EPCG Scheme: Benefits and Eligibility Explained

The Export Promotion Capital Goods (EPCG) Scheme aims to help Indian manufacturers and service providers stay globally competitive. It allows them to import capital goods at zero customs duty to produce high-quality goods and services for export.

The EPCG full form in customs is Export Promotion Capital Goods. This is an export incentive scheme in India that allows businesses to import machinery and equipment for pre-production, production, and post-production. These imports are exempt from IGST and Compensation Cess as notified by the Department of Revenue.

Alternatively, companies can source capital goods domestically under the Foreign Trade Policy (FTP). The capital goods covered under the EPCG scheme include machinery, computer systems, software, spares, molds, dies, jigs, fixtures, tools, and catalysts.

Every EPCG authorization carries an export obligation equal to six times the duty saved on imported goods, which must be fulfilled within 6 years. The authorization remains valid for import for 24 months from the date of issue. Restricted items can be imported or exported under EPCG only with prior approval from the Exim Facilitation Committee (EFC) at the DGFT headquarters.

Services Covered Under EPCG Scheme

The Export Promotion Capital Goods (EPCG) Scheme offers several online services for exporters and service providers through the DGFT portal. Below are the key services available under the EPCG scheme:

1. Apply for EPCG (ANF-5A): Submit a fresh application using your Importer Exporter Code (IEC).
2. Amend EPCG Authorization: Request changes or updates to an existing authorization.
3. Invalidation or Certificate of Supplies: Obtain or submit invalidation certificates.
4. Clubbing of EPCG Authorizations (ANF-5C): Combine multiple EPCG authorizations.
5. Closure or Post-Export Scrip Issuance: Apply for closure of EPCG authorizations.
6. Installation Certificate: Upload the installation certificate for capital goods.
7. License Status at Customs: Check the current license status online.
8. EO or Block Extension: Apply for export obligation or block period extension.
9. Authorization Transmission Details: Track the transmission status from DGFT to CBIC.
10. Manual EODC Status Update: Manually update redeemed licenses.
11. EPCG Committee Application: Request relaxation in policy or procedure.
12. Review Application (ANF-2D): Apply for review of committee decisions.
13. Transfer of Authorization: Request transfer of EPCG authorization.
14. Annual Reporting of EO Fulfillment: Submit annual export obligation reports online.

Pre-Requisites for Applying for the EPCG Scheme

The application for an EPCG Authorization is submitted online to the jurisdictional Regional Authority (RA) of the Directorate General of Foreign Trade (DGFT). Before filing, ensure all the following prerequisites and documents are in place. Pre-requisites are mentioned in the Foreign Trade Policy Handbook of Procedures, Chapter 5.

Applicant Eligibility and Registration

1. Importer-Exporter Code (IEC) is Mandatory:
   • You must possess a valid Import Export Code (IEC).
   • The IEC is issued by the DGFT.
   • It is the fundamental document for any import or export activity.
2. A valid Digital Signature Certificate (DSC) is required:
   • The EPCG application must be filed online (Download Form ANF-5A).
   • A DGFT Digital Signature Certificate (DSC) is mandatory for electronic submission.
3. Registration-cum-Membership Certificate (RCMC):
   • Registration with an appropriate Export Promotion Council (EPC) is compulsory.
   • A valid RCMC must be obtained from the relevant EPC.
4. Proof of Manufacturing Unit/Service:
   • You must be an eligible entity: a Manufacturer Exporter, a Merchant Exporter tied to a supporting manufacturer, or a Service Provider.
   • For manufacturing, proof such as an MSME/SSI registration, Udyog Aadhar, Industrial License (IL), or Industrial Entrepreneurs Memorandum (IEM) is required.
   • The manufacturing proof must list the export product.
   • The factory address for capital goods installation must be clearly stated.

Mandatory Certification Documents

1. Chartered Engineer Certificate (CEC) – Appendix 5A:
   • This is a critical document for the application.
   • A Chartered Engineer (CE) must issue a certificate in the format of Appendix 5A.
   • The certificate must establish the nexus (relationship) between the imported capital goods and the resultant export product/service.
   • The CE certifies that the capital goods are necessary for pre-production, production, or post-production.
2. Chartered Accountant (CA) Certificate – Appendix 5B:
   • The application must include a certificate from a Chartered Accountant, Cost Accountant, or Company Secretary (Appendix 5B).
   • This certificate must confirm the export performance for the same or similar products.
   • It certifies the average export level achieved in the preceding three licensing years. This data is used to calculate the mandatory Average Export Obligation.

Transaction and Financial Documents

1. Proforma Invoice / Purchase Order:
   • Submit a copy of the Proforma Invoice or the firm’s Purchase Order.
   • This confirms the details of the capital goods being purchased from the overseas supplier.
2. Detailed Duty Saved Statement:
   • A statement is required that clearly indicates the CIF (Cost, Insurance, Freight) Value of the capital goods.
   • It must detail the full effective customs duty applicable.
   • The statement specifies the amount of duty to be saved under the EPCG scheme.
3. Application Fee Payment Proof:
   • The requisite application fee must be paid.
   • Proof of payment, such as a Treasury Receipt (TR), Challan, or Electronic Fund Transfer (EFT) details, must be submitted.

Other Supporting Documents

• Self-certified copy of the GST Certificate, if applicable.
• Details of any previous EPCG Authorizations obtained and their current status.
• If the capital goods are being used by a Supporting Manufacturer, their details (name, address, manufacturing proof) must be included in the application and endorsed on the license.

Coverage Under the EPCG Scheme

The EPCG scheme is available to a wide range of exporters and service providers. It covers:

• Manufacturer exporters (with or without supporting manufacturers)
• Merchant exporters tied to supporting manufacturers
• Service providers recognized under the scheme

The name of the supporting manufacturer must be mentioned on the EPCG license before the capital goods are installed. If there is any change in the supporting manufacturer, it must be reported to the jurisdictional Customs Authority and the port of registration.

The Export Promotion Capital Goods Scheme also includes Common Service Providers (CSPs) certified by the DGFT. These CSPs can operate in a Town of Export Excellence or PM MITRA Parks under the following conditions:

1. Common utility services such as electricity, water, gas, or sanitation are not eligible.
2. Exports made by users of the CSP can count toward the CSP’s export obligation if shipping bills mention the CSP’s authorization details.
3. These exports cannot be used to meet obligations under any other EPCG license.
4. A bank guarantee equal to the duty saved must be submitted by the CSP or its users.
5. All capital goods must be installed within the designated export town or park.

Export Obligation (EO)

The EPCG scheme requires the EPCG license holder to fulfill the export obligation (EO). The key points are:

1. Who can fulfill EO:
   • EO must be fulfilled by exporting goods manufactured by the holder or supporting manufacturer.
   • Services rendered by the holder under the EPCG authorization also count.
   • Exports can be made directly or through third parties.
     
2. Average Export Obligation (AEO):
   • EO is calculated over and above the average exports of the previous three licensing years for the same or similar products.
   • The arithmetic mean of export performance over the last three years serves as the AEO.
   • AEO must be maintained every financial year until EO is fully completed.
   • Exports above the AEO count toward fulfilling EO.
     
3. Indigenous sourcing:
   • If capital goods are sourced domestically, specific EO is 25% lower than the standard EO.
   • Average EO remains unchanged.
     
4. Eligible exports:
   • Exports under the Advance Authorization, DFIA, Duty Drawback, RoSCTL, and RoDTEP schemes are allowed.
   • EO can be fulfilled by physical exports or deemed exports.
   • Supplies to DTA units are counted toward EO and AEO.
   • ITA-I item supplies to DTA, royalty in foreign currency, R&D service payments, and certain rupee payments are eligible.
     
5. Restrictions and rules:
   • Only one benefit from the specified provisions can be claimed for EO.
   • Extension of the EO period is permitted under the Handbook of Procedures.

Calculation of Export Obligation

Under the EPCG scheme, the export obligation (EO) is calculated based on the type of capital goods procurement. Key points include:

1. Direct Imports
   • EO is calculated with reference to the actual customs duty, taxes, and cess saved on imported capital goods.
     
2. Domestic Sourcing
   • EO is calculated using the notional customs duty, taxes, and cess saved on the FOR value.
   • This value is indicated in the ARO (Authorization Redeemed Order) or Invalidation Letter.
     
3. Incentive for Early EO Fulfillment
   • If the authorization holder fulfills 75% or more of the specific EO and 100% of the Average Export Obligation (AEO) within half or less of the original EO period, the remaining EO may be condoned.
   • The EPCG license can then be redeemed early by the concerned RA.

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