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EPCG Scheme

Overview of EPCG Scheme

The Export Promotion Capital Goods Scheme (EPCG Scheme) can be defined in a single sentence as "Duty-Free (Zero Customs Duty) Import of Capital Goods/Machinery for the manufacture of products meant for Export." The capital goods may be employed in the stages of pre-production, production, and post-production of commodities. This programme is sometimes referred to as the EPCG zero duty programme. We are all aware of the high customs fees that businesses must pay on capital equipment imported for production needs, which is why most businesspeople choose not to import it and instead compromise on the quality of the items. The custom duty used to increase with the cost of the machinery, which had a significant negative impact on the competitiveness and standard of the manufacturing industries. To enhance

Here are the categories of capital goods and machinery that can be imported under the EPCG Scheme.

  • All of the capital commodities, including partially and fully disassembled and disassembled conditioned items.
  • The capital goods that are imported include all computer hardware and software.
  • tools, fixtures, jigs, dies, spare parts, moulds, and refractories.
  • Catalysts for the initial charge and one additional charge.

"Capital Goods" are defined as "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-grading or expansion," according to FTP 2015-20, paragraph 9.08. It consists of machinery and equipment for packing, refrigeration, power generation, machine tools, testing, research and development, quality, and pollution control. In addition to being used in the services sector, capital goods may also be used in manufacturing, mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, and winemaking.

What are the advantages of an EPCG Licence and who is eligible to apply for the EPCG programme?

The main benefit of the EPCG Scheme is importing capital goods with zero customs duty.

Eligibility Criteria for applying under EPCG Scheme-

Any exporter, regardless of his turnover, is eligible to apply for benefits under the EPCG Scheme. Exporters in the following categories are eligible for EPCG Licences:

  1. Producer of exports.
  2. With a supporting manufacturer, a merchant exporter.
  3. Service provider, for instance, who exports services. hotel sector.

Exempted duties under the EPCG Scheme:

Capital goods imported under the EPCG Scheme are subject to no customs duties. It should be noted that the IGST and Compensation Cess are only waived till March 31, 2021. The Government may periodically issue a notification extending the date. Capital goods under the EPCG Scheme may also be purchased from domestic vendors or from indigenous sources. In such circumstances, the supply would be excluded from any relevant GST.

Indigenous Sourcing of Capital Goods-

According to FTP's paragraph 7.03, such domestic manufacturers are qualified for benefits associated with considered exports.

EPCG scheme for Manufacturer Exporters

A manufacturer or exporter may apply for an EPCG licence. However, there is a real user restriction on capital goods imported under the EPCG system until the export obligation is fulfilled. It means that until the obligation is paid off, the capital goods cannot be sold or transferred.

EPCG scheme for Merchant Exporters

Any merchant exporter connected to a supporting manufacturer may apply for an EPCG Licence. The EPCG Licence shall be endorsed with the name of the supporting manufacturer and the location of his facility, where the capital goods are intended to be placed. When fulfilling his export responsibility, the merchant exporter must include the name and address of the supporting manufacturer in all of his shipment documents, such as the shipping bill, custom invoice, etc.

EPCG scheme for Service Providers

The service provider is also qualified to submit an EPCG Licence application. To lower capital costs, different service exporters might obtain an EPCG Licence. By importing or purchasing domestic capital goods duty-free, service exporters including hotels, tour operators, taxi companies, logistics companies, and construction companies can take advantage of the EPCG Scheme.

Export Obligation under EPCG scheme

Under the EPCG Scheme, there are two types of export obligations: average export obligations and specific export obligations.

