• All You Need to Know about the EPCG Scheme

    EPCG Scheme

    The Export Promotion Capital Goods (EPCG) scheme was launched by the Directorate General of Foreign Trade (DGFT) under Chapter 4 of the Foreign Trade Policy (FTP) 2015-20. The idea behind the introduction of this scheme was the facilitation of capital product imports so that Indian manufacturers can use them to produce quality goods. This scheme aims to improve India’s manufacturing prowess in the global market.

    Applicability of EPCG

    The EPCG scheme can be availed of on the import of capital goods during the pre-production, production, and post-production stage with nil customs duty. The scheme is applicable when the imported goods are:

    • Capital goods under the definition provided in Chapter 9 of the FTP 2015-20, including those in semi-knocked down and completely knocked down condition
    • Computer systems and software as parts/components of the capital goods
    • Spares and tools, moulds, dies, fixtures, jigs and refractories
    • Catalysts procured for the initial charge and one additional charge
    • Capital goods for project imports, if notified by the Central Board of Excise and Customs

    Understanding Export Obligation

    Export Obligation (EO) is an arrangement used in the import of capital goods under the EPCG scheme. Such imports are made under an EO, which must be six times the duty that would otherwise be paid on the import of the capital goods. The EO must be fulfilled within six years from the date of issuance of the EPCG authorisation.

    Some conditions are applicable for the EO to be fulfilled:

    • The EO is to be fulfilled by the authorisation holder through the export of products manufactured by themselves or through their supporting manufacturer/services.

    • The EO 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 advance authorisation, duty-free import authorisation (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 counted while calculating exports under the EPCG scheme.

    • Deemed exports, as defined in Chapter 7 of FTP 2015-20, are considered as a fulfilment towards EO. The benefits of deemed exports are also available to the exporter.

    • An authorisation received under the EPCG scheme remains active for 18 months from the date of its issue, and cannot be revalidated thereafter.

    • Only 25% of EO is required for units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and J&K.

    • If the authorisation 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 export of green technology products.

    How to apply for EPCG

    To avail of the benefits of the EPCG scheme, the exporter has to file an application with the DGFT. To apply for this incentive, fill up the Ayat Niryat Form 5B (ANF 5B) along with the following documents:

    • Permanent Account Number (PAN)
    • Digital Signature Certificate
    • Import Export Code
    • GST registration certificate
    • Registration-cum-membership certificate
    • CA certificate (along with original for verification)
    • Chartered engineer’s certificate (along with original for verification)
    • Company brochure
    • Proforma invoice
    • Such other documents as may be prescribed by DGFT from time to time

    All these documents must be self-certified copies.

    Criteria for availing of EPCG

    To be eligible to avail of the EPCG scheme, one should be:

    • A manufacturing exporter who doesn’t have other similar supporting exporters.
    • A merchant exporter with supporting manufacturer and/or service provider.
    • Common service providers (CSP), as certified or assigned by the DGFT, Department of Commerce, or State Industrial Infrastructure Corporation.

    Some additional FTP conditions need to be fulfilled by CSPs:

    • The CSP will have to meet the conditions of the EO, and its shipping bills must contain the details of the EPCG authorisation.
    • The exporter must inform the concerned authority about CSP activities before it begins exporting.
    • The CSP will provide bank guarantee equal to the customs duty saved, against the export goods.

    Exporters of electronic goods can also avail of EPCG benefits. An EPCG authorisation holder can source capital goods from a domestic manufacturer and claim deemed export benefit under the FTP. Domestic sourcing from export-oriented units is also permitted under the scheme. An EPCG authorisation holder can opt for technological upgradation of capital goods that have been procured under the scheme.

    Fulfilling the EO is a basic precondition under the EPCG scheme. Heavy exporters are naturally better placed to fulfil this obligation and benefit from the EPCG. Therefore, it should be availed of only when production is in sizeable volumes, and one is confident of exporting the product overseas.

    Raghav Khajuria
    Raghav Khajuria
    Leads Marketing activities for Drip Capital.
    5 min read