EPCG (Export Promotion Goods Scheme): Revisited and Explained in 2020

EPCG (Export Promotion Capital Goods) was introduced in 1990 so that Indian importers can import goods in a concessional rate. Thus, helping Indian manufacturers to produce high quality goods and services at reasonable prices. In this article let us talk about EPCG in modern days with an example.

EPCG (Export Promotion Capital Goods) : A Story of our Friend

Let us assume our good friend owns a company that manufactures water pumps which are exported to foreign countries. For manufacturing of water pumps, he needs drilling and soldering machines along with some special nuts and bolts which are to be imported from Europe. To ensure that the water pumps have a competitive price (given the quality), he should be able to procure raw materials and machinery involved in production at a cheaper cost. Hence, the government introduced the EPCG scheme which provides compensation in Basic Customs Duties, IGST and compensation cess. Therefore, he can import capital goods for pre-production and post-production at zero customs duty.

# Requisite for EPCG

One basic requisite for EPCG is that he has to fulfill the conditions of Export Obligation (EO) which is 6 times the duty saved in 6 years. Let us assume that he saved a total of 5 lakh rupees in imports, then he has to export water pumps worth rupees 6 x 5 lakh rupees = 30 lakh rupees in 6 years. The fulfillment of EO is done block – wise as:

Period from the date of issue of Authorisation	Minimum export obligation to be fulfilled
Block of 1^st to 4^th year	50%
Block of 5^th and 6^th year	Balance EO

If he fulfils 75% or more specific EO and/or 100% average EO till date in half or less than half of EO period specified then, remaining EO shall be condoned.

The validity of EPCG authorisation is for 18 months. The scheme has been extended for the import of indigenous items as well to promote Indian manufacturers.

# Who can Avail EPCG?

Merchant Exporters
Merchant exporters tied to supporting manufacturers
Service providers

Other important details about EPCG:
Imported capital goods are subject to Actual User Condition till EO is completed
Capital goods are allowed for imports except for the ones mentioned in negative list of Appendix 5F
Post export credit scrips shall be available to exporters which can be used for the remission of Basic Custom Duties, i.e. Duty scrips are transferrable just as in MEIS.
EPCG can be combined with other schemes such as Deemed Exports, Advance Authorisation, MEIS and SEIS

Filing an application under EPCG authorisation, availing benefits & closure of the same can be a tough nut to crack.

A lot of pre & post requisites are involved such as – valid RCMC with the export product mentioned, mandatory IEC, technical details about the machinery, products to be exported, correct classification of all the products in consonance with their ITC HS code, export obligation, bank guarantee to be furnished to customs authorities etc.

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