FOREIGN TRADE POLICY ANALYSIS: Chapter 5 Export Promotion Capital Goods (EPCG…bizsolindia.com/.../uploads/2017/12/Chapter-5-EPCG.pdf · 2017. 12. 6. · 1 FOREIGN TRADE POLICY ANALYSIS:

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FOREIGN TRADE POLICY ANALYSIS:

Chapter 5 Export Promotion Capital Goods (EPCG) Scheme

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FTP / HBOP

Para Old Provision New Provision Comments / Impact

1 FTP 5.01 EPCG Scheme

(a) EPCG Scheme allows import of capital goods for pre-production, production and post-production at Zero customs duty. Alternatively, the Authorisation holder may also procure Capital Goods from indigenous sources in accordance with provisions of paragraph 5.07 of FTP. Capital goods for the purpose of the EPCG scheme shall include:

(i) Capital Goods as defined in Chapter 9 including in CKD/SKD condition thereof;

(ii) Computer software systems;

(iii) Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare

(a) EPCG Scheme allows import of capital goods (except those specified in negative list in Appendix 5 F) for pre-production, production and post-production at zero customs duty. Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and Compensation Cess upto 31.3.2018 only, leviable thereon under the subsection(7) and subsection (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of1975), as provided in the notification issued by Department of Revenue. Alternatively, the Authorisation holder may also procure Capital Goods from indigenous sources in accordance with provisions of paragraph 5.07 of FTP. Capital

Appendix 5F is introduced with negative list of capital goods (‘CG’) for which EPCG is not allowed. (Appendix yet to be notified)

Import of CG is exempted from Customs duty and also IGST & Compensation Cess upto 31 March 2018

Software which are part of CG imported are allowed under EPCG

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refractories; and

(iv) catalysts for initial charge plus one subsequent charge.

goods for the purpose of the EPCG scheme shall include:

(i) Capital Goods as defined in Chapter 9 including in CKD/SKD condition thereof;

(ii) Computer systems and software which are a part of the Capital Goods being imported;

(iii) Spares, moulds, dies, jigs, fixtures, tools & refractories; and

(iv) Catalysts for initial charge plus one subsequent charge


(c) Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorisation.

(c) Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes and cess saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of Authorisation.

For the calculation of duty saved amount IGST and Cess should be included till 31 March 2017.


(f) Second hand capital goods shall not be permitted to be imported under EPCG Scheme.

(f) Deleted. Now second hand CG can be imported under EPCG. A much needed move for bosting make in India

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4 FTP (g) Authorisation under EPCG Scheme shall not be issued for import of any Capital Goods (including Captive plants and Power Generator Sets of any kind) for

(i) Export of electrical energy (power)

(ii) Supply of electrical energy (power) under deemed exports

(iii) Use of power (energy) in their own unit, and

(iv) Supply/export of electricity transmission services

(g) Deleted. Now CG are allowed to be imported for captive plants and power generator sets

5 FTP 5.02 Coverage (a) EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers. Name of supporting manufacturer(s) shall be endorsed

(a) EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers. Name of supporting manufacturer(s) shall be endorsed

Excise authority changed to Customs authority for submission of intimations regarding change in supporting manufacturer

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on the EPCG authorisation before installation of the capital goods in the factory / premises of the supporting manufacturer (s). In case of any change in supporting manufacturer (s) the RA shall intimate such change to jurisdictional Central Excise Authority of existing as well as changed supporting manufacturer (s) and the Customs at port of registration of Authorisation.

on the EPCG Authorisation before installation of the capital goods in the factory / premises of the supporting manufacturer (s). In case of any change in supporting manufacturer (s) the RA shall intimate such change to jurisdictional Customs Authority of existing as well as changed supporting manufacturer(s) and the Customs at port of registration of Authorisation.

6 FTP 5.03 Actual User Condition

Import of capital goods shall be subject to Actual User condition till export obligation is completed.

Imported capital goods shall be subject to Actual User condition till export obligation is completed and EODC is granted.

Imported CG cannot be transferred till the time EODC is obtained.

This is little harsh provision as we all know redemption is time consuming process.

7 FTP 5.03 Actual User Condition

(h) Payment received in rupee terms for such Services as notified in Appendix 3E shall also be counted towards discharge of export obligation under the EPCG scheme.

