Chapter 5 - EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME - Foreign Trade Procedure (RE - 2007)/ 2004-09

CHAPTER-5 EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME Policy 5.1 Policy relating to EPCG Scheme is given in Chapter 5 of FTP. Application Form 5.2 An application for grant of an authorization, upto Rs.50 Crore of duty saved amount may be made to RA concerned in ANF 5A along with documents prescribed therein. Consideration of Applications 5.3 For cases wherein duty saved amount is above Rs. 50 crores, applicant may apply to DGFT Headquarters directly with a copy endorsed to concerned RA. In such cases, concerned RAs will issue EPCG authorisation according to directions from DGFT. 5.3.1 1RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 32A, issue EPCG authorisation and thereafter forward a copy of the EPCG authorisation to the concerned Jurisdictional Central Excise Authority. 2 5.3.2 Authorisation holder shall produce to the concerned RA a certificate from the Jurisdictional Central Excise Authority, confirming installation of Capital goods at factory premises of authorization holder or his supporting manufacturer(s)/ vendor(s) within six months from date of completion of import. In the case of import of spares, the installation certificate shall be submitted by the Authorisation holder within a period of three years from the date of import. However, in case of units not registered with Central Excise Authorities, the Authorisation holder shall produce to the concerned RA, a certificate from an independent Chartered Engineer confirming the said installation of Capital goods / spares. 5.3.3 EPCG authorization shall be issued with a single port of registration mentioned in paragraph 4.19 of HBP v1 for imports. However, exports can be made from any port specified in paragraph 4.19. 5.3.4 (i) An applicant may also apply for import of spares, tools, spare refractories and catalyst as are required for installation and maintenance of capital Goods. Application shall contain list of plant / machinery installed in factory / premises of applicant for which spares, tools, spare refractories and catalyst are required, duly certified by Chartered Engineer or Jurisdictional Central Excise authorities. In such cases EPCG authorization shall not specify list of spares but shall indicate:- (a) Name of plant / machinery for which spares are required. (b) Value of duty saved allowed under authorization. (c) Description of product to be exported with value of export obligation as per FTP. (ii) Deleted (iii) Further at the time of final redemption of export obligation, authorization holder shall submit certificate from Independent Chartered Engineer confirming use of spares tools, spare refractories and catalyst so imported in the installed capital goods on the basis of stock consumption register maintained by authorization holder. Conversion of EOU / Relocated SEZ Units to EPCG Scheme 5.4 An EOU / a relocated SEZ unit may apply for an EPCG authorization in ANF alongwith documents prescribed therein. "No Objection Certificate" should be produced from concerned DC. Indigenous Sourcing of Capital Goods 5.5 EPCG authorization holder intending to source capital goods indigenously, either alongwith application or after issuance of EPCG authorisation, shall request to RA for invalidation of EPCG authorization for direct import / issue of ARO, alongwith name and address of source person of the capital goods. 5.5.1 RA concerned will issue such invalidation letter / ARO, in duplicate. 5.5.2 Indigenous manufacturer intending to supply capital goods to EPCG authorization holder may apply to RA in ANF for issuance of Advance authorization for import of inputs including components required for manufacture of capital goods to be supplied to EPCG authorization holder. 5.5.3 Deleted Leasing of Capital Goods 5.6 An EPCG authorization holder may, source capital goods from a domestic leasing company. In such cases, the Bill of Entry of imported capital goods or commercial invoice of indigenous capital goods, shall be signed jointly by EPCG authorization holder and leasing company. However, EPCG authorization holder shall alone be fully responsible for fulfillment of export obligation. Condition for Fulfilment of Export Obligation 5.7 In addition to conditions mentioned in paragraph 5.4 of FTP following conditions shall also be applicable for fulfillment of export obligation. 5.7.1 EPCG authorisation holder shall export either directly or through third party(s). If a merchant exporter is EPCG authorisation holder, name of supporting manufacturer shall also be indicatedon shipping bills. At the time of export, EPCG authorisation No. and date shall be endorsed on shipping bills which are proposed to be presented towards discharge of export obligation. 