Export obligation under EPCG Scheme

  • Only commodities made with imported or domestically purchased machinery should be exported in order to complete the export obligation under the EPCG Scheme.
  • What does the EPCG scheme's average export obligation look like? Of the two export obligations included in the EPCG Scheme, it is the most significant. In essence, it means that each fiscal year up until the specified export duty is fulfilled, the average turnover from the three years before to receiving the licence shall be maintained. It is mandated with the intention that, following upgrades and the introduction of new machinery, total exports shall not fall below the historical average of achieved turnover, i.e., there should be an increase in export turnover due to new machinery. In addition to the specific export obligation, it must be maintained.
  • What does the EPCG scheme's "Specific Export Obligation" entail? – Within six years of the date the EPCG Authorization was issued, exports of commodities made with imported machinery must be worth six times the amount of tariffs, taxes, and cess that were avoided on the capital goods. The special export obligation (EO) for capital goods sourced domestically must be 25% lower than the aforementioned export obligation.
  • If the necessary Export Obligation is not completed within 6 years, a case-by-case extension of 2 years may be requested. The Organisation is required to pay the Customs Authority any Custom Duties, Cess, taxes, and saved interest if the EPCG Authorization Holder fails to meet the Export Obligation (even after an extension).
  • Direct exports, considered exports, supplies to SEZ, EOU Units, etc., Third Party exports, and service exports in the case of service providers are all acceptable ways to achieve the export obligation.

Note: If the holder of an EPCG Licence plans to pay the IGST and Compensation Cess during importation, the net duty saved amount will be adjusted to reflect this reduction, which will lower the requirement. This opportunity, however, is only available if the exporter agrees not to claim an IGST tax credit.

How does the EPCG Scheme operate? EPCG Licence procedure?

The entire procedure an organisation must go through in order to claim rewards under the EPCG Scheme is depicted in the following figure.

  1. Capital goods import must be finished within 18 months of receiving the EPCG Licence. EPCG Authorization Revalidation is not permitted.
  2. A bond or bank guarantee must be executed with customs officials at the time of import, in accordance with any applicable regulations.
  3. Following the installation of capital goods, an independent Chartered Engineer is required to issue an installation certificate for any imported machinery, which must then be submitted to DGFT.
  4. In order to encourage fast-track exporters, the concerned authorities must condone the remaining obligation and close the EPCG Licence if 75% of the Specific Export Obligation and 100% of the Average Export Obligation are fulfilled in half or less of the Export Obligation Period.
  5. A redemption letter must be acquired from the relevant regional DGFT authority following the satisfaction of the export obligation.

How can I apply online for an EPCG licence?

To obtain an EPCG Licence, the applicant must submit an online application to DGFT.
Steps are listed below.

  • Go to www.dgft.gov.in to access the DGFT website.
  • Login with DSC, then choose your services. online application for commerce Select EPCG (0%).
  • Complete the form, then upload the required papers.
  • Please take notice of the key information below to ensure that the documents are prepared accurately:
  • The application should be listed as a manufacturer and exporter on IEC/RCMC.
  • The address of the proposed installation location for the machine should be provided to IEC/RCMC.
  • The EPCG Licence should list the export products for MSME/SSI/Manufacturing proof.
  • Complete the application and then submit it.
  • The EPCG Licence will be issued by DGFT following a successful application.

Documents needed to apply for an EPCG licence with the DGFT.

The following documents will be required for EPCG Online Application:

  1. Pro forma Capital Goods/Machinery Invoice/Purchase Order.
  2. Copy of IEC, RCMC, MSME, Central Excise, and GST Certificate registrations.
  3. Information about the capital goods that are requested to be imported, including HSN code/name, model number, and technical description.
  4. List of goods with HSN codes that will be exported utilising the aforementioned equipment.
  5. Certificate from a chartered engineer demonstrating the connection between capital goods and the intended exports.
  6. CA Certificate detailing the only sales of the aforementioned export products throughout the previous three fiscal years in USD and INR.
  7. Where the machine will be installed's factory address.
  8. Flow/Process Diagram showing the steps where the capital goods are to be utilised in a step-by-step manner.
  9. The final use of capital goods for export, including the location and mode of usage. (Explained in Detail)

What can we do to help you with the EPCG scheme?

Our professionals help you obtain the following EPCG Scheme Benefits from DGFT & Customs:

  1. To avoid future defaults and help you make an educated choice, we first advise you of the terms and circumstances of the EPCG plan with regard to the export obligation.
  2. We assist you in creating the necessary paperwork for an EPCG Licence application.
  3. From the Director General of Foreign Trade, obtaining an EPCG licence.
  4. advising on the formal requirements and compliances that the client must adhere to after receiving an EPCG authorization.
  5. Getting an EPCG Licence Amendment, Revalidation, or EOP Extension.
  6. receiving a Redemption Letter from the DGFT RA and the release of a Bond or BG following the completion of an export obligation with Customs.
Frequently Asked Questions

Frequently Asked Questions

In the EPCG Scheme, the exporter can import capital goods duty-free, or with no customs charge, but they must export finished goods worth six times the amount of duty that would have been saved over the course of six years. The EPCG Scheme's primary objective is to increase India's manufacturing sector competitiveness.

