What is the Simplified Process of the EPCG Scheme in India?

The Export Promotion Capital Goods (EPCG) Scheme plays a crucial role in simplifying the import of capital goods to enhance the manufacturing of high-quality products and boost India's export competitiveness.

Under the EPCG scheme, businesses can import capital goods needed for various stages of production—before, during, and after production—without having to pay customs duty.

EPCG Scheme (Export Promotion Capital Goods Scheme)

The Export Promotion Capital Goods (EPCG) Scheme is designed to assist importers engaged in export-oriented businesses. Under this scheme, these businesses can import capital goods without paying customs duties. However, there's a requirement for the company to meet an export target equivalent to six times the amount of duty saved on imported capital goods within six years from the issuance of the authorization.

In simpler terms, the business must generate foreign currency earnings equal to 600% of the duty saved on imported goods, measured in domestic currency. This needs to be achieved within six years of their use of the EPCG Scheme.

Export Promotion Capital Goods refer to capital goods used to produce goods intended for export. This includes machinery and spare parts. Therefore, to qualify as Export Promotion Capital Goods, the goods manufactured in India must be exported outside the country.

Approved Capital Goods in the EPCG Scheme

The Export Promotion Capital Goods Scheme permits the importation of capital goods, including spares (including reconditioned/refurbished), fixtures, jigs, tools, moulds, and dies. Additionally, second-hand capital goods can be imported without age restrictions under this scheme.

Under the Foreign Trade Policy (FTP) initiative, the importation of capital goods necessary for manufacturing export-oriented products specified in the Export Promotion Capital Goods Authorization is allowed at concessional or nil duty rates. This policy facilitates the technological advancement of the domestic industry.

Export Promotion Capital Goods (EPCG) Authorizations are granted by the Director General of Foreign Trade (DGFT) based on certification from an independent chartered engineer.

Benefits of the EPCG Scheme

The EPCG aims to boost exports, and the Indian Government extends incentives and financial assistance to exporters through this scheme. This provision is particularly advantageous for heavy exporters.

However, it's not recommended for those who do not anticipate manufacturing in large quantities or solely intend to sell domestically, as meeting the obligations of this scheme could become challenging.

Process to Register for EPCG Scheme in India

To obtain a License under the EPCG scheme, it is essential to submit an application to the licensing authority, the Director General of Foreign Trade. The application must include the necessary documents along with company and personal details.

Documents Required for EPCG License

The issuing authority for the EPCG License is the Director General of Foreign Trade (DGFT). ANF 5B form must be completed, accompanied by self-certified copies of the following documents:

• Import Export Code (IEC)

• Registration cum Membership Certificate (RCMC)

• Digital signature

• Registration certificate from the Tourism Department

• PAN Card

• Excise Registration (if applicable)

• GST Registration Certificate

• Proforma Invoice

• Brochure

• Self-certified copy and original Certificate of Chartered Accountant

• Self-certified copy and original Certificate of Chartered Engineer

Export Obligation Under the EPCG Scheme

The importation of capital goods under the EPCG scheme is subject to an export obligation equivalent to six times the duty saved. This obligation must be fulfilled within six years from the date of issue of the EPCG authorization.

Failure to meet the export obligation necessitates the importer of the capital goods to pay customs duties along with the prescribed interest.

How do you obtain an EPCG License in India?

To acquire an EPCG License, one must submit an application to the appropriate authority, typically the Director General of Foreign Trade (DGFT), accompanied by relevant documentation detailing company and personal backgrounds. The application should also include a comprehensive history of the company.

The approval of the license depends on the extent of import duty exemption sought, with a corresponding commitment to meet export obligations. In instances where the specified export targets cannot be met within the designated time frame, requesting an extension from the licensing authority may be possible.

Once the export obligations have been fulfilled, any goods manufactured can be sold domestically and internationally. Therefore, businesses must prioritise fulfilling export commitments before capitalising on local market advantages.

The EPCG scheme offers exporters various financial incentives and import duty exemptions, particularly for procuring machinery used in manufacturing goods destined for foreign markets. While this presents an initial monetary investment, the long-term benefits of such machinery gradually accumulate over time.

In addition to the import duty exemptions, the government provides financial support to exporters, contingent upon their commitment to meet export targets within stipulated timelines. Thus, The EPCG scheme is a valuable tool for exporters and importers seeking to benefit from import duty exemptions while contributing to foreign exchange earnings.

Key Points to Remember

• Extension of Time Limit: Extensions to the time limit are only granted in exceptional cases where exporters can provide sufficient evidence demonstrating that factors beyond their control prevented them from meeting the deadline.

• Penalty for Non-Compliance: Failure to meet the export obligations under the EPCG scheme results in the licensee being liable to pay customs dues and a 15% annual interest to the customs authority.

• Selling Goods in the Domestic Tariff Area (DTA): Exporters fulfilling their export obligations within the specified deadline can sell goods there.

• Exemption from IGST & Compensation Cess under the EPCG Scheme: Merchant exporters are typically required to pay IGST and later claim a refund. However, under Notification No. 54/2015-20 issued by the DGFT, IGST, and Compensation Tax exemptions under the EPCG Scheme have been extended until October 1, 2018. This extension provides much-needed relief to exporters facing challenges obtaining refunds under the GST regime.