Export Promotion Capital Goods (EPCG) scheme

Export Promotion Capital Goods (EPCG) scheme - Introduction

The Export Promotion Capital Goods (EPCG) scheme was introduced by the Directorate General of Foreign Trade (DGFT) under Chapter 5 of the Foreign Trade Policy (FTP) 2015-20. The idea behind the launch of this scheme was the facilitation of capital product imports so that Indian manufacturers can use them to produce quality goods. This scheme aims to improve India’s manufacturing prowess in the global market. EPCG Scheme allows import of capital goods (except those specified in the negative list in Appendix 5 F for pre-production, production and postproduction at zero customs duty. However, there is a compulsion on the business to bring in foreign currency which is equal to 600 per cent of duty saved on such importation measured in domestic currency. This is to be done within six years from availing of the Export Promotion Capital Goods Scheme.

Some services that were earlier allowed under the EPCG scheme were later discounted under the GST regime. As per FTP 2015-2020, Capital goods imported under EPCG Authorization for physical exports are also exempt from IGST and Compensation Cess upto 31.03.2020 only, leviable thereon under the subsection(7) and subsection (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as provided in the notification issued by Department of Revenue. The export promotion capital goods scheme can be availed on the import of capital goods during the pre-production, production, and post-production stage with nil customs duty. The scheme is applicable when the imported goods are:

  • Capital goods under the definition provided in Chapter 9 of the FTP 2015-20, including those in semi-knocked down and completely knocked down condition
  • Computer systems and software as parts/components of the capital goods
  • Spares and tools, moulds, dies, fixtures, jigs and refractories
  • Catalysts procured for the initial charge and one additional charge
  • Capital goods for project imports, if notified by the Central Board of Excise and Customs
The objective of the Scheme

The objective of the EPCG Scheme is to facilitate the import of capital goods for producing quality goods and services and enhancing India’s manufacturing competitiveness. While advance licenses/authorizations were neutralizing the duty/tax incidence on ‘inputs’, the exporters earlier had no scheme to neutralize the duties/taxes paid on capital goods. Therefore, the EPCG Scheme aims at the procurement of capital goods duty/tax-free for exporters.

Export Obligation under EPCG Scheme

Export Obligation (EO) is an arrangement used in the import of capital goods under the EPCG scheme. Such imports are made under an EO, which must be six times the duty that would otherwise be paid on the import of the capital goods. The EO must be fulfilled within six years from the date of issuance of the EPCG authorization. In the case of indigenous sourcing of capital goods, specific EO shall be 25% less than the stipulated EO (i.e. 5.4 times of notional duties, taxes and cess saved).