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Chapter - 5 Export Promotion Capital Goods ( EPCG ) Scheme.

Chapter - 5 : Export Promotion Capital Goods (EPCG) Scheme

Export Promotion Capital Goods (EPCG) Scheme

EPCG Scheme 5.1 EPCG scheme allows import of capital goods for pre production, production and post production (including CKD / SKD thereof as well as computer software systems) at 3% Customs duty, subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 8 years reckoned from Authorisation issue-date. In case of agro units, and units in cottage or tiny sector, import of capital goods at 3% Customs duty shall be allowed subject to fulfillment of export obligation equivalent to 6 times of duty saved on capital goods imported, in 12 years from Authorisation issue- date.

For SSI units, import of capital goods at 3% Customs duty shall be allowed, subject to fulfillment of export obligation equivalent to 6 times of duty saved on capital goods, in 8 years from Authorisation issue-date, provided the landed cif value of such imported capital goods under the scheme does not exceed Rs.50 lakhs and total investment in plant and machinery after such imports does not exceed SSI limit. However, in respect of EPCG Authorisations with a duty saved amount of Rs. 100 crores or more, export obligation shall be fulfilled in 12 years. In case CVD is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided the same is not CENVATed.

Capital goods shall include spares (including refurbished / reconditioned spares), tools, jigs, fixtures, dies and moulds.

Second hand capital goods, without any restriction on age, may also be imported under EPCG scheme.

However, import of motor cars, sports utility vehicles/all purpose vehicles shall be allowed only to hotels, travel agents, tour operators or tour transport operators and companies owning / operating golf resorts, subject to the condition that:
  • total foreign exchange earning from hotel, travel & tourism and golf tourism sectors in current and preceding three licensing years is Rs 1.5 crores or more.
  • ‘duty saved’ amount on all EPCG Authorisations issued in a licensing year for import of motor cars, sports utility vehicles/ all purpose vehicles shall not exceed 50% of average foreign exchange earnings from hotel, travel & tourism and golf tourism sectors in preceding three licensing years.
  • vehicles imported shall be so registered that the vehicle is used for tourist purpose only. A copy of the Registration certificate should be submitted to concerned RA as a confirmation of import of vehicle. However, parts of motor cars, sports utility vehicles/ all purpose vehicles such as chassis etc. cannot be imported under the EPCG Scheme. Import of Restricted items of imports mentioned under ITC(HS) shall only be allowed under EPCG Scheme after approval from EFC at Headquarters.
5.1A Spares (including refurbished/reconditioned spares), tools, spare refractories and catalyst for existing plant and machinery (imported earlier, under EPCG or otherwise) shall be allowed to be imported subject to an export obligation equivalent to 8 times of duty saved to be fulfilled in 8 years reckoned from Authorisation issue date.
EPCG for Projects 5.1B An EPCG Authorisation can also be issued for import of capital goods under Scheme for Project Imports notified by the Central Board of Excise and Customs under S.No 441 of Customs Exemption Notification No 21/2002 dated 01.03.2002. Export obligation for such EPCG Authorisations would be eight times of duty saved. Duty saved would be difference between the effective duty under aforesaid Customs Notification and concessional duty under the EPCG Scheme
EPCG for Retail Sector 5.1 C To create modern infrastructure in retail sector, concessional duty benefits under EPCG scheme shall be extended for import of capital goods required by retailers having minimum area of 1000 sq meters. Such retailer shall fulfill export obligation i.e. 8 times of duty saved, in 8 years.
Eligibility 5.2 EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s) / vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers.

Export Promotion Capital Goods (EPCG) Scheme also covers a service provider who is designated / certified as a Common Service Provider (CSP) by the DGFT, Department of Commerce or State Industrial Infrastructural Corporation in a Town of Export Excellence subject to provisions of Foreign Trade Policy/Handbook of Procedures with the following conditions:-

(i) EPCG licence to be given to the CSP should have a clear endorsement giving the details of the users and the quantum of Export Obligation (EO) which each user would fulfil;

(ii) Such exports will not count towards fulfillment of other specific export obligations ; and

(iii) Each one of the users of the CSP apart from the CSP should furnish 100% bank Guarantee (BG) equivalent to their portion of duty foregone apportioned in terms of quantum of EO to be discharged by them and the B.G. will be enforced in the event of the obligation not being fulfilled.

