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What is the EPCG Scheme? How Does It Work? Research Team | Posted On Saturday, December 21,2019, 03:42 PM

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What is the EPCG Scheme? How Does It Work?



What is the EPCG Scheme?

The EPGC scheme is an export-oriented business scheme that enables the importer to import capital goods at zero rates of customs duty. The main aim of this scheme is to facilitate the import of capital goods for the production of quality goods and services in India. The scheme enables the authorization holder to import quality equipment and machinery at an affordable price to enhance the manufacturing competitiveness of the Indian manufacturers. The manufacturers can import capital goods at 0% customs duty that can be used in the pre-production, production or post-production process to produce quality products for the export market.

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About the EPCG Scheme:

The EPGC scheme is launched by the government of India under the foreign trade policy 2015-20. The scheme came into force on April 1st 2015. Under this scheme, manufacturers are eligible to import goods and equipment for the manufacture of export quality goods. The main benefit of the scheme is that the capital goods imported enjoy zero or concessional rates in customs duty. The lists of items that can be imported are specified under the scheme.

The EPGC scheme provides an avenue for the up-gradation of technology in the manufacturing sector. The Regional Licensing Authority of Director General of Foreign Trade is authorized with the task of issuing the EPGC authorizations based on the nexus certifications granted by an independent chartered engineer.

Export Obligation:

If the authorization holder has imported goods under the EPGC scheme then it is subjected to an export obligation. If the authorization holder is unable to comply with the specified export obligations, then the importer has to pay customs duty along with specified interest.

An entity must comply with the below-given export obligations to import capital goods at 0% customs duty under the EPCG scheme:

  • The beneficiaries (authorization holder) need to fulfill export obligations for exporting manufactured goods or services provided by him. However, the beneficiaries must have the EPGC authorization issued to him.
  • The EPGC scheme also states that shipments under the drawback scheme, advance authorization, and rewards scheme must comply with export obligations.
  • Deemed exports must fulfill export obligations
  • In case the beneficiary (authorization holder) must comply with the export obligations receives royalty payment in foreign currency or freely convertible currency for services related to the research and development sector.
  • The beneficiary must comply with the export obligations for attaining exports above the average level in the past 3 licensing years for the export of similar products.  The manufacturers and exporters must keep the average export level within the overall export obligation.

The export obligation will be relaxed under the following scenarios:

A Decreased export obligation for green technology products: the EPGC scheme states that the export obligation will be relaxed up to 75% in the case of green technology products.

Minimized export obligations for selective states: certain states like Jammu and Kashmir and Assam, Tripura, Nagaland, Manipur, Meghalaya, Sikkim, and Arunachal Pradesh will have export obligation reduce to 25%.

Rewards for early fulfillment: this is offered to an authorization holder who has complied with the export obligation by 75% or above. Such beneficiaries are eligible to receive relaxation on export obligations. This also applies to compliance of export obligation by 100% of the average to date, in half or below half of the specified export obligation.

Capital Goods allowed under Export Promotion Capital Goods Scheme:

The export promotion capital goods scheme levies certain restrictions on the types of capital goods that can be exported or imported. They are as follows:

  • The scheme allows capital goods such as dies, molds, tools, fixtures, jigs, and spares.
  • Second-hand capital goods can be imported under the EPGC scheme without any restrictions on age.
  • Computer software systems being part of capital goods being imported
  • The Catalyst for initial charge plus one subsequent charge
  • Capital goods as defined in the Foreign Trade Policy - Any plant, equipment or accessories, or machinery required to produce or manufacture (either directly or indirectly) goods or for rendering services. It includes refrigeration equipment, packaging machinery, and equipment, machine tools, power generating sets, instruments and equipment for research and development, testing, quality, and pollution control. Capital goods can be used in mining, manufacturing, animal husbandry, agriculture, aquaculture, floriculture, pisciculture, horticulture, sericulture, poultry, etc.

Documents required for EPCG License:

Mentioned below is the list of documents the applicants must submit to obtain an EPCG license:

  • Import-export code (IEC)
  • Registration/ membership certificate (RCMC)
  • PAN card
  • Digital signature
  • Excise registration
  • Registration certificate from the tourism department
  • GST registration
  • brochure
  • Performa invoice
  • Self-certified copy + original of certificate from chartered accountant
  • Self-certified copy + original of certificate from chartered accountant

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