Policy

5.1

The Policy relating to Export Promotion Capital Goods (EPCG) Scheme is given in Chapter 5 of the Policy.

Application Form

5.2

An application for the grant of a licence may be made to the licensing authority concerned in the form given in ‘Aayaat Niryaat Form’ along with documents prescribed therein.

Consideration of Applications

5.3

The applicant may apply for EPCG licence wherein duty saved amount is Rs. 50 crores, to the Regional Licensing Authority along with a certificate from the independent chartered engineer on the proforma annexed to ‘Aayaat Niryaat Form’ certifying the end use of capital goods sought for import for its use at pre production, production or post production stage for the product undertaken for export obligation.

For the cases wherein duty saved amount is above Rs. 50 crores, the applicant may apply to DGFT Headquarters directly with a copy endorsed to the concerned RLA. In such cases, based on the recommendations of Headquarters EPCG Committee/ approval of competent authority the concerned RLAs will issue the EPCG licence accordingly.

5.3.1

The Licensing Authority concerned shall, on the basis of the nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 32A, issue the EPCG licence and thereafter forward a copy of the EPCG licence to the concerned Jurisdictional Central Excise Authority.

5.3.2

Deleted.

5.3.3

The EPCG licence shall be issued with a single port of registration mentioned in paragraph 4.19 of the Handbook of Procedure for the purpose of imports. All imports shall be made from that particular port unless the specific permission of the Customs authorities is obtained. However, exports can be made from any of the ports specified in paragraph 4.19.

5.3.4

(i)

The applicant may also apply for import of spares including refractory, catalyst and such consumables as are required for installation and maintenance of capital Goods imported/to be imported under the EPCG Scheme .

The application shall contain list of plant/ machinery installed in the factory/ premises of applicant for which spares are required, duly certified by Chartered Engineer or Jurisdictional Central Excise authorities.

In such cases EPCG licence shall not specify the list of spares but shall indicate:-

(a)

Name of plant/machinery for which spares are required.

(b)

Value of duty saved allowed under the licence.

(c)

Description of product to be exported with value of export obligation as per the Policy.

(ii)

The licensing authority, after issue of EPCG licence for spare shall forward a copy of licence to concerned Jurisdictional Central Excise Authority.

(iii)

Further at the time of final redemption of export obligation licence holder shall submit certificate from the Independent Chartered Engineer confirming the use of spares so imported in the installed capital goods on the basis of stock & consumption register maintained by licence holder.

EOU/ SEZ Units under EPCG Scheme

5.4

An EOU/ SEZ unit may apply for an EPCG licence in terms of paragraph 6.18(d) of the Policy. Such application shall be made in the form given in ‘Aayaat Niryaat Form’ alongwith the documents prescribed therein. In addition, the applicant shall also furnish a copy of the `No Objection Certificate’ from the Development Commissioner showing the details of the capital goods imported/indigenously procured by the applicant, its value at the time of import/sourcing and the depreciated value for the purpose of assessment of duty under the scheme.

Such cases shall not be required to be forwarded to Headquarters EPCG Committee. The concerned licensing authority shall issue EPCG licences based on the "No Objection Certificate" produced from the concerned Development Commissioner.

Indigenous Sourcing of Capital Goods

5.5

The EPCG licence holder intending to source capital goods indigenously, shall make a request to the licensing authority for invalidation of the EPCG licence for direct import. The EPCG licence holder shall also give the name and address of the person from whom he intends to source the capital goods.

5.5.1

On receipt of such request, either at the time of issuance of licence or subsequently, the licensing authority shall make the licence invalid for direct import and issue an invalidation letter, in duplicate, to the EPCG licence holder. The licensing authority shall simultaneously grant permission to the EPCG licence holder to procure the capital goods indigenously in lieu of direct import.

5.5.2

The indigenous manufacturer intending to supply capital goods to the EPCG licence holder may apply to the licensing authority in the form given in ‘Aayaat Niryaat Form’ for the issuance of Advance licence for import of inputs including components required for the manufacture of capital goods to be supplied to the EPCG licence holder.

Benefits To indigenous supplier of Capital Goods

5.5.3

For the purpose of claiming benefit of deemed exports, the indigenous supplier of capital goods shall furnish:

(a)

Certificate from the respective Assistant Commissioner of Customs and Central Excise Authorities having jurisdiction over the factory/ premise as evidence of having supplied/ received the manufactured capital goods and in case of service provider, a certificate from independent Chartered Engineer confirming the supplies/ receipt of the Capital Goods.

