Export Promotion Capital Goods (EPCG) - Scheme, Objectives, Issuance and Redemption

The Export Promotion Capital Goods (EPCG) Scheme is a crucial initiative defined under Chapter 5 of the Foreign Trade Policy (FTP). It plays a significant role in enhancing India's manufacturing competitiveness by enabling the import of capital goods at zero customs duty.

This guide aims to explain the objectives, issuance, redemption, and other key aspects of the EPCG scheme, assisting exporters in leveraging its full benefits.

What is the EPCG Scheme?

The EPCG Scheme allows the import of capital goods (pre-production, production, and post-production) at zero customs duty. For physical exports, Integrated Goods and Services Tax (IGST) and Compensation Cess are also exempted.

Objectives of the EPCG Scheme

The primary objective of the EPCG Scheme is to facilitate the import of capital goods to produce high-quality goods, thereby enhancing India’s manufacturing competitiveness.

Eligible Goods Under the EPCG Scheme

The following items qualify as capital goods under the EPCG Scheme:

• Capital goods as defined in Chapter 11, including in CKD/SKD condition.

• Computer systems and software, which are part of the imported capital goods.

• Spares, moulds, jigs, fixtures, tools, and refractories.

• Catalysts for initial and subsequent charges.

Note: A negative list exists for items that cannot be imported under this scheme (Appendix 5F of the Handbook of Procedures).

Who Can Apply for the EPCG Scheme?

• Manufacturer Exporters (with or without supporting manufacturers)

• Merchant Exporters tied to supporting manufacturers

• Service Providers

What is meant by Actual User Condition?

The imported capital goods must be used only by the importer until the export obligation is completed, and the Export Obligation Discharge Certificate (EODC) is granted.

EPCG Authorization Validity

• For Imports: 24 months from the issue date. No revalidation is allowed.

• For Exports: 6 years, extendable up to 8 years under specific conditions.

Export Obligation (EO) Under the EPCG Scheme

The Specific Export Obligation is set at six times the duties, taxes, and cess saved on the imported capital goods. For instance, if the duty saved is ₹10 lakhs, the EO will be ₹60 lakhs. Additionally, the Average Export Obligation (AEO) is the mean of the export performance over the previous three financial years for similar products.

Conditions for Fulfilment:

• The EO must be fulfilled through direct or third-party exports using the imported capital goods.

• Export documents must mention the names of both the manufacturer and the exporter.

Domestic Procurement Under EPCG Scheme

EPCG Authorization holders can also procure capital goods domestically using an Invalidation Letter or Advance Release Order (ARO). If capital goods are sourced domestically, the EO is reduced to 75% of the obligation, while AEO remains the same.

Early Fulfilment of Export Obligation

If 75% or more of the specific EO and 100% of the AEO are fulfilled in half or less of the original EO period, the remaining EO is waived.

Reduced EO for Special Cases

• Green Technology Products: 75% of the EO, with AEO remaining the same.

• Northeastern States and Jammu & Kashmir: 25% of the EO, with AEO unchanged.

Green Technology Products Include:

• Solar and wind energy systems

• LED lights

• Water treatment plants

• Battery Electric Vehicles (BEV), among others.

Application Process for EPCG Authorization

Eligible exporters can apply for EPCG Authorization using Form ANF 5A. The application can be made from any registered office, branch, or manufacturing unit, provided the address is listed in the Import Export Code (IEC).

Nexus Certification

A Nexus Certificate, issued by an independent Chartered Engineer, is crucial. It confirms the connection between the imported capital goods and the exported products/services.

Clubbing of EPCG Authorizations

For provisions related to clubbing, refer to other guides specifically focused on clubbing of EPCG authorizations.

Export Obligation Discharge Certificate (EODC)

After completing the EO, the authorization holder must apply for the EODC in Form ANF 5B. Upon verification, the Regional Authority (RA) will issue the EODC.

Non-Utilization and Shortfall in EO Fulfilment

• Non-Utilization: Authorization holders can surrender their authorization without penalty if no imports are made.

• Shortfall: Proportionate customs duties and interest must be paid for unfulfilled export obligations.

Record Maintenance

Authorization holders must maintain export records for two years after receiving the EODC.

Conclusion

The EPCG Scheme is a powerful tool that allows Indian exporters to enhance production capabilities by importing capital goods at reduced costs. By understanding and following the scheme's provisions, exporters can maximise their benefits, contributing to India’s growth in global trade.

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