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• EPCG Scheme was one of the export-promotion initiatives launched by the government in the early ‘90s. The import duty on capital goods like all other items was high during that period, inflating the cost of capital goods nearly 50%, so the government allowed exporters to import capital goods at only 25% import duty. For waiver of the remaining portion of import duty, exporters were supposed to undertake an  'export obligation' (a promise to export) which was worked out on the basis of the duty concession obtained.

• The government has been modifying the EPCG scheme over the years in line with the demands of the domestic industry. Since the purpose of the scheme is to allow the exporters compete internationally, it was decided to allow them to buy capital goods at internationally competitive rates.

About the EPCG scheme in FTP 2015-2020

• The objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods and services to enhance India’s export competitiveness.

• EPCG scheme allows the import of capital goods for pre-production, production and post -production at Zero custom duty.

• Import under EPCG scheme shall be subject to an export obligation (EO) which shall be equivalent to the amount of duty saved and the time reckoned from the date of authorisation.

Who are eligible to claim the benefit under the EPCG SCHEME?

Manufacturer exporter

"Manufacturer Exporter" means a person who manufactures goods and exports or intends to export such goods. The manufacturer exporter procures and process raw materials at his factory and exports finished products. Here, the manufacturer exporter procures the export order and exports in their own name.

Merchant exporters

"Merchant Exporter" means a person engaged in trading activity and exporting or intending to export goods. Merchant exporter procures the material from a manufacturer and exports in his firm’s name. The merchant exporter procures the order from international market. Merchant exporter does not have own manufacturing unit or processing factory. Merchant Exporter can export the excisable goods either directly from the premises of the manufacturer, with or without sealing of the export consignments, or through his premises under claim for rebate or under bond.

Service providers

“Service provider” means a person who is engaged in the provision of export of services. Within its ambit it also includes a service provider who is designated/ certified as a common service provider by the DGFT, Department of commerce or State Industrial Infrastructure Corporation in a town of export excellence.

Capital Goods – Inclusions and Exclusions

There are certain capital goods which are to be included in the calculation of the EO and certain capital which are to be excluded in the calculation of the EO. The list provided herewith is an illustrative list and not an exhaustive one:


1. Any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services.

2. It includes those required for replacement, modernisation, technological up-gradation or expansion.

3. It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control.

4. Computer software systems

5. Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare refractories; and

6. Catalysts for initial charge plus one subsequent charge.

7. Capital goods for project imports notified by CBEC are also permitted under the EPCG scheme.


1. Second hand capital goods

2. The capital goods required for production of following goods shall not be covered under EPCG:

• Electrical energy(power) – Export + Deemed exports + Captive use
• Electricity transmission services 
• Capital goods which are restricted for the purpose of imports.

Amount of benefit under EPCG scheme

Import under EPCG scheme shall be subject to an export obligation equivalent to 6 times of duty saved on capital goods. Such equivalent amount is required to be fulfilled within 6 years from the date of issue of authorisation.

Direct imports: Export obligation shall be reckoned with reference to the actual duty saved.
Domestic sourcing: Export obligation shall be reckoned with reference to the notional custom duties saved on FOR (Freight on road) value.

E.g.  If the duty saved on capital goods through direct imports during the FY 2013-14 was Rs. 1,00,000/- then the authorisation holder needs to fulfil the export obligation for an amount of Rs. 6,00,000/- for importing the capital goods at zero custom duty within 6 years from the date of authorisation.  

For those importers who are not sure of fulfillment of export obligation can opt for post export EPCG scheme, in which the authorisation holder can undertake the following steps:

1. Obtain the EPCG license.

2. Deposit the custom duty on import of capital goods in cash.

3. After fulfillment of export obligation, obtain the freely transferable duty credit scrips. The computation of freely transferable duty credit scrips will be on the basic custom duty amount paid at the time of import of capital goods.

4. Such duty credit scrips can be utilized for payment of applicable custom duties for imports and applicable excise duties for domestic procurement of capital goods.

Conditions required to be fulfilled

The authorisation holder is required to fulfil certain conditions in order to avail the benefits of this scheme. The conditions are as under:

1. The authorisation holder is basically required to fulfill the export obligation.(EO)

2. EO shall be fulfilled by export of goods/services. Export should be physical export of goods.

3. EO shall be over and above the average level of exports achieved by the applicant in the preceding 3 licensing years.

4. In case if the capital goods are sourced locally then the EO shall be 25% less than the EO stipulated i.e. it shall be 4.5 times the duty saved on capital goods.

5. In case where the authorisation holder wants to export through a third party, the export documents viz. shipping bills, bill of lading shall contain the names of the authorisation holder and the supporting manufacturer along with the EPCG number.

6. 50% of the EO must be fulfilled within 4 years from the date of issue of authorisation. 50% of the remaining EO must be fulfilled in the 5th year and 6th year.