(h) Payment received in rupee terms for such Services as notified in Appendix 5D shall also be counted towards discharge of export obligation under the EPCG scheme.

Appendix 5D is specified in replacement of Appendix 3E

8 FTP 5.05 Provision for units under

A company holding EPCG authorisation and registered with

Deleted Provisions for units under BIFR/ Rehabilitation are deleted since new

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BIFR /Rehabilitation

BIFR / Rehabilitation Department of State Government or any firm/ company acquiring a unit holding EPCG authorisation which is under BIFR / Rehabilitation, may be permitted EO extension for the EPCG authorisation(s) held by the acquired unit, as per rehabilitation package prepared by operating agency and approved by BIFR / Rehabilitation Department of State Government. If time-period upto which EO extension is to be granted is not specifically mentioned in the BIFR order, EO extension of 3 years from the date of expiry of EOP (including extended period) or the date of BIFR order, whichever is later, shall be granted without payment of composition fee.

insolvency code has been introduced.

9 FTP 5.07 Indigenous Sourcing of

Capital Goods and benefits to

Domestic

A person holding an EPCG authorisation may source capital goods from a domestic manufacturer. Such domestic manufacturer shall be eligible for

A person holding an EPCG authorisation may source capital goods from a domestic manufacturer. Such domestic manufacturer shall be eligible for

Deemed export benefit under GST law is also available to domestic manufacturer for supply of CG under EPCG authorisation

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Supplier deemed export benefit under paragraph 7.03 of FTP. Such domestic sourcing shall also be permitted from EOUs and these supplies shall be counted for purpose of fulfilment of positive NFE by said EOU as provided in Para 6.09 (a) of FTP.

deemed export benefits under paragraph 7.03 of FTP and as may be provided under GST Rules under the category of deemed exports. Such domestic sourcing shall also be permitted from EOUs and these supplies shall be counted for purpose of fulfilment of positive NFE by said EOU as provided in Para 6.09 (a) of FTP.

10 FTP 5.12 Post Export EPCG Duty

Credit Scrip(s)

(a) Post Export EPCG Duty Credit Scrip(s) shall be available to exporters who intend to import capital goods on full payment of applicable duties in cash and choose to opt for this scheme.

(a) Post Export EPCG Duty Credit Scrip(s) shall be available to exporters who intend to import capital goods on full payment of applicable duties, taxes and cess in cash and choose to opt for this scheme.

Taxes and cess is included from GST perspective

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FTP - HAND BOOK ON PROCEDURES ANALYSIS:

Chapter 5_EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME

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HBOP 5.03 (a) Nexus Certification

RA concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 5A, issue EPCG authorisation. Reasonable wastage, if any, anticipated at the time of installation of capital goods will also be certified by the Chartered Engineer in the nexus certificate and the same would be mentioned in the condition sheet of the EPCG authorisation at the time of issue.

A concerned shall, on the basis of nexus certificate from an Independent Chartered Engineer (CEC) submitted by the applicant in Appendix 5A, issue EPCG authorisation. Reasonable wastage, if any, anticipated at the time of installation of capital goods will also be certified by the Chartered Engineer in the nexus certificate and the same would be mentioned in the condition sheet of the EPCG authorisation at the time of issue. For issuance of such certificate, the Chartered Engineer shall act only in the domain of his/her competence.

For obtaining nexus certificate Chartered Engineer should act in his/ her domain of competence.

This was already implemented by way of Circular, now it is incorporated in the provisions.

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2 HBOP 5.03 (c) Nexus

Certification

An application for amendment in the list of import item(s) including addition(s)/deletion(s), if any, may be filed with RA concerned provided the authorisation is valid for import. The applicant would give justification for seeking such amendment(s) along with fresh nexus certificate from an independent Chartered Engineer.

Any amendment in the list of import items can be made in the authorisation on the basis of Chartered Engineers Certificate

3 HBOP 5.03 (d) Nexus

Certification

An application for amendment in the list of export item(s) including addition(s)/deletion(s) if any, may be filed with RA concerned provided the Export Obligation period of the authorisation is valid and the CG has nexus with export product. The applicant would give justification for seeking such amendment(s) along with fresh nexus certificate from an independent Chartered Engineer.

