Export Promotion Capital Goods Scheme

EPCG scheme aims to facilitate the import of capital goods with the purpose to produce good quality merchandise and service and improve India’s competitiveness in manufacturing. For this purpose, the imported capital goods are exempted from customs duty. The export obligation for the scheme is six times the duties, taxes, and cess saved on capital goods.

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One of the schemes offered by the government under the Foreign Trade Policy, 2015-20 is the Export Promotion Capital Goods (EPCG) Scheme. The scheme aims to facilitate the import of capital goods with the purpose to produce good quality merchandise and service and improve India’s competitiveness in manufacturing.

As per Chapter 5 in the FTP 2015-20, “EPCG Scheme allows import of capital goods for pre-production, production, and postproduction at zero customs duty”. Under the scheme, the capital goods imported for the production of physical exports are also exempted from Integrated Goods and Services Tax (IGST) and compensation cess up to 30 March 2020. The scheme includes capital goods as per the definition in Chapter 9 of FTP 2015-20:

“Capital goods means any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological upgradation 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.”

Furthermore, spares, and computer systems and software, also fall under the capital goods category.  Other than this, the import of the capital goods under the Project Imports are also exempted from duties/taxes under the policy. Import of the restricted items is permitted under the EPCG scheme after the approval of the Exim Facilitation Committee (EFC). Similarly, the product proposed to be exported under the scheme will receive EPCG authorization after the approval of EFC, if the product falls under the category of restricted exports.

The actual user condition shall also be met by the imported capital products till the completion of Export Obligation (EO) and issuance of Export Obligation Discharge Certificate (DGFT).

Coverage of scheme

The scheme covers manufacture exporters without any supporting manufacture, manufacture exporters with supporting manufacture, merchant exporters associated with supporting manufacturers and service providers. The scheme also covers Common Service Provider (CSP), where CSP is a service provider designated by Directorate General of Foreign Trade (DGFT), State Industrial Infrastructure Corporation, or Department of Commerce in a Town of Export Excellence.

Export Obligation (EO)

The EO is equal to six times the duties, taxes, and cess that are saved on the capital goods. The EO needs to be fulfilled within six years from the issue date of authorization.  The authorization shall remain valid for imports for 18 months from the issue date of authorization. Some of the other points that should be noticed in EOs are as follows:

• Revalidation of the scheme is not permitted.
• EO needs to be fulfilled by the applicant by means of exporting the goods manufactured by him or the supporting manufacturer, or services provided by him, for which authorization under EPCG has been received.
• EO shall be in addition to the average level of exports that has been achieved by the applicant in the past three years for the same or similar products.
• Reduced EO in case of the capital goods that have been indigenously sourced and for green technology products.
• Reduced EO for the unit that is located in North East Region and Jammu & Kashmir.
• Shipments in scheme AA, DFIA, drawback, or reward scheme shall also count for the accomplishment of EO under the EPCG scheme.

Post Export EPCG Duty Scrips

Post-export EPCG duty credit scrips would be available for those exporters who intend to import the capital goods on full payment and then choose to opt for the EPCG scheme. The specific EO shall be 85% of the applicable specific EO under the EPCG scheme whereas the average EO shall be unchanged. All the provisions under the EPCG scheme shall be applicable under the post export EPCG duty scrips.