill / Challan
2. Burden of proof for admissibility of CENVAT Credit lies upon the
manufacturer / output Service Provider taking CENVAT Credit
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Conditions For CENVAT Credit
(continued)
3. Quantum of credit on Capital goods: Credit on Capital goods is allowed
up to 50% of Duty paid in the same financial year. However, the whole
credit will be allowed in the same year if the Capital goods are cleared
as such in the same year. Balance credit can be availed in any
subsequent financial year provided Capital goods are still in
possession and use of the manufacturer / provider of output
service
4. Credit admissibility on lease, hire purchase or loan: Credit on Capital
goods is allowed even if they are acquired on lease, hire purchase or
loan agreement from a financing Company
5. Credit is not allowed on that part of the value of Capital goods which
represents the amount which the manufacturer or output service
provider claims as depreciation
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Movement of Inputs / Capital Goods
and CENVAT Credit
Credit is allowed even if any input / Capital goods / inputs after being
partially processed are sent to job worker for further processing:
# Testing
# Repair
# Reconditioning or for the manufacture of intermediate goods
necessary for the manufacture of final products or
# Any other purpose
It should be proved from the record / challans / memo / any other
documents that the goods are received back in the factory within
180 days. Otherwise a manufacturer is required to debit an amount
equivalent to the CENVAT Credit on such unreceived inputs Capital
goods which can be restored when they are received back in the
factory subsequently
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