epcg scheme update of 2024 25 custom duty

EPCG Scheme Update of 2024-25 - Custom Duty

The EPCG scheme update of 2024-25 implies that it will not alter the basic facility of zero Basic Customs Duty on imports of capital goods but will completely redesign the system of compliance, fees, and coordination of EPCG schemes with customs. This will benefit exporters while keeping a check on export performance.

Moving towards ease of compliance

Starting from July 2024, DGFT has categorically reassigned EPCG and labelled it as an “ease of doing business-friendly” mechanism, and they have simplified procedures and operational timelines. Through public notice No. 15 of 2024-25, exporters have now been allowed realistic time limits for performing critical tasks like installation and documentation of capital goods imported under EPCG.

In the past, because of the time constraint imposed on businesses, they would scramble just to comply, even when their performance on exports was on target. The new rules understand the fact that large projects take time to implement, stabilize, and integrate before compliance can be realized.

Standardized, slab-based fee structures

One of the most significant other modifications that will affect the 2024-25 financial year is that fees for composition for percentage-based composition fees will now be scaled into fixed slabs based on the duty saved value of the EPCG authorisation. Earlier, activists requiring the extension of the export obligation (EO) period or the regularisation of block-wise shortfalls had fees determined by percentage values of duty saved, which may be substantial for large projects, and had a degree of uncertainty during planning.

Under this new structure, DGFT has brought out specific slagging fee rates for:

1. Extension of EO period under FTP 2023
2. Normalization of block-wise export obligation shortfalls
3. Implementation of decisions of the Policy Relaxation Committee (PRC) in difficult or old cases

For instance, different duty saved brackets (for example, up to a given crore, medium, and higher value licenses) now impose set rupee fees in defined ranges, commonly quoted in practical cases as ?10,000 to ?1,00,000 depending upon the case. This enables the exporter to better plan himself as there is no fear of open-ended penalties on the importation of capital goods.

Making block-wise regularisation more predictable

Block-wise export obligation, where a part of the EO needs to be executed in the first block of years and the balance in the second, has always been a ticklish matter. The changes for the year 2024-25 retain the same framework for the blocks and make it far easier to deal with genuine cases of extension and shortfall in the block-wise circumstances.

In contrast to a case-by-case, percentage-driven composition fee calculation, exporters with deficiencies in the opening block would be subject to standardized, national guidelines, and they need only comply within the prescribed period; they will be charged only a fixed composition fee as per the duty saved value of their EPCG licence. This will remove discretion and discrepancies for different regional authorities of DGFT and customs ports.

Better DGFT-Customs coordination on EPCG

Another major thrust of the changes introduced in 2024-25 is harmonization of the approach of both DGFT and Customs on the working of EPCG in conjunction with Customs Notifications and Additional Duties. Exporters have previously been confronted with the following contentious issues at ports:

1. Whether DGFT’s EPCG authorisation and classification of goods were binding on customs
2. What specific duties, like IGST, anti-dumping duties, or CVD, had been exempt when importing EPCG on the capital good being imported?

More recent clarifications highlight the importance of respecting the policy decisions and classifications of DGFT in regard to EPCG. This also increases the uncertainty level at the time of import and EPCG license registration. It is noted that the DGFT and customs authorities have clarified the treatment of EPCG and its exemption from customs notifications. This also aims to bring an end to disputes related to whether additional duties and taxes qualify for the EPCG exemption.

For exporters: Reduced delay in clearance of capital goods embodied in exports; Reduced risk of post-import disputes; Improved costing for imports of machinery through EPCG Schemes.

Impact on exporters in 2024-25

Overall Impact

Through these various shifts, the structure of the EPCG scheme has remained the same: zero Basic Customs Duty on eligible capital goods, for a determined export obligation equal to the Basic Customs Duty saved. It’s the handling of the scheme, for 2024-25, that has altered.

Exporters currently enjoy the following benefits:

1. Installation and documentation timelines that are easier
2. Composition fees on a slab base for EO extension and regularisation
3. Enhanced coordination between DGFT and Customs on exemption notifications
4. Decreased litigation and port charges related to transactions

These reforms mean that any manufacturer or merchant, exporter or service provider who intends to import capital goods through EPCG in 2024-25 will have a predictable and business-friendly scheme while continuing to have a very close linkage between export performance and saving of duties.