Extension of Export Obligation for First and Second Block in The EPCG Scheme
- Commercial Consultancy Counsel
- Nov 9, 2023
- 6 min read
Updated: Nov 28, 2024
The Export Promotion Capital Goods (EPCG) Scheme is a vital component of India's trade policy, designed to facilitate the import of capital goods for various industrial processes with the promise of zero customs duty.
This scheme, however, comes with crucial Export Obligations (EO) that require the licensee to export finished goods in adherence to these obligations.
The EPCG scheme has recently undergone some significant updates, particularly in terms of extending the obligations in its First and Second Blocks.
In this blog, we will delve into these changes, explore how the Export Obligation is calculated, and understand the mechanisms for extending the fulfillment period of these obligations.
But trying to navigate your way through the EPCG scheme can quickly turn into a maze where businesses can quickly get lost.
That’s why our team of expert consultants here at Commercial Consultancy Counsel is committed to helping your business take full advantage of the EPCG scheme.
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Introduction
What is The Validity of EPCG Authorisation under EPCG Scheme?
How is Export Obligation Calculate and What is Its Timeframe for Fulfilment?
What is Block-Wise Fulfilment of Export Obligation?
Can Period of Fulfilment of Export Obligation be Extended in First Block?
What is the Fee for First Block EO Extension?
What is the Time Period for Applying for Extension in the First Block?
Can the Licensee Submit Extension Request for the First Block Beyond Six Years?
Can the Period for Fulfillment of the Export Obligation of Second Block be extended
What is the Time Limit for Applying for the Extension in the Second Block?
Can the Licensee Submit Extension Request of the Export Obligation Period in Second Block after Eight Years?
Can the Validity of EO be Extended Beyond 8 Years?
But with every authorization comes a period of validity and the EPCG scheme is no exception to that.
Let’s understand the validity of EPCG authorization for imports in a better way in the next section.
2. What is the validity of EPCG Authorisation for Imports? Can it be extended?
EPCG Authorisation, issued under the EPCG Scheme, enables the import of capital goods for various stages of manufacturing, including pre-production, production, and post-production at zero customs duty.
Import under this Scheme shall be subject to an Export Obligation to be fulfilled by the Authorisation Holder/Licensee through the export of goods which are manufactured by him.
Importation of capital goods is permitted within a two-year period starting from the date of Authorisation issuance.
Extensions beyond the two-year period are not permissible.
Another crucial factor in obtaining EPCG authorization is the calculation of Export Obligation and being aware of the time required to meet the obligation.
We get into the details of this in the next section.
3. How is Export Obligation calculated under the Scheme and what is the timeframe for its fulfilment?
The EO requirement to be fulfilled by the Licensee shall be equivalent to six times the duties, taxes and Cess saved on the imported capital goods.
The obligation shall be fulfilled within six years from the date of issuance of the Authorisation.
Our team of experienced consultants can provide assistance in helping your business meet Export Obligations under the stipulated timeframe
Here’s how:
Now let’s get into the details of block-wise Export Obligation fulfillment and why it’s important for an Authorisation Holder/Licensee.
4. What is the Block-wise fulfillment of Export Obligation?
The Export Obligation under the Scheme shall be fulfilled by the Licensee in two blocks mentioned in the table below.
Period from the date of issue of Authorisation | Minimum export obligation to be fulfilled |
First Block- Block of 1st to 4th year | 50% |
Second Block- Block of 5th and 6th year | Balanced EO |
But there is a real possibility of missing the period of fulfillment during the First Block for a myriad of reasons.
This might make businesses curious whether they can request an extension on the period of fulfillment of their Export Obligations.
Let’s understand the compliances involved in requesting an extension in a bit more detail in the next section.
5. Can the period for fulfillment of the Export Obligation be extended in the First Block?
If the licensee fails to fulfill the 50% Export Obligation in the First Block, then he may submit a request for the extension of the Export Obligation period of the First Block to the Regional Authority.
This allows the licensee to fulfill the 50% obligation of the First Block in the Second block along with the 50% obligation of the Second Block.
