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EPCG Scheme Process Guide

A comprehensive step-by-step guide to navigate the Export Promotion Capital Goods Scheme

Explore EPCG Types View Process Steps

What is EPCG Scheme?

The Export Promotion Capital Goods (EPCG) Scheme is a flagship initiative under India's Foreign Trade Policy that allows importers to bring in capital goods at zero or concessional customs duty. This scheme is designed to facilitate technology upgradation and enhance India's manufacturing competitiveness in global markets.

Key Features:

  • Import of capital goods at zero customs duty
  • Export obligation of 6 times the duty saved amount
  • Export obligation period of 6 years
  • Applicable for manufacturer exporters, merchant exporters, and service providers

Under this scheme, businesses can import capital goods (including computer software systems) for pre-production, production, and post-production at zero customs duty. In return, they must fulfill an export obligation equivalent to 6 times the duty saved on the imported capital goods within a period of 6 years.

The EPCG scheme is particularly beneficial for businesses looking to upgrade their manufacturing capabilities, increase productivity, and enhance the quality of their products to meet international standards.

Types of EPCG Scheme

The EPCG scheme offers three different approaches to acquiring capital goods based on your business needs and sourcing preferences.

EPCG - Direct Import

Import capital goods directly from foreign suppliers at zero customs duty.

Direct sourcing from international manufacturers
Zero customs duty benefit
Access to global technology

Key Requirements:

  • Valid Import Export Code (IEC)
  • Proforma invoice from foreign supplier
  • End-use certificate
  • Bank guarantee (if applicable)
  • Import documentation

Process Highlights:

  1. Apply for EPCG license
  2. Obtain license from DGFT
  3. Place order with foreign supplier
  4. Complete import formalities
  5. Install machinery at declared premises

EPCG - Indian Purchase

Source capital goods from domestic manufacturers with duty benefits.

Support for domestic manufacturing
Deemed export benefits
Faster delivery and local support

Key Requirements:

  • Valid Import Export Code (IEC)
  • Quotation from Indian manufacturer
  • Invalidation letter application
  • ARO (Advance Release Order) if applicable
  • GST documentation

Process Highlights:

  1. Apply for EPCG license
  2. Obtain invalidation letter
  3. Place order with Indian supplier
  4. Supplier claims deemed export benefits
  5. Install machinery at declared premises

EPCG - Spares Import

Import spares, tools, and accessories for existing machinery at concessional duty.

Maintenance of existing machinery
Reduced duty on spares
Extended equipment lifecycle

Key Requirements:

  • Valid Import Export Code (IEC)
  • Details of existing machinery
  • Compatibility certificate
  • Spares catalog and specifications
  • Proof of original equipment purchase

Process Highlights:

  1. Apply for EPCG license for spares
  2. Provide nexus with existing machinery
  3. Import spares at concessional duty
  4. Fulfill proportionate export obligation
  5. Maintain proper inventory records

EPCG Scheme Process Flow

1

Applying for EPCG Scheme

The first step in the EPCG process is submitting an application to the Directorate General of Foreign Trade (DGFT) for an EPCG license.

Required Documents:

  • ANF 5A application form
  • Valid IEC (Import Export Code)
  • Proforma invoice for capital goods
  • Project report detailing the proposed investment

Application Process:

  1. Register on DGFT website
  2. Fill ANF 5A form online
  3. Upload required documents
  4. Pay application fee

Additional Requirements:

  • Certificate from a Chartered Accountant
  • Bank guarantee (if applicable)
  • Manufacturing premises details
  • Past export performance records
  • Declaration of not being under investigation
  • Nexus certificate (showing relationship between capital goods and export product)

Timeline:

The DGFT typically processes EPCG applications within 15-30 working days, depending on the completeness of documentation and any queries that may arise during processing. It's advisable to apply at least 45 days before the planned import of capital goods.

Pro Tip:

Ensure that the capital goods you plan to import are eligible under the EPCG scheme and fall under the correct ITC HS code. Incorrect classification can lead to rejection of the application or complications during customs clearance.

2

Amendment of EPCG Licence

After obtaining the EPCG license, you may need to make amendments due to changes in requirements or specifications.

Common Amendments:

  • Change in capital goods specifications
  • Change in CIF value
  • Change in quantity of capital goods
  • Change in port of registration

To amend your EPCG license, submit an application in ANF 5B form along with the original license and supporting documents justifying the amendment.

Amendment Process:

  1. Fill ANF 5B form for amendment
  2. Attach original EPCG license
  3. Provide justification for amendment
  4. Submit supporting documents (revised proforma invoice, etc.)
  5. Pay amendment fee if applicable
  6. Submit to Regional Authority of DGFT

Important Considerations:

  • Amendments should be applied for before the expiry of the license
  • Some amendments may require additional bank guarantee
  • Significant changes in value may affect export obligation
  • Multiple amendments to the same license are possible
  • Amendment processing typically takes 7-15 working days

Pro Tip:

If you anticipate potential changes in specifications or quantities, consider applying for a slightly higher value or broader specification range in your initial application to minimize the need for amendments later.

