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For the year 2011-12
Submitted By Ruchi Nayak
Table of Contents
Definition of EPCG Who can avail EPCG scheme Rules of EPCG for manufacturing, service providers, projects, others Conditions and Obligations under EPCG Who and how to obtain Import license under EPCG scheme What are the conditions for import of capital goods under EPCG scheme? Can second hand goods be imported under this scheme? Is the Import of components and goods in SKD/CKD condition allowed under this Scheme Import duty Structure Duty draw back and Import duty Calculation Payment for Import and Export Penal Action Benefits to domestic supplier
The scheme was introduced by Sh. P. Chidambaram – Ministry of commerce in 1990 to allow import of capital goods at low Custom duty. This scheme has helped in boosting exports in the initial years of introduction when the customs duties on capital goods were very high. This scheme has primarily helped exporters to become more competitive as it reduces the initial cost on capital goods.
EPCG (Export Promotion Capital Goods Scheme) is a scheme in which one can import the capital goods at concessional rate, which may be used for pre-production, production or post production as well as computer software systems, spares parts, fixtures, dies, moulds. Thus this scheme saved at least 20% of the duty value on the import. This scheme is subject to the export obligation equivalent to 6 times or 8 times (sector wise) of duty saved in the time frame of 6/8 years. This scheme is for manufactures as well as vendors, service providers as well.
Eligibility of EPCG:
All the manufacturers, exporters and merchant exporters are eligible to avail this Scheme.
Rules for EPCG for:
a) For Manufacturers The scheme is quite beneficial to Manufacturer exporters as they can import their capital goods at a substantial discount. Especially for those manufacturers whose final product is not excisable (Agriculture sector) or is exempt from excise duty (like those in Uttaranchal) since they cannot take the CENVAT credit of the CVD paid on imports and Excise Duty paid in Domestic markets. Merchant Exporters tied with the supporting manufacturers can also utilize the scheme for concessional duty import of Capital Goods to be installed at the supporting manufacturers. b) For Projects EPCG can be taken for the full projects where exports of goods or services can be envisaged by the use of the project or alternative products. This can be taken for Captive Power units also. EPCG can be taken along with Project Import scheme in case of new Projects. c) For Service Provider Various service providers / exporters can take EPCG route to reduce their Capital Cost. Service Providers like Port Developers, Hotels, Hospitals, Tour Operators, Taxi Operators, Construction Companies, Logistics companies can utilize the scheme to import/procure from domestic market, their capital goods at substantially reduced costs. The Export Obligation
can be fulfilled by Forex Earnings through providing services, like that of Foreign Guests staying in the hotel, medical tourism etc. d) For Others Certain other sectors like Retail Sector in the country, Port Projects etc. can also utilize EPCG scheme to their advantage.
Conditions and Obligations under EPCG
The following are the conditions and obligations; (i) The export obligation shall be fulfilled by the export of goods manufactured or produced by the use of the capital goods imported under the scheme; (ii) The exports shall be direct exports in the name of the importer. However, the importer may export through a third party provided the name of the importer/licence holder is also indicated in the Shipping Bill. If a merchant exporter is the importer the name of the manufacturer shall be indicated in the Shipping Bill; (iii) Export proceeds shall be realized in freely convertible Currency; (iv) Exports shall be physical exports. Deemed exports shall also be taken into consideration for fulfillment of export obligation but the licencee shall not be entitled to claim any benefit of Deemed Exports; (v) The export obligation shall be in addition to any other export obligation undertaken by the importer and shall be over and above the average level of exports of the same product achieved by him in the preceding three licensing years. If the exporter achieves an export of 75 per cent of the annual value of the production of the relevant export product, the export obligation under this scheme shall be subsumed under that export provided, however, that the aggravate value of such exports during the specified period shall not be less than the aggregate value of the export obligation fixed. (vi) Where the manufacturer exporter has obtained licences for the manufacture of the same export product both under this scheme and the Duty Exemption Scheme, the physical exports made under the Duty exemption Scheme shall also be counted towards the discharge of the export obligation under this scheme; and (vii) In the case of export of computer software, the export obligation shall be determined in accordance with policy but the conditions that exports hall be over and above the average level of exports in the preceding three licensing years shall not apply.
