Export Promotion Capital Goods (EPCG) scheme

Export Promotion Capital Goods (EPCG) scheme allows import of capital goods including spares for pre production, production and post production at zero duty subject to an export obligation of 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue date.
EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers. The Scheme also covers a service provider who is designated / certified as a Common Service Provider (CSP).

EPCG authorization holder can export either directly or through third party (s). Export proceeds are to be realized in freely convertible currency except for deemed exports. Import of capital goods imported under the EPCG scheme shall be subject to Actual User condition till export obligation is completed.

Export Obligation under EPCG scheme is required to be fulfilled (by Exporter) by export of goods manufactured/services rendered by the applicant.

There are two types of export obligation that are mandatory.

First, Annual Average in which export obligation is 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 within the overall export obligation period including extended period, if any. Such average would be the arithmetic mean of export performance in the last three years for the same and similar products.

Secondly, Specific Average which is 6 times the duty saved amount in which the Authorization holder shall also fulfill a minimum of 50% export obligation in each block of years – the first block being of 4 years and the second block is of 2 years.

Royalty payments received in freely convertible currency and foreign exchange received for R&D services shall also be counted for discharge under EPCG.

EPCG Authorization holder may also source capital goods from a domestic  manufacturer. Such domestic manufacturer shall be eligible for deemed export benefit under FTP. EPCG Authorization holders can opt for Technological Upgradation of existing capital good imported under EPCG Authorization. Import of
second hand capital goods is not permitted under the EPCG scheme.

To incentivize fast track companies to accelerate exports, there is a provision for early redemption and in cases where Authorization holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified , remaining
export obligation shall be condoned.

Authorization holder is required to submit to RA concerned by 30th April of every year, report on fulfillment of export obligation.

The scheme allows one or more requests for grant of extension in export obligation period, on payment of composition fee equal to 2% of proportionate duty saved.

amount on unfulfilled export obligation or an enhancement in export obligation imposed to the extent of 10% of total export obligation imposed under authorization, as the case may be, at the choice of exporter, for each year of extension sought.

Such first extension in EO period can be for a maximum period of 2 years.

Extension in EO period beyond two years’ period may be considered, for a further extension upto 2 years with a condition that 50% of duty payable in proportion to the  unfulfilled export obligation is paid by authorization holder to Custom authorities before an endorsement of extension is made on EPCG authorization by RA concerned. In such cases, no composition fee is to be paid or additional EO is to be imposed. In case the firm is still not able to complete the export obligation, duty already deposited will be deducted from total duty plus interest to be paid for EO default.

In case, EPCG authorization holder fails to fulfil prescribed export obligation, he shall pay duties of Customs plus interest as prescribed by Customs authority. This facility can also be availed by EPCG authorization holder to exit at his option.

The EPCG Scheme provides for in addition, a specific EO of 75% of normal Export Obligation for export of Green Technology Products. The scheme also provides for Post Export EPCG duty credit scrip(s) which are available to exporters who intend to import capital goods on full payment of applicable duties in cash and choose to opt
for this scheme.

Further, for units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Jammu &Kashmir, specific EO shall be 25% of the EO.

Thanks

CA Pankaj Mishra Mishra

FCA, M-COM, B-COM, ISC( Mathematics)

By CA. Pankaj Kumar Mishra

CA. Pankaj Kumar Mishra (FCA, LLB, Peer Reviewer, FAFD (Forensic Auditor), M-com, B-Com (CS)) CCIA(ICAI), CCGST(ICAI), CCCAB (ICAI), CCAI(ICAI) Co-opted Member as Special Invitee of ICAI:  Carrier Counselling Committee of the ICAI for the year 2025-26.  Editorial Board of the ICAI for the year 2024-25  Direct Tax Committee of the ICAI for the year 2023-24  Research Committee NIRC of the ICAI for the year 2024-25. Visiting Faculty of:  The National Academy of Direct Taxation (NADT)  The Institute of Chartered Accountant of the India (ICAI)- (MCS)  The Institute of Cost and Management Accountant of India -Direct-Taxes Specially Acknowledged by the Direct Tax committee of ICAI:  for contribution for revising the “Guidance Note on Tax Audit Under section 44AB of The Income Tax Act 1961(Revised 2023). Brief About CA Pankaj Kumar Mishra and his Work Expertise: CA Pankaj Kumar Mishra is a Fellow Chartered Accountant with extensive professional practice in Startup and MSME Advisory Services, covering a comprehensive range of direct and indirect taxation planning, regulatory management, and strategic financial advisory. His core specialization spans tax compliance management, international taxation frameworks. Over the years, he has developed strong expertise in interpreting and applying complex tax provisions, along with managing intricate income-tax proceedings before various wings of the Income Tax Department. A significant part of his professional profile is his active representation before appellate authorities, including  Commissioner of Income Tax (Appeals),  Income Tax Appellate Tribunal (ITAT), and  Other quasi-judicial forums, Including GST Matters and Representation also. He has a proven track record of successfully preparing, presenting, and defending complex tax matters at various appellate stages, demonstrating strong analytical and advocacy skills. His professional journey includes handling matters such as assessments, reassessments, TDS proceedings, search & seizure-related issues, and high-value scrutiny cases. He has also led numerous due diligence assignments, including financial, tax, and technical viability evaluations for mergers, acquisitions, strategic investments, and joint ventures involving both domestic and international stakeholders. also having rich experience in business structuring, foreign exchange laws (including FEMA regulations), and foreign trade policy advisory. In addition to his practice, CA Pankaj Kumar Mishra is well-recognized for his contribution to the profession through knowledge sharing. He has delivered numerous seminars, workshops, and technical sessions at the Northern India Regional Council (NIRC) of ICAI, as well as at other professional forums across Pan-India. His sessions on taxation, startup advisory, and emerging regulatory frameworks have been highly appreciated by participants and peers. Thanks, and Regards CA Pankaj Kumar Mishra

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