3

Import Process under EPCG & Installation Certificate

Once you have the EPCG license, you can proceed with importing the capital goods and installing them at your premises.

Import Process:

  1. Register EPCG license with customs
  2. File Bill of Entry mentioning EPCG license details
  3. Claim duty exemption
  4. Clear goods from customs

Installation Certificate:

  • Install capital goods at declared premises
  • Obtain installation certificate from jurisdictional Central Excise Authority or Chartered Engineer
  • Submit installation certificate to DGFT within 6 months from date of import

Customs Clearance Details:

  • Ensure Bill of Entry mentions EPCG license number and date
  • Submit copy of EPCG license to customs
  • Customs will verify license details in the system
  • Duty exemption will be granted as per license
  • Customs will endorse the quantity and value on the license
  • Ensure proper documentation of import for future reference

Installation Certificate Requirements:

  • Details of imported capital goods (make, model, serial number)
  • Date of installation
  • Location of installation
  • Confirmation that goods are in working condition
  • Photographs of installed machinery with visible serial numbers
  • Certification by Chartered Engineer or jurisdictional Central Excise Authority

Pro Tip:

Keep detailed records of the shipping documents, Bill of Entry, and installation process. Take photographs of the machinery before, during, and after installation with clearly visible serial numbers. This documentation will be valuable during the export obligation discharge process.

4

Export Obligation under EPCG Scheme

After importing capital goods under EPCG, you must fulfill the export obligation as per the scheme requirements.

Export Obligation Requirements:

  • Total Export Obligation: 6 times the duty saved on imported capital goods
  • Time Period: 6 years from the date of issue of EPCG authorization
  • Specific Export Obligation: 50% of the total export obligation must be fulfilled within the first 4 years
  • Average Export Obligation: Maintain average level of exports done before EPCG license

The export obligation must be fulfilled by exporting goods manufactured or services rendered using the imported capital goods.

Calculation of Export Obligation:

Example Calculation:

  • CIF value of imported capital goods: ₹1,00,00,000
  • Basic Customs Duty rate: 10%
  • Duty saved: ₹10,00,000
  • Export Obligation: 6 × ₹10,00,000 = ₹60,00,000
  • First block (4 years) obligation: ₹30,00,000
  • Second block (2 years) obligation: ₹30,00,000

Eligible Exports for Fulfillment:

  • Physical exports of goods manufactured using the imported capital goods
  • Deemed exports as specified in Foreign Trade Policy
  • Foreign exchange earned from services rendered using the imported capital goods
  • Exports made by group companies in some cases
  • Exports of products manufactured by job-work undertaken for other exporters

Monitoring and Reporting:

  • Maintain records of all exports made against the EPCG license
  • Submit annual progress reports to DGFT
  • Keep track of export obligation fulfillment against each block
  • Maintain correlation between capital goods and exports
  • Preserve all shipping bills and Bank Realization Certificates

Pro Tip:

Create a dedicated tracking system for exports made against your EPCG license. Regularly update this system with each export shipment and maintain a running total of the export obligation fulfilled. This will help you monitor progress and ensure timely completion of the obligation.

5

Block-wise Extension under EPCG Scheme

The export obligation period under EPCG is divided into blocks, and extensions can be obtained for specific blocks if needed.

Block Division:

  • First Block: Years 1-4 (50% of export obligation)
  • Second Block: Years 5-6 (Remaining 50% of export obligation)

Extension Process:

  1. Submit application before expiry of the block
  2. Provide justification for extension
  3. Pay composition fee if applicable
  4. Obtain approval from Regional Authority

Extension Provisions:

  • Extension of up to 2 years for each block
  • Extension subject to payment of composition fee
  • Composition fee is typically 2% of the unfulfilled export obligation
  • Extension request must be submitted before the expiry of the block
  • Extension granted by Regional Authority of DGFT

Valid Reasons for Extension:

  • Global economic slowdown affecting export markets
  • Natural calamities affecting production
  • Changes in foreign trade policies of importing countries
  • Delay in installation of machinery due to genuine reasons
  • Unforeseen circumstances beyond the control of the exporter
  • Delay in obtaining necessary approvals/certifications for exports

Extension Application Requirements:

  • Application in ANF 5B form
  • Original EPCG license
  • Detailed justification for extension
  • Supporting documents for the reasons cited
  • Details of exports already made
  • Plan for fulfilling remaining obligation
  • Composition fee payment details

Pro Tip:

Don't wait until the last moment to apply for an extension. If you anticipate difficulties in meeting the export obligation within the prescribed block period, apply for an extension at least 3 months before the expiry of the block. This gives sufficient time for processing and avoids last-minute complications.

6

Export Obligation Period Extension under EPCG Scheme

In addition to block-wise extensions, you can also apply for an overall extension of the export obligation period if required.

