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CHAPTER-5

EXPORT PROMOTION CAPITAL GOODS SCHEME

EPCG Scheme	5.1	The scheme allows import of capital goods for pre production, production and post production (including CKD/SKD thereof as well as computer software systems) at 5% Customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to be fulfilled over a period of 8 years reckoned from the date of issuance of licence. Capital goods would be allowed at 0% duty for exports of agricultural products and their value added variants. However, in respect of EPCG licences with a duty saved of Rs.100 crore or more, the same export obligation shall be required to be fulfilled over a period of 12 years. In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not be taken for computation of net duty saved provided the same is not Cenvated . The capital goods shall include spares (including refurbished/ reconditioned spares) , tools, jigs, fixtures, dies and moulds. EPCG licence may also be issued for import of components of such capital goods required for assembly or manufacturer of capital goods by the licence holder. Second hand capital goods without any restriction on age may also be imported under the EPCG scheme. Spares (including refurbished/ reconditioned spares), tools, refractories, catalyst and consumable for the existing and new plant and machinery may also be imported under the EPCG scheme . However, import of motor cars, sports utility vehicles/ all purpose vehicles shall be allowed only to hotels, travel agents, tour operators or tour transport operators whose total foreign exchange earning in current and preceding three licencing years is Rs 1.5 crores. However, the parts of motor cars, sports utility vehicles/ all purpose vehicles such as chassis etc cannot be imported under the EPCG Scheme.
	5.1A	Spares (including refurbished/ reconditioned spares), tools, spare refractories, catalyst & consumable for the existing plant and machinery may also be imported under the EPCG Scheme subject to an export obligation equivalent to 8 times of duty saved to be fulfilled over a period of 8 years reckoned from the date of issuance of licence.

EPCG for Projects	5.1B	An EPCG licence can also be issued for import of capital goods for supply to projects notified by the Central Board of Excise and Customs under S.No 441 of Customs Exemption Notification No 21/2002 dated 01.03.2002 wherein the basic customs duty on imports is 10% with a CVD of 16%. The export obligation for such EPCG licences would be eight times the duty saved. The duty saved would be the difference between the effective duty under the aforesaid Customs Notification and the concessional duty under the EPCG Scheme.

Eligibility	5.2	The scheme covers manufacturer exporters with or without supporting manufacturer(s)/ vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers.
Conditions for import of Capital Goods	5.3	Import of capital goods shall be subject to Actual User condition till the export obligation is completed.
Export obligation	5.4	The following conditions shall apply to the fulfillment of the export obligation:-
		(i)	The export obligation shall be fulfilled by the export of goods capable of being manufactured or produced by the use of the capital goods imported under the scheme. The export obligation may also be fulfilled by the export of same goods, for which EPCG licence has been obtained, manufactured or produced in different manufacturing units of the licence holder/specified supporting manufacturer (s). When Capital Goods are imported for pre/ post- production or license is taken for import of spares, the license holder shall fulfill the export obligation by export of products manufactured from the plant / project to which the pre/ post- production capital goods/ spares are related. The import of capital goods for creating storage and distribution facilities for products manufactured or services rendered by the EPCG licence holder would be permitted under the EPCG Scheme. The export obligation under the scheme shall be, over and above, the average level of exports achieved by him in the preceding three licensing years for same and similar products except for categories mentioned in Handbook (Vol.1). Alternatively, export obligation may also be fulfilled by exports of other good(s) manufactured or service(s) provided by the same firm/company or group company/ managed hotel which has the EPCG licence. However, in such cases, the additional export obligation imposed under EPCG scheme shall be over and above the average exports achieved by the unit/company/group company/ managed hotel in preceding three years for both the original and the substitute product(s) /service (s) even in cases where the average is exempt for the substitute product (s)/ service (s) as given in para 5.7.6 of the Handbook (Vol 1). The incremental exports to be fulfilled by the licence holder for fulfilling the remaining export obligation can include any combination of exports of the original product/ service and the substitute product (s)/ service (s). The exporter of goods can opt to get the export obligation refixed for the export of services and vice versa.
			The licencee can also opt for the re-fixation of the balance export obligation based on 8 times of the duty saved amount for the CIF value in proportion to the balance Export obligation under the scheme. The guidelines for the re-fixation of export obligation is given in para 5.19 of the Handbook (Vol 1).
			The aforesaid facilities shall only be available to manufacturer exporters/ service provider on all the licences where export obligation period including extended export obligation period is valid on the date of application . In this regard, exports made only on or after submission of application for alternate item and/ or re-fixation of the export obligation based on duty saved amount will be taken into account for fulfillment of export obligation.