Obtaining Import license under EPCG
The eligible persons who desire to operate under the EPCG Scheme should make an application in the form given in Appendix 10 A of the Hand Book along with documents prescribed therein too the Director General of foreign Trade (DGFT) or to the regional Licensing authorities along with necessary information/documents to obtain an Import license. Licenses are issued, under this scheme by the director general of foreign trade or his regional officers depending upon the value of the licence subject to execution of legal undertaking and bank guarantee by them undertaking among other things to fulfill their export obligation within the specified period. The import licences issued under this scheme shall be deemed to be valid for the goods already shipped/ arrived provided, the customs duty has not been paid for the goods have not been cleared from the customs. The licence is valid for 36 months and further extension is not applicable.
Items which can be imported
Items which can import under EPCG scheme the scheme allows following items which are freely importable as per ITC (HS) classification. Capital goods (Plant, machinery, equipment, accessories) Second hand capital goods (without any restriction on age) Catalyst for initial charge Refractories for initial lining Refrigeration equipments Power generating sets Machine Tools Equipment & instrument for testing, research and development, quality & pollution control. Spares for existing plant & machinery ( imported earlier) Catalyst for replacement.
Second hand goods be imported under this scheme
Second hand capital goods at permitted subject to the condition that such goods have a minimum of residual life of 5 years and the importer furnishing to the customs at the time of clearance of goods a self declaration to the effect that the second hand capital goods being imported have a minimum residual life of five years in the prescribed form. In case the value of the second hand capital goods imported is rupees one crore or more the importers shall also furnish to the customs at the time of clearance of goods a certificate from the Inspection and certification agency to the effect that the purchase price is reasonable. In case of imports at zero duty the minimum residual life of the second hand goods shall be ten years. The concessional assessment is extended only to the goods covered by licence issued under the EPCG Scheme.
Second hand capital goods without any restriction on age may also be imported under the EPCG scheme.
Eligibility for SKD/CKD
An eligible person may apply for a license under the EPCG scheme to import the capital goods in SKD/CKD condition or components of the capital goods in SKD/CKD condition or
components of such capital goods and may assemble or manufacture, as the case may be the capital goods. This facility shall not be available for replacement of parts. The EPCG scheme allows import /domestic sourcing of capital goods (including CKD/SKD thereof as well as computer software systems and spares, jigs, fixtures, dies and moulds) at 0% (for certain sectors) & at 3.09%. Customs duty for all sectors as against the normal total of 23.895%, thus providing a duty saved value of more than 20% of the import value. This is subject to an Export Obligation (EO) equivalent to 6/8 times of duty saved, to be fulfilled over a period of 6/8 years reckoned from the date of issuance of license. For large projects, SSI etc. there are more relaxed norms of EO. The scheme covers manufacturer exporters with or without supporting manufacturer(s) / vendor(s), merchant exporters tied to supporting manufacturer(s) and Service Providers.
Custom Duty 10% Export Obligation FOB Basis NFE Basis 4 times CIF value Not applicable of CG Period 5 years
Nil duty (in case CIF value is Rs.20 crore or more) (a) Nil duty in case CIF Value is Rs.1 crore or more for electronics, food processing, textiles, plastics, leather, sports goods, gem & jewellery sectors and produce and products of agriculture, aquaculture, animal husbandry, floriculture horticulture, piscculture, viticulture, poultry and sericulture, bio-technology sector, the following subsectors of Engineering sectors: Machine tools, parts and accessories; thereof automotive components and accessories, bicycle parts and accessories, handtools, cutting and small tools; castings and forgings (ferrous and non-ferrous) all sorts;
6 times CIF value of CG
5 times CIF value of CG
6 years 6 times CIF value of CG 6 times CIF value of CG 5 times CIF value of CG
6 times CIF value of CG
pumps, electric motors and parts thereof; fasteners all types (ferrous and nonferrous) bright bars and shafting; scientific and surgical instruments and the following sub-sectors of chemicals; organic chemicals; Hotels, Travel agents tour operators or tourist transport operators who are recognized as Export House, Trading House, Star Trading House and Super Star Trading House or Service Export House, International Service Export House, International Star Service Export House, International Super Star Services Export House. (b) Nil duty incase CIF value is Rs.10 lakh or more for software sector
Import Duty Structure
The imported goods are levied with a Basic Customs Duty (BCD) on the assessable value. On the value thus arrived (after adding the BCD) an additional duty or Countervailing Duty (CVD), equivalent to the excise duty on like products (to countervail the same) is levied. Further an Additional CVD of 4% is charged to countervail the sales tax in India. A cess of 3% is charged on all the duties. In addition other duties like anti dumping, safe guard duties are applicable in specific cases. The duties normally are ad-valorem, but in some cases even specific duties are leviable. a) Goods / Raw Materials Normally a BCD of 10% is charged along with a CVD of 10.3% and ACVD of 4%. This works out to a total of 26.849% .The duties (BCD) on the agricultural goods are 30%. In some cases however they may be up-to 85%. For alcohols and spirits duties upto Rs. 150 per liter are levied. For minerals normal duty are 10%, 5%, 2%, NIL .The duty on the textile fabrics is with floor value on per sq. m basis depending upon the kind of and weight of the fabric. b) Capital Goods
Capital Goods, machinery, equipments mostly covered under chapter 84 and 85 normally attract duty of 7.5% + CVD and ACVD. This works out to a total of 23.895%. Duties are lesser for computers & and computer parts and telecom related products under IT agreement. The duties are further reduced by exemption notifications based on the usage of goods for specified purposes and for specified industries. c) Project Imports Project Imports enjoy duties of 5% plus CVD, ACVD. Please see Project Imports section for more details.
Duty Draw Back
Duty Drawback under section 75 of Customs Act scheme provides refund of duties(Customs & Central Excise) paid on Raw Material & Inputs that have gone in production of goods for exports. Deemed Exports provision under FTP also provides drawback for deemed export purposes. They are given on the following basis: All Industry Rate: Government has published drawback rates for several products which are regularly exported through a drawback schedule. Exporters of these products can get the drawback at the prescribed rates for the customs of port of export. Brand Rate: In case however the export product is not covered under the schedule, the exporter can file for drawback under brand rate of fixation to recover the duties actually suffered in the process. Special Brand rates: Can be fixed in case the all Industry rates are available but are less than 4/5th of the actual duties suffered.
Import Duty Calculation
Details Assessable Value :CIF cost +Landing charges Basic Custom duty in %age of assessable value Total Import Value with BCD CVD to countervail Excise duty CVD amount Total Duty Element Education cess incl. higher edu cess Total Addl. CVD applicable on total amount Total amount including duty Total duty amount (%) Rates (%) Amount 100 10 110 14.42 15.862 125.862 25.862 0.77586 126.63786 5.0655144 131.7033744 31.703 8
Duty saved amount:
Duty saved amount Duty saved amount calculation = Merit duty (inclusive of Basic duty + CVD + cess on CVD + SAD+ Edu.cess etc) Less: - EPCG duty
Payment for Imports and Exports
Payments for Import / Export are covered under FEMA (Foreign Exchange Management Act), with RBI (Reserve Bank of India) being the nodal and monitoring Bank. Documents of Export / Import are required to be routed through Banks though there are relaxations for advance payments, status holders etc. Also RBI may give relaxation in specific cases on application by the importer and exporter. The payments for import are supposed to be made within six months and the proof of payment is to be submitted with the bank. The payments for export are supposed to be received within six months, though there are relaxations for status holders. Incase of Project Exports or for other purposes where payments are expected to be received in longer terms than allowed, a prior permission from RBI is needed.
Extension of Export Obligation Period
The competent authority on merits, request for extension in export obligation period, including extension for any one year or any one block of years, for fulfillment of export obligation subject to the condition that extension of export obligation shall not exceed a total period of one year from the date of expiry of the export obligation period. The extension in export obligation period shall be subject to such terms and conditions as may be prescribed by the competent authority.
In case of failure to fulfill the export obligation or any other condition of the licence, thelicence holder shall be liable for action under the Foreign Trade (Development & Regulation) Act, 1992, the Orders and Rules made there under, the provisions of the Policy and theCustoms Act, 1962
Benefits to Domestic supplier
In the event of a firm contract between the EPCG Authorisation holder and domestic manufacturer for such sourcing, the domestic manufacturer may apply for the issuance of Advance Authorisation 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 Authorisation holders. 9
A person holding an EPCG Authorisation may source the capital goods from a domestic manufacturer instead of importing them. The domestic manufacturer supplying capital goods to EPCG Authorisation holders shall be eligible for following deemed export benefits (a) Advance Authorisation (b) Deemed Export Drawback. (c) Exemption from terminal excise duty where supplies are made against International competitive Bidding. In other cases, refund of terminal excise duty will be given. To incentivize fast track companies with a view to accelerate exports under the Scheme, in cases where the Authorization holder has fulfilled 75% or more of the export obligation under the Scheme (including average level of exports) in half or less than half the original export obligation period specified in the Authorization, the remaining export obligation shall be condoned and the Authorization redeemed by the regional authority concerned.