Many companies face challenges when it comes to updating and expanding operations in the worldwide market because of the high overhead expenditures. Customs duties associated with importing modern machinery, spare parts, tools, fixtures, and moulds for this reason can be passed on to customers or absorbed by the company itself, thereby reducing our competitive advantage. The EPCG (Export Promotion Capital Goods) Scheme was introduced by the Indian government as a solution to this problem.
This programme encourages qualified exporters and makes it easier for capital items to be imported at a reduced rate of customs duty. The main goal is to increase exports while also enhancing India’s industrial capacity and general competitiveness in the international market. By reducing the burden of high import taxes, this strategic approach hopes to create an atmosphere that supports the expansion and improvement of companies that trade internationally.
What is the EPCG Scheme?
The EPCG scheme, administered by the Directorate General of Foreign Trade of India (DGFT), is a government initiative aimed at minimising customs duties on capital goods utilised throughout the production process to foster manufacturing and export. Under this program, companies can import capital goods at reduced customs duty rates, exempting them from Integrated Goods and Services Tax (IGST) and Compensation Cess. Once the export obligations are met, businesses can produce their goods with zero customs duty. Capital goods encompass spare parts, jigs, dies, tools, fixtures, computer systems, software, and moulds crucial for manufacturing export-oriented items.
To participate in the scheme, companies must fulfil export obligations (EO), requiring an export value equivalent to six times the saved customs duty amount within six years, measured in domestic currency. This essentially means bringing in foreign currency equal to six times the duty saved on the imports. Businesses supporting the domestic supply chain by sourcing capital goods domestically benefit from concessional customs duty rates on capital goods imports. The Average Export Obligation (AEO) is calculated based on the average exports of the past three years for similar goods, and businesses must meet this figure annually unless exempted.
Certain conditions, such as local sourcing, engagement in green technology exports, or operating in specific regions like the North East, can reduce the EO value. Failure to meet export obligations within six years may result in businesses paying all saved customs duties, cess, and taxes, along with an additional 15% annual interest to the Customs Authority of India. The EPCG scheme distinguishes itself from other duty exemption schemes, such as the Advance License/Advance Authorization Scheme and the Duty-Free Import Authorization (DFIA) Scheme, as it allows the import of equipment rather than production inputs like fuel, oil, energy, or catalysts.
Eligibility Criteria for the EPCG Scheme
To qualify for the EPCG scheme, your business should fall into one of these categories:
- Manufacturer Exporters: If your primary focus is on producing goods for export rather than the domestic market, you can leverage the EPCG scheme. This allows you to import capital goods, enabling upgrades to your factories and facilities to enhance production output.
- Merchant Exporters: As a merchant exporter involved in trade but not in the actual manufacturing of exported goods, you are eligible for the EPCG scheme. You can apply and collaborate with manufacturers to benefit from zero customs duty on capital goods.
- Service Providers: Businesses offering services may also qualify for the scheme based on the following modes outlined in the FTP:
- Mode 1 (Cross-border trade): Service providers offering services to overseas customers without a physical presence.
- Mode 2 (Consumption abroad): Service providers delivering services to customers in foreign countries, where the services are subscribed to and used in those respective countries.
- Mode 3 (Commercial presence): Service providers with a physical presence in a foreign country to offer services to customers in that location.
- Mode 4 (Presence of natural persons): Service providers sending their employees abroad to deliver services to customers in those countries.
Documents Required for EPCG Licence
To complete your licence application with the DGFT, you need to fill out the ANF 5B form and submit the following certified documents:
- Import Export Code (IEC): This is a 10-digit alphanumeric code issued by the DGFT, serving as a crucial business identification number for cross-border trading related to India.
- Manufacturer Registration/Certificate: If you are a manufacturer applying for the EPCG licence, provide documents such as MSME/SSI registration, Industrial Entrepreneurs Memorandum (IEM) certificate, Udyog Aadhar Registration, or Industrial License to prove your manufacturing status.
- Registration cum Membership Certificate (RCMC): This certificate validates your status as a registered exporter from India.
- DGFT Digital Signature: Obtain a cryptographically secure key issued by the DGFT.
- Pan Card: Include your tax identity card with a unique 10-digit alphanumeric number issued by the Income Tax Department.
- GST Registration Certificate: If your business is registered for GST, submit this certificate as additional proof of your business’s existence.
- Proforma Invoice: Provide a Proforma invoice or purchase order for the capital goods you intend to import.
- Brochure: Include a brochure detailing the capital goods you plan to import as a supporting document.
- Self-Certified Copy + Original of Certificate of Chartered Accountant: The Chartered Accountant (CA) certificate confirms your specific and average export obligations based on the average from the last three financial years.
- Self-Certified Copy + Original of Certificate of Chartered Engineer: This certificate, provided by an independent chartered engineer, confirms that the purchased machine functions as stated and includes the CE certificate.
How to Apply for EPCG Licence?
To get started with the DGFT registration or log into your existing account, follow these steps:
- Access the DGFT Portal: First, visit the DGFT website and either register for a new account or log in if you already have one.
- Navigate to Services: After logging in, go to the “Services” section on the website.
- Choose Online E-com Application: Once in the Services section, look for the “Online E-com Application” option.
- Select EPCG: From the available choices, opt for the Export Promotion Capital Goods (EPCG) category.
- Complete Application Form: Fill in all the necessary information in the application form. Make sure to provide accurate details as required.
- Upload Supporting Documents: Prepare and upload all the required supporting documents as specified in the guidelines.
- Review Your Application: Double-check all the entered information and attached documents to ensure accuracy and completeness.
- Submit Your Application: Once satisfied, submit your application through the online portal.
- Wait for Approval: After submission, patiently wait for the DGFT to review your application. The approval process may take some time.
- Receive EPCG Licence: Upon approval, the DGFT will issue your EPCG licence. This typically takes around 3 days from the date of approval.
By following these step-by-step instructions, you can successfully apply for an EPCG licence through the DGFT portal.