EXPORT PROMOTION CAPITAL GOODS
SCHEME : CA Nagesh Bajaj, Faridabad
Export Promotion Capital Goods Scheme was initiated to
build the base for manufacturing of Goods which can
attract the Export Market and draw Foreign Exchange.
The basic purpose of Export Promotion Capital Goods
scheme is to allow exporters to import capital goods at
affordable prices so that they can produce quality
products for the export market. The Government has
been modifying the EPCG Scheme over the years in line
with the demands of the domestic industry.
EPCG scheme allows import of capital goods for preproduction, production and post-production at zero
Customs duty, subject to an export obligation equivalent
to 6 times of duty saved on capital goods procured under
EPCG scheme. This obligation is to be fulfilled in 6 years
ascertained from Authorization issue-date. Import of
capital goods is subject to Actual User condition till
export obligation is completed. The period for import
under the Scheme would be 18 months. Second hand
capital goods are not permitted to import under EPCG
Scheme. EPCG Authorization holders can opt for
Technological up gradation of existing capital goods
imported under EPCG Authorization(s).
Capital
Goods
include
spares
(including
refurbished/reconditioned spares), tools, jigs, fixtures,
dies and moulds. C.I.F. value of import of these spares
etc. will be limited to 10% of the value of plant and
machinery imported under the EPCG scheme.
EPCG scheme covers manufacturer exporters .It also
covers supporting manufacturers/vendor(s) as well as
merchant exporters tied to supporting manufacturer(s)
and service providers. EPCG authorization holder (the
person having EPCG Authorization) can export either
directly or through third party. Export proceeds are to be
realized in freely convertible currency but for deemed
exports realization in rupee is allowed. Import
of capital goods under EPCG authorizations can also be
availed for the imports which are covered under Scheme
for Project Imports notified by the Central Board of
Excise and Customs vide Customs Notification No.
12/2012.
Export Obligation is to be fulfilled by export of goods
manufactured/services rendered by the applicant as
follow.
Period from the date of Minimum
export
obligation
to
be
fulfilled
issue of Authorization
Block of 1st to 4th year
50%
Block of 5th and 6th year
50%
Export Obligation under the scheme is 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 Obligation period
including extended period, if any. Such average would be
the arithmetic mean of export performance in the last
three years for the same and similar products.
The Authorization holder under the EPCG scheme shall
fulfill a minimum of 50% export obligation in each block
of years as may be specified. Exports should be physical
export to outside India; however deemed exports can
also be counted towards fulfillment of export obligation.
Export obligation is not allowed to discharge by export of
alternate products or accounting of exports of group
companies for completing the obligation. EO for Spares
(including refurbished/reconditioned spares), moulds,
dies, jigs, fixtures, tools, and refractory for initial lining;
for existing plant and machinery shall be 50% of the EO
under Capital Goods EO. For units located in Arunachal
Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura and Jammu & Kashmir, specific
EO shall be 25% of the EO. There is no change in average
EO.
If the export obligation is not fulfilled there is provision
for extension of export obligation period. The scheme
allows one or more requests for grant of extension in
export obligation period, on payment of composition fee
equal to 2% of proportionate duty saved amount on
unfulfilled export obligation or an enhancement in
export obligation imposed to the extent of 10% of total
export obligation imposed under authorization, as the
case may be, at the choice of exporter, for each year of
extension sought. Such first extension in EO period can
be for a maximum period of 2 years. Extension in EO
period beyond two years’ period may be considered, for
a further extension up to 2 years with a condition that
50% of duty payable in proportion to the unfulfilled
export obligation is paid by authorization holder to
Custom authorities before an endorsement of extension
is made on EPCG authorization by RA concerned. In such
cases, no composition fee is to be paid or additional EO is
to be imposed. In case the firm is still not able to
complete the export obligation, duty already deposited
will be deducted from total duty plus interest to be paid
for EO default. However for zero duty EPCG scheme only
one extension of 2 years in export obligation period is
available, subject to conditions mentioned above.
Extension has also been allowed to sick units under the
rehabilitation programme instructed by BIFR In case,
EPCG authorization holder fails to fulfill prescribed
export obligation, he shall within 3 months from the
expiry of the block, pay duties of Customs along with
applicable interest as prescribed by Customs authority
proportionate to duty saved amount on unfulfilled EO
Authorization holder is required to submit to RA
concerned by 30th April of every year a report on
fulfillment of export obligation.
A person holding an EPCG Authorization may source
capital goods from a domestic manufacturer. Such
domestic manufacturer shall be eligible for deemed
export benefit. EPCG authorization holder intending to
source capital goods indigenously shall request to RA for
invalidating EPCG authorization. RA concerned will issue
such invalidation letter. In order to promote domestic
manufacturing of capital goods, the quantum of specific
Export Obligation in the case of domestic sourcing of
capital goods under EPCG authorizations is reduced by
10%.
Please note that the domestic manufacturer will have to
charge Central Excise Duty on the goods supplied against
EPCG Authorization because there is no exemption
available to domestic manufacturer to supply goods
without payment of duty against EPCG Scheme. But this
duty can be get refunded from DGFT . This is known as
refund of Terminal Excise Duty(TED).
If the goods are already procured on payment of duty
then the manufacturer can approach for Post Export
EPCG Duty Credit Scrip(s). Under this scheme the export
obligation are reduced to 85% of normal export
obligation. The EPCG holder get scrip equivalent to duty
amount. This scrip is transferable.
After
fulfillment
of
export
obligation,
authorization holder furnishes an application in ANF5B
with documents prescribed. On being satisfied, RA
concerned issue a certificate of discharge of export
obligation to the EPCG authorization holder and
send a copy to customs authorities so that the bond
executed by the EPCG Authorization holder is
discharged.