Chapter - 5 Export Promotion Capital Goods (EPCG) Scheme Policy and Application Form Conversion of EOU and Goods,Leasing of Capital Goods.

CHAPTER 5

EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME

5.01 Policy

Policy relating to EPCG Scheme is given in Chapter 5 of FTP.

5.02 Application Form

An application for grant of an authorisation may be made by Registered Office or Head Office or a Branch Office or Manufacturing Unit of an eligible exporter to RA concerned in ANF 5A along with documents prescribed therein.

5.03 Nexus Certification

(a) RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 5A, issue EPCG authorisation. Reasonable wastage, if any, anticipated at the time of installation of capital goods will also be certified by the Chartered Engineer in the nexus certificate and the same would be mentioned in the condition sheet of the EPCG authorisation at the time of issue.

(b) RA shall thereafter forward a copy of the EPCG authorisation to the concerned Jurisdictional Central Excise Authority. The wastage so permitted at the time of issuance of authorisation would be allowed to be sold as scrap/waste on payment of applicable duty.

5.04 Certificate of Installation of Capital Goods

(a) Authorization holder shall produce, within six months from date of completion of import, to the concerned RA, a certificate from the jurisdictional Central Excise Authority or an independent Chartered Engineer, at the option of the authorisation holder, confirming installation of capital goods at factory/premises of authorization holder or his supporting manufacturer(s). The RA may extend the said period for producing the certificate by a maximum period of another 12 months. Where a unit registered with Central Excise opts for independent Chartered Engineer’s certificate, the authorisation holder shall send a copy of the certificate to the jurisdictional Central Excise Authority as intimation/record.

(b) In the case of import of spares, the installation certificate shall be submitted by the Authorization holder within a period of three years from the date of import.

5.05 Port of Registration

EPCG Authorisation shall be issued with a single port of registration as per paragraph 4.37 of HBP, for imports. However, exports can be made from any port specified in paragraph 4.37 of HBP.

5.06 Import of spares, tools, refractories and catalysts

(a) Applications for procurement of capital goods covered under sub- paragraphs (a) (iii) and (iv) of paragraph 5.01 of FTP shall contain a list of plant/machinery installed in factory/premises of the applicant for which such capital goods are required, duly certified by Chartered Engineer or Jurisdictional Central Excise Authorities.”

(b) In case of import of spares, EPCG authorisation shall not specify list of spares but shall indicate:

(i) Name of plant /machinery for which spares are required. (ii) Value of duty saved allowed under the authorisation.

(iii) Description of product to be exported and value of export obligation.

(c) Authorisation holder shall maintain a register of stock & consumption of capital goods covered under sub-paragraphs (a) (iii) and (iv) of paragraph 5.01 of FTP imported under the scheme and at the time of final redemption of export obligation, authorization holder shall submit certificate from independent Chartered Engineer confirming their use in the installed capital goods on the basis of such register.

5.07 Conversion of EOU/ Relocated SEZ Units to DTA Unit under EPCG Scheme

(a) An EOU/ a relocated SEZ unit, while converting to a DTA Unit, may apply for an EPCG authorisation alongwith documents prescribed.

‘No Objection Certificate’ should be produced from the concerned

Development Commissioner.

(b) The export obligation period for a unit which converts from EOU / SEZ Scheme to EPCG Scheme would be the same as is available to a direct EPCG Authorisation Holder as per Paragraph 5.01 of Foreign Trade Policy (FTP).

(c) If a standalone EOU / SEZ unit wishes to de-bond from EOU to EPCG Scheme, there shall be no requirement for maintenance of average export obligation and the unit shall be required to maintain only specific export obligation equivalent to six times of the proportionate duty saved amount of the depreciated value of capital goods for which the Authorisation has been obtained.

(d) In case one unit of a firm / company opts to de-bond from EOU to EPCG Scheme, while other unit(s) are DTA units, then the average export obligation in respect of the authorisations issued to the firm / company (other than de-bonding unit) shall remain unchanged and the average EO, after de-bonding of the unit, shall be fixed by excluding the exports made by the de-bonded unit from the total exports of the firm / company, which runs concurrently for all the units of the firm / company. In such a case, specific EO equivalent to six times of the proportionate duty saved amount on the depreciated value of the Capital Goods would be imposed on the de-bonding unit shifting to the EPCG Scheme.

5.08 Sourcing of Capital Goods Manufactured Indigenously

(a) EPCG authorisation holder intending to source capital goods manufactured indigenously shall make a request to the RA for invalidation of EPCG authorisation for direct import / issuance of Advance Release Order (ARO) for availing deemed export benefits as given in paragraph 7.03 of FTP read with paragraph 7.02(c) of HBP.

(b) This request can be made either alongwith application or during the validity period of EPCG Authorisation.

