Export Promotion Capital Goods Scheme (EPCG)

Submitted by: CHIRANJEET BASAK(129) DEEPTI SHARMA(132) GAURAV GUPTA(133)

Definition of EPCG Who can avail EPCG scheme Rules of EPCG for manufacturing, service providers, projects, others Conditions and Obligations under EPCG Who and how to obtain Import license under EPCG scheme What are the conditions for import of capital goods under EPCG scheme? Import duty Structure Duty draw back and Duty saved amount Payment for Import and Export Penal Action Benefits to domestic supplier Latest related news for 2013

The scheme was introduced by Sh. P. Chidambaram Ministry of commerce in 1990 to allow import of capital goods at low Custom duty. This scheme has helped in boosting exports in the initial years of introduction when the customs duties on capital goods were every high. This scheme has primarily helped exporters to become more competitive as it reduces the initial cost on capital goods.

EPCG (Export Promotion Capital Goods Scheme) is a scheme in which one can import the capital goods at concessional rate, which may be used for pre-production, production or postproduction as well as computer software systems, spares parts, fixtures, dies, moulds. Thus this scheme saved at least 20% of the duty value on the import. This scheme is subject to the export obligation equivalent to 6 times or 8 times (sector wise) of duty saved in the timeframe of 6/8 years. This scheme is for manufactures as well as vendors, service providers as well.
4

 Manufacturers, Exporters and Merchant exporters are eligible to avail this Scheme.

a) For Manufacturers
The scheme is quite beneficial to Manufacturer exporters as they can import their capital goods at a substantial discount. Especially for those manufacturers whose final product is not excisable (Agriculture sector) or is exempt from excise duty (like those in Uttaranchal)since they cannot take the CENVAT credit of the CVD paid on imports and Excise Duty paid in Domestic markets. Merchant Exporters tied with the supporting manufacturers can also utilize the scheme for concessional duty import of Capital Goods to be installed at the supporting manufacturers. b) For Projects EPCG can be taken for the full projects where exports of goods or services can be envisaged by the use of the project or alternative products. This can be taken for Captive Power units also. EPCG can be taken along with Project Import scheme in case of new Projects.
6

Contd.

c) For Service Provider Various service providers / exporters can take EPCG route to reduce their Capital Cost. Service Providers like Port Developers, Hotels, Hospitals, Tour Operators, Taxi Operators, Construction Companies, Logistics companies can utilize the scheme to import/procure from domestic market, their capital goods at substantially reduced costs. The Export Obligation can be fulfilled by For ex Earnings through providing services, like that of Foreign Guests staying in the hotel, medical tourism etc. d) For Others Certain other sectors like Retail Sector in the country, Port Projects etc. can also utilize EPCG scheme to their advantage.

The eligible persons who desire to operate under the EPCG Scheme should make an application in the form given in Appendix 10 A Licenses are issued, under this scheme by the director general of foreign trade The import licences issued under this scheme shall be deemed to be valid for the goods already shipped/ arrived provided, the customs duty has not been paid for the goods have not been cleared from the customs The licence is valid for 36 months and further extension is not applicable

Items which can import under EPCG scheme the scheme allows following items which are freely importable as per ITC (HS) classification. Capital goods (Plant, machinery, equipment, accessories) Second hand capital goods (without any restriction on age) Catalyst for initial charge Refractories for initial lining Refrigeration equipments Power generating sets Machine Tools Equipment & instrument for testing, research and development, quality& pollution control Spares for existing plant & machinery ( imported earlier) Catalyst for replacement
9

a) Goods / Raw Materials

10

Contd.

b) Capital Goods Capital Goods, machinery, equipments mostly covered under chapter 84 and 85 normallyattract duty of 7.5% + CVD and ACVD. This works out to a total of 23.895%. Duties arelesser for computers & and computer parts and telecom related products under ITagreement. The duties are further reduced by exemption notifications based on the usage of goods for specified purposes and for specified industries c) Project Imports Project Imports enjoy duties of 5% plus CVD, ACVD. Please see Project Imports section formore details

11

Duty Drawback under section 75 of Customs Act scheme provides refund of duties(Customs& Central Excise) paid on Raw Material & Inputs that have gone in production of goods for exports. Deemed Exports provision under FTP also provides drawback for deemed export purposes. They are given on the following basis: All Industry Rate: Government has published drawback rates for several products which are regularly exported through a drawback schedule. Exporters of these products can get the drawback at the prescribed rates for the customs of port of export. Brand Rate: In case however the export product is not covered under the schedule, the exporter can file for drawback under brand rate of fixation to recover the duties actually suffered in the process. Special Brand rates: Can be fixed in case the all Industry rates are available but are less than 4/5th of the actual duties suffered 12

Duty saved amount Duty saved amount calculation = Merit duty (inclusive of Basic duty +CVD + cess on CVD + SAD+ Edu.cess etc) Less: - EPCG duty

13

Payments for Import / Export are covered under FEMA (Foreign Exchange Management Act), with RBI (Reserve Bank of India) being the nodal and monitoring Bank. Documents of Export / Import are required to be routed through Banks though there are relaxations for advance payments, status holders etc. Also RBI may give relaxation in specific cases on application by the importer and exporter. The payments for import are supposed to be made within six months and the proof of payment is to be submitted with the bank. The payments for export are supposed to be received within six months, though there are relaxations for status holders. In case of Project Exports or for other purposes where payments are expected to be received in longer terms than allowed, a prior permission from RBI is needed

14

In case of failure to fulfill the export obligation or any other condition of the licence,thelicence holder shall be liable for action under the Foreign Trade (Development &Regulation) Act, 1992, the Orders and Rules made there under, the provisions of the Policyand theCustoms Act, 1962

15

The domestic manufacturer supplying capitalgoods to EPCG Authorisation holders shall be eligible for following deemed export benefits (a) Advance Authorisation (b) Deemed Export Drawback (c) Exemption from terminal excise duty where supplies are made against Internationalcompetitive Bidding. (d) In other cases, refund of terminal excise duty will be given.To incentivize fast track companies with a view to accelerate exports under the Scheme, incases where the Authorization holder has fulfilled 75% or more of the export obligationunder the Scheme (including average level of exports) in half or less than half the originalexport obligation period specified in the Authorization, the remaining export obligationshall be condoned and the Authorization redeemed by the regional authority concerned
16

EPCG authorisation must be registered with Customs before import TNC Rajagopalan: Doubts remain over tweaked post-export EPCG scheme
ABG effort to move equipment met by Customs glare

17

18