EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME UNDER NEW FOREIGN TRADE POLICY

[Mr. M. GOVINDARAJAN]

Chapter 5 of the Foreign Trade Policy 2015-2020 deals with the EPCG scheme.  The objective of this scheme is to facilitate import of capital goods for producing quality goods and services to enhance India’s export competitiveness.

Capital goods

The following are the capital goods for the purpose of this scheme:

• Capital goods as defined in Chapter 9 including in CKD/SKD condition thereof. The term ‘capital goods’ is defined as any plant, machinery, equipment or accessories required for manufacture or production, either directly or in directly, of goods or for rendering services, including those required for replacement, modernization, technological up gradation or expansion. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control.  Capital goods may be for use in manufacturing, mining, agriculture, animal husbandry, floriculture, horticulture, pisciculture,  poultry, sericulture and viticulture as well as for use in services sector;
•  Computer software systems;
• Spaces, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare refractories; and
• Catalysts for initial charge plus one subsequent charge.

EPCG Scheme

• This scheme allows import of capital goods for pre production, production and post production at zero customs duty;
• The Authorization holder may also procure capital goods from indigenous sources.  A person holding an EPCG authorization may source capital goods from a domestic manufacturer. Such domestic manufacture shall be eligible for deemed export benefit.  Such domestic sourcing shall also be permitted from EOUs.  These supplies shall be counted for the purpose of fulfillment of positive net foreign exchange  by said EOU  as provided in Para 6.09 (a)  of FTP;
• Import of capital goods for project imports notified by Central Board of Excise and Customs is also permitted;
• Import shall be subject to an export obligation equivalent to 6 times of duty and on capital goods, to be fulfilled in 6 years reckoned from the date of issue of Authorization;
• Authorization shall be valid for import for 18 months from the date of issue of authorization;
• Revalidation of authorization shall not be permitted;
• In case of countervailing duty is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided CENVAT is not availed;
• Second hand capital goods shall not be permitted to be imported under this Scheme;
• Authorization shall not be issued for import of any capital goods, including plants and power generator sets of any kind, for

• Export of electrical energy;
• Supply of electrical energy under deemed exports;
• Use of power in their own unit; and
• Supply/export of electricity transmission services;

• Import of items which are restricted for import shall be permitted under this scheme only after approval from Exim Facilitation Committee at DGFT headquarters;
• If the goods proposed to be export under this scheme are restricted for export, the authorization shall be issued only after approval for issuance of export authorization from Exim Facilitation Committee.

Coverage of the scheme

The scheme covers the manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers,.  The name of the supporting manufacturer(s) shall be endorsed on the authorization before installation of the capital goods in the factory of the supporting manufacturer(s). If there is any change the Regional Authority shall intimate such change to jurisdictional Central Excise Authority of existing as well as changed supporting manufacturer(s) and the Customs at port of registration of authorization.

The scheme also covers a service provider who is designated or certified as a Common Service Provider(CSP) by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation of a Town of Export Excellence subject to the following conditions:

• Export by users of the common service, to be counted towards fulfillment of export obligation of the CSP shall contain EPCG authorization details of the CSP in the respective shipping bills and concerned Regional Authority must be informed about the details of the Users prior to such export;
• Such export will not count towards fulfillment of specific export obligations in respect of other EPCG authorization; and
• Authorization holder shall be required to submit bank guarantee equivalent to the duty saved. Bank guarantee can be given by CSP or by any one of the users or a combination thereof, at the option of CSP.

Condition

Import of capital goods shall be subject to Actual User condition till export obligation is completed.

Export Obligation

The following are the conditions to be fulfilled for export obligations:

• EO shall be fulfilled by the authorization holder through export of goods manufactured him or his supporting manufacturers/services rendered by him, for which authorization has been granted;
• It shall be 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 EO period including extended period, if any, except for categories mentioned in para 5.13 (a) of Hand book of procedures.  Such average would be the arithmetic mean of export performance in the preceding three licensing years for same and similar products;
• In case of indigenous sourcing of capital goods, specific EO shall be 25% less than the EO stipulated;
• Shipments under advance authorization, Duty Free Import Authorization, draw back scheme or reward schemes would also count for fulfillment of EO;
• The export shall be physical. Deemed exports shall also be counted towards fulfillment of export obligations;
• It can also be fulfilled by the supply of ITA-1 items to DTA provided realization is in free foreign exchange;
• Royalty payments received in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge;
• Payment received in rupee terms for such services notified in Appendix 3E shall also be counted towards discharge of export obligation.

Calculation of EO

Export obligation shall be reckoned with reference to actual duty saved amount in case of direct imports. It shall be reckoned with reference to notional customs duties saved on FOR value in case of domestic sourcing.

Incentive for EO

Where authorization holder has fulfilled 75% or more of specific export obligation and 100% of average export obligation, till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the authorization redeemed by Regional Authority concerned. No benefit shall be permitted where incentive for early EO fulfillment has been availed.

Reduced EO

For the exports of the Green Technology products, EO shall be 75% of EO as stipulated. There shall be no change in average EO imposed, if any. The list of Green Technology Products is given in Para 5.29 of HBP.

For the units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and J&K, specific EO shall be 25% of the EO as stipulated.  There shall be no change in average EO imposed.

Units under BIFR/Rehabilitation

A company holding EPCG authorization and registered with BIFR/Rehabilitation Department of a State Government or any firm/company acquiring a unit holding authorization which is under BIFR/Rehabilitation may be permitted the EO extension as per rehabilitation package prepared by operating agency and approved by BIFR/Rehabilitation Department. If time period up to which extension is to be granted is not specially mentioned in the BIFR order, the extension of 3 years from the date of Export obligation period (including extended period)or the date of NIFR order, whichever is later, shall be granted without payment of composition fee.

Post Export EOCG Duty Credit Script(s)

The Post Export EPCG duty credit script(s) shall be available to exporters who intend to import capital goods on full payment of applicable duties in cash and choose to opt for this scheme. Basic customs duty paid on capital goods shall be remitted in the form of freely transferable duty credit scrip(s).

Specific EO shall be 85% of the applicable specific EO under this scheme. Average EO shall remain unchanged. Duty remission shall be in proportion to the EO fulfilled.  All provisions for utilization of scrips shall also be applicable to Post Export EPCG Duty Credit Scrip(s). All the provisions of the existing scheme shall apply insofar as they are not inconsistent with this scheme.

Discussions to this article

[Deepak Birla .]

Sir,

You have explained the EPCG Scheme very thoroughly through this article.I have a query regarding EPCG Scheme:

1) I am a manufacturer having two plants (say A and B)

2) A avails the EPCG scheme only in their name and install the the capital good in their factory.

3)Finished goods manufactured from A using the Capital Goods imported through EPCG is sent to factory of B.

4) Now B process on the goods supplied by A and ultimately export the finished goods.

5)Both A and B have the same IEC Code.

6)How will A fulfill its Export Obligation?

Thanks and Regards

Deepak