5.7.2 Export proceeds shall be realised in freely convertible currency except for deemed exports. 7 Export to SEZ Units/ Supplies to Developers/Co-developers, irrespective of currency of realization, would also be counted for discharge of Export Obligation. 5.7.3 Deleted. 5.7.3.1 Supplies made to Oil and Gas sector also may be counted towards discharge of export obligation against an EPCG Authorisation provided it has been issued on or before 31.3.2000 and no benefit under paragraph 8.3 of FTP has been claimed on such supplies. 5.7.4 Exports made to former USSR or to such countries as notified by DGFT shall not be counted for fixing average level of exports. 8 Additional Export Obligation (over and above indicated average) for all previous EPCG licences, which have not been redeemed, will be indicated separately. 5.7.5 Exports under EPCG scheme shall also be entitled for benefits under Chapter 4 of FTP. 5.7.6 In case of export of goods relating to handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture shall not be required to maintain average level of exports. Goods excepting tools imported under EPCG scheme by such sectors shall not be allowed to be transferred for a period of five years from date of imports even in cases where export obligation has been fulfilled. However, transfer of capital goods would be permitted within the group companies or managed hotels under intimation to RA and jurisdictional Central Excise Authority in case of manufacturer/merchant exporters and to RA only in case of Service providers. 5.7.7 Deleted. 5.7.8 3 Deleted 5.8 4 The Authorisation 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 Authorisation Minimum export obligation to be fulfilled Block of 1 st to 6 th year 50% Block of 7 th and 8 th year 50% 4 5.8.1 In respect of Authorisations, on which the value of duty saved is Rs.100 crore 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 Authorisation Minimum export obligation to be fulfilled Block of 1st to 10th year 50% Block of 11th and 12th year 50% 4 5.8.2 However, the export obligation of a particular block of year may be set off by the excess exports made in the preceding block of year. The Authorisation holder would intimate the regional authority on the fulfillment of the export obligation as well as average exports within three months of completion of the block, by secured electronic filing using digital signatures. 4 5.8.3 Where export obligation of any particular block of years is not fulfilled in terms of the above proportions, except in such cases where the export obligation prescribed for a particular block of year is extended by the competent authority, such Authorisation holder shall, within 3 months from the expiry of the block of years, pay duties of customs (alongwith applicable interest as notified by DoR) of an amount equal to that proportion of the duty leviable on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation. 5.8.4 EPCG Authorisations issued upto 31.3.2000 shall be governed by provisions laid down in paragraph 6.11 in HBP v1 (RE-99). Notwithstanding the same in HBP v1 (RE-99), authorisation holder shall not have to surrender Special Import licence in case of value wise shortfall. Authorisations issued from 1stApril, 2000 upto 31stMarch, 2002 shall be governed by provisions of Chapter 6 of HBP v1 (RE-01) as amended from time to time. Authorisations issued from 1stApril, 2002 upto 31stAugust, 2004 shall be governed by provisions of para 5.8 of HBP v1 (RE-02) as amended from time to time. However, provision of clubbing even in case of old licences would be as per current provision of para 5.18 of this Handbook. 5.8.5 Deleted. 5.8.6 Deleted. Monitoring of Export Obligation 5.9.1 Authorization holder shall submit to RA concerned by 30thApril of every year, report on fulfillment of export obligation. Such report shall also be submitted electronically on DGFT website. RA concerned may issue partial EO fulfillment certificate, provided export performance is proportionately adequate to fulfillment of export obligation. Automatic Reduction/ Enhancement upto 10% of CIF value and Prorata Reduction/ Enhancement in Export Obligation 5.10 If authorization issued has actually been utilized for import of a value in excess upto 10% of CIF value / duty saved amount of authorization, authorization shall be deemed to have been enhanced by that proportion. Customs shall automatically allow clearance of goods in excess upto 10% of authorization value / duty saved amount without endorsement by concerned RA. In such cases, authorization holder shall furnish additional fee to cover excess imports effected in terms of CIF value / duty saved amount to RA concerned within one month of excess imports taking place. Export obligation shall automatically stand enhanced proportionately. 