EPCG Scheme | Benefits, Eligibility, Documents, Types, and Export Obligation

• It offers duty-free imports of goods if a requirement of export obligation equivalent to six times the duty saving amount on capital goods is met within six years.
• The license offers financial assistance to exporters by removing import charges, which results in cost-effectiveness.
• It encourages investment as this scheme could be used as an opportunity to increase your Environmental, Social, and Governance (ESG) score, which could result in foreign investors showing interest in your business.
• It brings better efficiency to your business as this scheme broadens you into the new technology and machinery that would help your business to be more efficient, and give you a competitive edge in the global market.

Merchant exporters

They purchase finished goods from the manufacturer and export them under their own brand or trading house. They must connect with specific supporting manufacturers who use the imported capital goods under the EPCG Scheme.

Manufacturer exporters

The businesses directly involved in manufacturing, instead of focusing on the domestic market, they can manufacture goods specifically to be exported. They can use the EPCG scheme to import capital goods and upgrade their factories to increase their output.

Service providers

You may be eligible for the EPCG program if your company offers services to other people.

So, according to the Foreign Trade Policy(FTP), four modes are:

• Mode 1 - Cross-border trade: Supply of a service from India to any other country
• Mode 2 - Consumption abroad: supply of a service from India to service consumers of any other country.
• Mode 3 - Commercial Presence: Supply of service from India through a commercial presence in any other country.
• Mode 4 - Presence of natural person: Supply of service from India by sending their employees to any other country.

The following documents are required to be submitted for obtaining an EPCG license:

• Import Export Code (IEC)
• Digital signature
• Pan Card
• Registration cum Membership Certificate (RCMC)
• Registration Certificate from the Tourism Department
• Excise Registration (if registered)
• GST Registration Certificate
• Brochure
• Proforma Invoice
• Self-certified original copy of the Certificate of Chartered Accountant
• Self-certified original copy of the Certificate of Chartered Engineer

According to the Government of India's Foreign Trade Policy (FTP), any plant, machinery, equipment, or accessories that are necessary for manufacturing or production, directly or indirectly, of goods or for rendering services, is classified as capital goods.

It also covers machine tools, packaging tools, packaging equipment, power-generating sets, refrigeration equipment, and instruments for testing, research & development, and quality and pollution control. The EPCG scheme allows for the import of second-hand capital goods without any age restriction.

These capital goods may be used in manufacturing, mining, agriculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture, and the services sector.

All the above-mentioned goods are allowed for importing at zero customs duty, including computer systems and software, in either Completely Knocked Down (CKD) or Semi Knocked Down (SKD), under the EPCG scheme.

The business can only sell goods in the Domestic Tariff Area (DTA) if the exporter fulfills their export obligation and meets the deadline.

Businesses that join this scheme and gain authorization must meet their Export Obligation (EO). This export value equivalent is six times the custom duty saved amount within six years. In simple terms, you need to bring in foreign currency equal to 6 times the duty saved on the import measured in domestic currency. Exporters who are tied to support the domestic supply chain by sourcing their capital goods domestically can benefit from the concessional customs duty rates on the import of capital goods.

The Average Export Obligation (AEO) will be calculated on the average exports of the past three years on the same or similar goods. Unless exempted, the businesses must meet this AEO figure every budgetary year. This EO value can be reduced by meeting certain conditions, like local sourcing supplies, being in specific locations, like the North East region, or being an exporter of green technology products.

The importer of capital goods is required to pay customs duties along with interest on it as disclosed. If they fail to meet this export obligation in six years, it could lead to the business paying all customs duties, cess, and taxes saved with an additional 15% annual interest to the customs authority of India.

In short, the EPCG scheme plays a critical part in promoting exports and supporting businesses for engaging in international trade. The scheme contributes to the development of the Indian economy by offering duty-free imports and financial incentives. The EPCG scheme could be a profitable option if used rightly by an organization. Make sure you understand the export obligation and fulfill the terms mentioned in the scheme.