Any amendment in the list of export items can be made in the authorisation on the basis of Chartered Engineers Certificate

4 HBOP 5.04 (a)

Certificate of

Installation of

Authorization holder shall produce, within six months from date of completion of import, to

Authorization holder shall produce, within six months from date of completion of import, to the concerned RA, a certificate from

Installation certificate to be obtained from customs authority within 6 months or within extended period of 12 months with payment of Rs. 5,000/- only which was free of cost

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Capital Goods the concerned RA, a certificate from the jurisdictional Central Excise Authority or an independent Chartered Engineer, at the option of the authorisation holder, confirming installation of capital goods at factory/premises of authorization holder or his supporting manufacturer(s). The RA may extend the said period for producing the certificate by a maximum period of another 12 months. Where a unit registered with Central Excise opts for independent Chartered Engineer’s certificate, the authorisation holder shall send a copy of the

the jurisdictional Customs authority or an independent Chartered Engineer, at the option of the authorisation holder, confirming installation of capital goods at factory/premises of authorization holder or his supporting manufacturer(s). The RA may allow one time extension of the said period for producing the certificate by a maximum period of 12 months with a composition fee of Rs. 5000/-.

Where the authorisation holder opts for independent Chartered Engineer’s certificate, he shall send a copy of the certificate to the jurisdictional Customs Authority for intimation/record. The authorization holder shall be permitted to shift capital goods during this period to other units mentioned in the IEC and RCMC of the authorization holder subject to production of fresh

earlier.

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certificate to the jurisdictional Central Excise Authority as intimation/record.

installation certificate.

5 HBOP 5.06(a) Import of

spares, tools,

refractories and

catalysts

Applications for procurement of capital goods covered under sub-paragraphs (a) (iii) and (iv) of paragraph 5.01 of FTP shall contain a list of plant/machinery installed in factory/premises of the applicant for which such capital goods are required, duly certified by Chartered Engineer or Jurisdictional Central Excise Authorities.”

Applications for procurement of capital goods covered under sub-paragraphs (a) (iii) and (iv) of paragraph 5.01 of FTP shall contain a list of plant/machinery installed in factory/premises of the applicant for which such capital goods are required, duly certified by Chartered Engineer or Jurisdictional Customs Authorities.”

Certifying authority has been changed from Excise to Customs instead of Central GST officer.

6 HBOP 5.10 Conditions

for fulfilment of

Export Obligation

In addition to conditions in paragraph 5.04 of FTP, the following conditions shall also be applicable for fulfilment of export obligation:

In addition to conditions in paragraph 5.04 of FTP, the following conditions shall also be applicable or fulfilment of export obligation:

(a) Name of the supporting

Proof of export for exports of goods are:-

1. ARE 1 issued by Central Excise (for product not covered under GST)

2. Tax invoice as prescribed under GST Law duly authenticated by customs.

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(a) Name of the supporting manufacturer as well as the exporter shall be indicated on export documents.

(b) EPCG authorisation holder may export either directly or through third party(ies).

(c) In case the Authorization Holder wants to export through a third party, export documents viz., shipping bills / Bill of exports etc. shall indicate name of both authorization holder and supporting manufacturer, if any, along with EPCG authorization number. BRC, GR declaration, export order and invoice

manufacturer as well as the exporter shall be indicated on export documents.

(b) EPCG authorisation holder may export either directly or through third party(ies).

(c) In case the Authorization Holder wants to export through a third party, export documents viz., shipping bills / Bill of exports etc. shall indicate name of both authorization holder and supporting manufacturer, if any, along with EPCG authorization number. BRC, GR declaration, export order and invoice should be in the name of third party exporter. The goods exported through third party should

be manufactured by the EPCG Authorisation Holder or the supporting

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should be in the name of third party exporter. The goods exported through third party should be manufactured by the EPCG Authorisation Holder or the supporting manufacturer where the capital goods imported under the authorisation have been installed.

(d) The EPCG authorization holder shall submit the following additional documents for discharge of EO through third party (ies):

(i) A copy of agreement entered into between the authorization holder and the ultimate exporter undertaking to export the goods

manufacturer where the capital goods imported under the authorisation have been installed. Proceeds realised through normal banking channel from third party exporter’s account to the authorisation holder’s account on account of such exports only shall be counted towards fulfilment of export obligation.

