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Chapter - 5 Export Promotion Capital Goods EPCG Scheme.


CHAPTER-5

EXPORT PROMOTION CAPITAL GOODS ( EPCG) SCHEME

Policy 5.1 Policy relating to EPCG Scheme is given in Chapter 5 of FTP.
Application Form5.2An application for grant of an authorization, upto Rs.50 Crore of duty saved amount may be made to RA concerned in ANF 5A along with documents prescribed therein.
Consideration of Applications5.3For cases wherein duty saved amount is above Rs. 50 crores, applicant may apply to DGFT Headquarters directly with a copy endorsed to concerned RA. In such cases, concerned RAs will issue EPCG authorisation according to directions from DGFT.
5.3.1  RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 32A, issue EPCG authorisation and thereafter forward a copy of the EPCG authorisation to the concerned Jurisdictional Central Excise Authority. (This Para replaced by DGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)

[Old - RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by applicant in Appendix 32A, issue EPCG authorization.]
5.3.2Authorisation holder shall produce to the concerned RA a certificate from the Jurisdictional Central Excise Authority, confirming installation of Capital goods at factory premises of authorization holder or his supporting manufacturer(s)/ vendor(s) within six months from date of completion of import. In the case of import of spares, the installation certificate shall be submitted by the Authorisation holder within a period of three years from the date of import. However, in case of units not registered with Central Excise Authorities, the Authorisation holder shall produce to the concerned RA, a certificate from an independent Chartered Engineer confirming the said installation of Capital goods / spares. (This Para amended by DGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)

[Old - Authorisation holder shall produce to concerned RA a certificate from jurisdictional Central Excise authority or an independent Chartered Engineer (CEC) confirming installation of Capital goods at factory premises of authorization holder or his supporting manufacturer(s) vendor(s) within six months from date of completion of imports.  In the case of import of spares, the installation certificate  shall be submitted by the importer within a period of three years from the date of import. (This is added in this para by DGFT PUBLIC NOTICE NO.:22 (RE-2007)/2004-2009 Dated 17-07-2007. ]
5.3.3EPCG authorization shall be issued with a single port of registration mentioned in paragraph 4.19 of HBP v1 for imports. However, exports can be made from any port specified in paragraph 4.19.
5.3.4
  1. An applicant may also apply for import of spares, tools, spare refractories and catalyst as are required for installation and maintenance of capital Goods.

    Application shall contain list of plant / machinery installed in factory / premises of applicant for which spares, tools, spare refractories and catalyst are required, duly certified by Chartered Engineer or Jurisdictional Central Excise authorities.

    In such cases EPCG authorization shall not specify list of spares but shall indicate:-
    1. Name of plant / machinery for which spares are required.
    2. Value of duty saved allowed under authorization.
    3. Description of product to be exported with value of export obligation as per FTP.
  2. Deleted
  3. Further at the time of final redeemption of export obligation, authorization holder shall submit certificate from Independent Chartered Engineer confirming use of spares tools, spare refractories and catalyst so imported in the installed capital goods on the basis of stock & consumption register maintained by authorization holder.
Conversion of EOU Relocated SEZ / Units to EPCG5.4An EOU / a relocated SEZ unit may apply for an EPCG authorization in ANF alongwith documents prescribed therein. Scheme “No Objection Certificate” should be produced from concerned DC.
Indigenous Sourcing of Capital Goods5.5EPCG authorization holder intending to source capital goods indigenously, either alongwith application or after issuance of EPCG authorisation, shall request to RA for invalidation of EPCG authorization for direct import / issue of ARO, alongwith name and address of source person of the capital goods.
5.5.1RA concerned will issue such invalidation letter / ARO, in duplicate.
5.5.2Indigenous manufacturer intending to supply capital goods to EPCG authorization holder may apply to RA in ANF for issuance of Advance authorization for import of inputs including components required for manufacture of capital goods to be supplied to EPCG authorization holder.
5.5.3Deleted
Leasing of Capital Goods 5.6An EPCG authorization holder may, source capital goods from a domestic leasing company. In such cases, the Bill of Entry of imported capital goods or commercial invoice of indigenous capital goods, shall be signed jointly by EPCG authorization holder and leasing company. However, EPCG authorization holder shall alone be fully responsible for fulfillment of export obligation.
Condition for Fulfilment of Export Obligation5.7In addition to conditions mentioned in paragraph 5.4 of FTP following conditions shall also be applicable for fulfillment of export obligation.
5.7.1EPCG authorisation holder shall export either directly or through third party(s). If a merchant exporter is EPCG authorisation holder, name of supporting manufacturer shall also be indicated on shipping bills. At the time of export, EPCG authorisation No. and date shall be endorsed on shipping bills which are proposed to be presented towards discharge of export obligation.
5.7.2Export to SEZ Units/ Supplies to Developers/Co-developers, irrespective of currency of realization, would also be counted for discharge of Export Obligation. (This para is amended byDGFT PUBLIC NOTICE No.: 94 (RE-2007) /2004-09, Dated 01-01-2008)