(b)

Evidence of payments received through normal banking channel from the EPCG licence holder in the form given in Appendix- 22B.

Leasing of Capital Goods

5.6

An EPCG licence holder may, on the basis of firm contract between the parties, source the capital goods from a domestic leasing company in accordance with paragraph 2.25 of the Policy. In such cases, the Bill of Entry of imported capital goods or the commercial invoice of indigenously procured capital goods, as the case may be, shall be signed jointly by the EPCG licence holder and the leasing company at the time of import/local supply respectively. However, the EPCG licence holder shall alone be fully responsible for fulfillment of export obligation.

Condition for Fulfilment of Export Obligation

5.7

In addition to the conditions mentioned in paragraph 5.4 of the Policy, the following conditions shall also be applicable for fulfilment of export obligation under the scheme:-

5.7.1

The exports shall be direct exports in the name of the EPCG licence holder. However, the export through third party(s) as defined in Chapter 9 of the Policy is also permitted under the EPCG scheme. If a merchant exporter is the importer, the name of the supporting manufacturer shall also be indicated on the shipping bills. At the time of export, the EPCG licence No. and date shall be endorsed on the shipping bills which are proposed to be presented towards discharge of export obligation.

5.7.2

Export proceeds shall be realised in freely convertible currency except for deemed exports under paragraph 5.7.3. However, in case of exports against irrevocable letter of credit or if the bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank, realisation of export proceeds need not be insisted for fulfillment of export obligation provided the final receipts are in free foreign exchange.

5.7.3

Exports made against the Government of India/EXIM Bank Line of Credit and exports made under Deferred Payment/Suppliers Line of Credit Contract backed by ECGC Cover would also be counted for fulfillment of export obligation under the Scheme.

5.7.3.1

The supplies made to the Oil and Gas sector also may be counted towards discharge of export obligation against an EPCG licence provided the licence has been issued on or before 31.3.2000 and no benefit under paragraph 8.3 of the Policy has been claimed on such supplies.

5.7.4

Wherever average level of export obligation was fixed taking into account the exports made to former USSR or to such countries as notified by the Directorate General of Foreign Trade under this paragraph, the average level of exports shall be reduced by excluding exports made to such countries. This waiver shall be applicable to all EPCG licences, which have not been redeemed/regularised.

However, exports made against any EPCG licence, except the EPCG licences which have been redeemed, shall not be added up for calculating the average export performance for the purpose of the subsequent EPCG licence.

5.7.5

Where the manufacturer exporter has obtained licences for the manufacture of the same export product both under EPCG and the Duty Exemption or Diamond Imprest Licence Scheme or made exports under DEPB/Advance Licence/ DFRC/ Replenishment licences, the physical exports or deemed exports for categories mentioned in paragraph 5.7.3 made under these schemes shall also be counted towards the discharge of the export obligation under EPCG scheme.

5.7.6

In case of export of goods relating to handicraft, handlooms, cottage, tiny sector, agriculture, aqua-culture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and services, the export obligation shall be determined in accordance with paragraph 5.1 of the Policy, but the licence holder shall not be required to maintain the average level of exports as specified in paragraph 5.4 (i) and 5.9 of the Policy.

The goods excepting tools imported under EPCG scheme by such sectors shall not be allowed to be transferred for a period of five years from the date of imports even in cases where export obligation has been fulfilled.

However, the transfer of capital goods would be permitted within the group companies or managed hotels under intimation to the Regional Licencing Authority and the jurisdictional Central Excise Authority in case of manufacturer/merchant exporters and to the Regional Licensing Authority only in the case of Service providers.

Moreover, in cases where the service provider wants to discharge export obligation by export of goods also, he shall have to maintain the average level of foreign exchange earning for the preceding three licencing years in respect of goods proposed to be exported for discharge of export obligation.

5.7.7

The Export Obligation shall be fulfilled as per conditions given in para 5.4 of the Policy.

Fulfillment Of Export Obligation

5.8

The licence holder under the EPCG scheme shall fulfill the export obligation over the specified period. in the following proportions:

Period from the date of issue of licence

Minimum export obligation to be fulfilled

Block of 1^st to 6^th year

50%

Block of 7^th and 8^th year

50%

5.8.1

In respect of licences, on which the value of duty saved is Rs.100 crore or more, the export obligation shall be fulfilled over a period of 12 years in the following proportion:-

Period from the date of issue of licence

Minimum export obligation to be fulfilled

Block of 1^st to 10^th year

50%

Block of 11^th and 12^th year

50%

5.8.2

However, the export obligation of a particular block of year may be set off by the excess exports made in the preceding block of year. The licence holder would intimate the regional licencing authority on the fulfillment of the export obligation as well as average exports annually by secured electronic filing using digital signatures.