		(ii)	The export obligation under the scheme shall be, in addition to any other export obligation undertaken by the importer, except the export obligation for the same product under Advance Licence, DFRC, DEPB or Drawback scheme.
		(iii)	The export obligation can also be fulfilled by the supply of ITA-1 items to the DTA provided the realization is in free foreign exchange.
		(iv)	Exports shall be physical exports. However, deemed exports as specified in paragraph 8.2 (a), (b), (d), (f), (g) & (j) of Policy shall also be counted towards fulfilment of export obligation alongwith the usual benefits available under paragraph 8.3 of the Policy. Royalty payments received in freely convertible currency and foreign exchange received for R& D services shall also be counted for discharge under the EPCG scheme. Payment received in rupee terms for the port handling services, in terms of Chapter 9 of the Foreign Trade Policy shall also be counted for export obligation discharge under the Scheme.

Provision for BIFR units

5.5.1

Any firm/company registered with BIFR or any firm/ company acquiring a unit, which is under BIFR shall be allowed EO extension as per the rehabilitation package prepared by the operating agency subject to subsequent approval of BIFR.

However, in cases where the rehabilitation package does not specify the EO extension period, a time period upto 12 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfillment of export obligation.

Similarly, small-scale SSI units shall also be entitled for similar facility as per the rehabilitation scheme of the concerned State government. However, in cases where the State rehabilitation scheme does not specify the export obligation extension period, a time period upto 12 years reckoned from the date of issue of licence would be permitted on merits of the case for fulfillment of export obligation

EPCG for agro units

5.5.2

In the case of EPCG licences issued to agro units in the agri export zones, a period of 12 years reckoned from the date of issue of the licence would be permitted for the fulfillment of export obligation.

The agro units in the agri export zones would also have the facility of moving the capital good (s) imported under the EPCG within the agri export zone.

An LUT/ Bond in lieu of BG may be given for EPCG licence granted to units in the Agri Export Zones provided the EPCG licence is taken for export of the primary agricultural product (s) notified in Appendix 15 or their value added variants.

Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier	5.6	A person holding an EPCG licence may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying capital goods to EPCG licence holders shall be eligible for deemed export benefit under paragraph 8.3 of the Policy.
Benefits to Domestic Supplier	5.7	In the event of a firm contract between the EPCG licence holder and domestic manufacturer for such sourcing, the domestic manufacturer may apply for the issuance of Advance Licence for deemed exports for the import of inputs including components required for the manufacturer of said capital goods.
		The domestic manufacturer may also replenish the inputs including components after supply of capital goods to the EPCG licence holders.
Fixation of Export Obligation	5.7A	In case of direct imports, the export obligation relating to the EPCG licence shall be reckoned with reference to the duty saved value on the CIF value of capital goods (including spares, jigs, fixtures, dies and moulds) actually imported. In case of domestic sourcing, the export obligation relating to EPCG shall be reckoned with reference to the notional Customs duties saved on the FOR of capital goods (including spares, jigs, fixtures, dies and moulds).
	5.8	Service provider in Agri export zone shall have the facility to move or shift the capital goods within the zone provided he maintains accurate record of such movements. However, such equipments shall not be sold or leased by the licence holder.
Maintenance of Average exports under EPCG	5.9	As per the provisions of para 5.4(i) , the EPCG licence holder would have to maintain the average level of exports equivalent to the average of the exports in the preceding three licencing years for the same and similar products except for exempted categories given in Handbook (Vol 1) during the entire period of export obligation. Notwithstanding the above, the licence holder shall maintain at least 75% of the average exports in any particular year (s) provided the same is offset by excess exports to fulfil the average in other year (s).
Technological Upgradation of existing EPCG machinery	5.10	EPCG licence holders can opt for Technological Upgradation of the existing capital good imported under the EPCG licence. The conditions governing the Technological Upgradation of the existing capital good are as under:
		(i)	The minimum time period for applying for Technological Upgradation of the existing capital good imported under EPCG is 5 years from the date of issuance of the licence.
		(ii)	The minimum exports made under the old capital good must be 40% of the total export obligation imposed on the first EPCG licence
		(iii)	The export obligation would be refixed such that the total export obligation mandated for both the capital goods would be the sum total of 6 times the duty saved on both the capital goods.
		(iv)	The procedure governing the replacement of capital good is given in para 5.20 of the Handbook (Vol1).

