Income Tax Return P4

Export Promotion Capital Goods (EPCG) Scheme

26 May 2020

This is a scheme relating to the import of capital goods at zero duty. The benefit of zero duty is subject to the fulfillment of export obligations and other conditions.

The objective: To facilitate the import of capital goods for producing quality goods and services to enlarge India’s export competitiveness.

Schemes:

1. Import capital goods by enjoying the zero duty benefit first and then fulfill the export obligation conditions within the stipulated period. This is called Pre-Export EPCG.

2. Post Export EPCG: Under this, capital goods are imported first by paying import duty, then remission (refund) of import duties is claimed after fulfilling an export obligation.

3. EPCG Scheme for capital goods purchased in India.

Conditions: 

1. The scheme is subject to actual user condition and a certificate of installation in own premises shall be produced from Excise Dept./ other authorities. 

2. The import must be made within 18 months of the date of the issue of authorization and no extension is granted. 

3. Even the capital goods under the scheme are not transferable until the Export obligation (E.O) is fulfilled. 

4. The importer has to achieve the export turnover of 6 times the amount of import duty saved within 6 years of authorization.

Capital Goods defined: Means any plant, machinery, equipment, or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernization, technological up-gradation, or expansion.

It includes packaging machinery and equipment, refrigeration equipment, power generating sets, machine tools, equipment and instruments for testing, research and development, quality and pollution control Capital goods may be for use in Manufacturing, Mining, Agriculture, Aquaculture, Animal husbandry, Floriculture, Horticulture, Pisciculture, poultry, agriculture, and viticulture as well as for use in the services sector.

Under the EPCG scheme, import of capital goods which are required for the manufacture of the resultant export product specified in the EPCG Authorization is permitted at the nil/concessional rate of Customs duty. This Scheme enables the up-gradation of technology of the indigenous industry. For this purpose, EPCG Authorizations are issued by RA (Regional Authority) of DGFT on the basis of the nexus certificate issued by an independent chartered engineer.

At present the EPCG Authorization holder is permitted to import capital goods at 0% Customs duty. Under the 0% duty, EPCG scheme the Authorization holder is required to undertake export obligation (EO) equivalent to 6 times of the duty saved amount on the capital goods imported within 6 years reckoned from the date of issue of Authorization.

EO under the scheme is to be over and above the average level of exports achieved by the authorization holder in the preceding three licensing years for the same and similar products. EPCG Authorisations are issued to manufacturer exporters and merchant exporter with or without supporting manufacturer, and service providers. EPCG scheme is also available to a service provider who is designated/ certified as a Common Service Provider (CSP) by the DGFT or State Industrial Infrastructural Corporation in a Town of Export Excellence. EPCG authorization issued to a CSP gives details of the users and the quantum of EO which each user has to fulfill. The CSP as well as the specific users are under an obligation to fulfill the export obligation under the scheme.

The EPCG Authorization specifies the value/quantity of resultant export products to be exported against it. In the case of manufacturer/merchant/service exporters, such EO is required to be fulfilled by exporting goods manufactured or capable of being manufactured or services rendered by the use of capital goods imported under the scheme.

The EPCG Authorization holder is required to file a bond with or without a bank guarantee with the Customs prior to commencement of import of capital goods. Bank guarantee equal to 100% of the differential duty in case of merchant exporters and 25% in case of manufacturer exporters are required to be submitted except in case of a few exempted categories

Capital goods imported under the EPCG scheme are subject to actual user condition and the goods imported cannot be transferred/ sold till the fulfillment of EO. In order to ensure that the capital goods imported under EPCG scheme are utilized in the manufacture of resultant export product, after importation/clearance of capital goods from Customs, the Authorization holder is required to produce a certificate from the jurisdictional Central Excise Authority or Chartered Engineer confirming installation of such capital goods in the declared premises.

In order to ensure proper account of the fulfillment of EO, the EPCG Authorization holder is required to indicate the EPCG Authorization No./date on the body of the Shipping Bill/invoice (in case of deemed exports). After fulfillment of specified EO, the Authorization holder submits relevant export documents along with EPCG Authorization to the DGFT authorities for the purpose of obtaining an EO discharge certificate.

After obtaining an EO discharge certificate from DGFT, the Authorization holder produces the same before Customs for the purpose of obtaining redemption of bond/BG filed by him. This is to ensure that the Authorization holder maintains a specified level of EO throughout the EO period in addition to the average EO.