[Old-Export proceeds shall be realised in freely convertible currency except for deemed exports.]
5.7.3 Deleted.
5.7.3.1 Supplies made to Oil and Gas sector also may be counted towards discharge of export obligation against an EPCG Authorisation provided it has been issued on or before 31.3.2000 and no benefit under paragraph 8.3 of FTP has been claimed on such supplies.
5.7.4Additional Export Obligation (over and above indicated average) for all previous EPCG licences, which have not been redeemed, will be indicated separately. (This Para amended byDGFT PUBLIC NOTICE No.: 99 (RE-2007) /2004-09, Dated 08.01.2008)

[Old-Exports made to former USSR or to such countries as notified by DGFT shall not be counted for fixing average level of exports.]
5.7.5Exports under EPCG scheme shall also be entitled for benefits under Chapter 4 of FTP.
5.7.6In case of export of goods relating to handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture shall not be required to maintain average level of exports.

Goods excepting tools imported under EPCG scheme by such sectors shall not be allowed to be transferred for a period of five years from date of imports even in cases where export obligation has been fulfilled. However, transfer of capital goods would be permitted within the group companies or managed hotels under intimation to RA and jurisdictional Central Excise Authority in case of manufacturer/merchant exporters and to RA only in case of Service providers.
5.7.7Deleted.
5.7.8Deleted
Condition for Fulfilment of Export Obligation
(This Para Amended byDGFT PUBLIC NOTICE NO.:53 (RE-2007)/2004-2009, Dated 27-09-2007.).
Wherever more than one EPCG authorisations are issued simultaneously or concurrently, fresh EPCG authorisation would build upon last average export obligation only, notwithstanding actual achievements.(This Para 5.7.8 has been Deleted by DGFT 
5.8 The Authorisation holder under the EPCG scheme shall fulfill the export obligation over the specified period in the following proportions:
Period from the date of issue                          Minimum export obligation to
of Authorisation                                             be fulfilled
Block of 1st to 6th year                                   50%
Block of 7th and 8th year                                  50%
(This Para amended byDGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)

[Old - Deleted.]
5.8.1 In respect of Authorisations, on which the value of duty saved is Rs.100 crore or more, the export obligation shall be fulfilled over a period of 12 years in the following proportion:-

Period from the date of issue                              Minimum export obligation to
of Authorisation                                                     be fulfilled
Block of 1st to 10th year                                        50%
Block of 11th and 12th year                                   50%
(This Para amended byDGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)
[Old- Deleted. ]
 5.8.2However, the export obligation of a particular block of year may be set off by the excess exports made in the preceding block of year. The Authorisation holder would intimate the regional authority on the fulfillment of the export obligation as well as average exports within three months of completion of the block, by secured electronic filing using digital signatures. (This Para amended byDGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)
 5.8.3Where export obligation of any particular block of years is not fulfilled in terms of the above proportions, except in such cases where the export obligation prescribed for a particular block of year is extended by the competent authority, such Authorisation holder shall, within 3 months from the expiry of the block of years, pay duties of customs (alongwith applicable interest as notified by DoR) of an amount equal to that proportion of the duty leviable on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation. (This Para amended byDGFT PUBLIC NOTICE No.54(RE-2007)/2004-2009, Dated 01-10-2007.)
5.8.4EPCG Authorisations issued upto 31.3.2000 shall be governed by provisions laid down in paragraph 6.11 in HBP v1 (RE-99). Notwithstanding the same in HBP v1 (RE-99), authorisation holder shall not have to surrender Special Import licence in case of value wise shortfall.

