EPCG Scheme | Export Promotion Capital Goods Scheme 2019 – Beginner’s Guide

What is EPCG scheme? (Export Promotion Capital Goods Scheme)?

In one line the Export Promotion Capital Goods Scheme (EPCG Scheme) can be explained as “Duty-Free (Zero Customs Duty) Import of Capital Goods/Machinery for the manufacture of products meant for Export”.

The Capital Goods may be used for production, pre-production & post-production stages of goods.

We are all well aware of the heavy custom duties companies have to pay on the Capital machinery imported for the production requirements, due to which businessmen usually compromise with the quality of the goods.

The higher the price of the Machinery used to be, higher was the custom duty and this functionality started affecting the competitiveness & quality of manufacturing industries deeply.

To improve this situation The Government of India came up with the EPCG License in order to obtain that you need to understand EPCG License procedure.

Where it was allowed to import capital goods at zero customs duty. EPCG Scheme was introduced by the Government of India to facilitate Import of Capital Goods/Machinery for producing high-quality goods and services.

The main aim of the EPCG Scheme is to improve India’s competitiveness in the manufacturing sector.

Type of Capital Goods/Machinery eligible for Import under the EPCG Scheme?

• All the capital goods including semi-knocked down and complete knocked down conditioned goods.
• All the software and computer systems included in the capital goods that are imported.
• Molds, spares, jigs, dies, tools, fixtures, and refractories.
• Catalysts for initial charge along with one subsequent charge.

Eligibility Criteria for applying under EPCG Scheme?

EPCG Scheme can be applied by any Exporter irrespective of his turnover. EPCG License can be issued to the following category of Exporters:

• Manufacturer Exporter.
• Merchant Exporter with a supporting manufacturer.
• Service Provider (who is exporting services) For Example. Hotel Industry

Duties Exempted under EPCG Scheme?

Capital Goods under EPCG Scheme can be imported at zero customs duty. However, it must be noted that IGST and Compensation cess is exempted only up to 31.03.2020.

The Government may extend the date through a notification issued from time to time. Capital Goods under EPCG Scheme can also be procured from indigenous sources (i.e from domestic suppliers).

In such cases, applicable GST for the supply would be exempted.

Export Obligation under EPCG Scheme

Export Obligation under EPCG Scheme is of two types i.e. Average Export Obligation & Specific Export Obligation.

• Export Obligation under EPCG Scheme should only be fulfilled by the export of goods manufactured from the Imported Machinery.
• What is the Average Export Obligation? – It is the most important of the two export obligation under the EPCG Scheme. It basically means that the Average turnover maintained in past 3 years before obtaining the license should be maintained for each FY until the specific export obligation is not completed. It is imposed with a view that after upgradation and induction of new machinery, the overall export should not fall below the past average of turnover achieved i.e. there should be a continuous rise in the export turnover with the help of new machinery. It is to be maintained over and above the specific export obligation.
• What is Specific Export Obligation? – Goods manufactured from the imported machinery to be exported worth 6 times of the duties, taxes, and cess saved on the capital goods within 6 years from the date of issue of EPCG Authorisation. In the case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than the above Export Obligation.
• If the required Export Obligation is not fulfilled in 6 years, one extension of 2 years can be obtained, based on case to case basis. If the EPCG Authorisation holder fails to achieve the Export Obligation (even after extension), the Organisation has to pay all the Custom Duties, Cess, taxes, saved plus 15% annual interest to the Customs Authority.
• The Export obligation can be fulfilled by direct exports, deemed exports, supply to SEZ, EOU Units, etc., Third Party exports, service exports in case of service providers.

Documents Required for EPCG License

The following documents will be required for EPCG Online Application:

• Proforma Invoice/Purchase order of the Capital Goods/Machinery.
• Copy of IEC, RCMC, MSME & Central excise registration & GST Certificate.
• Details of Capital Goods sought to be imported with HSN code/Name, Model Number and Technical Description.
• List of Product to be exported using above machinery with HSN code.
• Chartered Engineer Certificate showing the nexus between the Capital Goods and the products to be Exported.
• CA Certificate indicating Last three financial year turnover in USD & INR only for the above mentioned Export Products.
• Factory Address where the machine will be installed.
• Stepwise Process/Flow Chart indicating the stages where the capital goods are to be used.
• End-use of Capital Goods for Export products and stage where and how to be used. (Detailed Explanation).