(d) The EPCG authorization holder shall submit the following additional documents for discharge of EO through third party (ies):

(i) A copy of agreement entered into between the authorization holder and the ultimate exporter undertaking to export the goods manufactured by the authorization holder/supporting manufacturer for fulfilment of the export obligation against the EPCG authorization in question.

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manufactured by the authorization holder/supporting manufacturer for fulfilment of the export obligation against the EPCG authorization in question.

(ii) Proof of having despatched the goods from authorization Holder’s factory premises to the ultimate exporter/port of export viz. (a) ARE-1 Certificate issued by Central Excise with due authentication by the Customs verifying the exports along with the shipping bill number, date and EPCG authorization number (b) Invoice duly incorporating the relevant EPCG

(ii) Proof of having despatched the goods from authorization Holder’s factory premises to the ultimate exporter/port of export viz. (a) ARE 1 certificate issued by Central Excise / Tax invoice for export prescribed under the GST rules with due authentication by the Customs verifying the exports along with the shipping bill number, date and EPCG authorization number or (b) Invoice duly incorporating the relevant EPCG authorization number & date at the time of dispatch in case the unit is not registered with Central Excise / GST.

(iii) Lorry Receipt (LR) /Logistical evidence for transportation of goods from the premises of the authorization holder to the third party/port of export.

(iv) An undertaking from the 3rd

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authorization number & date at the time of dispatch.

(iii) Lorry Receipt (LR) /Logistical evidence for transportation of goods from the premises of the authorization holder to the third party/port of export.

(iv) An undertaking from the 3rd party on a stamp paper, declaring that the products exported for fulfillment of EO by them on behalf of the license holder as per details given in the statement of exports, were manufactured by the license holder.

(v) Financial evidence for having received

party on a stamp paper, declaring that the products exported for fulfillment of EO by them on behalf of the license holder as per details given in the statement of exports, were manufactured by the license holder.

(v) Financial evidence for having received proceeds through normal banking channel from third party exporter’s account to the authorization holder’s account on account of such exports towards such third party supplies.

(vi) Disclaimer certificate from third party that they shall not use such proceeds towards EO fulfilment of any EPCG authorization(s) obtained by them.

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proceeds through normal banking channel from third party exporter’s account to the authorization holder’s account towards such third party supplies.

(vi) Disclaimer certificate from third party that they shall not use such proceeds towards EO fulfillment of any EPCG authorization(s) obtained by them.

7 HBOP 5.15 Monitoring

of Export

Obligation

Authorisation holder shall submit to RA concerned by 30th April of every year, report on fulfilment of export obligation by secured electronic filing using digital signatures. RA concerned may issue partial EO fulfilment

Authorisation holder shall submit to RA concerned by 30th April of every year, report on fulfilment of export obligation by secured electronic filing using digital signatures/ or hard copy thereof.

EO fulfilment report can also be submitted electronically with DSC or in hard copy. Going forward RA cannot issue partial EO fulfilment certificate.

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certificate, provided export performance is proportionately adequate for fulfilment of export obligation.

8

HBOP

5.17(c) In case of zero duty EPCG Authorizations, only one extension of upto 2 years in export obligation period may be considered by RA concerned, on payment of composition fee equal to 2% of proportionate duty saved amount on unfulfilled export obligation for each year of extension or an enhancement in export obligation imposed to the extent of 10% of total export obligation imposed under authorization for each year of extension, as the

In case of zero duty EPCG

Authorizations, two extensions of

one year each in export obligation

period may be considered by RA

concerned, on payment of

composition fee equal to 5% and

10% respectively of proportionate

duty saved amount on unfulfilled

export obligation for the

first/second year of extension or

an enhancement in export

obligation imposed to the extent of

10%/20% respectively of the total

export obligation imposed under

the authorization for first/second

year of extension, as the case may

be, at the choice of the exporter.

Minimum composition fee will

For extension of EO period, two extensions of

one year specified instead of one extension

of 2 years.

Compensation fees would be levied at 5%

and 10% of duty saved amount for first and

second extension respectively OR

enhancement in EO will be imposed to the

extent of 10% and 20% respectively.

Minimum compensation fees payable will be

Rs. 10,000/-.

