EPCG: Export Promotion Capital Goods Scheme to import at 0% Customs Duty


The ECPG Scheme i.e. the Export Promotion Capital Goods Scheme is a part of the Foreign Trade Policy of the Indian Govt. The Foreign Trade Policy of the Govt for the years 2016-2020 has been framed in a manner to provide incentives to exporters of goods as well as exporters of service.

The EPCG Scheme allows for import of Capital Goods at 0% Customs Duty subject to certain conditions. The EPCG Scheme of the Foreign Trade Policy 2016-2020 which provides certain incentives to exporters has been explained below in this article. Apart from the EPCG Scheme benefits, there are several other benefits as well which are provided to exporters. The most popular of these incentives for exporters are:-

  1. SEIS Scheme for Service Exporters
  2. MEIS Scheme for Merchandise and Goods Exporters

EPCG Scheme of the Govt

The EPCG Scheme allows for import of Capital Goods for pre-production, production and post production (incl. CKD, SKD thereof as well as Computer Software Systems) at 0% Customs Duty.

However, this benefit of lower customs duty comes at an export obligation equivalent to 6 times of the duty saved on Capital Goods imported under the EPCG Scheme to be fulfilled over a period of 6 years from the issue of EPCG license.

Capital Goods allowed to be imported at 0% Customs Duty

Capital Goods for the purpose of EPCG Scheme means any Plant, Machinery, Equipment or accessories required in manufacture or production or for rendering services and shall include:-

  1. Capital Goods as defined in Chapter 9 of the Foreign Trade Policy and includes CKD?SKD condition thereof
  2. Computer Software Systems
  3. Spares, Moulds, Dies, Jigs, Fixtures, Tools & Refractories for initial lining and spare refactories
  4. Catalysts for initial charge plus one subsequent charge

Import of Capital Goods for Project imports notified by Central Board of Excise and Customs is also permitted under the EPCG Scheme.

Capital Goods not allowed to be imported under this Scheme

License under the EPCG Scheme shall not be issued for the import of any Capital Goods (incl. Captive Plants and Power Generation sets of any kind) for

  1. Export of Electrical Energy (Power)
  2. Supply of Electrical Energy (Power) under Deemed Exports
  3. Use of Power (Energy) in their own unit, and
  4. Supply/ export of Electricity Transmission Service

Export Obligations of the EPCG Scheme

If the Capital Goods are being imported under the EPCG Scheme at 0% Customs Duty, the following export obligations are required to be complied with:-

  1. Export Obligation shall be fulfilled by the authorisation holder through the export of goods which are manufactured by him or his supporting manufacturer/ services rendered by him, for which EPCG authorisation has been granted.
  2. Export Obligation under this scheme shall be, over and above, the average level of exports achieved by the applicant in the preceding 3 licensing years for the same and similar products within the overall export obligation period including the extended period. Such export average would be the arithmetic mean of export performance in the preceding 3 licensing years for the same and similar products.
  3. Shipments under Advance authorisation, DFIA, Drawback schemes or reward schemes would also count for fulfilment of Export Obligation under the EPCG Scheme.
  4. Deemed Exports shall also be counted towards the fulfilment of export obligation.
  5. Royalty Payments received by the Authorisation holder in freely convertible currency and foreign exchange received for R&D Services shall also be counted for discharge under EPCG.

The export obligation under the EPCG Scheme shall be reduced in the below mentioned cases:-

  1. Incentive for early fulfilment

With a view to accelerating exports, in cases where the authorisation holder has fulfilled 75% or more of the specific export obligation and 100% of the average export obligation till date, in half or less than half of the original export obligation specified, the remaining export obligation shall be condoned.

  1. Reduced Export Obligation for Green Technology Products

For the exporters of green technology products, the export obligation shall be 75% of the export obligation.

  1. Reduced Export Obligation for North East Region and J&K

For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and J&K, the export obligation shall be 25% of the export obligation.

Other Relevant Points of the EPCG Scheme

  1. The EPCG License authorisation shall be valid for a period of 18 months from the date of authorisation. Revalidation of the EPCG authorisation shall not be permitted.
  2. In case the countervailing duty (CVD) is paid in cash on imports under EPCG, incidence of CVD would not be taken for computation of net duty saved, provided CENVAT is not availed.
  3. 2nd hand goods of any nature are also not permitted under the EPCG Scheme.
  4. Import of items which are restricted for import shall be permitted under EPCG Scheme only after approval of Exim Facilitation Centre (EGC) at DGFT headquarters.
  5. If the goods proposed to be exported under EPCG Authorisation are restricted for export, the EPCG Authorisation shall be issued after approval for issuance of export authorisation from Exim Facilitation committee at DGFT Headquarters.
  6. The Customs Dept may impose a Bank Guarantee on the applicant if it perceives that there might be some risk in fulfilling the export obligation.
  7. After the Capital Goods have been procured, it should be installed and a certificate of installation confirming the installation must be furnished within 6 months.

The following video released by the Directorate General of Foreign Trade explains the benefits the EPCG Scheme and How to procure Duty Free Capital Goods under the Duty Free Scheme:-

A Personal Finance enthusiast, Karan is the founder of charteredclub.com and loves to discuss about Money related matters.