Background
Export Promotion Capital Goods (EPCG) Scheme is notified under the Foreign Trade Policy, 2023, issued by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade (Development & Regulation) Act, 1992, and is operationalised through the accompanying Handbook of Procedures, 2023. The scheme allows eligible exporters to import capital goods, including spares, tools, refractories, and catalysts, at concessional or zero customs duty for use in pre-production, production, or post-production, in exchange for undertaking a corresponding export obligation calibrated to the duty saved on the import.
The regulatory mechanism is built around a defined authorisation-to-redemption lifecycle: an exporter applies to the jurisdictional Regional Authority for an EPCG authorisation, installs and certifies the imported capital goods, discharges the attached export obligation within prescribed block periods (with periodic intimation and online reporting to the RA), and ultimately applies for an Export Obligation Discharge Certificate once the obligation is fully met. The framework also provides structured relief mechanisms including extension of the export obligation period on payment of composition fees, clubbing of multiple authorisations, surrender of unutilised authorisations, and regularisation of bona fide default while imposing recovery of duty saved with interest, composition or late fees, and authorisation cancellation as consequences of persistent non-compliance.
Applicability
Compliance obligations under the EPCG Scheme apply to every holder of an EPCG authorisation, spanning the registered/head office, branch office, or manufacturing unit of an eligible exporter that has imported capital goods at concessional or zero customs duty, such a holder is required, over the life of the authorisation, to obtain and hold a valid EPCG authorisation, certify installation of the imported capital goods, maintain registers of stock and utilisation of spares, tools, refractories, and catalysts, intimate and report fulfilment of the export obligation to the Regional Authority within each block period, pay customs duty with interest on any unfulfilled portion of the first block, apply for extension, clubbing, re-export, repair, or replacement where relevant, apply for the Export Obligation Discharge Certificate on completion of the export obligation, and thereafter preserve records of exports and supplies for two years following redemption of the authorisation.
Key Compliance Obligations under EPCG Scheme of Foreign Trade Policy, 2023:
An EPCG authorisation is required for exporters intending to import capital goods at concessional or zero customs duty for pre-production, production, or post-production activities, subject to a corresponding export obligation. The application is made by the registered/head office, branch office, or manufacturing unit of an eligible exporter to the concerned Regional Authority (RA) in Form ANF 5A, along with the prescribed documents. Incorrect, incomplete, or non-filing of the application will result in the exporter being unable to obtain the authorisation, and consequently unable to import capital goods at the concessional or zero duty rate.
The authorisation holder must produce, within three years from the date of completion of import, a certificate from the jurisdictional Customs authority or an independent Chartered Engineer confirming installation of the capital goods (and spares) at the factory or premises of the holder or of the supporting manufacturer(s).
The authorisation holder must intimate the RA on fulfilment of the export obligation and average exports within three months of completion of each block period.
Where the export obligation for the first block is not fulfilled and has not been extended by the RA, the holder must, within six months from expiry of that block, pay customs duty, together with applicable interest, proportionate to the duty saved on the total unfulfilled export obligation of the first block.
The authorisation holder must submit an online report to the RA on fulfilment of the export obligation after expiry of the first block period of four years, and continuously thereafter until expiry of the valid export obligation period, supported by shipping bill, invoice, and FIRC details duly certified by a Chartered Accountant, Cost and Management Accountant, or Company Secretary.
Where capital goods are shifted to other units mentioned in the IEC/RCMC during the export obligation period, a fresh installation certificate must be submitted to the concerned RA within six months of such shifting.
The authorisation holder must maintain a register recording the stock and utilisation of capital goods including spares, tools, refractories, and catalysts imported under sub-paragraphs (a)(iii) and (a)(iv) of Para 5.01 of the FTP.
At the time of applying for the Export Obligation Discharge Certificate (EODC), the authorisation holder must submit a certificate from an independent Chartered Engineer confirming use of the imported spares and tools in the installed capital goods, based on the stock/utilisation register.
The authorisation holder must apply online for the EODC in Form ANF 5B, along with the prescribed documents as proof of fulfilment of the export obligation. The RA is expected to process the application ordinarily within thirty days of receipt of complete documents.
Two extensions of one year each (or two years in a single request) beyond the initial six-year period may be sought, on payment of a composition fee based on the duty saved value. The request must be filed within six months of expiry of the original export obligation period, failing which a late fee applies. No extension is available beyond eight years from the date of issue of the authorisation.
The holder may surrender an unutilised authorisation at any time without penalty, or may exit by paying customs duty, taxes, and cess proportionate to the export obligation shortfall, together with applicable interest, where the prescribed export obligation has not been fulfilled.
Every authorisation holder must maintain a true and proper account of the exports, supplies, and services rendered towards fulfilment of the export obligation, for a period of two years from the date of redemption of the authorisation.
Defective or unfit capital goods may, with the permission of the RA/Customs and re-fixation of the export obligation: (a) be re-exported to the foreign supplier within three years for replacement of the goods; (b) be exported for replacement within two years; or (c) be re-exported for repair abroad within three years, with the export obligation re-fixed to account for repair, insurance, and freight duty.
An application for clubbing two or more EPCG authorisations issued to the same holder by the same RA, for the same or similar export products, must be filed in Form ANF 5C. On clubbing, the total export obligation is re-fixed on the clubbed duty saved amount, with the average export obligation taken as the highest among the clubbed authorisations.
Penalty & Consequences
The following penalty provisions apply across the compliance obligations covered in this blog:
Non-Grant of EPCG Authorisation: Consequence of Incorrect or Incomplete Application
Where the application for an EPCG authorisation is incorrect, incomplete, or not filed, the authorisation will not be granted. As a consequence, the exporter is unable to import capital goods at the concessional or zero customs duty rate available under the scheme for pre-production, production, or post-production activities.
General Default Consequences: FT (Development & Regulation) Act, 1992 and Customs Act, 1962
For persistent default in meeting the ongoing obligations attached to an EPCG authorisation including installation certification, block-wise export obligation intimation, online reporting, shifting-related re-certification, record maintenance, and related procedural requirements, action may be taken under the Foreign Trade (Development & Regulation) Act, 1992, the Customs Act, 1962, and applicable rules and orders made thereunder. Consequences include recovery of the customs duty saved together with interest, composition or late fees as specified under the relevant paragraph of the Handbook of Procedures, and cancellation of the authorisation for persistent default, in accordance with Para 5.24 of the HBP, 2023.
Recovery of Customs Duty on Unfulfilled Export Obligation of the First Block
Where the export obligation for the first block is not fulfilled and has not been extended by the Regional Authority, the holder is liable to pay customs duty proportionate to the shortfall in the export obligation, together with interest as notified by the Department of Revenue.
Composition Fee for Extension of Export Obligation Period
For an extension of the export obligation period beyond the initial six years, a composition fee of Rs. 20,000, Rs. 30,000, or Rs. 60,000 applies depending on the duty-saved slab, together with a late fee of Rs. 10,000 to Rs. 15,000 where the request is filed after the prescribed window. No refund is available in respect of any fee already paid.
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