Authorisations issued from 1st April, 2000 upto 31st March, 2002 shall be governed by provisions of Chapter 6 of HBP v1 (RE-01) as amended from time to time.

Authorisations issued from 1st April, 2002 upto 31st August, 2004 shall be governed by provisions of para 5.8 of HBP v1 (RE-02) as amended from time to time. However, provision of clubbing even in case of old licences would be as per current provision of para 5.18 of this Handbook.
5.8.5Deleted.
5.8.6Deleted
Condition for Fulfilment of Export Obligation
((This Para Amended byDGFT PUBLIC NOTICE NO.:53 (RE-2007)/2004-2009, Dated 27-09-2007.).

In case of an existing export obligation under EPCG scheme a fresh EPCG authorisation can only be issued provided average of last obligation (including increased amount due to duty saved in last EPCG) has been maintained. (This Para 5.7.8 has been Deleted by DGFT 
Monitoring of Export Obligation 5.9.1Authorization holder shall submit to RA concerned by 30th April of every year, report on fulfillment of export obligation. Such report shall also be submitted electronically on DGFT website. RA concerned may issue partial EO fulfillment certificate, provided export performance is proportionately adequate to fulfillment of export obligation.
Automatic Reduction / Enhancement upto 10% of CIF value and Prorata Reduction / Enhancement in Export Obligation5.10If authorization issued has actually been utilized for import of a value in excess upto 10% of CIF value / duty saved amount of authorization, authorization shall be deemed to have beenenhanced by that proportion. Customs shall automatically allow clearance of goods in excess upto 10% of authorization value / duty saved amount without endorsement by concerned RA.

In such cases, authorization holder shall furnish additional fee to cover excess imports effected in terms of CIF value / duty saved amount to RA concerned within one month of excess imports taking place. Export obligation shall automatically stand enhanced proportionately.
5.10.1Similarly, if EPCG authorization holder has utilised authorization less than the value earmarked in authorization, his export obligation shall stand reduced on prorata basis with reference to actual utilisation of authorization.
Extension of Export Obligation Period5.11Concerned RA, may consider one or more request for grant of extension in export obligation period, on payment of composition fee of 2% of total duty saved under authorization or an enhancement in export obligation imposed to the extent of 10% of total export obligation imposed under authorization, as the case may be, at the choice of exporter, for each year of extension sought. Such extension can be for a maximum period of 2 years.

Extension in EO period beyond two years’ period available above, may be considered, for a further extension upto 2 years with a condition that 50% of duty payable in proportion to the unfulfilled export obligation is paid by authorization holder to Custom authorities before an endorsement of extension is made on EPCG authorization by RA concerned. In such cases, no composition fee is to be paid or additional EO is to be imposed as prescribed in the Para above. In case the firm is still not able to complete the export obligation duty already deposited will be deducted from total duty plus interest to be paid for EO default.

Extension in export obligation period shall also be subject to such terms and conditions as may be prescribed by competent authority.
5.11.1The firm / company, which is applying for registration with BIFR / Rehabilitation Department of State Government shall also intimate DGFT with regard to relief sought for EPCG authorization, if any, within 30 days of receipt of application by agency concerned.

DGFT, thereafter shall take up the matter with agency concerned to safeguard government interest on account of default in fulfillment of export obligation imposed on EPCG authorization
obtained by such firm / companies.

DGFT may consider such application for grant of period of extension upto 12 years or as per rehabilitation package prepared by operating agency and approved by BIFR board / state authority.
5.11.2Waiver of EO may be considered where, because of force majeure or other unforeseen circumstances / reasons, exporter is unable to fulfill export obligation. Such requests shall be considered by a committee comprising representative(s) of DoC and DoR under DGFT. Decision of this committee shall be notified by DoR for implementation.
Export Obligation Shortfall 5.12RA concerned may condone shortfall upto 5% in export obligation arising out of duty saved amount.
Redemption5.13As evidence of fulfillment of export obligation, authorization holder shall furnish application in ANF 5B with documents prescribed therein.

(a) to (c) Deleted.

On being satisfied, RA concerned shall issue a certificate of discharge of export obligation to the EPCG authorization holder and send a copy to customs authorities with whom BG / LUT has been executed.

RA shall ensure disposal of such applications within 30 days. Shortcomings, if any, shall be pointed out in one go. All correspondence, thereafter, shall relate to these deficiencies only. Fresh correspondence, if necessary, shall be within 15 days. Once documents are complete EO will be discharged within 30 days of receipt of complete documents / information.

Process of issue of final discharge certificate / rejection shall be completed within a period of 90 days from date of receipt of initial request. Applications that remain outstanding beyond a period of 90 days shall be reported to DGFT alongwith reasons thereof, immediately thereafter.
Regularisation of Bonafide Default5.14In case EPCG authorization holder fails to fulfill prescribed export obligation, he shall pay duties of Customs plus interest as prescribed by Customs authority. Such facilities can be availed by EPCG authorisation holder to exit at his option.
Maintenance of Records5.15Every EPCG authorization holder shall maintain, for a period of 3 years from date of redeemption, a true and proper account of exports / supplies made and services rendered towards fulfillment of export obligation.
Re-Export of Capital Goods Imported Under EPCG Scheme5.16Capital Goods imported under EPCG scheme, which are found defective or unfit for use, may be re-exported back to foreign supplier within three years from the date of payment of duty on importation thereof with permission of RA / Customs Authority. Consequently, EO would be refixed.
Replacement of Capital Goods5.16.1Capital Goods imported and found defective or otherwise unfit for use may be exported and Capital Goods in replacement thereof be imported under EPCG scheme. In such cases, while allowing export, Customs shall credit duty benefit availed which can be debited again at the time of import of such replaced Capital Goods.
Penal Action5.17In case of failure to fulfill export obligation or any other condition of authorization, authorization holder shall be liable for action under FT(D&R) Act, Orders and Rules made there under, provisions of FTP and Customs Act, 1962.
Clubbing of EPCG authorizations5.18Clubbing of two or more EPCG authorizations of same authorization holder would be permitted.
5.18.1Deleted.
5.18.2An application for clubbing can be made only to RA concerned in ANF 5D. Clubbing shall not be permitted in case authorisations issued by different RAs.
(a) to (c) Deleted.
5.18.3Total export obligation would be refixed taking into account total of duty saved or total of CIF value of imports.
5.18.4On clubbing, authorizations for all purposes shall be deemed to be a single EPCG authorization. Export obligation period for clubbed authorization shall be reckoned from first authorization issue-date. However, in cases where clubbed CIF / duty saved value exceeds Rs 100 crore, no corresponding benefit of increase in export obligation period shall be admissible.
5.18.5Average export obligation for clubbed authorizations would be highest of average export obligations endorsed on individual authorizations so clubbed.
5.18.6No clubbing would be permitted after expiry of EOP.
 5.18.7The aforesaid provisions for Clubbing of EPCG Authorisations shall be applicable for authorisations issued on or after 1-4-2007. However, EPCG authorisations issued prior to 1-4-2007, shall be governed by provisions contained in Chapter 5 of HBP v1 (RE - 2006).
(This para is inserted by DGFT Public Notice No.:79(RE-2007)/2004-2009, Dated
5th, November, 2007)
Refixation of Export Obligation upon conversion from CIF based to duty based EO5.19
  1. EPCG authorization holder can apply for refixation of export obligation as given in para 5.4 (i) of FTP in ANF 5C.
  2. Deleted.
  3. For all EPCG authorizations, authorization holder should have fulfilled mandated (original or amended) block wise export obligation, till previous block to application date. In all such cases, refixed export obligation would be computed as under:

    (% export obligation unfulfilled) x (8) x (duty saved on authorization issue-date )
  4. Deleted.
  5. There would be no change in average export obligation fixed or export obligation period of original authorization.
  6. Deleted.
Technological Upgradation of Capital Goods5.20Application for technological upgradation of the capital goods would be made in ANF 5A.
Import of Refurbished / Reconditioned Spares and Tools5.21Import of refurbished spares shall be permitted under EPCG Scheme.

However such refurbished / reconditioned spares must have a residual life not less than 80% of life of original spare which would be certified by EPCG authorization holder.

The tools imported under EPCG Scheme may be transferred to any of units or group companies of applicant.
5.22Revalidation of authorizations issued under EPCG scheme shall not be allowed.

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