The EPCG Scheme : Meaning, Process, and Benefits
The zero-duty EPCG Scheme is available to exporters of electronic products. It allows the import of capital goods for pre-production, production, and post-production (including CKD/SKD thereof as well as computer software systems) at zero customs duty, subject to an export obligation equivalent to 6 times of duty saved on capital goods imported under the EPCG scheme, to be fulfilled in 6 years reckoned from the Authorization issue-date.
In this article, you will learn everything about the EPCG.
What is the EPCG Scheme?
The EPCG scheme, an initiative by the government, aims to boost exports by offering incentives and financial aid to exporters. It provides significant advantages for businesses operating in the export industry.
Registering for an EPCG license involves several steps with Customs. Exporters must apply to the Directorate General of Foreign Trade (DGFT) with the necessary documents. Upon approval, they can import capital goods without customs duty, provided they meet export obligations within the allocated time frame.
This scheme allows an importer, particularly one focused on exports, to bring in capital goods without paying customs duty in India. However, the business must export goods worth six times the duty saved on these imports within six years of getting the authorization. In essence, the business needs to generate foreign currency equivalent to 600% of the duty saved, in domestic currency, within six years of joining the Export Promotion Capital Goods Scheme.
6 Key Things to Know About the EPCG Scheme
Some additional insights into the EPCG Scheme to enlighten your understanding about it.
Objective
The primary objective of the EPCG scheme is to facilitate the import of capital goods for producing quality goods and services to enhance India's export competitiveness.
Eligibility
Both manufacturers and service providers are eligible to participate in the EPCG scheme. However, the scheme is primarily targeted at manufacturers.
Conditions for Time Limit Extension in Exportation
The extension of the time limit is a possibility, albeit granted only under exceptional circumstances. Exporters must provide substantial evidence demonstrating that uncontrollable factors prevented them from meeting the deadline.
Consequences of Non-Compliance with EPCG Export Obligations
In cases where the license holder under the EPCG scheme fails to fulfill the stipulated export obligation then the licensee shall be liable to pay the customs dues along with 15% interest per annum to the customs authority.
Utilizing the Domestic Tariff Area (DTA) for Sales
For exporters to sell goods within the Domestic Tariff Area (DTA), adherence to export obligations within the designated deadline is imperative. Only upon meeting this requirement can businesses engage in selling goods within the Domestic Tariff Area.
Replenishment of Imported Capital Goods
Participants are allowed to replenish imported capital goods with the same duty benefits, subject to certain conditions.
What are Export Promotion Capital Goods?
Export Promotion Capital Goods (EPCG) encompass machinery and spare parts utilized in manufacturing goods destined for export to foreign markets. Therefore, for an item to be classified as Export Promotion Capital Goods, it must contribute to the production process of goods intended for export from India to other countries.
Additionally, the eligibility criteria for EPCG entails that the manufactured goods must indeed be exported outside of India. This requirement ensures that the benefits and incentives associated with the scheme are directly linked to promoting and facilitating international trade.
Capital Goods allowed under the EPCG Scheme
The Export Promotion Capital Goods Scheme encompasses a wide range of capital goods, including spares (both reconditioned and refurbished), fixtures, jigs, tools, molds, and dies. Additionally, second-hand capital goods can also be imported without any age restrictions under the EPCG Scheme.
Under the provisions of the Foreign Trade Policy (FTP), the EPCG Scheme permits the importation of capital goods necessary for manufacturing export-oriented products specified in the Export Promotion Capital Goods Authorization. Importation under this scheme is subject to concessional or nil rates of duty. This strategic provision facilitates the technological upgrading of domestic industries, thereby enhancing their competitiveness in global markets.
Issuance of Export Promotion Capital Goods (EPCG) Authorizations falls under the purview of the licensing authority, the Director General of Foreign Trade (DGFT). These authorizations are granted based on certificates issued by independent chartered engineers, ensuring adherence to established quality and compliance standards.
What is the function of EPCG?
The EPCG scheme, a government initiative, primarily focuses on machinery, its components, and related items essential for exporters in their manufacturing processes. It extends its benefits to manufacturer-exporters, offering financial aid for importing machinery goods. The primary goal of this scheme is to stimulate the production of high-quality goods within India and facilitate their export, thereby accelerating the growth of the national economy.
Documents Required for the EPCG License
Necessary documents to obtain the EPCG license include :
- Import Export Code (IEC)
- Pan Card
- Proforma Invoice
- Digital signature
- GST Registration Certificate
- Excise Registration (if registered)
- Registration certificate from the Tourism Department
- Brochure
- Registration cum Membership Certificate (RCMC)
- Self-certified original Copy of Certificate of Chartered Accountant
- Self-Certified Original Copy of Certificate of Chartered Engineer
EPCG License
To secure a License under the EPCG scheme, the initial step entails submitting an application to the licensing authority, namely the Director General of Foreign Trade. This application must be accompanied by essential documents, as well as comprehensive company and personal particulars, ensuring thorough compliance with regulatory requirements.
What are the benefits of the EPCG scheme?
The EPCG scheme, instituted by the Director General of Foreign Trade (DGFT), serves as a catalyst for exporters, incentivizing and bolstering their endeavors in international trade. Key advantages of the EPCG scheme include :
Facilitation of Duty-Free Imports
Under the EPCG Scheme, exporters can import goods duty-free, provided they fulfill an export obligation equivalent to six times the amount of duty saved on capital goods within a span of six years.
Financial Support for Exporters
The EPCG license extends financial assistance to exporters by waiving import charges, easing the financial burden associated with importing essential goods.
Enhanced Export Competitiveness
By providing duty concessions, the EPCG scheme reduces the overall cost of production for exporters, thereby enhancing their competitiveness in the international market.
Streamlined Compliance Requirements
For exporters with shipments valued below ₹1 crore, compliance entails furnishing a bank or bond guarantee, whereas exporters with exports exceeding ₹1 crore are mandated to obtain the bond from customs ports. Notably, a bank guarantee is not obligatory in either case, simplifying the compliance process.
Mandatory License Registration
Upon securing the EPCG license, exporters must register it at the designated port of entry. This registration is essential to avail of duty waivers when presenting the Bill of Entry, ensuring seamless customs clearance procedures.
Promotion of Expedited Export Processes
By facilitating duty waivers and simplifying compliance requirements, the EPCG scheme fosters a conducive environment for expedited export processes, thereby encouraging swift and efficient export operations.
Flexibility in Utilization
Exporters have flexibility in utilizing imported capital goods for various purposes related to their export activities, such as manufacturing, processing, packaging, or service provision.
Incentivizes Investment: By providing duty concessions on capital goods imports, the EPCG scheme incentivizes exporters to make substantial investments in enhancing their production capabilities, which in turn stimulates economic growth.
Frequently Asked Questions (FAQ)
A wide range of sectors and entities are eligible for the EPCG Scheme in India, subject to the criteria mentioned below :
Exporter : Any person or company engaged in the manufacturing or production of goods or providing services is eligible to apply for the EPCG scheme. This includes both individual exporters and entities such as partnerships, proprietorships, companies, etc.
Exporter-Importer Code (IEC) : The applicant must have a valid Importer-Exporter Code (IEC) issued by the Directorate General of Foreign Trade (DGFT). This code is a prerequisite for engaging in international trade
Exporter-Importer Code (IEC) : The applicant must have a valid Importer-Exporter Code (IEC) issued by the Directorate General of Foreign Trade (DGFT).
Manufacturers and Service Providers : While the scheme primarily targets manufacturers, service providers who can import capital goods to enhance their service quality and productivity are also eligible to apply. However, certain conditions and limitations may apply to service providers.
Specific Sector Eligibility : Some sectors or industries may have specific eligibility criteria or additional requirements under the EPCG scheme. These criteria may vary depending on government policies and objectives aimed at promoting specific sectors.
Compliance with Regulations : Applicants must comply with all relevant laws, regulations, and guidelines governing the EPCG scheme. This includes fulfilling export obligations within the stipulated time frame, adhering to reporting requirements and maintaining necessary documentation.
Financial Soundness : While not explicitly stated as a criterion, applicants are generally expected to demonstrate financial stability and capability to fulfill the export obligation. This may involve providing financial statements, bank guarantees, or other evidence of financial standing.
EPCG, an acronym for Export Promotion Capital Goods, represents a pivotal governmental initiative in India geared towards amplifying export volumes through a comprehensive framework of incentives tailored for exporters.
The validity of an Export Promotion Capital Goods (EPCG) authorization in India is typically 24 months from the date of issue. However, the Director General of Foreign Trade (DGFT) may grant an extension of up to 12 months if the exporter provides a valid reason and fulfills certain conditions. Exporters need to adhere to the specified validity period and fulfill their export obligations within the prescribed time frame to fully benefit from the EPCG scheme.
Failing to meet the export obligation under the EPCG scheme can have several consequences.
Firstly, the exporter may be required to pay the applicable customs duty along with interest on the duty saved due to the EPCG authorization.
The licensee shall be liable to pay the customs dues along with 15% interest per annum to the customs authority
Additionally, penalties may be imposed by the Directorate General of Foreign Trade (DGFT) or customs authorities. Moreover, non-compliance can result in the cancellation of the EPCG authorization and may impact the exporter's eligibility for future benefits under government export promotion schemes. It's essential for exporters to diligently fulfill their export obligations within the prescribed time frame to avoid such repercussions.