5.10.1 Similarly, if EPCG authorization holder has utilised authorization less than the value earmarked in authorization, his export obligation shall stand reduced on prorata basis with reference to actual utilisation of authorization. Extension of Export Obligation Period 5.11 Concerned RA, may consider one or more request for grant of extension in export obligation period, on payment ofcomposition fee of 2% of total duty saved under authorization 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 extension can be for a maximum period of 2 years. Extension in EO period beyond two years' period available above, may be considered, for a further extension upto 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 as prescribed in the Para above. 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. Extension in export obligation period shall also be subject to such terms and conditions as may be prescribed by competent authority. 5.11.1 The firm / company, which is applying for registration with BIFR / Rehabilitation Department of State Government shall also intimate DGFT with regard to relief sought for EPCG authorization, if any, within 30 days of receipt of application by agency concerned. DGFT, thereafter shall take up the matter with agency concerned to safeguard government interest on account of default in fulfillment of export obligation imposed on EPCG authorization obtained by such firm / companies. DGFT may consider such application for grant of period of extension upto 12 years or as per rehabilitation package prepared by operating agency and approved by BIFR board / state authority. 5.11.2 Waiver of EO may be considered where, because of force majeure or other unforeseen circumstances / reasons, exporter is unable to fulfill export obligation. Such requests shall be considered by a committee comprising representative(s) of DoC and DoR under DGFT. Decision of this committee shall be notified by DoR for implementation Export Obligation Shortfall 5.12 RA concerned may condone shortfall upto 5% in export obligation arising out of duty saved amount. Redemption 5.13 As evidence of fulfillment of export obligation, authorizationholder shall furnish application in ANF 5B with documents prescribed therein. (a) to (c) Deleted On being satisfied, RA concerned shall issue a certificate of discharge of export obligation to the EPCG authorization holder and send a copy to customs authorities with whom BG / LUT has been executed. RA shall ensure disposal of such applications within 30 days. Shortcomings, if any, shall be pointed out in one go. All correspondence, thereafter, shall relate to these deficiencies only. Fresh correspondence, if necessary, shall be within 15 days. Once documents are complete EO will be discharged within 30 days of receipt of complete documents / information. Process of issue of final discharge certificate / rejection shall be completed within a period of 90 days from date of receipt of initial request. Applications that remain outstanding beyond a period of 90 days shall be reported to DGFT alongwith reasons thereof, immediately thereafter. Regularisation of Bonafide Default 5.14 In case EPCG authorization holder fails to fulfill prescribed export obligation, he shall pay duties of Customs plus interest as prescribed by Customs authority. Such facilities can be availed by EPCG authorisation holder to exit at his option. Maintenance of Records 5.15 Every EPCG authorization holder shall maintain, for a period of 3 years from date of redemption, a true and proper account of exports / supplies made and services rendered towards fulfillment of export obligation. Re-Export of Capital Goods Imported Under EPCG Scheme 5.16 Capital Goods imported under EPCG scheme, which are found defective or unfit for use, may be re-exported back to foreign supplier within three years from the date of payment of duty on importation thereof with permission of RA / Customs Authority. Consequently, EO would be refixed. Replacement of Capital Goods 5.16.1 Capital Goods imported and found defective or otherwise unfit for use may be exported and Capital Goods in replacement thereof be imported under EPCG scheme. In such cases, while allowing export, Customs shall credit duty benefit availed which can be debited again at the time of import of such replaced Capital Goods. Penal Action 5.17 In case of failure to fulfill export obligation or any other condition of authorization, authorization holder shall be liable for action under FT (D R) Act, Orders and Rules made there under, provisions of FTP and Customs Act, 1962. Clubbing of EPCG Authorisations 5.18 Clubbing of two or more EPCG authorizations of same authorization holder would be permitted. 