The DGFT RA's duty-free authorisation is known as an EPCG Licence. The licence is not transferrable. It is used to import capital goods without paying duty.

Not a duty The EPCG Scheme permits the import of capital goods for pre-, post-, and production at no customs duty in exchange for an export commitment equal to six times the actual imported duty-saved value over a six-year period.

The main prerequisite for obtaining an EPCG Licence from DGFT is submitting an online application with the RA of DGFT with DSC. It is vital to upload all relevant documents while submitting an online application. You can get assistance from our knowledgeable team when applying for an EPCG licence.

The maintenance of average export obligations is a significant issue in the EPCG cases that we frequently encounter. The EPCG Scheme is a very attractive alternative for the Company if they are confident that they will receive consistent export orders in the years to come.

Yes, the Average Export Obligation imposed in such cases will be zero.

Exporters that want to meet an export obligation first, pay all tariffs in cash at the time of importation, and then claim the duty-free advantage in the form of Duty Credit Scrips will benefit from this scheme.

The following action would be to register the EPCG Licence at Customs after getting it from DGFT. Without registering the licence at the port where the shipment will arrive, it is impossible to clear the machinery duty-free. As specified in the licence, the licence is registered with the port of customs.

Yes, it is mandatory to register EPCG License at customs.

Yes, we can amend the EPCG License and below are the details-

  • The licence can be amended, and an invalidation letter can be requested, if the authorization holder obtained the licence but choose to buy locally.
  • There will be a change in CIF value so we can alter the licence due to contract changes or an increase in the value of imported capital goods.
  • When one issue or another prevents us from importing and the licence is about to expire, we can ask for revalidation of the licence.
  • Sometimes, for one reason or another, we want to add a new export product to the EPCG Licence. An EPCG licence may also be changed in such circumstances, and new export products may be added.

The following details should be mentioned in the shipping Bill to be counted in EPCG Scheme,

  1. EPCG License No. Should be mentioned in the shipping bill,
  2. The shipping bill's ITC HS code for the export product must match the licence.

Yes, Capital Goods/ machinery can be obtained from Domestic Suppliers with the help of an Invalidation Letter.

  1. Benefit to Domestic Supplier: He is eligible to collect Deemed Export advantages for these supplies.
  2. Benefit to EPCG Authorization Holder: Specific Export Obligation will be reduced by 25%, and until 31.03.2021, such supply won't be subject to GST. (Date may occasionally be extended).

Yes, but only if the EPCG licence number is supplied can we compute the shipping that includes the Advance Authorization, Duty Drawback, DFIA, and MEIS No. to be counted in EO fulfilment. It implies that any other export promotion plan may be integrated with the EPCG plan.

It must be registered with Customs after receiving an EPCG licence from DGFT. Capital items must be installed at the specified factory premises after they have been cleared duty-free by Customs. As evidence of installation and commissioning, an Installation Certificate must be obtained from the Independent Chartered Engineer or Customs authorities. Once production has begun, the applicant must finish their export obligations within the allotted time frame and submit all of their export documentation to the DGFT office in order to close their EPCG licence.

An EPCG Authorization holder needs to install the capital goods imported within a period of six months in front of an Independent Chartered Engineer. The chartered engineer will check that as per the authorization capital goods have been installed in given factory / supporting manufacturer premises or not and also cross verify the capital goods imported details with the license. And as per the verification, he will generate a certificate mentioning company name, Imported capital goods with quantity, BOE details, capital goods installation date on his letterhead with signed and stamped. The certificate generated by an Independent Chartered engineer is called the Installation Certificate. The same original copy should be submitted in DGFT and customs and receive the acknowledgment for the same.

