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Definition: EPCG Scheme has been introduced in India to promote import of capital goods for production of output which is exported.

Eligibility Criteria – Mainly:

• Scheme covers manufacturer exporter, merchant exporter and service provider

• Manufacturer exporter: A person who exports goods manufactured by him or intends to export such goods

• Merchant exporter: A person engaged in trading activity and exporting or intending to export such goods

• Service provider: A person providing

• Supply of a service from India to other country

• Supply of a service from India to the service consumer of any other country in India

• Supply of a service from India through commercial / physical presence in the territory of any other country

• Supply of a service in India relating to exports paid in free foreign exchange  or in Indian Rupees which are otherwise considered as having being paid for in free foreign exchange by RBI.

Export Promotion Capital Goods (EPCG) Scheme also covers a service provider who is designated / certified as a Common Service Provider (CSP) by the DGFT

Exports by Users of the common service, to be counted towards fulfillment of EO of the CSP

A 100% Bank Guarantee equivalent to the portion of duty foregone by users of CSP apportioned in terms of quantum of export obligation  is to be discharged.

As regards details of users, the CSP is required to inform  to the concerned Regional Authority prior to exports, and the quantum of Bank Guarantee shall be equivalent to duty foregone amount and BG can be given by CSP or any one of the users or a combination thereof, at the option of CSP.

Benefits and Obligations

• Allows import of capital goods and spares at concessional rate of duty [@3.09% of Customs Duty].

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

• Subject to: 

— Fulfillment of Export Obligation [EO] equivalent to 8 times the duty saved amount to be completed in 8 years.

— Actual User Condition till the Export Obligation is completed

— Maintenance of average export. Such average is arithmetic mean of export performance in last 3 years.

Allowed procurements

Service: It includes all the tradable services covered under General Agreement on Trade in Services and earning free foreign exchange (Refer Appendix 10 ‘List of services’ of FTP)

Imports allowed under the EPCG scheme

• Capital goods for pre production, production and post production activities

• Spares (including refurbished/ reconditioned spares), tools, jigs, fixtures, dies, moulds and components used for assembly or manufacture of capital goods

• Second hand capital goods also allowed

• Restricted imports

• Import of motor cars, sports utility vehicles allowed only to hotels, travel agents, tour operators, golf resorts etc

• Import of restricted items under the ITC-HS allowed only subject to approval from EFC at Headquarters.

• Domestic procurements also allowed

• EPCG license holder required to file a request with the Regional Authority for invalidation of direct imports and allowing domestic procurements

• Domestic supplier entitled to ‘deemed exports’ benefit

• Deemed exports benefit include refund of terminal excise duty

• However, for EO computation, duty saved would be notional customs duty on FOR

• Option to pay CVD on imports in cash

• Duty paid in cash would not be counted towards computation of EO

• Duty so paid should not be CENVATed

• Imports subject to Actual user condition

• Goods can be imported only by the actual user

Export Obligations

Type of exports considered

• Export obligation shall be fulfilled by export of goods, manufactured / services rendered by the applicant.

• Direct and third party exports can be counted towards export obligation.

• Export proceeds to be realized in freely convertible currency except for deemed exports.

• Export to SEZ Units / Supplies to developers /co-developers, irrespective of currency of realization would also be counted for discharge of export obligation.

• Royalty payments received in freely convertible currency and foreign exchange received for R&D services can be counted for discharge under the EPCG scheme.

EPCG Scheme - Documents

1. Application form as per ANF 5A.

2. Hard copy of the online application.

3. Bank Receipt / Demand Draft / EFT details evidencing payment of application fee in terms of Appendix 21B.

4. Self certified copy of Import Export Code (IEC) & (Registration cum Membership Certificate) RCMC.

5. Self certified copy of PAN.

6. Self Certified copy of SSI/IEM/SIA registration.

7. Self certified copy of Export House Status, if any

8. Certificate from a Chartered Engineer in the format given in Appendix 32A certifying:

• the end use/nexus of machinery sought for import under EPCG Scheme in the pre production/ production/post production activity of the exported goods/services (explaining the end use of machinery in detail);

• and/or the essentiality of spare parts sought for import and its required quantity for existing machinery manufacturing the goods to be exported/ machinery sought for import; and/or

• Complete usage of equipment/goods sought for import under the EPCG Scheme for supply of service to overseas customers/ service consumers of any other country in India to earn free foreign exchange/ supply of service in India relating to export paid in free foreign exchange.

9. Manufacturing process flow chart duly certified by Chartered Engineer.

10. Chartered Accountant certificate as per Appendix 26.

11. Self Certified copy of Proforma Invoice for imported capital goods.

12. Catalogue of the Capital Goods.

13. Declarations.

14. Location of the Capital Goods to be installed on letter head.

15. Address of the Jurisdictional Central Excise office.

16. Self addressed envelope for Rs. 30/- stamp addressed to Jurisdiction Central Excise.

17. Brochure/Product catalogue of export item.

Other related provisions

• Extension of Export Obligation period for 2 years

• On payment of composition fee equal to 2 percent of total duty saved o n unfulfilled EO, or

• Enhancement in Export Obligation imposed to the extent of 10 percent of total Export Obligation at the choice of exporter

• Clubbing of two or more EPCG licenses is permitted subject to some conditions.

• EPCG license holder can opt for technological up gradation of existing capital goods imported under EPCG Authorizations(subject to conditions).

• Annual report for Export Obligation fulfilled to be filed electronically with the DGFT

• On fulfilling of 75 percent or more of specific Export Obligation and 100 percent of Average Export Obligation till date in half or less than half the original Export Obligation period – remaining Export Obligation can be condoned (Fast track companies)

Thanking you

Dashrath Maheshwari

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Category Taxpayers, Other Articles by - CA. Dashrath Maheshwari