Circular No. 66dated 13^th June 1995

Changes in theE.P.C.G. Scheme

Export Promotion Capital Goods (E.P.C.G.) Scheme has undergone certain changes in the revised edition of the Exim Policy published on 30th March 1995 and the revised edition of Handbook of Procedure, Vol. I published on 30th April 1995. In order to give effect to the changes, Department has issued notifications No. 108/95-Customs to 111/95-Customa all dated 5th June 1995. The most significant changes are related to the execution of a bond with bank guarantee with the Customs authorities, requirement of fulfillment of export obligation year-wise/ block-wise, introduction of zero duty EPCG Scheme, and merger of E.P.C.G. Scheme for service sector with the main E.P.C.G. Scheme.

2.      Amendment of Existing Notifications: In view of significant changes, revised notification have been issued for import against licences issued under E.P.C.G. Scheme on or after 1st May, 1995. Accordingly, Notification No. 160/92-Customs dated 20th April, 1992, governing import of capital goods under E.P.C.G. Scheme, Notification No. 307/ 92-Cus. dated 20th December, 1992 relating to import of capital goods in SKD/ CKD conditions or components of capital goods by the E.P.C.G. Licence holder himself to assemble or manufacture his capital goods and Notification No. 122/93-Customs dated 14th May, 1993 for import by service sector under E.P.C.G. Scheme have been amended by Notification No. 108/95-Customs dated 5th June, 1995 to restrict their applicability for import against licences issued on or before 30th April, 1995. Similarly Notification No. 161/ 92-Customs relating to domestic souring of capital goods by E.P.C.G. licence holder has been amended by notification No. 109*/ 95-Customs dated 5th June, 1995 whereby import of components at 15% duty shall now be permitted to domestic manufacturers of capital goods for supply of such capital goods to holders of E.P.C.G. licence in the serves sector also.

3.      Merger of EPCG Scheme for Service Sector with the Main Scheme: In view of merger of E.P.C.G. Scheme for service sector with the main scheme and requirement of execution of bond with bank guarantee with the Customs authorities, a new Notification No. 110/95-Customs dated the 5th June, 1995 has been issued to permit import of capital goods, capital goods in SKD/CKD condition or components of capital goods for assembly or manufacture of capital goods by importer himself, at 15% duty subject to export obligation of four times the CIF value of capital goods to be fulfilled in five years. The notification also permits imports of spare parts not exceeding 10% of the value of capital goods or capital goods in SKD/CKD condition or components of capital goods within the overall value of the licence issued for imports under the scheme. The same notification applies for import by service sector also. The value of bond to be executed and the extent of bank guarantee to be taken shall be as specified in Ministry's Circular No. 52/95 dated 25th May 1995 issued from F.No. 605/75/95-DBK. Though no specific provision has been made in the Exim Policy in this regard, notification has prescribed specific obligation to be fulfilled year-wise and in the event of failure to fulfil the obligation, proportionate amount of duty foregone is recoverable. Similarly, failure to discharge minimum of 25% of the export obligation specified for three consecutive years will render the importer liable to pay whole of duty foregone. Commissioners have, therefore, to provide a suitable mechanism for watching the yearly export performance. Suitable Registers and records are to be prescribed. The Commissioner of Customs with whom the E.P.C.G. Import Licence is registered would be responsible for monitoring the operation of the Scheme, irrespective of whether any Imports/ Exports have been made through his port or other ports. Exports under the scheme have to be physical exports in case of manufacturers and, payment have to be received from abroad in freely convertible currency in case of services providers, where goods exported were manufactured; or service was provided with the use of capital goods imported, assembled or manufactured. Exporter is required to produce evidence of fulfillment of export obligation in the form of a certificate from the licensing authority. Notification applies only to import by manufacturer-exporters who install capital goods in their own factory. Before permitting clearance of goods described as capital goods consisting of various assemblies/ sub-assemblies specified in the licence, it must be ensured that all such assemblies /sub -assemblies constitute complete capital goods and no spare parts/ replacement components are imported in the guise of such assemblies/ sub- assemblies.

4.1    Introduction of Zero Duty E.P.C.G. Scheme: Import under E.P.C.G. Scheme have also been permitted at zero duty with higher export obligation equivalent to six times the CIF value of capital goods on FOB basis or four times the CIF value on 'net foreign exchange' basis to be fulfilled within a period of eight years. In order to give effect to this Scheme, Notification No. 111/95-Customs dated 5th June 1995 has been issued. Under this scheme, also, though there is no provision in the Exim Policy in this regard. Specific export obligation required to be fulfilled within each block of two years from the date of issue of licence has been prescribed and failure to discharge such obligation will render the importer to pay proportionate amount of duty foregone. Similarly, continuous failure for two consecutive blocks of two years to discharge minimum of 25% of prescribed obligation will render the importer liable to pay whole of duty foregone. Failure to import minimum 20 crores worth of capital goods within the validity of licences also renders the importer liable to pay whole of duty foregone. Commissioners have, therefore, to provide a suitable mechanism for watching periodically the export performance. Suitable Registers and records are to be prescribed. The Commissioner of Customs with whom the E.P.C.G. Import Licence is registered would be responsible for monitoring the operation of the Scheme, irrespective of whether any Imports/ Exports have been made through his port or other ports.

4.2    This Scheme also permits import of capital goods in SKD/ CKD condition or components of capital goods to be assembled by the importer himself into capital goods. As under the normal scheme spare parts upto 10% of the value of capital goods or capital goods in SKD/CKD condition or components imported are also permitted within the overall value of the licence. Notification applies only to imports by manufacturer-exporter who installs capital goods in their own factory. Though Exim Policy allows service sector also to avail of the scheme, the Customs notification issued restricts the scheme only for the manufacturing sector and, therefore, duty free import by service sector under zero duty scheme is not permitted. Exporter will be required to produce evidence in the form of a certificate by the Licencing authority towards discharge of export obligation.

5.      Your attention is also drawn to the relevant chapters in the Exim Policy and also the paragraphs in the Handbook of Procedure, Vol.I. Your are requested to take note of the contents of the Exim Policy and the Customs Notifications and bring the aforesaid changes to the notice of field officers by issuing suitable standing orders separately for the old Scheme (if not already done), for the 15% E.P.C.G. Scheme and for the Zero duty Schemes. Similarly by separate detailed Public Notice/ Trade Notice, the trade interests may be suitably informed of the Schemes. Copies of the standing orders and Public Notices issued should be forwarded to Commissioner (Drawback) as well as to Director General of Inspection & Credit (Customs and Central Excise).

6.      In case of any doubt, Commissioners are advised to bring their problems/ doubts semi-officially to the notice of the Commissioner (Drawback) with copies to Commissioner of Customs Incharge of major Customs Houses and the Chief Commissioner, Bombay and their jurisdictional Chief Commissioner.