What is the EPCG Scheme?
The Export Promotion Capital Goods (EPCG) Scheme is an export incentive mechanism governed by Chapter 5 of the Foreign Trade Policy (FTP). Its objective is to facilitate the import of modern capital machinery and equipment for producing quality goods and services, thereby enhancing the international competitiveness of Indian manufacturing.
Under the EPCG Scheme, manufacturers and service exporters can import capital goods (including machinery, spares, moulds, and testing equipment) at 0% customs duty, subject to fulfilling an export obligation.
Export Obligation (EO) Terms
In exchange for the customs duty exemption, the importer undertakes two distinct export obligations:
| Obligation Type | Statutory Requirement | Timeframe |
|---|---|---|
| Specific Export Obligation | Export products equivalent to 6 times the actual customs duty saved on capital goods imported. | 6 years from the date of license issuance (divided into two block periods: 50% in Block 1, remainder in Block 2). |
| Average Export Obligation | Maintain the historical annual average export turnover achieved by the enterprise in the preceding 3 licensing years. | Must be maintained annually over the entire 6-year validity of the EPCG authorization. |
Lifecycle of an EPCG Authorization
- Application Filing: Online application submitted to the Regional Authority of DGFT with chartered engineer certificates, machinery catalogues, and HSN/ITC(HS) classifications.
- Customs Bond & Clearance: Registering the EPCG authorization at the port customs station and executing a customs bond/bank guarantee.
- Installation Certificate: Procuring an installation verification certificate from an independent Chartered Engineer or jurisdictional Central Excise/GST superintendent within 6 months of import.
- Export Performance Reporting: Regular submission of shipping bills containing the EPCG license number and file number to the DGFT portal.
- Redemption & EODC Closure: Applying for the Export Obligation Discharge Certificate (EODC) to close the bond once the 6-times export obligation is fulfilled.
Documentation Prerequisites
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Active IEC & RCMC: Valid Importer-Exporter Code and active membership certificate with relevant EPC.
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Chartered Engineer Certificate: Technical nexus certificate certifying that the imported machinery directly contributes to the manufacturing of target export products.
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CA Past Turnover Certificate: Statement of export turnover for the past 3 financial years to calculate the annual average export obligation.
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Proforma Invoice & Specs: Commercial quotation from overseas machinery manufacturer indicating CIF value and port of import.
Role of Ocean Technovative
Ocean Technovative assesses technical eligibility, prepares the ANF-5A application dossier, structures the nexus report, tracks DGFT authorization issuance, and assists clients through the lifecycle of export obligation tracking and EODC redemption.
Statutory Compliance Notice: EPCG authorizations are subject to strict legal covenants under the Foreign Trade (Development and Regulation) Act. Failure to fulfill export obligations within the stipulated 6 years attracts customs duty recovery with applicable statutory interest.