The EPCG Scheme aids in importing capital items for the manufacture of high-quality goods and increases India's export performance. The EPCG Scheme allows capital items needed in pre-production, manufacturing, and post-production to be imported without paying customs tax. EPCG stands for Export Promotion Capital Goods Scheme and is one of the programs offered by the Indian government to exporters and importers with the goal of encouraging exports. It benefits firms and industries from all sectors. The EPCG License is particularly important to indigenous enterprises that deal heavily in imports and exports.
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The bearer of an EPCG Authorization may also purchase Capital Goods from domestic producers.
Capital items imported to produce export products benefit from zero or reduced customs tax rates under this plan. Imported capital goods include pre-, during-, and post-production spare components. Exporters with assisting manufacturers, exporting manufacturers with or without assisting vendors, and authorised service providers or approved Common Service Providers are all included in the plan.
This scheme allows an importer (who is an exporter) to acquire capital goods at zero customs duty rates. Yet, the scheme is subjected to an export value equivalent to six times the tariff savings on capital items imported within six years of the authorisation's issuance. In other words, the firm is obligated to bring in foreign cash equal to 600% of the tariff savings on such imports assessed in local currency. Within six years of receiving the Export Promotion Capital Goods Scheme, this must be completed.
Export Promotion Capital Goods
Capital goods employed in the manufacture of items that are exported to other nations are known as export promotion capital goods. It contains both machines and replacement parts. As a result, the product made in India must be transported outside of India to constitute Export Promotion Capital Goods.
Capital Goods Allowed Under EPCG Scheme
Spares (including refurbished/reconditioned), jigs, tools, dies, moulds, and fixtures are some of the capital goods authorised under the Export Promotion Capital Goods Scheme. Also, second-hand capital items may be imported without considering their age. Under this Foreign Trade Policy (FTP) plan, the importation of capital goods essential for the making of export-oriented items included in the authorisation of Export Promotion Capital Goods is allowed at a reduced or zero tariff rate. This policy, which is a component of the Foreign Trade Policy, allows indigenous businesses to progress technologically.
EPCG Scheme Benefits
EPCG is meant to promote exports, and the Indian government uses it to provide incentives and financial assistance to exporters. This clause may favour heavy exporters. However, it is not suggested to proceed with this programme if you do not anticipate manufacturing in large quantities or selling your products solely within the nation since it may become nearly difficult to meet the scheme's commitments.
The EPCG Scheme provides the following benefits:
- Because the government wants to boost exports and help heavy exporters, the EPCG licence provides financial assistance to exporters by removing import charges.
- The EPCG Scheme provides duty-free imports of products if a requirement of export obligation equivalent to six times the duty savings amount on capital goods is met within six years.
- Once the EPCG License has been obtained, it must be registered at the port of entry to be eligible for duty waivers at the time of submitting the Bill of Entry.
- In the event of exporters with shipments under ₹1 crore, the compliance additionally requires the production of a bond/bank guarantee. The bond must be provided at the customs port for exporters with an export above ₹1 crore; however, a bank guarantee is not required.
- Early redemption is allowed as a condition to encourage fast-track enterprises to promote exports. The remaining export obligation shall be forgiven if the permit holder has accomplished 75% or more of the specific export obligation and 100% of the average export requirement, if any, in less than 50% or 50% of the required term of the original export obligation.
Applying the Director-General of Foreign Trade's licencing authority is a prerequisite for acquiring a License under the EPCG Scheme. The application must be connected to all essential papers, as well as business and personal information.
- It's important to remember that the time restriction might be extended.
- In exceptional cases, when the exporter has adequate evidence/proof that the factors preventing him from completing the deadline were beyond his control, the time limit might be extended.
- A penalty will be imposed in the event of non-compliance.
- Under the Goods and Services Tax framework, merchant exporters must pay IGST and obtain a refund. By releasing Notification No. 54/2015-20, the DGFT has updated the FTP (Foreign Trade Policy), extending the IGST and Compensation Exemptions as per the EPCG Scheme up to October 1, 2018. Exporters who are having difficulty receiving GST refunds would benefit greatly from this method.
- IGST and Compensation Cess exclusions are included in the EPCG Scheme.
- If a licensee fails to satisfy the defined export obligation under the EPCG Scheme, the licensee is obligated to pay the due customs amount plus 15% interest per year to the customs authorities.
- Importing and exporting goods inside the Domestic Tariff Zone (DTA)
- If the exporter meets his export responsibilities on time, only this company can sell products in the Domestic Tariff Area.
Documents Required for EPCG License
The licencing authority that is the Director-General of Foreign Trade is the issuing authority (DGFT). ANF 5B must be completed with self-certified versions of the following documents:
- Digital signature
- Excise Registration (if registered)
- GST Registration Certificate
- Import Export Code (IEC)
- Pan Card
- Proforma Invoice
- Registration certificate from Tourism Department
- Registration cum Membership Certificate (RCMC)
- Self-Certified Original Copy of Certificate of Chartered Engineer
- Self-Certified Original Copy of Certificate of Chartered Accountant
Also Read: What is RoSCTL Scheme?
The Export Obligation Under the EPCG Scheme
Importation of capital goods under the EPCG Scheme is subject to an export requirement equal to six times the duty saved, which must be fulfilled within six years of the EPCG authorisation being issued. If an EPCG licence holder fails to satisfy the specified export obligation, the importer of capital goods is responsible for paying customs charges and interest as needed.
Historical Case on EPCG License
ABC Inc. was in the business of producing semi-combed hosiery yarn. The corporation proceeded in good faith and unintentionally relied on consultant Mr X of XYZ Pvt. Ltd for shipping invoices from certain exporters. This would be counted as exports; they were promised. Following that, ABC Inc. filed these shipping invoices to DGFT to discharge the export requirement. Because third-party export processes are usual in EPCG cases, the claim was approved at the time.
The commodities were not exported, according to the inquiry. Because the yarn was not exported, the firm broke the terms of its EPCG Licence. The corporation entered a guilty plea. However, after a thorough investigation, it was discovered that the commodities made were not ABC Inc's final products. As a result of the violation of the scheme's terms and conditions, the capital goods imported (worth ₹6.05 crore) were seized under section 108 of the Customs Act 1962.
ABC Inc. saved ₹1.38 crore in customs tax. This had become due and payable, and it had to be settled before the products could be used anymore. Aside from that, interest and return of past advantages, such as the deduction provided before and the TED refund received, were due. Due to non-compliance with the export obligation, a significant penalty was imposed and had to be paid. The EPCG License might be a highly lucrative and profitable alternative if used correctly by qualified firms. But it should serve as a reminder to avoid signing up for it without first carefully considering how product exports will be accomplished.
Foreign Exchange profits are a vital source for speeding the growth of the Indian economy and growing foreign exchange in the country. Hence the government has devised this programme. By implementing the EPCG Scheme under Foreign Trade Policy, the government has increased the inflow of foreign exchange revenues and accelerated the export production of commodities by simplifying the import process. As a result, the importer scans for registration to receive the EPCG License and make use of its benefits.