The field of commerce and industry in India has recently experienced a series of relaxations under the Export Promotion Capital Goods (EPCG) scheme, implemented by the Ministry of Commerce and Industry. These amendments aim to decrease compliance requirements and encourage ease of doing business.
Understanding Capital Goods
Capital goods broadly encompass assets like buildings, machinery, equipment, vehicles, and tools that a company utilizes during the production process to create consumer products and services. They are not finished goods but are integral in manufacturing them. The role of capital goods extends beyond this, as they provide necessary machinery and equipment to various sectors involved in manufacturing activities, thereby influencing their growth.
The EPCG Scheme Explained
Implemented in the 1990s, the EPCG Scheme sought to boost the quality of product manufacturing, consequently invigorating India’s global manufacturing competitiveness. Its primary mechanism allowed manufacturers to import capital goods, covering all stages of production without the imposition of any customs duty. This also extended to second-hand capital goods, regardless of their age. However, a caveat to this privilege was that importers must generate export value six times the duty saved on importing these goods within six years from the issuance of the authorization.
This essentially mandates that the importer, focused on exporting, attract earnings in foreign currency equivalent to 600% of the customs duty saved in domestic currency within six years of availing these scheme benefits.
EPCG Scheme Coverage and New Norms
The EPCG scheme covers manufacturer exporters with or without supporting manufacturers, merchant exporters tied to supporting manufacturers and service providers including Common Service Providers (CSP). As per the updated norms, the import of capital goods is allowed virtually duty-free, with an associated export obligation. Under this scheme, the authorisation holder is obliged to export finished goods worth six times the actual duty saved in value over six years.
Additionally, the deadline for applying for an export obligation extension has been expanded from 90 days to six months post-expiration. However, applications made after this period but within six years will incur a late fee of Rs 10,000 per authorization.
Benefits and Drawbacks of EPCG Scheme
The EPCG scheme’s primary objective is to promote exports, offering incentives and financial aid to exporters via the Indian Government. For heavy exporters, the EPCG can be advantageous. However, manufacturers not anticipating significant production or intending to sell their products domestically might find the scheme’s obligations challenging to fulfill.
Other Schemes Promoting Exports
Several other schemes, such as the Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme, Remission of Duties or Taxes on Export Product (RoDTEP), and Rebate of State and Central Taxes and Levies (RoSCTL), also support export promotion. These have been implemented under the Foreign Trade Policy (FTP) 2015-20, offering various duty benefits depending on the product and country.
The relaxations in the EPCG scheme by the Ministry of Commerce and Industry are anticipated to have a substantial impact on the ease of doing business in India, particularly benefiting those involved in the export industry. With these changes, the Indian government continues to strive towards enhancing its international manufacturing competitiveness.
Last Modified: February 15, 2024