	4.1.4	Advance Licence is issued for duty free import of inputs, as defined in paragraph 4.1.1 subject to actual user condition. Such licences (other than Advance Licence for deemed exports) are exempted from payment of basic customs duty, additional customs duty, education cess, anti dumping duty and safeguard duty, if any. Advance Licence for deemed export shall be exempted from basic customs duty ,additional customs duty and education cess only. However in case of supplies to EOU/SEZ/ EHTP/STP/ BTP under such licences, anti-dumping duty and safeguard duty shall also be exempted.
	4.1.5	Advance Licence and/or materials imported there under shall not be transferable even after completion of export obligation.
	4.1.6	Advance Licences (including Advance Licence for deemed exports and intermediate supply) shall be issued with a positive value addition. However, for exports for which payments are not received in freely convertible currency, the same shall be subject to value addition as specified in Appendix-32 of Handbook (Vol.1).
	4.1.7	Advance Licence shall be issued in accordance with the Policy and procedure in force on the date of issue of licence and shall be subject to the fulfilment of a time bound export obligation as may be specified.
	4.1.8	The facility of Advance Licence shall also be available where some or all of the inputs are supplied free of cost to the exporter. In such cases, for calculation of value addition, the notional value of free of cost inputs along with value of other duty-free inputs shall be taken into consideration. However, if all the inputs are supplied free of cost, it shall be covered under paragraph 4.2.7 of the Policy.
Export Obligation	4.1.9	The period for fulfilment of the export obligation under Advance Licence shall be as prescribed in the Handbook (Vol.1). Supplies to SEZ would also be counted for fulfillment of export obligation under the Advance Licence for physical exports.
Advance Licence for Annual Requirement	4.1.10	Advance Licence can also be issued on the basis of annual requirement for physical exports, intermediate supplies or deemed exports.
Advance Licence for Annual Requirement		One to Five Star Export House shall be entitled for the Advance Licence for annual requirement. However, if the status holders are holding the certificate as merchant exporter, they are also entitled to the Advance Licence for Annual Requirement provided they agree to the endorsement of the name(s) of the supporting manufacturer(s) on the relevant licence.
		The entitlement under this scheme shall be upto 200% of the FOB value of export in the preceding licensing year. Such licence shall have positive value addition.

Advance Release Orders	4.1.11	An Advance Licence holder, holder of advance licence for annual requirement and holder of DFRC intending to source the inputs from indigenous sources/State Trading Enterprises/ EOU/SEZ/ EHTP/STP/BTP units in lieu of direct import has the option to source them against Advance Release Orders denominated in foreign exchange/ Indian rupees. The transferee of a DFRC shall also be eligible for ARO facility. However, supplies may be obtained against the licence from EOU/ EHTP/ BTP/STP/SEZ units, without conversion into ARO.
Back-to-Back Inland Letter of Credit	4.1.12	An Advance Licence holder, holder of advance licence for annual requirement and holder of DFRC may, instead of applying for an Advance Release Order, avail of the facility of Back-to-Back Inland Letter of Credit in accordance with the procedure specified in Handbook (Vol.1).
Prohibited Items	4.1.13	Prohibited items of imports mentioned in ITC(HS) shall not be imported under the licence issued under the scheme.

Admissibility of Drawback	4.1.14	In the case of an Advance Licence, the drawback shall be available in respect of any of the duty paid materials, whether imported or indigenous, used in the goods exported, as per the drawback rate fixed by Ministry of Finance (Directorate of Drawback). The Drawback shall however be restricted to the duty paid materials as mentioned in the licence.

Brand Promotion and Quality	3.4.1	The Central Government aims to encourage manufacturers and exporters to attain internationally accepted standards of quality for their products. The Central Government will extend support and assistance to Trade and Industry to launch a nationwide programme on quality awareness and to promote the concept of total quality management.
Test Houses	3.4.2	The Central Government will assist in the modernisation and upgradation of test houses and laboratories in order to bring them at par with international standards.
Quality Complaints/ Disputes	3.4.3	The Regional Sub-Committee on Quality Complaints (RSCQC) set up at the Regional Offices of the Directorate General of Foreign Trade shall investigate quality complaints received from foreign buyers. The guidelines for settlement of quality complaints, in particular, and such other complaints, in general, is given in Appendix- 37 of Handbook (Vol.1).
Trade disputes affecting trade relations	3.4.4	If it comes to the notice of the Director General of Foreign Trade or he has reason to believe that an export or import has been made in a manner that

Principles of Restriction	2.6	DGFT may, through a notification, adopt and enforce any measure necessary for:-
		i	Protection of public morals.
		ii	Protection of human, animal or plant life or health.
		iii	Protection of patents, trademarks and copyrights and the prevention of deceptive practices.
		iv	Prevention of use of prison labour.
		v	Protection of national treasures of artistic, historic or archaeological value.
		vi	Conservation of exhaustible natural resources.
		vii	Protection of trade of fissionable material or material from which they are derived; and
		viii	Prevention of traffic in arms, ammunition and implements of war.


Restricted Goods	2.7	Any goods, the export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with a licence/ certificate/ permission or a public notice issued in this behalf.