An EPCG Authorization holder needs to install the capital goods imported within a period of six months in front of an Independent Chartered Engineer. The chartered engineer will check that as per the authorization capital goods have been installed in given factory / supporting manufacturer premises or not and also cross verify the capital goods imported details with the license. And as per the verification, he will generate a certificate mentioning company name, Imported capital goods with quantity, BOE details, capital goods installation date on his letterhead with signed and stamped. The certificate generated by an Independent Chartered engineer is called the Installation Certificate. The same original copy should be submitted in DGFT and customs and receive the acknowledgment for the same.

No, there is no provision in the present Foreign Trade Policy 2015-21 for fulfilling export obligations with substitute goods. Only those finished goods derived from imported capital items listed in the EPCG Licence will fulfil the export obligation.

Deemed exports do complete your export obligations under the EPCG Scheme. Along with supplies to SEZ units, supplies to EOU/STP/EHTP/BTP units are deemed exports and can be included in the calculation of EO Fulfilment.

Yes, although in these circumstances the name of the Third Party and the EPCG Authorization number should be included in the Shipping Bill / Bill of Exports.

In the case of direct export, EO is determined as six times the actual value of duty savings. Furthermore, in domestic sourcing, EO is determined by multiplying the duty savings value by six and using the notional custom duty on FOR Value.

Extension provisions during the EO Period will be determined by the date the EPCG licence was issued. For instance, relevant provisions of HBP Vol 1 that were in effect at the time of the issuance of the EPCG Authorization shall apply to the EPCG Licence issued prior to the notification of FTP 2015-20. According to current policy, we are permitted to prolong the export obligation period by two years following the completion of the initial six years (6 + 2 = 8 Years). By paying a composition of 5% the first year and 10% the second year on the proportionate Duty saved value on pending or unfulfilled Export Obligation, we can extend the period of time. However, the required minimum composition cost is Rs. 10,000. If the Exporter chooses not to pay the composition fees, there is an alternative.

It is challenging to extend EO after (6 + 2 = 8 Years). For an extension, you must submit an application to the EPCG Committee at DGFT New Delhi. Only in cases of true adversity might a further 2 years of extension be given.

The authorization holder must pay a proportionate Duty Saved Amount at customs along with 15% annual interest on any outstanding specific export obligations on actual imported capital goods and provide the licence authority in question with proof of duty paid if they failed to fulfil the specific export obligation but continued to fulfil average export obligations.

If a specific export obligation is fulfilled but the average export obligation is not, the entire duty savings amount plus 15% annual interest must be paid at customs, and the proof of duty payment must be submitted to the DGFT for regularisation.

Average and specific export obligations are the two different categories of export obligations. We must uphold both of our obligations. As long as we uphold certain export obligations, we must complete them block-by-block in accordance with the table below and send the results to the DGFT.

The holder of the authorization may redeem the licence in accordance with paragraph 5.09 FTP if they have completed at least 75% of the specific export obligations and at least 50% of the average export obligations during the first half of the original export obligation period.

If the EPCG Scheme is availed for the below mentioned Export products, then the average export obligation will be exempted:

  • Handicrafts,
  • Handlooms,
  • Cottage & Tiny sector
  • Agricliture
  • Aqua-cliture (including Fisheries), Piscicliture,
  • Animal husbandry,
  • Floricliture & Horticliture,
  • Politry,
  • Viticliture,
  • Sericliture,
  • Carpets,
  • Coir, and
  • Jute,
  • Handicrafts,
  • Handicrafts,
  • Handicrafts,

The EPCG Licence must then be closed, and a closure application must be made. We must complete out the redemption form ANF 5B and submit it with the original licence to the DGFT RA for Closure together with the required papers.

EPCG Redemption or EPCG License closure procedure is a mechanism through which the DGFT monitors the fulfilment of the export obligation given to holder by the Government. We can help you in closure of EPCG License by preparing correct documents as per DGFT Rule.

The licence holder must complete the ANF 5B redemption form and send it to the DGFT RA together with the necessary supporting documentation. A closure certificate known as an Export Obligation Discharge Certificate will be issued by the DGFT.

Yes, we do help in redemption of EPCG License.

If the licence holder decides they do not wish to import capital items, we can revoke the licence by providing the necessary paperwork. In order to prepare and submit the required paperwork to DGFT, we may assist you.

No, EPCG License is non-transferable.

No, EPCG License is not possible to sell.

The EPCG Licence has a 2-year import validity and a 6-year export validity from the date of issuance.