5.8.3

Where export obligation of any particular block of years is not fulfilled in terms of the above proportions, except in such cases where the export obligation prescribed for a particular block of year is extended by the competent authority, such licence holder shall, within 3 months from the expiry of the block of years, pay duties of customs plus 15% interest of an amount equal to that proportion of the duty leviable on the goods which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation.

5.8.4

However, the licences issued under the scheme upto 31.3.2000 shall be governed by provisions laid down in paragraph 6.11 as given in Handbook (Vol.1) (RE-99). Notwithstanding the provisions in Handbook (Vol.1) (RE-99), the licence holder shall not have to surrender Special Import licence in case of valuewise shortfall.

Licences issued from 1^st April, 2000 upto 31^st March, 2002 shall be governed by the provisions of Chapter 6 of the Handbook (Vol 1) (RE-01) as amended from time to time.

Licences issued from 1^st April, 2002 upto 31^st August, 2004 shall be governed by the provisions of para 5.8 of the Handbook (Vol 1) (RE-02) as amended from time to time. However, the provision of clubbing even in case of old licences would be as per the current provision of para 5.18 of this Handbook.

Maintenance of Average

5.8.5

The average exports under the EPCG licence has to be maintained as per the provisions of para 5.4(i) and 5.9 of the Policy.

 Monitoring of Export Obligation

5.9.1

The licence holder shall submit to the licensing authority by 30^th April of every year, report on the progress made in fulfillment of export obligation against the licence issued as well as annual average level of exports achieved. The report shall be submitted electronically on the DGFT website. The licensing authority may issue partial EO fulfilment certificate to the extent of EO fulfilled in a particular year.

Automatic Reduction/ Enhancement upto 10% of CIF value and Prorata Reduction/ Enhancement in Export Obligation

5.10

If the licence issued under the scheme has actually been utilized for import of a value in excess of 10% of the CIF value/duty saved amount of the licence, licence shall be deemed to have been enhanced by that proportion. The Customs shall automatically allow the clearance of goods in excess upto 10% of the licence value/duty saved amount without endorsement by the licensing authority.

In such cases, the licence holder shall furnish additional fee to cover the excess imports effected in terms of CIF value/duty saved amount to the licensing authority within one month of the excess imports taking place. The export obligation shall automatically stand enhanced proportionately.

5.10.1

Similarly, if the EPCG licence holder has utilised the licence less than the value earmarked in the licence, his export obligation shall stand reduced on prorata basis with reference to actual utilisation of licence.

Extension of Export Obligation Period

5.11

The concerned licensing authority, may consider one or more request for grant of extension in export obligation period, on payment of a composition fee of 2% of the total duty saved under the Licence or an enhancement in export obligation imposed to the extent of 10% of the total export obligation imposed under the Licence, as the case may be, at the choice of the exporter, for each year of extension sought. The total extended export obligation period shall not exceed two years from the expiry of the original export obligation period. Exports made on or after the date of receipt of application for EO extension shall only qualify for discharge of EO fulfillment under the Scheme

However extension in EO period beyond the two years period available above, may be considered, for an extension upto 3 years with 50% enhanced EO and upto 5 years with 100% enhanced EO in addition to any other provision subject to such undertaking by the licensee. However, in such cases, the licensee shall not be given the benefit of refixation of EO as given in Para 5.4 (i) of the Policy.

In cases where an enhanced EO is imposed on the licence holder for granting such extension, he shall give an additional BG to the extent of the proportional duty saved to the enhanced EO imposed to the licensing authority concerned in addition to extending the validity of BG/LUT submitted at the time of initial imports. No exemption from BG shall be granted to any category of exporter under this Clause.

The extension in export obligation period shall be subject to such terms and conditions as may be prescribed by the competent authority. Wherever the export obligation period is extended, the licence holder shall be required to maintain average export obligation during the extended period as well.

5.11.1

The firm/company or group company registered within the original/extended E.O. period with the BIFR or state rehabilitation Scheme for SSI unit as a sick unit or any firm/company acquiring a unit, which is under BIFR may apply for extension in export obligation period for fulfillment of export obligation to Director General of Foreign Trade.

