Import under EPCG Licence

We are manufacturer of Pharma products. We are planning to import a Packaging machine under EPCG. The machine will make Bag and Seal the bag after filling the Drugs manufactured by us. As per provision of the Foreign Trade Policy (FTP) if any Capital goods is imported under EPCG Export Obligation (EO) is to be fulfilled by exporting the Product manufactured / produced from the Machine (Capital goods) cleared under EPCG licence. Now, my questions are as under:

For Fulfillment of EO Can we consider export of Drugs manufactured by us but not manufactured from machinery NOT imported under ANY EPCG licence and filled in the BAG manufactured from the machine imported under EPCG licence?

If not then.

2) Which item can be said to be exported towards fulfillment of EO BAGs which manufactured from the machine imported under EPCG licence or Drugs manufactured by us but not manufactured from the machine Imported under ANY EPCG licence? Please reply as early as possible.

Please reply as early as Possible.

Great question about EPCG export obligation (EO) fulfillment — it’s important to get this right to avoid any compliance issues.

Background:

Under EPCG scheme, you import capital goods at concessional duty, and in return, you have to fulfill export obligations (EO) by exporting products manufactured using the imported capital goods.

Your case:

You’re importing a packaging machine (capital goods) under EPCG license.
The machine produces the bags and seals the drugs.
The drugs are manufactured without using this machine, but the packaging (bags) is done using the imported machine.

Answer to your queries:

1. Can export of drugs (manufactured NOT using EPCG machine) but packed in bags made by EPCG machine be counted towards EO?

No. The export obligation is to be fulfilled by exporting products manufactured or produced using the imported capital goods under EPCG.
In this case, drugs are not manufactured using the imported packaging machine — only the bags/sealing are done using that machine.
The packaging activity alone does not constitute manufacturing or production for EPCG EO.
Hence, export of drugs alone cannot be considered for fulfilling EO of the packaging machine.

2. Which item counts towards EO?

The export obligation is on products manufactured or produced from the imported capital goods.
Here, the bags produced by the imported packaging machine can be considered as the manufactured product.
So, if you export the bags manufactured by the imported machine, those exports can be counted towards EO.
Drugs exported will not count unless they are manufactured using the EPCG-imported capital goods.

Summary:

Exported Item	Counts towards EO?
Drugs (not made using EPCG machine)	No
Bags manufactured using imported packaging machine	Yes

Additional Notes:

If your packaging machine is only used for sealing/packing, and not actually manufacturing a distinct product, this may be a grey area.
Sometimes, packaging alone isn’t treated as manufacturing for EO fulfillment.
You may want to consult DGFT or a specialized consultant with details of your process and machine to confirm.