What is the EPCG Scheme for Import of Capital Goods? Let’s Learn About It
About EPCG Scheme
The term EPCG stands for Export Promotion Capital Goods. The main aim of the EPCG Scheme is to ease out the way of import of capital goods. The EPCG scheme simplifies the process of the import of capital goods that are in the pre-production, production, and post-production stages.
One of the greatest benefits of the EPCG scheme is that it enables the importer to transport the capital goods at zero customs duty.
Items fit for import under EPCG Authorization
In order to get an idea of what all items are covered and not covered under the EPCG scheme, you can refer to Appendix 5F. You can send a list of items to the licensing authority that is DGFT (Director General of Foreign Trade) for EPCG authorization.
If you want to acquire an EPCG license then you must write an application to the licensing authority of the Director-General of Foreign Trade. Make sure to attach all the mandatory documents regarding the company and its basic details along with it.
Important pointers to be kept in mind for EPCG authorization
Double-check and see that the HSN Harmonized System of Nomenclature code is clearly visible. HSN code is a 6-digit code that ranks various goods and services.
Make sure that EPCG is put just on the CIF value of machinery.
If you want to get clearance of documents early, then be certain that all your items have the exact description, model number, and quantity on the EPCG license, Proforma Invoice, and Final Import invoice.
Steps to be followed by an importer for clearance by custom department
So as to complete all the customs facilities, the importer has to appeal for CHA (Customs House Agents).
As soon as EPCG arrives from DGFT it also needs to get approval from the customs department.
If you are a beginner in this field, then you must go through the CBEC circular to understand the needs and wants of the licensing authority and customs department.
Followed by this, a process of clearance of all the formalities will take place by the customs of CHA.
Finally, when all the formalities get cleared, the importer must give the authorities a certificate from the customs authority within a period of six months from the date of completion of import. Failure to do so can result in a penalty.
After this, the license holder should submit a copy of the Bill of Entry and Installation Certificate to DGFT as evidence of installation and import of capital goods sent through EPCG. Then periodical returns have to provide an annual basis report regarding fulfillment of obligation goods to DGFT.
The license holder has to achieve exact Specific Export Obligation (SEO) which is duty saved x 6 times by rendering services within a span of 6 years from the date of license (50% within 4 years and balance 50% in 5th & 6th year). In this scenario, foreign currency will be perceived as an export obligation. And if in the former 3 years DGFT witnesses any foreign currency then it carries full power to impose additional Export Obligation which is known as Average Export Obligation (AEO). The license holder must make it a point to satisfy the obligations of both AEO and SEO. This condition is not considered in the case of new companies.
In case the license holder fails to meet the criteria of the Export Obligation (AEO + SEO) then he/she will be expected to repay the customs duty with a 15% rate of interest per annum.
Documents required for the attainment of Import obligation
There must be copies of invoices and FIRC (Foreign Inward Remittance Certificate) along with the personal details of the license holder like name, designation, and PA code. The motive behind the remittance should be the same on invoice and FIRC as well as on EPCG authorization.
After the completion of Export Obligation, you must request to DGFT for the closure certificate in a specific format. Post receiving the closure certificate you must reach out to the customs department to cancel your bonds and issue BG. Now your transaction is all complete.
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