The firm/company, which is applying for registration with BIFR/ Rehabilitation Department of State Government shall also intimate DGFT with regard to relief sought for EPCG licence, if any, within 30 days of receipt of the application by agency concerned.

The DGFT, on receipt of intimation/notice received from the BIFR/operating agency/ Rehabilitation Department of State Government shall take up the matter with the agency concerned to safeguard government interest on account of default in fulfillment of export obligation imposed on EPCG licence obtained by such firm.

DGFT may consider such application for grant of extension in the period of export obligation upto 12 years or as per the rehabilitation package prepared by operating agency and approved by BIFR board /state authority, on its merit.

Export Obligation Shortfall

5.12

The regional licencing authority may also consider condonation of shortfall upto 5% in the export obligation within the validity of the export obligation period, subject to such terms and conditions as may be prescribed by them.

Redemption

5.13

As evidence of fulfillment of export obligation, the licence holder shall furnish the following documents;

(a)

For Physical Exports:

A consolidated statement of exports made in the form given in ‘Aayaat Niryaat Form’, duly certified by a Chartered Accountant and bank evidencing exports and realisation in freely convertible currency or statements of exports in the form given in ‘Aayaat Niryaat Form’ for individual banks duly certified by a Chartered Accountant.

However in case of exports made under irrevocable letter of credit or bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank, realization of export proceeds would not be insisted upon.

The EPCG licence holder shall submit a copy of the irrevocable letter of credit or the bill of exchange unconditionally Avalised/ Co-Accepted/ Guaranteed by a bank and confirmed by the exporters bank for availing of the benefit of EPCG..

(b)

For Deemed Exports:

(i)

Copy of ARO/ Back to Back Inland letter of Credit or Advance Licence for Intermediate Supplies http://dgftcom.nic.in/exim/2000/pn/pn02/pn1202.htm

or

Supply invoices or ARE 3 duly certified by the Bond Office of EOU concerned showing that supplies have been received;

(ii)

The licensee shall also furnish the evidence of having received the payment through normal banking channel in the form given in Appendix- 22B or a self certified copy of payment certificate issued by the Project authority concerned in the form given in Appendix-22 C.

However in case of exports made under irrevocable inland letter of credit or the inland bill of exchange is unconditionally Avalised/ Co- Accepted/ Guaranteed by a bank and the same is confirmed by the exporters bank, realization of export proceeds would not be insisted upon.

(c)

For Services rendered:

Consolidated statement or individual statements (bank/authorised dealer wise) of services rendered in the ‘Aayaat Niryaat Form’, duly certified by a Chartered Accountant and bank/ authorised dealer evidencing foreign exchange earning received through normal banking channel.

On being satisfied, the licensing authority shall issue a certificate of discharge of export obligation to the EPCG Licence holder and send a copy of the same to the customs authorities with whom BG/LUT has been executed.

Regularisation of Bonafide Default

5.14

In case, EPCG licence holder fails to fulfill the prescribed export obligation, he shall pay duties of Customs plus 15% interest per annum to the Customs authority as per paragraph 5.8.3. This facility of payment of interest @15% shall be available to all pending cases of regularisation of EPCG licences irrespective of the date of its issuance.

Maintenance of Records

5.15

Every EPCG licence holder shall maintain, for a period of 3 years from the date of redemption, a true and proper account of the exports/supplies made and services rendered towards fulfilment of export obligation under the scheme.

Re-Export of Capital Goods Imported Under EPCG Scheme

5.16

Capital Goods imported under the EPCG scheme, which are found defective or unfit for use, may be re-exported back to the foreign supplier within three years from the date of payment of duty on importation thereof with the permission of the Licensing/Customs Authority. However, in such cases the licence holder shall fulfill the balance export obligation under the Licence from export of alternate products/services or the licence holder shall pay duty equivalent to a proportionate amount of duty saved to the unfulfilled export obligation under the licence.

Replacement of Capital Goods

5.16.1

The Capital Goods imported under the scheme and found defective or otherwise unfit for use may be exported and Capital Goods in replacement thereof be imported under the scheme. In such cases, while allowing export , the Customs shall credit the duty benefit availed which can be debited again at the time of import of such replaced Capital Goods

Penal Action

5.17

In case of failure to fulfill the export obligation or any other condition of the licence, the licence 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 Policy and the Customs Act, 1962.

Clubbing of EPCG licences

5.18

The clubbing of two or more EPCG licences of the same licence holder would be permitted as per the provisions given herewith. The expiry period mentioned in the subparas of this para would be with reference to the export obligation period of the EPCG licence.

