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DGFT Guru > EPCG Scheme: An Overview

EPCG Scheme: An Overview

The Export Promotion Capital Goods (EPCG) Scheme is a duty-free ( zero customs duty) Import of Capital Goods/ Machinery for manufacturing export products. The capital goods can be utilized/consumed for various stages such as production, pre-production, and post-production of goods. The scheme is also termed the zero-duty EPCG Scheme.

Businessmen generally compromised with the quality of the goods because of the heavy custom duties levied on the import of capital machinery for production requirements. The higher the price of machinery used to be, the higher was the custom duty. This functionality had an unfavorable impact on the competitiveness and quality of manufacturing industries.

The Government of India (GOI), considering the issues faced by the importers and exporters, issued the EPCG Scheme which allows the import of capital goods at zero customs duty. The EPCG Scheme facilitates the Import of Capital Goods/Machinery for manufacturing goods and services of high quality.

The EPCG Scheme aims to improvise and enhance India’s competitiveness and presence in the manufacturing sector.

Take a look at the numbers

Here’s the calculation under this scheme: Supposedly, you are planning to import capital goods under EPCG worth X and the Customs duty charged on it is Y then you have to export goods made out of that machinery worth 6Y under 6 years period in 2 block periods. 50% value of export should be done in the First Block which is for 4 years and the remaining 50% can be done in the remaining 2 years.

Let’s try with an example

You are or planning to be a T-shirt manufacturer and exporter and you wish to import it’s capital goods which can be stitching machines and Iron etc. worth Rs. 5 Lacs and it may attract an additional 10% customs duty i.e Rs. 50,000/-. After getting the EPCG license for the capital goods, the customs duty will be waived off at Indian customs during clearance.

Benefits of the EPCG Scheme

The EPCG intends to promote exports, heavy exporters can gain several benefits under the scheme. The Government of India instigated this scheme to provide incentives and financially support the exporters.

We would advise the exporters to not claim and expect to gain benefits under this scheme if they aren’t manufacturing in a large quantity. Those expecting to sell the produce entirely within the country should also not go ahead with this scheme because it would get difficult to fulfill the obligations mentioned in the EPCG Scheme.

EPCG License

The primary requirement for obtaining the EPCG License is filing an application with the licensing authority of the Directorate General of Foreign Trade (DGFT). The application must contain the required documents along with the company and its personal details attached to it.

Eligibility Criteria specific to categories

Eligibility criteria of capital goods under the EPCG Scheme

Capital goods that are allowed underneath the EPCG Scheme include spares (refurbished/ reconditioned), fixtures, jigs, tools, molds, and die. Second-hand capital goods are also eligible for import without any restriction on age under the EPCG Scheme.

This scheme, issued under the Foreign Trade Policy (FTP) allows technological up-gradation of the indigenous industry. The import of capital goods that are required for manufacturing products that are export-oriented and are notified under the EPCG Scheme are permitted at a concessional/nil rate of duty.

The EPCG Licenses are issued by the licensing authority of the DGFT on the basis of the certificate that is issued by an independent chartered engineer.

EPCG Scheme for Manufacturer Exporter

Under the Export Promotion Capital Goods (EPCG) Scheme, the manufacturer exporter is eligible to apply for the EPCG License. However, the capital goods imported under the EPCG Scheme come along with an actual user condition till the export obligation is fulfilled. The capital goods cannot be sold or transferred before the completion of the obligations.

The EPCG Scheme for Merchant Exporters

Merchant exporters tied with supporting manufacturers are eligible to apply for the EPCG License. The EPCG License must endorse the supporting manufacturer’s name and their factory address where the capital goods are to be installed. While discharging their export obligations, the merchant exporter must indicate the name and address of the supporting manufacturer in all his shipping documents like shipping bills, custom invoices, etc.

The EPCG Scheme for Service Providers

For reducing the capital cost, various service providers are also eligible for obtaining the EPCG License. Service exporters such as hotels, tour operators, logistics companies, construction companies, taxi operators, etc can utilize the EPCG Scheme for importing or procuring capital goods domestically duty-free.

The export obligation under the EPCG Scheme

The import of capital goods under the EPCG Scheme is subject to the export obligation which is equivalent to six times of duty saved, to be fulfilled within 6 years from the date of issuance of the EPCG authorization. If the holder of the EPCG License fails to meet the stipulated export obligation, the importer of capital goods is required to pay customs duties with interest as per the prescriptions.

Why the DGFT Gurus?

  • The aim is to provide reliable and effective strategies that can be structured only with an intense study and analysis. The DGFT Gurus have experience of over 30 years in the field, which enables them to combine experience with modern-day strategies to get optimum results.
  • We are available 24/7 at your service to make sure there’s no delay in the process.
  • We tend to enhance our knowledge and keep up with the updates about the latest notifications, circulars, amendments done in Foreign Trade Policy.
  • We also keep in touch and take regular follow-ups from the authorities to get things done in the least time possible.
  • Our consultancy advisors, with their proficiency in the field, would be by your side to give you a profitable outcome.

