Question 1

What is the export obligation under the EPCG scheme and how is it calculated?

Accepted Answer

Under Para 5.01 of the Foreign Trade Policy 2023, an EPCG authorisation holder must fulfil an export obligation equal to 6 times the CIF value of capital goods imported, within 6 years from the date of authorisation. Para 5.04 provides a reduced obligation of 75% for specified sectors. Fulfilment is evidenced by an Export Obligation Discharge Certificate (EODC) issued by the Regional Authority of DGFT.

Question 2

Which capital goods qualify for 0% duty import under an EPCG authorisation?

Accepted Answer

Para 5.01 of FTP 2023 read with Customs Notification No. 16/2015-Cus permits import of new capital goods including spares, jigs, fixtures, dies, and moulds at 0% Basic Customs Duty. Second-hand capital goods with a residual life of at least 10 years are allowed under Para 5.06. The goods must be pre-production, production, or post-production equipment directly linked to the exported product or service.

Question 3

What are the consequences of failing to meet the export obligation within the prescribed period?

Accepted Answer

If the export obligation is not fulfilled within 6 years, the duty saved becomes recoverable with interest at 15% per annum under Customs Act 1962 Section 28 read with Para 5.23 of FTP 2023. A Show Cause Notice may be issued under Section 11 of the Foreign Trade (Development and Regulation) Act 1992. A composition fee option is available under DGFT Policy Circulars to regularise defaults without full penalty.

Question 4

Can an EPCG authorisation holder claim Input Tax Credit on IGST paid at import?

Accepted Answer

Yes, where IGST is paid on imported capital goods (i.e., not exempted by a separate Customs Notification), the importer can avail ITC under CGST Act 2017 Section 16 read with Rule 36 of CGST Rules 2017, provided the goods are used for making taxable supplies. Where both BCD and IGST are exempted under a Customs Notification, no ITC is available on the exempted IGST component.

Question 5

Is annual reporting to DGFT mandatory and what is the deadline?

Accepted Answer

Yes. Para 5.22 of FTP 2023 requires EPCG authorisation holders to submit an Annual Return by 30 April each year to the Regional Authority in the prescribed format, detailing exports made against each authorisation. Non-submission can result in debarment from future DGFT licences. The EODC application must be filed within 6 months of completing the export obligation or expiry of the obligation period, whichever is earlier.

Epcg Scheme

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