5.18.1

The accountability of imports and exports shall be restricted to the items mentioned in the EPCG licences to be clubbed.

5.18.2

An application for clubbing can be made only to the regional licencing authority under whose jurisdiction the licence is issued in ‘Aayaat Niryaat Form’. Clubbing shall not be permitted in case the licences are issued by different RLA’s. The concerned RLA would consider the request for clubbing only on the fulfillment of the following conditions:

(a)

Deleted.

(b)

The EPCG licences have been issued under the same Customs Notification,

(c)

Deleted.

5.18.3

The total export obligation for the licences so clubbed would be refixed taking into account the total duty saved or total CIF value of imports as the case may be of the clubbed licences.

The export obligation period of the clubbed licence would be as per the policy applicable for the clubbed CIF value/clubbed duty saved amount, as the case may be. In case of any discrepancy in the export obligation periods of the two licences, clubbing would not be permitted. 

5.18.4

On clubbing, the licences for all purposes shall be deemed to be a single EPCG licence issued under the said Customs Notification and the export obligation period for the clubbed licence shall be reckoned from the date of issuance of the first licence. However, in cases where the clubbed CIF/duty saved value exceeds Rs 100 crore, no corresponding benefit of increase in export obligation period shall be admissible.

5.18.5

The average export obligation to be maintained for the clubbed licence would be the highest of the average export obligations endorsed on the individual licences put up for clubbing.

5.18.6

No clubbing would be permitted in the case of expired EPCG licences. In case any specific (as against general extensions under Para 5.11) export obligation extension has been given for any EPCG licence, the same licence cannot be considered for clubbing.

Refixation of Export Obligation

5.19

(a)

The EPCG licence holder can apply for the refixation of export obligation as given in para 5.4 (i) of the Policy in the ‘Aayaat Niryaat Form’.

(b)

Deleted.

(c)

For all EPCG licences, the licence holder should have fulfilled the mandated (original or extended, as the case may be) blockwise export obligation at the end of the block in which the application is made. This facility is extended to the applications made in the extended export obligation period as well. However, in such cases, extended export obligation period would be treated as the last block for the purpose of EO re-fixation. In all such cases, the refixed export obligation would be computed as under:

(% export obligation unfulfilled) x (8) x (duty saved on the date of issuance of the licence)

(d)

In cases where the remaining original export obligation period (and not the extended export obligation period) of the EPCG licence is less than 2 years on the date of application for refixation, and the mandated(original or extended, as the case may be) blockwise export obligation has been fulfilled, the export obligation would be refixed at two times the duty saved on the date of issuance of licence.

(e)

There would be no change in average export obligation fixed or the export obligation period of the original licence.

(f)

An application under ‘Aayaat Niryaat Form’ can also be made if the EPCG licence holder has got his average and EPCG export obligation refixed on account of the change in product/ service as per the provisions of para 5.4 (i) of the Policy.

Technological Upgradation of Capital Goods

5.20

The EPCG licence holders can opt for the Technological Up gradation of the capital goods imported under the EPCG Scheme as per the provisions of Para 5.10 of the Policy.

In case an EPCG licence holder wants to upgrade the existing capital goods imported under the EPCG scheme ,he can opt for the Technological Up gradation subject to the following conditions:

(i)

The capital goods to be imported must be new and technologically superior to the earlier capital goods. It must be used for the manufacture of the similar product for which the original EPCG licence was issued.

(ii)

The export obligation for the new capital goods would be the difference of the sum total of 6 times the duty saved on both the capital goods and the exports already made under the old capital goods.

(iii)

The export obligation period would be 8 years from the date of issuance of the new licence.

(iv)

The block wise export obligation fulfillment would be as per Para 5.8 of this Handbook.

(v)

The average export obligation for the upgraded capital goods would be the same as that of the capital goods being replaced.

The application for technological upgradation of the capital goods would be made in ‘Aayaat Niryaat Form’.

Import of Refurbished/ Reconditioned Spares and Tools

5.21

The import of refurbished spares as mentioned in paras 5.1 and 5.1A of the Policy shall be permitted under the EPCG Scheme.

However such refurbished / reconditioned spares must have a residual life not less than 80% of the life of the original spare which would be certified by the EPCG licence holder.

The tools imported under the EPCG Scheme may be transferred to any of the units or group companies of the applicant.

5.22

Revalidation of licences issued under EPCG scheme shall not be allowed.