How Can DGFT Guru Help you with your EPCG License?

Our team will help you obtain the following EPCG Scheme Benefits from DGFT & Customs. To help you avoid future defaults and make a well-informed choice, DGFT Guru will first brief you on the EPCG scheme’s export requirement terms and circumstances. We will assist you in putting together the paperwork needed to apply for an EPCG license. We help you acquire the EPCG License from the DGFT. Instructions for the Client’s post-EPCG-Authorization compliance procedures and requirements. Getting an EPCG License Amendment, Revalidation, or EOP Extension. To get your Bond/BG released from Customs, you must first obtain a Redemption Letter from the DGFT RA.

When dealing with DGFT and Customs, the assistance of DGFT Guru Consultants is invaluable. We can help you with all the EPCG Scheme procedures as well, due to our experience of over ten years. We handle all the complicated processes in closing or redeeming your EPCG license and are the go-to DGFT consultant.

For all of your EPCG needs, DGFT Guru is the one-stop shop. As an added service, we will assist you in requesting an extension of your export obligation period under EPCG. We handle all the paperwork for you to ensure a hassle-free process. Please contact us immediately if you are looking for Export Obligation under the EPCG scheme.

As a result of DGFT Guru’s assistance, over a hundred clients have been granted DGFT EPCG Scheme benefits. To assist you in revalidating or amending your EPCG License, we guide you through the complex procedures involved. If you have any questions about the revalidation of your EPCG License, please contact us today.

DGFT Guru helps you with the paperwork and advises you on what you need to have on hand to receive a policy waiver against your EPCG license.  Applying to the EPCG committee would be easier with the Portal’s help. We coordinate with the issuing authority (the EPCG Committee) if they need any more information for you. Get in touch with us today to simplify all DGFT tasks.

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An exporter applying for EPCG should meet the following eligibility criteria:

  • The manufacturer exporter with no similar supporting exporters.
  • Merchant exporters who have supporting service providers or manufacturers.
  • A service provider with the certificate of CSP (common service provider).

The Directorate General of Foreign Trade (DGFT) provides this certificate to the service provider. However, there are certain conditions for the same:

  • The CSP shall fulfill the conditions of EO. They can see their EPCG authorization details in their shipping bills. The concerned regulatory body is informed about the CSP through the import-export entity exporting its respective goods.
  • The exporter with a CSP certificate exports goods and in exchange provides Bank Guarantee. This will act as the amount equal to customs duty saved.
  • Exports that do not meet the specific conditions of export obligations, as per the other EPCG authorizations of the concerned CSP.

An exporter holding an EGCP certificate is allowed to import goods required to manufacture products and export them at a custom duty of 0-3%. To avail of 0% customs duty, an exporter has to export 6 times of the amount saved on the duty of the raw materials. The capital goods should be imported within 6 years from the date of authorization.

Furthermore, to avail of 3% duty, the exporter has to undertake an export obligation of 8 times the duty saved on the import of capital goods over a period of 8 years.

The goods imported under EPCG will depend on the condition of the exporter. The goods cannot be sold or transferred until the export obligations are fulfilled.

The capital goods should be used in the process of manufacturing within 6 months of issuing these goods. However, you can apply for an extension of the time duration by the Deputy/Assistant Commissioner of Customs.

As an exporter before the import of any goods, you have to initially file a bond with or without any bank guarantee. For merchant exporters, the bank guarantee should be the same as 100% of the differential duty to fulfill export obligations. For manufacturer exporters, the value can be 25% of differential duty in order to fulfill export obligations. The bank guarantee will also secure the interest of the revenue.

The scheme offers incentives and financial support to the exporters.

This scheme is helpful for manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service provider(s); and service providers.

The scheme helps in promoting Indian goods in the International market. By exempting charges in some of the input goods or raw material the overall cost of the product to be exported decreases. Hence, the demand for Indian products increases.

An EPCG certificate is used by exporters or manufacturers to avail goods, i.e raw materials with 0-3% customs duty and produce quality products to export worldwide.

The EPCG scheme allows the up-gradation of technology in the export industry. The EPCG is issued by the Regional Licensing Authority of the Director-General of Foreign Trade. The authorizations are issued based on nexus certification granted by an independent chartered engineer.

As an import-export business owner, you can apply for an EPCG license from the authority in India i.e the director-general of foreign trade. To file the application you will need several documents. Below we have mentioned the list of documents you must have before filling:

You will require to submit the application form, the Ayat Niryat Form 5B (ANF 5B), and self-certified copies of:

  • Permanent Account Number (PAN) card
  • GST registration certificate
  • Digital Signature Certificate (DSC)
  • Registration cum Membership Certificate (RCMC)
  • Import Export Code (IEC)
  • Tourism department issued registration-certificate
  • Excise registration (if registered)
  • Proforma invoice
  • Chartered accountant certificate (along with original for verification)
  • Company brochure
  • Chartered engineer certificate (along with original for verification)