Extension Provisions:

  • Extension up to 2 years beyond the prescribed period of 6 years
  • Extension granted by Regional Authority with payment of composition fee
  • Further extension by DGFT Headquarters in exceptional cases
  • Extension requests must be submitted before expiry of the original period

Extension Application Process:

  1. Submit application in ANF 5B form
  2. Attach original EPCG license
  3. Provide detailed justification for extension
  4. Submit supporting documents
  5. Pay composition fee
  6. Submit to Regional Authority of DGFT

Composition Fee Structure:

  • 2% of the unfulfilled export obligation for each year of extension
  • Fee may be reduced for specific sectors as per Foreign Trade Policy
  • Additional fee may apply for extensions beyond 2 years
  • Fee to be paid through electronic mode

Special Provisions:

  • Units in North Eastern Region may get additional relaxations
  • Extensions for sectors facing global challenges
  • Special considerations for MSMEs
  • Relaxations during economic downturns or pandemics
  • Case-by-case consideration for genuine hardships

Pro Tip:

When applying for an overall extension, provide concrete data and evidence to support your justification. This could include market reports, industry statistics, correspondence with buyers showing order cancellations or delays, or any other documentation that substantiates your claim for extension.

7

Fulfillment of Export Obligation / Export Process under EPCG Licence

Fulfilling the export obligation is a critical part of the EPCG scheme. Proper documentation and reporting are essential.

Export Documentation:

  • Shipping Bills/Bills of Export
  • Bank Realization Certificates (BRCs)
  • Export invoices
  • Foreign Inward Remittance Certificates

Reporting Requirements:

  • Maintain record of all exports made under EPCG
  • Submit periodic reports to DGFT
  • File progress reports as required
  • Respond to any queries from authorities

Export Process Steps:

  1. Manufacture goods using imported capital goods
  2. Secure export orders
  3. Prepare export documentation
  4. File Shipping Bill mentioning EPCG license details
  5. Complete customs formalities
  6. Ship goods to foreign buyer
  7. Receive payment and obtain BRC
  8. Maintain records for EPCG obligation fulfillment

Monitoring Export Obligation:

  • Create a tracking system for exports against EPCG license
  • Regularly update with each export shipment
  • Maintain block-wise fulfillment records
  • Keep digital and physical copies of all export documents
  • Reconcile exports with bank realizations
  • Prepare periodic reports for management review

Important Considerations:

  • Ensure exports are of products manufactured using the imported capital goods
  • Maintain nexus between capital goods and export products
  • Ensure timely realization of export proceeds
  • Keep track of average export obligation maintenance
  • Address any shortfalls in export obligation promptly
  • Consider technological upgradation impact on export quality and quantity

Pro Tip:

When filing shipping bills for exports under EPCG, ensure that the EPCG license number is properly mentioned in the designated field. This creates a digital trail linking your exports to the EPCG obligation, making the eventual EODC process smoother.

8

Closure of EPCG Licence / Export Obligation Discharge Certificate

The final step in the EPCG process is obtaining the Export Obligation Discharge Certificate (EODC) after fulfilling all obligations.

EODC Application Process:

  1. Submit ANF 5B application form
  2. Attach original EPCG license
  3. Provide details of all exports made
  4. Submit all supporting documents (Shipping Bills, BRCs, etc.)
  5. Submit installation certificate
  6. Provide certificate from Chartered Accountant

Required Documents for EODC:

  • ANF 5B application form
  • Original EPCG license with all amendments
  • Installation certificate
  • Statement of exports made against the license
  • Copies of shipping bills
  • Bank Realization Certificates
  • Certificate from Chartered Accountant in prescribed format
  • Certificate regarding maintenance of average export obligation
  • Affidavit regarding non-receipt of any demand/notice from customs

EODC Verification Process:

  1. Regional Authority verifies all documents
  2. Checks fulfillment of specific export obligation
  3. Verifies maintenance of average export obligation
  4. Confirms installation and usage of capital goods
  5. May conduct physical verification in some cases
  6. Issues EODC after satisfactory verification

Post-EODC Process:

  • Release of bank guarantee
  • Closure of bond with customs
  • Removal of license from DGFT's alert list
  • Freedom to sell/transfer the imported capital goods
  • Maintenance of records for at least 3 years after EODC

Pro Tip:

Prepare for the EODC application well in advance by organizing all documents systematically. Create a checklist of required documents and ensure everything is in order before submission. This preparation can significantly reduce the processing time for your EODC application.

Benefits of EPCG Scheme

Zero Customs Duty

Import capital goods without paying customs duty, resulting in significant cost savings and reduced initial investment.

Technology Upgradation

Access to advanced machinery and equipment at reduced cost, enabling technological advancement and improved production capabilities.

Global Competitiveness

Enhance product quality and production efficiency to compete effectively in international markets and expand export reach.

Extended Time Period

6-year period to fulfill export obligation, providing sufficient time for business growth and market development.

Flexibility in Fulfillment

Options for extensions and adjustments in export obligation fulfillment to accommodate business challenges and market conditions.

Increased Profitability

Reduced import costs and improved production efficiency lead to higher profit margins and better return on investment.

Frequently Asked Questions

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