5.18.1 Deleted. 5.18.2 An application for clubbing can be made only to RA concerned in ANF 5D. Clubbing shall not be permitted in case authorisations issued by different RAs. (a) to (c) Deleted. 5.18.3 Total export obligation would be refixed taking into account total of duty saved or total of CIF value of imports. 5.18.4 On clubbing, authorizations for all purposes shall be deemed to be a single EPCG authorization. Export obligation period for clubbed authorization shall be reckoned from first authorization issue-date. However, in cases where clubbed CIF / duty saved value exceeds Rs 100 crore, no corresponding benefit of increase in export obligation period shall be admissible. 5.18.5 Average export obligation for clubbed authorizations would be highest of average export obligations endorsed on individual authorizations so clubbed. 5.18.6 No clubbing would be permitted after expiry of EOP. 5.18.7 The aforesaid provisions for Clubbing of EPCG Authorisations shall be applicable for authorisations issued on or after 1-4-2007. However, EPCG authorisations issued prior to 1-4-2007, shall be governed by provisions contained in Chapter 5 of HBP v1 (RE - 2006). Refixation of Export Obligation upon conversion from CIF based to duty based EO 5.19 (a) EPCG authorization holder can apply for refixation of export obligation as given in para 5.4 (i) of FTP in ANF 5C. (b) Deleted. (c) For all EPCG authorizations, authorization holder should have fulfilled mandated (original or amended) block wise export obligation, till previous block to application date. In all such cases, refixed export obligation would be computed as under: (% export obligation unfulfilled) x (8) x (duty saved on authorization issue-date) (d) Deleted. (e) There would be no change in average export obligation fixed or export obligation period of original authorization. (f) Deleted. Technological Upgradation of Capital Goods 5.20 Application for technological upgradation of the capital goods would be made in ANF 5A. Import of Refurbished/ Reconditioned Spares and Tools 5.21 Import of refurbished spares shall be permitted under EPCG Scheme. However such refurbished / reconditioned spares must have a residual life not less than 80% of life of original spare which would be certified by EPCG authorization holder. The tools imported under EPCG Scheme may be transferred to any of units or group companies of applicant. 5.22 Revalidation of authorizations issued under EPCG scheme shall not be allowed. ---------------------------- Note : 1. Has been substituted vide Public Notice No. 54 (RE-2007)/2004-2009 dated: October 1, 2007 before it was read as, "RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by applicant in Appendix 32A, issue EPCG authorization." 2. Has been substituted vide Public Notice No. 54 (RE-2007)/2004-2009 dated: October 1, 2007 before it was read as, "Authorisation holder shall produce to concerned RA a certificate from Jurisdictional Central Excise authority or an independent Chartered Engineer (CEC) confirming installation of Capital goods at factory premises of authorization holder or his supporting manufacturer(s)/ vendor(s) within six months from date of completion of import. In the case of import of spares, the installation certificate shall be submitted by the importer within a period of three years from the date of import." 3. Has been Deleted vide Public Notice No. 53 (RE-2007)/2004-2009 dated: September 27, 2007 before it was read as, "Wherever more than one EPCG authorisations are issued simultaneously or concurrently, fresh EPCG authorisation would build upon last average export obligation only, notwithstanding actual achievements." 4. Has been substituted vide Public Notice No. 54 (RE-2007)/2004-2009 dated: October 1, 2007 before it was read as, "Deleted" 5. Has been Deleted vide Public Notice No. 53 (RE-2007)/2004-2009 dated: September 27, 2007 before it was read as, "In case of an existing export obligation under EPCG scheme a fresh EPCG authorisation can only be issued provided average of last obligation (including increased amount due to duty saved in last EPCG) has been maintained." 6. Has been added vide Public Notice No. 79 (RE-2007)/2004-2009 dated: November 5, 2007 7. Has been added vide Public Notice No. 94(RE-2007) /2004-09 dated 1/1/2008 8. Has been added vide Public Notice No. 99 (RE-2007)/2004-2009 dated 8/1/2008