(Ref :  This  end para  is added by DGFT NOTIFICATION NO. 51(RE–2008)/2004-2009, dated 29th OCTOBER, 2008 )
Conditions for import of Capital Goods 5.3 Import of capital goods shall be subject to Actual User condition till export obligation is completed.
Export obligation 5.4 Following conditions shall apply to the fulfillment of the export obligation:-
  • Export Obligation shall be fulfilled by export of goods manufactured/services rendered by the applicant. Export obligation under the scheme shall be, over and above, the average level of exports achieved by him in the preceding three licensing years for the same and similar products within the overall export obligation period including extended period, if any; except for categories mentioned in paragraph 5.7.6 of HBP v1. Such average would be the arithmetic mean of export performance in the last three years for the same and similar products. Provided that Premier Trading House (PTH) shall have option of fixing average level of exports based on arithmetic mean of export performance in the last five years instead of three years. Up to 50% Export Obligation may also be fulfilled by exports of other good(s) manufactured or service(s) provided by the same firm / company, or group company / managed hotel, which has the EPCG authorization. However, EPCG authorization issued prior to 1.4.2008 will be governed by earlier policy provisions. However, in such cases, additional export obligation imposed shall be over and above average exports achieved by the unit / company / group company / managed hotel in preceding three years for both the original and the substitute product(s)/ service(s), despite exemption in Para 5.7.6 of HBP v1.
  • Shipments under Advance Authorisation, DFRC, DFIA, DEPB or Drawback scheme, or incentive schemes under Chapter 3 of FTP; would also count for fulfillment of EPCG export obligation.
  • Export obligation can also be fulfilled by the supply of ITA-1 items to DTA, provided realization is in free foreign exchange.
  • Exports shall be physical exports. However, deemed exports as specified in paragraph 8.2 (a), (b), (d), (f), (g) & (j) of FTP shall also be counted towards fulfillment of export obligation, along with usual benefits available under paragraph 8.3 of FTP.

  • Royalty payments received in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge under EPCG. Payment received in rupee terms for port handling services, in terms of Chapter 9 of FTP shall also be counted for export obligation discharge.
  • Deleted.
Provision for BIFR Unit 5.5.1 Any firm / company registered with BIFR or any firm / company BIFR units acquiring a unit, which is under BIFR shall be allowed EO extension as per rehabilitation package, subject to approval of BIFR, or 12 years if not specified. Above provisions apply also to SSI units as per rehabilitation scheme of concerned State government.
EPCG for agro Unit 5.5.2 LUT/ Bond or 15% BG (as applicable) may be given for EPCG agro units Authorisation granted to units in Agri Export Zones provided EPCG Authorisation is taken for export of primary agricultural product (s) notified in Appendix 8 or their value added variants.
Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier 5.6 A person holding an EPCG Authorisation may source capital goods Sourcing of from a domestic manufacturer. Such domestic manufacturer shall Capital Goods be eligible for deemed export benefit under paragraph 8.3 of FTP. and benefits Such domestic sourcing shall also be permitted from EOUs and to Domestic these supplies shall be counted for purpose of fulfillment of positive Supplier NFE by said EOU as provided in Para 6.9 (a) of FTP.
Benefits to Domestic Supplier 5.7 Deleted Domestic Supplier
Fixation of Export
5.7A In case of direct imports, export obligation shall be reckoned with Export reference to actual duty saved amount. In case of domestic sourcing, Obligation export obligation shall be reckoned with reference to notional Customs duties saved on FOR value.
5.8 Deleted
5.9 Deleted
Technological Up gradation of existing EPCG machinery
5.10 EPCG Authorisation holders can opt for Technological Up gradation Upgradation of of existing capital good imported under EPCG Authorisation. existing EPCG machinery Conditions governing Technological Upgradation of existing capital goods are as under:
  • Minimum time period for applying for Technological Upgradation of existing capital goods imported under EPCG is 5 years from Authorisation issue-date.
  • Minimum exports made under old capital goods must be 40% of total export obligation imposed on first EPCG Authorisation.
  • Export obligation would be refixed such that total export obligation mandated for both capital goods would be sum total of 6 times of duty saved on both the capital goods, to be fulfilled in 8 years from new authorisation issue-date.
  • Deleted.
  • Facility for technological upgradation shall be available only once and the minimum imports to be made shall be at least 10% of the existing investment in plant and machinery by applicant. (vi) Capital Goods to be imported must be new and technologically superior to earlier CG.
Incentives for exports, Fast Track 5.11 To incentivize fast track companies with a view to accelerate in cases where Authorisation holder has fulfilled 75% or more of Companies export obligation (including average level of exports) in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the Authorisation redeemed by RA concerned. However no benefits under Para 5.12 of HBP v1 shall be available in such cases.

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