(c) Applicant shall give the name and address of the manufacturer(s) of capital goods.

(d) RA concerned will issue the invalidation letter / ARO, in quadruplicate.

5.09 Issuance of Advance authorisation for import of inputs

Indigenous manufacturer intending to supply capital goods to EPCG authorisation holder may apply to RA for issuance of Advance authorisation for import of inputs including components required for manufacture of capital goods to be supplied to EPCG authorisation holder.

5.10 Conditions for fulfilment of Export Obligation

In addition to conditions in paragraph 5.04 of FTP, the following conditions shall also be applicable for fulfilment of export obligation:

(a) Name of the supporting manufacturer as well as the exporter shall be indicated on export documents.

(b) EPCG authorisation holder may export either directly or through third party(ies).

(c) In case the Authorization Holder wants to export through a third party, export documents viz., shipping bills / Bill of exports etc. shall indicate name of both authorization holder and supporting manufacturer, if any, along with EPCG authorization number. BRC, GR declaration, export order and invoice should be in the name of third party exporter. The goods exported through third party should be manufactured by the EPCG Authorisation Holder or the supporting manufacturer where the capital goods imported under the authorisation have been installed.

(d) The EPCG authorization holder shall submit the following additional documents for discharge of EO through third party (ies):

(i) A copy of agreement entered into between the authorization holder and the ultimate exporter undertaking to export the goods manufactured by the authorization holder/supporting manufacturer for fulfilment of the export obligation against the EPCG authorization in question.

(ii) Proof of having despatched the goods from authorization Holder’s factory premises to the ultimate exporter/port of export viz. (a) ARE-1 Certificate issued by Central Excise with due authentication by the Customs verifying the exports along with the shipping bill number, date and EPCG authorization number (b) Invoice duly incorporating the relevant EPCG authorization number & date at the time of dispatch.

(iii) Lorry Receipt (LR) /Logistical evidence for transportation of goods from the premises of the authorization holder to the third party/port of export.

(iv) An undertaking from the 3rd party on a stamp paper, declaring that the products exported for fulfillment of EO by them on behalf of the license holder as per details given in the statement of exports, were manufactured by the license holder.

(v) Financial evidence for having received proceeds through normal banking channel from third party exporter’s account to the authorization holder’s account towards such third party supplies.

(vi) Disclaimer certificate from third party that they shall not use such proceeds towards EO fulfillment of any EPCG authorization (s) obtained by them.

5.11 Realization of Export proceeds

Export proceeds shall be realized in freely convertible currency except for deemed exports. Exports to SEZ units /Supplies to developers/ co- developers irrespective of currency of realization, would also be counted for discharge of Export Obligation. Realization in case of supplies to SEZ units shall be from foreign currency account of the SEZ unit.

5.12 Calculation of Average Export Obligation

While calculating Average Export Obligation, exports counted/being counted for fulfilling specific EO against EPCG Authorisations within valid EO Period (whether original or extended) that have been made in the preceding 3 years will not be taken into account.

5.13 Exemption from maintenance of average export obligation

(a) In case of export of goods relating to the following the EPCG authorisation holder shall not be required to maintain average export obligation:

(i) Handicrafts, (ii) Handlooms,

(iii) Cottage & Tiny sector,

(iv) Agriculture,

(v) Aqua-culture (including Fisheries), Pisciculture, (vi) Animal husbandry,

(vii) Floriculture & Horticulture, (viii) Poultry,

(ix) Viticulture, (x) Sericulture, (xi) Carpets, (xii) Coir, and (xiii) Jute

(b) However, this exemption from maintenance of average export obligation shall not be allowed for import of fishing trawlers, boats, ships and other similar items.

(c) Goods, excepting tools imported under EPCG scheme by sectors specified in sub-paragraph (a) above, 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.

5.14 Block-wise Fulfilment of EO

(a) The Authorisation holder under the EPCG scheme shall, while maintaining the average export obligation, fulfill the specific export obligation over the prescribed block period in the following proportions:

(b) The Authorisation holder would intimate the Regional Authority on the fulfilment of the export obligation, as well as average exports, within three months of completion of the block, by secured electronic filing using digital signatures.

(c) Where EO of the first block is not fulfilled in terms of the above proportions, except in cases where the EO prescribed for first block is extended by the Regional Authority subject to payment of composition fee of 2% on duty saved amount proportionate to unfulfilled portion of EO pertaining to the block, the Authorization holder shall, within 3 months from the expiry of the block, pay duties of customs (along with applicable interest as notified by DOR) proportionate to duty saved amount on total unfulfilled EO of the first block.

(d) (i) Authorisations issued from 1st April, 2002 upto 31st August, 2004 shall be governed by provisions of paragraph 5.8 of HBP Vol. 1 (RE- 02) as amended from time to time.

(ii) Authorisations issued from 1st September, 2004 upto 17th April, 2013 shall be governed by provisions of paragraph 5.8 of HBP Vol. 1 (RE-12) as amended till 17.04.2013.

(iii) Authorisations issued from 18th April, 2013 till issue of Notification of FTP 2015-20 shall be governed by provisions of paragraph 5.8 of HBP Vol. 1 as amended through PN No. 1 dated 18.04.2013.

5.15 Monitoring of Export Obligation

Authorisation holder shall submit to RA concerned by 30th April of every year, report on fulfilment of export obligation by secured electronic filing using digital signatures. RA concerned may issue partial EO fulfilment certificate, provided export performance is proportionately adequate for fulfilment of export obligation.

5.16 Automatic Reduction/ Enhancement upto 10% Duty saved amount and pro rata Reduction/ Enhancement in export obligation

If authorization issued has actually been utilized for import of goods: –

(a) in excess of duty saved amount indicated on the authorization by not more than 10%, the authorization shall be deemed to have been enhanced by that proportion. Customs shall automatically allow clearance of such goods without endorsement by RA concerned. The authorization holder shall furnish additional fee to cover excess imports effected, in terms of duty saved amount, to RA concerned, within one month of excess imports taking place. Export obligation shall automatically stand enhanced proportionately.

(b) in excess of duty saved amount indicated on the authorization by more than 10%, the RA concerned, as per its delegated powers, may

allow enhancement in duty saved amount of the EPCG authorization. The Authorisation holder shall furnish additional BG/LUT to the Customs Authority.

(c) less than the duty saved amount indicated on the authorization, the export obligation shall stand reduced on pro-rata basis with reference to actual utilization of the authorization.

5.17 Extension in Export Obligation Period

(a) Extension in Export Obligation Period of EPCG authorization issued prior to Notification of FTP 2015-20 shall be governed by relevant provisions of HBP Vol 1 applicable on the date of issue of authorisation.

(b) In case of zero duty EPCG Authorizations, only one extension of upto 2 years in export obligation period may be considered by RA concerned, on payment of composition fee equal to 2% of proportionate duty saved amount on unfulfilled export obligation for each year of extension or an enhancement in export obligation imposed to the extent of 10% of total export obligation imposed under authorization for each year of extension, as the case may be, at the choice of the exporter.

(c) Request for extension in EO Period shall be made to RA within 75 days from the date of expiry of original EO Period.

(d) Extension in export obligation period shall also be subject to such terms and conditions as may be prescribed by competent authority.

5.18 Provision for Units under BIFR/Rehabilitation

(a) An EPCG Authorisation holder, while 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.

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

5.19 Relief in Average Export Obligation

(a) To provide relief to exporters of those sectors where total exports in that sector/product group has declined by more than 5% as compared to the previous year, average export obligation for the year may be reduced proportionate to reduction in exports of that particular sector/product group during the relevant year as against the preceding year. However, in case export decline is continuous over consecutive years, the base year for calculation of eligibility and calculation of reduction in average export obligation will be taken as the year after which the exports have shown continuous decline.

(b) The sectors /product groups for which this relaxation is to be allowed shall be conveyed by the DGFT to all the RAs within seven months of the end of the previous financial year, and the RAs shall re- fix the annual average EO for previous year accordingly for exporters in that sector / product group.

5.20 Automatic EO extension in the event of ban on export product

Whenever a ban/restriction is imposed on export of any product, export obligation period in respect of EPCG authorisations already issued prior to imposition of ban on such export products would stand automatically extended for a period equivalent to duration of such ban, without any composition fee. Authorisation holder would not be required to maintain average E.O. as well for the ban period.

5.21 Export Obligation Shortfall

RA concerned may condone shortfall upto 5% in specific export obligation.

5.22 Redemption

(a) Authorisation holder shall apply for redemption in ANF 5B with documents prescribed therein as a proof of EO fulfilment.

(b) On being satisfied, RA concerned shall issue a certificate of discharge of export obligation to the EPCG authorisation holder and forward a copy to Customs Authorities with whom BG/LUT has been executed. A statement giving details of the documents submitted by the authorisation holder towards evidence of EO fulfilment shall also be enclosed with the certificate.

(c) RA shall process such applications ordinarily 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.

(d) Applications that remain outstanding beyond a period of 60 days after receipt of complete documents shall be reported to the EPCG Division at DGFT headquarters alongwith reasons thereof.

5.23 Regularization of Bonafide Default and Exit from EPCG Scheme

(a) In case, EPCG authorisation holder fails to fulfil prescribed export obligation, he shall pay Customs Duty along with applicable interest as prescribed by Customs Authority. Such facility can also be availed by EPCG authorisation holder to exit at his option. The authorisation holder will have the option to furnish valid duty credit scrips, issued under Chapter 3 or Chapter 5 of FTP, for payment of the Customs duty component.

(b) Authorisation holder can also pay duty and interest suo-motu on the basis of self /own calculation as per the procedure specified in paragraph 4.50 of HBP.

5.24 Maintenance of Records

Every EPCG authorisation holder shall maintain, for a period of 2 years from date of redemption, a true and proper account of exports/ supplies made and services rendered towards fulfilment of export obligation.

5.25 Re-Export / Replacement of Capital Goods Imported under EPCG Scheme

(a) Capital Goods imported under EPCG scheme, which are found defective or unfit for use, may be re-exported to foreign supplier within three years from the date of clearance by Customs of such goods, with permission of RA / Customs Authority. Consequently, EO would be re-fixed.

(b) Capital 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, the Customs shall credit the duty benefit availed which can be debited again at the time of import of such replaced Capital Goods.

5.26 Penal Action

In case of failure to fulfil export obligation or any other condition of authorisation, authorisation holder shall be liable for action under FT (D&R) Act, 1992, as amended, Orders and Rules made thereunder, provisions of FTP/HBP, Customs Act, 1962, as amended from time to time or any other law in force.

5.27 Clubbing of EPCG authorisations

(a) Clubbing of two or more EPCG authorisations issued to the same authorisation holder would be permitted.

(b) An application for clubbing can be made to RA concerned in ANF 5C.

Clubbing shall only be permitted in case export products endorsed on the authorisations are same /similar and if authorisations are issued by the same RA.

(c) Total export obligation would be re-fixed taking into account total of duty saved amount of the clubbed authorisations. Provision of Paragraph 5.21 shall not be applicable in case of such clubbed authorisations.

(d) On Clubbing, authorisations for all purpose shall be deemed to be a single EPCG authorisation. Export obligation period for clubbed authorisations shall be reckoned from first authorisation issue-date.

(e) Average export obligation for clubbed authorisations would be highest of average export obligations endorsed on individual authorisations so clubbed.

(f) Clubbing would be permitted only during valid EOP including extended period, if any.

(g) EPCG authorisations issued prior to 1.4.2007 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE-2006). The EPCG Authorisations issued between 01.04.2007 and 17.04.2013 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE- 2012). The EPCG Authorisations issued from 18.04.2013 till the issue of Notification of FTP 2015-20 shall be governed by provisions contained in Public Notice No.1 dated 18.4.2013.

5.28 Post Export EPCG Duty Credit Scrip(s)

(a) Exporters can exercise this option by filing an application in ANF5A with the RA concerned by selecting the option for this Scheme.

(b) All applicable duties shall be paid in cash by the exporter at the time of import of Capital Goods.

(c) RA shall issue an Authorisation specifying

(i) “Not for imports” on the body of the Authorisation; (ii) Average EO, if any;

(iii) Specific EO @ 85% of the applicable specific EO, computed as if the imports were to take the benefit of duty exemption; and

(iv) EOP, which shall commence from the Authorisation issue date. (d) Exporter can file request, in ANF5B, for issuance of Duty Credit Scrip(s) in proportion to the EO completed within the specified EOP. Only for first such request, proof of actual duty payments on Capital Goods (including proof of duty in respect of CENVAT availed or otherwise), nexus and installation certificate(s) of Capital Goods shall be submitted alongwith proof of fulfilment of EO alongwith proof of maintenance of Average EO. Subsequently, only proof of fulfilment of specific EO (alongwith proof of maintenance of Average EO) additionally completed vis-à-vis specific EO fixed {as in c(iii) above} may be submitted, unless there have been any changes in documents / proofs submitted earlier.

(e) RA shall issue freely transferable duty credit scrip(s) equivalent to proportionate EO fulfilled.

(f) The computation of freely transferable Duty Credit Scrip(s) will be based on basic Customs duty amount paid.

(g) Where the exporter has obtained post-export EPCG authorisation declaring that he shall not avail CENVAT Credit, the Export Obligation shall be fixed with reference to the basic Customs duty paid. In such cases Duty Credit Scrip will be issued based on the certificate from Central Excise regarding non-availment of CENVAT credit. Such certificate from central excise regarding non-availing of CENVAT credit will not be required where the unit is not registered with central excise.

(h) All provisions of the existing EPCG Scheme shall apply insofar as they are not inconsistent with this scheme.

(i) The CG imported under paragraph 5.12 of FTP shall not be disposed of till the date of last export for offsetting EO against such CG.

(j) In case of re-export of CG found defective or unfit for use as per the provisions of paragraph 5.25 of HBP if the exporter claims drawback on such re-export there would be no remission of duty under paragraph 5.12 of FTP.

5.29 Green Technology Products

The Export Products covered under Paragraph 5.10 of FTP which provides for reduced export obligation of 75% for green technology products are: