Budget 2021 update: Few of the items on which Customs Duty Rates are revised are as follows:
– Reduced duty on copper scrap from 5% to 2.5%
– Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced
– Increased duty on solar inverters from 5% to 20%
– Raised duty on solar lanterns from 5% to 15%
– The basic customs duty on gold and silver reduced.
– The department will rationalise duty on textile, chemicals and other products
– The revised rates will be applicable from 2nd February 2021 onwards.
What is EPCG Scheme (Export Promotion Capital Goods Scheme)?
This is a Scheme which enables an importer (being an export-oriented business) to import capital goods at zero rates of customs duty. However, the scheme is subject to an export value equivalent to 6 times of duty saved on the importation of such capital goods within 6 years from the date of issuance of the authorization. In simple words, there is a compulsion on the business to bring in foreign currency which is equal to 600 percent of duty saved on such importation measured in domestic currency. This is to be done within six years from availing the Export Promotion Capital Goods scheme,
What are Export Promotion Capital Goods?
Export Promotion Capital Goods are capital goods used in the production of goods which are exported to other countries. It includes machinery as well as spares. Hence, to qualify as Export Promotion Capital Goods, the commodity manufactured in India must be exported outside India.
What are the Capital Goods allowed under Export Promotion Capital Goods Scheme?
The capital goods allowed under Export Promotion Capital Goods Scheme shall include spares (including reconditioned/ refurbished), fixtures, jigs, tool, molds and dies. Further, second-hand capital goods may also be imported without any restriction on age under the EPCG Scheme.
Under this scheme of Foreign Trade Policy (FTP), importation of capital goods required for the manufacturing of export-oriented product specified in the Export Promotion Capital Goods Authorization is permitted at concessional/nil rate of duty. This scheme under Foreign Trade Policy allows technological up-gradation of the indigenous industry. Export Promotion Capital Goods (EPCG) Authorizations are issued by licensing authority – Director General of Foreign Trade (DGFT) based on the certificate issued by an Independent chartered engineer.
Who would benefit from this Scheme?
EPCG is intended for promoting exports and the Indian Government with the help of this scheme offers incentives and financial support to the exporters. Heavy exporters could benefit from this provision. However, it is not advisable to go ahead for this scheme for those who don’t expect to manufacture in quantity or expect to sell the produce entirely within the country, as it could become almost impossible to fulfill the obligations set under this scheme.
How to obtain an EPCG License?
In order to obtain a License under EPCG scheme, it is a primary requirement to file an application with the licensing authority of Director General of Foreign Trade. The application shall be attached with the required documents along with the company and personal details.
Documents required for EPCG License
The issuing authority is the licensing authority – Director General of Foreign Trade (DGFT). ANF 5B is to be filled along with Self-certified copies of the followings:
- Import Export Code (IEC)
- Registration cum Membership Certificate (RCMC)
- Digital signature
- Registration certificate from Tourism Department
- Pan Card
- Excise Registration (if registered)
- GST Registration Certificate
- Proforma Invoice
- Self-Certified Copy + Original of Certificate of Chartered Accountant
- Self-Certified Copy + Original of Certificate of Chartered Engineer
What is the export obligation under the scheme?
The Importation of capital goods under the scheme of EPCG is subject to an export obligation which is equal to six times of duty saved, to be satisfied within 6 years from date of issue of EPCG authorisation. If a holder of the EPCG authorisation is unable to meet the stipulated export obligation, the importer of the capital goods is required to pay customs duties along with interest on it as prescribed.
Points to Remember:
- Is there any extension of the time limit available?
The Extension of the time limit is available but only in exceptional cases where the exporter has sufficient evidence/proof to prove that the factors were beyond his control in order to meet the deadline.
- Penalty in case of Non-Compliance
In cases where the license holder under the EPCG scheme fails to fulfill the stipulated export obligation then the licensee shall be liable to pay the customs dues along with 15% interest per annum to the customs authority.
- Selling goods in the Domestic Tariff Area (DTA)
Where the exporter as per his export obligation meets the deadline then only this business can sell the goods in the Domestic Tariff Area.
- Exemption from IGST & Compensation Cess under EPCG scheme
In the Goods and Services Tax regime, merchant exporters need to pay IGST and claim a refund for the same. The DGFT vide Notification No. 54/2015-20 has amended the FTP (Foreign Trade Policy) and has extended IGST and Compensation Tax exemption under EPCG Scheme till October 01, 2018. This move would offer much-needed relief to exporters who are under the stress with respect to refunds under the GST regime.
Historical case on EPCG License
ABC Inc. was involved in the manufacturing of semi-combed hosiery yarn. The company acted in good faith and unknowingly trusted consultant Mr X of XYZ Pvt. Ltd who provided them with shipping bills from specific exporters. They were assured that this would be counted as exports. ABC Inc. then submitted these shipping bills to DGFT for the purposes of discharging the export obligation.
3rd party export procedures are common with matters relating to EPCG, so the claim was accepted at the time.
On investigation, it was found that the goods were actually not exported. The company violated the terms of their EPCG license as they had not exported the yarn. The company pleaded guilty. However, upon a careful review of the case, it was found that the goods manufactured were not the finished products by ABC Inc. As a result, on account of the violation of the terms and the condition of the Scheme, capital goods that were imported (valuing INR 6.05 Crore) were confiscated under section 108 of the Customs Act 1962.
ABC Inc. has saved custom duty of INR 1.38 Crore. This was outstanding and became payable and needed to be paid before the goods could be used again. Apart from this, interest, repayment of earlier benefits such as the drawback granted previously and the TED refund availed became payable.
A stiff penalty was levied and had to be paid due to non-compliance with the export obligation.