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case may be, at the choice of the exporter.

beRs.10,000.

9 HBOP 5.17(d) Request for extension in EO Period shall be made to RA within 75 days from the date of expiry of original EO Period.

Request for extension in EO Period shall be made to RA within 90days from the date of expiry of original EO Period. However, RA may consider the request for extension received upto 180 days with additional composition fee of Rs.5000/-

Request for extension in EO shall be made

within 90 days and within 180 days with

compensation fees of Rs. 5,000/-.

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HBOP 5.21 Export

Obligation

Shortfall

RA concerned may condone shortfall upto 5% in specific export obligation.

Deleted

Now the RA cannot condone shortfall upto

5% in specific export obligation.

11 HBOP 5.25(b) Capital Goods imported and found defective or otherwise unfit for use may be exported, and Capital Goods in replacement thereof be imported under EPCG scheme. In such cases, while allowing export, the Customs shall credit

Capital Goods imported and found defective or otherwise unfit for use may be exported, within two years from the date of clearance by Customs of such goods, with permission of RA / Customs Authority and Capital Goods in replacement thereof be imported under EPCG scheme. In such cases, while allowing export, the Customs

Capital goods imported found defective shall

be exported within 2 years from date of

import with permission of RA authority.

Earlier there was no specific provision

towards period for export of defective CG.

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the duty benefit avail ed which can be debited again at the time of import of such replaced Capital Goods.

shall credit the duty benefit availed which can be debited again at the time of import of such replaced Capital Goods.

12 HBOP 5.25(c) Capital Goods imported under EPCG scheme, may be re-exported for repairs abroad within three years from the date of clearance by Customs of such goods, with permission of RA / Customs Authority. The duty component on the expenditure incurred on the repairs as well as the insurance and the freight, both ways shall be taken into account for re-fixation of the EO.

Capital goods may be re-exported for repairs

abroad within 3 years from the date of

import with permission. Duty component on

expenditure on repairs, insurance and freight

shall also be taken in account for re fixation

of EO.

This provision is in line with Customs law

13 HBOP 5.27(g) New In case of clubbing of EPCG authorizations where EO can be fulfilled by export of alternate product(s)/service(s), the proportion of alternate product(s)/service(s) for EO fulfilment / regularization will be restricted to the lowest of the percentage of alternate

In case of clubbing of EPCG authorisation

where EO can be fulfilled by export of

alternate product, EO fulfilment will be

restricted to lowest of percentage of

alternate product/ service.

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product(s)/service(s) allowed in the clubbed

14 HBOP 5.27(h) New EPCG authorisations issued prior to 1.4.2007 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE-2006). The EPCG Authorisations issued between 01.04.2007 and 17.04.2013 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE-2012). The EPCG Authorisations issued from 18.04.2013 till the issue of Notification of FTP 2015 -20 shall be governed by provisions contained in Public Notice No.1 dated 18.4.2013.

EPCG authorisations issued prior to 1.4.2007 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE-2006). The EPCG Authorisations issued between 01.04.2007 and 17.04.2013 shall be governed by provisions contained in Chapter 5 of HBP Vol.1 (RE-2012, as amended). The EPCG Authorisations issued from 18.04.2013 till the issue of Notification of HBP 2015-20 shall be governed by provisions contained in Public Notice No.1 dated 18.4.2013. The EPCG Authorisations issued between Notification of HBP 2015-20 till the Notification of HBP 2015-20 (RE 2017) shall be governed by provisions contained in HBP 2015-20.

References of reviewed FTP added.

15 HBOP 5.28(g) Where the exporter has obtained post-export EPCG authorisation

Deleted Deleted

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declaring that he shall not avail CENVAT Credit, the Export Obligation shall be fixed with reference to the basic Customs duty paid. In such cases Duty Credit Scrip will be issued based on the certificate from Central Excise regarding non- availment of CENVAT credit. Such certificate from central excise regarding non-availing of CENVAT credit will not be required where the unit is not registered with central excise.

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Documents

FOREIGN TRADE POLICY ANALYSIS: Chapter 5 Export Promotion Capital Goods (EPCG…bizsolindia.com/.../uploads/2017/12/Chapter-5-EPCG.pdf · 2017. 12. 6. · 1 FOREIGN TRADE POLICY ANALYSIS: