EXPORT PROMOTION CAPTIAL GOODS SCHEME (EPCG)

The scheme was introduced by Sh. P. Chidambaram Ministry of commerce in 1990 to allow import of capital goods at low Custom duty. This scheme has helped in boosting exports in the initial years of introduction when the customs duty on capital goods were very high. This scheme has primarily helped exporters to become more competitive as it reduces the initial cost on capital goods .

EPCG scheme EPCG scheme allows import of capital goods for pre production, production and post production (including CKD / SKD thereof as well as computer software systems) at 5% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled in 8 years reckoned from Authorization issue date In case of agro unit, units in cottage or tiny sector. SSI unit - to be completed EO period in 6 years. It is subject to actual user condition till export obligation is completed.

The scheme allows following items which are freely importable as per ITC (HS) classification:Capital goods (Plant, machinery, equipment, accessories) Second hand capital goods (without any restriction on age) Catalyst for initial charge Refractory's for initial lining. Refrigeration equipments Power generating sets . Machine Tools Equipment & instrument for testing, research and development, quality & pollution control. Spares for existing plant & machinery ( imported earlier) Catalyst for replacement.

Eligibility Manufacture, Mining, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture & viticulture Merchant exporter with mentioning details of supporting manufacture Service Provider.

Along with digital application, the importer shall approach their RLA with following details : Source of material with specification and catalogue. Nexus certificate from an independent chartered Engineer (CEC).

In case of second hand capital goods : Inspection certificate from an independent chartered Engineer from listed agencies as per Appendix 5. In case of initial charge catalyst :suppliers confirmation letter In case of spares :List of plant & machinery (for which spares are required) duly certified from Chartered engineer or jurisdictional CE authorities. If the duty saved amount of Rs. 50 Cr and more, the applicant may apply to DGFT HQ directly with a copy endorsed to RLA.

The license specifies the value of resultant export product to be exported. The license is valid for 36 months and further extension is not applicable. EO shall be fulfilled by export of goods , manufactured / services rendered by the EPCG holder. Manufacture / merchant exporter can be fulfilled EO with the help of importing CG. Service Provider should fulfill EO by earning FFE through rendering services.

Export obligation under the scheme shall be over & above the average level of exports achieved by him in the preceding three licensing years for the same & similar products within the overall export obligation period including extended period. Such average would be the arithmetic mean of export performance in the last 3 years for the same & similar products. Provided that premier trading house (PTH) shall have option of fixing average level of export based on arithmetic mean of export performance in the last 5 years instead of 3 years.

Let us say: Average Export Duty saved amount = Rs. 20 crores = Rs. 10 crores

The EO is in addition to maintaining the annual average for the same or similar product. If your average is Rs. 20 crores & duty saved amount is Rs. 10 crores, your total obligation would be as under: contd

Contd..
To be completed in 8 years.
a) Average export * 8 ( 20 * 8) b) 8 times the utilized duty saved amount (10*8) Total 160 crore 80 crore

240 crore

Average to Additional be maintain EO Year (in crore) 1 2 3 4 5 20 20 20 20 20 40 (in crore) Total export 22 15 21 30 31

Offered towards annual average (in crore) 20 20 20 20 20

Offered towards additional EO (in crore) 2 (5) 6 10 11

20

35 Total

20 120

15 44

From the previous table you will understand that average has to be discharged first & whatever exports you do additionally those exports would be counted towards discharge of additional Export Obligation.

Years 1 2 3

Total export effected by you ( In crore) 30 30 50

Calculations

Amount

Average 4 years (20*4) 75% of additional EO ( 75% of 80 crore)

80 crore 60 crore

50 140 Total 140 crore

If your Export Obligation discharged as previous table, you can redeem your case in the 5th year itself.

1st Extension up to 2 years: Subject to pay of composition fees of 2% of the total duty saved. OR An enhancement in EO imposed to the extent of 10% of the total EO.

2nd Extension up to 2 years:

Subject to condition that 50% of duty payable in proportion to the unfulfilled EO is paid by the Authorization holder to the Customs Authorities before an endorsement of extension is made on the EPCG Authorization by the RLA.

In case the firm is still not able to complete the EO, the duty already deposited will be deducted from the total duty + interest too be paid for EO default. Waiver of EO may be considered where, because of force measures or other unforeseen circumstances/reasons which are beyond the control of the exports like steep fall in international prices, technological obsolescence, etc. & the exporter is unable to fulfill EO. Such request shall be considered by a committee comprising representative(s) of DOC & DOR under DGFT. Decision of this committee shall be notified by DOR for implementation.

Suppose you complete entire Rs. 240 crore in first 6 years, you will not be required to maintain annual average subsequently. There is also another provision where if you export 75% of your total export in 4 years or less than 4 years (including average) you will not have to complete balance 25%.

Up to 50% export obligation can be fulfilled by exports of other goods manufactured or services provided by the same firm or group companies/managed hotel, which has the EPCG Authorization. However, in such cases, additional export obligation imposed shall be over & above average exports achieved by the unit companies/group companies managed hotel in preceding 3 years for both the origioanl & the substitute products/services.

Shipments under advance Authorization, DFRC, DFAI, DEPB, Drawback Scheme or Incentive Schemes under chapter 3 of FTP; would also count for fulfillment of EPCG Export Obligation.

Exports made to farmer USSR or to such countries as notified by DGFT shall be counted for fixing average level of exports. Royalty payments received in freely convertible currency & foreign exchange received for R&D services can be counted for discharge under the EPCG scheme.

Duty saved amount Duty saved amount calculation = Merit duty (inclusive of Basic duty + CVD + cess on CVD + SAD+ Edu.cess etc) Less :- EPCG duty

Export obligation 8 times duty saved amount over a period of 8 years (i.e. duty saved amount X 8 times = EO fulfilled ) Average Exports :- Average level exports to be calculated simple arithmetic mean of past 3 years export performance.

Discharge of Exports obligation EO may also be fulfilled by exports of good produced by group company Shipment under Advance License, DEPB, DBK & DFIA would also counted with mentioning EPCG license no. & date Supplies to indigenous customer (Deemed exports) counted towards discharge of EO. Exports proceeds shall be realized in FFE except for deemed exports.

Indigenous sourcing of capital goods EPCG holder intending to source CG indigenously, shall request RLA to grant invalidation either along with application or after issuance of EPCG license.

Automatic Pro-rata enhancement & reduction Up to 10% of CIF value / duty saved amount of EPCG license is allowed. Customs shall automatically allow clearance of goods in excess up to 10% of CIF value / duty saved amount without endorsement of concerned RLA.

In cases where authorization holder has fulfilled 75% or more of the export obligation under the scheme (including average level of exports) in half or less then half the original export obligation period specified in the authorization, the remaining export obligation is condoned & the authorization redeemed by the licensing authority concerned.

As evidence of fulfillment of export obligation, the Authorization holder will have to furnish the documents as prescribed in ANF5B. ANF5B.doc

Redemption of EPCG License Along with Application form of Aayat Niryat the following to be submitted:Import utilization statement duly certified from CA Copy of BRC Shipping bill & Bill of Entry Original EPCG License Consolidated statement of EO completed duly certified by CA Bankers Bank certificates Statement of average EO completed duly certified by CA & Bankers Installation certificate (In case of CG / spares) / consumption certificate (in case of spares tools) duly certified by CE / Jurisdictional C.E.

In case of failure to fulfill the export obligation or any other condition of the Authorization, the Authorization holder shall be liable for penal action under the Foreign Trade (Development & Regulation) Act 1992, the orders & rules made there under, the provisions of FTP & the Customs Act 1962.

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 authorization holder to exist at his option.

Installation certificate to be submitted to RLA from jurisdictional. C.E authorities or an independent chartered engineer confirming installation of CG at factory premises with in six months from the date of import whereas in case of spares the certificate to be submitted with in 3 years time from the date of import.

Two or more EPCG license of same holder would be permitted. Clubbing shall not be permitted in case of license issued by different RLA. No clubbing would be permitted after expiry of EOP.

Miscellaneous EPCG holder shall submit to RLA by 30th April of every year, report of EO. RLA may issue partial EO fulfillment certificate proportionate adequate to fulfillment of export obligation. Every EPCG holder should maintain record up to 3 years from the date of redemption. CG imported under EPCG scheme, which are found defective, may be re-exported is permitted within three years from the date of payment of duty with permission of RLA/ Customs. Accordingly EO would be refixed.