The Export Promotion Capital Goods scheme (EPCG) is an initiative by the Government of India and is a part of the Foreign Trade Policy (FTP) 2015-20. It was first operationalised on 1 April 2015 and under this scheme, capital goods imported for the manufacture of export products enjoy zero or concessional rates in the customs duty. The imported capital goods include spare parts for production i.e. pre and post-production. The scheme also covers merchant exporters associated with supporting manufacturers, manufacturer exports with/without supporting vendors/manufacturers, and designated service providers or a certified Common Service Provider (CSP).
The EPCG scheme allows upgradation of technology in the exports industry and the Regional Licensing Authority of Director General of Foreign Trade issues the EPCG authorisations. The authorisations are issued based on nexus certification granted by an independent chartered engineer.
Features of the EPCG scheme
- The authorisation holder of the EPCG is allowed to import capital goods at a customs duty of 0% or 3%. The 0% customs duty requires the authorisation holder to undertake export obligation amounting to 6 times of the amount saved on duty on the capital goods. The capital goods should be imported within a 6-year period from the authorisation issue date. For 3% duty, the authorisation holder needs to undertake export obligation of 8 times the duty saved on the import of capital goods over a period of 8 years.
- The capital goods imported under the EPCG scheme will depend on the actual user condition and until the export obligation is fulfilled, the imported goods cannot be sold or transferred.
- The installation of capital goods and its usage in production should be done within 6 months but can be extended by the Deputy/Assistant Commissioner of Customs.
- The authorisation holders under the EPCG scheme need to file a bond with or without bank guarantee with the customs before the import of capital goods. The bank guarantee should be equivalent to 100% of the differential duty (for merchant exporters) and 25% (for manufacturer exporters) to fulfill the specified export obligation. The bank guarantee will also secure the interest of the revenue.
- Under the EPCG scheme, exports failing to meet the export obligations can take advantage of schemes like Advance Authorisation, Drawback, Duty Free Import Authorisation (DFIA), etc. along with reward schemes like Focus Product Scheme (FPS), Focus Market Scheme (FMS), Vishesh Krishi and Gram Udyog Yojana (VKGUY), etc.
- Second-hand goods of any nature will not be permitted under the EPCG scheme.
Capital Goods that can be imported at 0% Customs Duty
Any machinery, plant, equipment or accessories required for manufacturing, production, or rendering services qualify as capital goods and includes the below:
- Computer Software Systems
- Spares, dies, moulds, fixtures, jigs, and tools and refractories for initial lining
- Catalysts for initial charge and an additional subsequent charge
- Capital goods as defined in the Foreign Trade Policy - Any plant, equipment or accessories, or machinery required to produce or manufacture (either directly or indirectly) goods or for rendering services. It includes refrigeration equipment, packaging machinery and equipment, machine tools, power generating sets, instruments and equipment for research and development, testing, quality and pollution control. Capital goods can be used in mining, manufacturing, animal husbandry, agriculture, aquaculture, floriculture, pisciculture, horticulture, sericulture, poultry, etc.
Capital goods that have been imported for projects as notified by the Central Board of Excise and Customs are also entitled to receive benefits under the EPCG scheme.
Capital Goods that are not permitted under EPCG scheme
Under the EPCG scheme, licence will not be issued for the import of the below-mentioned capital goods:
- Captive Plants
- Power Generation sets of any kind
- Supply of Electrical Energy (Power) under deemed exports
- Export of Electrical Energy (Power)
- Export/Supply of Electricity Transmission Service
- Use of Power (Energy) in their own unit
Export Obligations under the EPCG scheme
To import capital goods at 0% customs duty under the EPCG scheme, the below-given export obligations need to be complied with:
- The authorisation holder has to fulfil the export obligation for exporting goods manufactured or services rendered by him/her provided that he/she has been issued the EPCG authorisation.
- The export obligation should be above the average export level attained by the applicant in the previous 3 licencing years for similar products. The average export level should be within the overall export obligation period and such export average will be the arithmetic mean of the performance of the export in the above-mentioned period.
- Shipments under Drawback schemes, Advance authorisation, DFIA, or reward schemes also need to comply with the export obligations.
- The export obligation also needs to be fulfilled by deemed exports.
- If the authorisation holder receives royalty payments in foreign or freely convertible currency for R&D services, he/she is required to fulfill the export obligations.
The export obligation will be relaxed in the following cases:
- Reward for early fulfilment - If the authorisation holder has complied with the respective export obligation by 75% or above, the rest of the export obligation will be excused. This also applies to compliance of export obligation by 100% of the average till date, in half or below half of the specified export obligation.
- Decreased export obligation for green technology products - The export obligation in case of green technology products will be relaxed to 75% of the export obligation.
- Minimised export obligation for North East Region and Jammu & Kashmir - The states of Tripura, Arunachal Pradesh, Manipur, Nagaland, Assam, Sikkim, Meghalaya, Mizoram, and J&K will have the export obligation reduced to 25%.