What shall be included in the EO? Export obligation shall include the following:

1. Export of goods
2. Deemed exports in the nature of

• Supply of goods to EOU/STP/EHTP/BTP/SEZ.
• Supply of goods against Advance authorisation/Advance authorisation/DFIA.
• Supply of goods to the projects which are financed by multilateral/bilateral agencies as notified by Department of economic affairs. The list of such agencies is provided in the Appendix 7A of the FTP 2015-2020
• Supply of goods to any project or for any purpose in respect of which the Ministry of finance has permitted import of such goods at zero custom duty.
• Supply of goods which are required for set up of mega power project.
• Supply of goods to nuclear power projects.

• Supply of ITA-I items to domestic tariff area (DTA) provided the realization is in free foreign exchange.
• Shipments under Advance authorisation, DFIA, Drawback scheme or reward scheme shall also be counted for fulfilment of EO under EPCG scheme.
• Royalty payments received in free convertible currency.
• Foreign exchange received for R&D services.
• Payment received in rupee in respect of services which are notified in appendix 3E of the FTP. Such services are yet to be notified.

Process of registration

In order that a person wants to reap the benefits of EPCG scheme, it shall get registered itself under the scheme. The procedural steps are listed down as under:

Pre-registration steps:

1. Obtain a nexus certificate from an independent chartered engineer

The nexus certificate is required to prove the nexus of the applicant regarding the use of the capital goods imported under EPCG scheme for the pre-production/production/post-production of exported goods or for use of such capital goods for export of services.

2. Obtain a certificate of installation of capital goods

The authorisation holder shall produce within 6 months from the date of completion of import to the regional authority, a certificate of installation of such capital goods. Such certificate shall be obtained from jurisdictional central excise authority or an independent chartered engineer.

3. File a bond with or without bank guarantee with the customs

The EPCG Authorization holder is required to file a bond with or without bank guarantee with the Customs prior to commencement of import of capital goods. Bank guarantee equal to 100% of the differential duty in case of merchant exporters and 25% in case of manufacturer exporters is required to be submitted except in case of a few exempted categories.

Registration steps:

1. The authorisation holder must compulsorily have an IEC number. So obtain IEC number.

2. Application shall be made by the registered office or the branch office or manufacturing unit of an eligible exporter to the regional authority.

3. Application to be made in Form ANF 5A. Application should contain a list of the plant/machinery installed at the factory premises of the authorisation holder and which should be certified by a Chartered engineer or jurisdictional central excise authorities.

What are the compliance and documentation requirements?

1. The authorisation holder needs to submit a report of fulfillment of export obligation to the regional authority.

2. Such report needs to be submitted by the authorisation holder by 30th April of every year.

3. The report must be filled electronically with digital signatures.

4. Basis the report submitted, the regional authority shall issue EO fulfillment certificate.

5. The authorisation holder shall maintain a true and proper account of exports/supplies made and services rendered towards fulfillment of export obligation for a period of 2 years from the date of redemption.

What if the conditions for availing of benefit under EPCG are not fulfilled?

1. The authorisation holder needs to maintain the average export obligation.

2. The authorisation holder needs to achieve the EO over and above the average export obligation.

3. The FTP 2015-2020 has prescribed the block of period within which the EO needs to be fulfilled.

Period from issue of authorisation

Minimum export obligation to be fulfilled

Block of 1st year – 4th year


Block of 5th and 6th year

Balance EO

4.  If the minimum EO of the first block is not fulfilled then the authorisation holder needs to do the following:

• Pay the duties of customs within 3 months from the date of expiry of the block. Such duties of customs shall be calculated proportionately by taking the duty saved amount on total unfulfilled EO of the first block.

• Interest as applicable under Customs Law shall be payable by the authorisation holder.  

• In case where the EO fulfilment is extended by the regional authority, the authorisation holder shall be required to pay a composition fee of 2% of duty saved amount proportionate to unfulfilled portion of EO pertaining to the block.

Certain important provisions:

• The FTP 2015-2020 has permitted the clubbing of two or more EPCG authorisations issued to the authorisation holders. Application to be made in Form ANF 5C.

• In case of re-export or replacement of capital goods imported under EPCG scheme, such capital goods can be re-exported within 3 years from the date of clearance by customs of such capital goods with permission of RA/customs authority.

• Authorisation holder shall apply for redemption in Form ANF 5B with documents prescribed therein as a proof of EO fulfillment. On regional authority being satisfied, the regional authority shall issue a certificate of discharge of export obligation to the EPCG authorisation holder and forward a copy of the same to the customs authority with whom such bank guarantee/letter of undertaking has been executed.

• In respect of export of certain goods, the authorisation holder shall not be required to maintain the average export obligation. The list of such goods is provided in para 5.13 of the handbook of procedures of the FTP 2015-2020. (updated up to 4 August 2015)

• EPCG authorisation shall be issued with a single port of registration. However, exports can be made from any port.

I hope this article find its place amongst the place of bookmarks of the reader.

Harshal Fifadra
Contact Email I’d:;


Published by

Harshal Fifadra
(Chartered Accountant)
Category Custom   Report

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