Essentially it allows the licensee to fulfill 100% obligation in the Second Block itself.
Let Commercial Consultancy Counsel help you in your Export Obligation fulfillment journey during the First and Second blocks.
6. What is the fee for a First Block EO extension?
The Licensee is required to pay a composition fee of 2% of the duty saved amount proportionate to the unfulfilled portion of Export Obligation pertaining to the Block.
7. What is the time limit for applying for the extension in the First Block? What is the fee in case of a delayed request for an extension?
The Licensee is required to submit a request for the extension of the First Block within six months from the date of expiry of the First Block.
If the Licensee fails to submit a request to the Regional Authority within the prescribed timeline, then the Regional Authority may consider the request between the period of six months from the date of expiry of the First Block and six years from the date of issue of Authorisation with a late fee of ₹10,000/- per Authorisation.
The late fee is in addition to the composition fee of 2% as covered in the previous section of the Blog.
Let Commercial Consultancy Counsel help you manage the extension request process for Export Obligation in the First Block for your business.
8. Can the Licensee submit a request for an extension for the First Block beyond six years?
An application for extension of the First Block made after six years shall be considered by the Regional Authority, with an additional fee of ₹5,000/- for each year of delay per Authorisation.
This facility is for regularisation purposes only in respect of exports of the shortfall of First Block made in the Second Block.
The late fee is in addition to the composition fee of 2% as mentioned in Section 6 of the Blog.
9. Can the period for fulfillment of the Export Obligation of Second Block be extended?
If the Licensee fails to fulfill the Export Obligation in the Second Block, he may submit a request for the extension of the Export Obligation period of the Second Block beyond the period of six years.
The Regional Authority may consider only two extensions (from the date of expiry) of one year each on payment of composition fee of 2% of proportionate duty saved on unfulfilled Export Obligation for each year of extension.
However the minimum composition fee shall be ₹10,000/-.
Want to manage the extension request process for Export Obligation in the Second Block for your business?
Here’s how Commercial Consultancy Counsel can help you:
10. What is the time limit for applying for the extension in the Second Block? What is the fee in case of a delayed request for an extension?
The Licensee is required to submit a request for the extension of the Second Block within six months from the date of expiry of the Second Block/ original Export Obligation period.
If the Licensee fails to submit a request to the Regional Authority within the prescribed time limit, then the Regional Authority may consider the request submitted after six months but within the extended EO period with a late of ₹10,000/-.
The late fee is in addition to the composition fee of 2% as mentioned in Section 6 of the Blog.
11. Can the Licensee submit a request for an extension of the Export Obligation period (Second Block) after eight years?
An application for an extension made after the eight-year period shall be considered by the Regional Authority, with an additional fee of ₹15,000/- for delay of each year per Authorisation.
However, this request is only considered for the purpose of regularization of exports made between the 6th and 8th year. The late fee is in addition to the composition fee of 2% as mentioned in Section 6 of the Blog.
Requesting for an extension after eight years of the Second Block is bound to get complicated due to extensive and lengthy regulations.
Navigate those regulations with Commercial Consultancy Counsel.
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12. Can the validity of EO be extended beyond 8 years?
If the Licensee fails to meet the Export Obligation within the extended period, i.e. within 8 years, he shall not be allowed to submit a request to seek further extension beyond 8 years.
13. Conclusion
In the world of international trade, understanding the intricacies of import and export obligations is paramount.
The EPCG Scheme plays a crucial role in the facilitation of capital goods importation in India.
With the recent amendments to the fulfillment periods of the Export Obligations in the First and Second Blocks, it's essential for licensees to stay informed and compliant.
By exploring the possibilities of extension, the payment of necessary fees, and adhering to the prescribed timelines, businesses can leverage these changes for their trade benefits.
Compliance and understanding the nuances of trade policies are key to harnessing the potential of the EPCG Scheme.
We at Commercial Consultancy Counsel are committed to making your EPCG compliance journey as smooth as possible.
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