EPCG License - Export Promotion Capital Goods (EPCG) Scheme

Importance of the EPCG Scheme

• The Export Promotion Capital Goods (EPCG) Scheme is not just a fiscal benefit or duty concession plan; it plays an important role in transforming India's export market. The scheme’s core purpose is to support Indian manufacturers and service providers in upgrading their production capabilities through the import of advanced capital goods at zero or concessional customs duty, thereby reducing their capital investment burden.
• In a globalised and competitive trade environment, product quality, efficiency, and cost-effectiveness are the keys to success in international markets. Indian industries often face challenges in accessing the latest manufacturing technologies due to high equipment costs and import duties. The EPCG scheme bridges this gap by making world-class machinery accessible, which in turn enables companies to manufacture export-quality goods at globally competitive rates.
• This initiative aligns with and directly supports national campaigns like ‘Make in India’, ‘Digital India’, and ‘Atmanirbhar Bharat’. By facilitating the import of cutting-edge technology and automation, it fosters self-reliance in manufacturing, reduces dependence on foreign finished goods, and enhances the quality of domestic output. Additionally, as these upgraded businesses grow, they create employment opportunities across sectors—from factory floor workers to logistics and quality assurance experts—thus contributing to overall economic development.
• Sectors such as textiles, engineering, pharmaceuticals, electronics, chemicals, auto components, food processing, and even hospitality and tourism have significantly benefited from the EPCG Scheme. It is also inclusive of service exporters such as IT firms and hotels, widening its scope and impact.
• Moreover, the EPCG scheme fosters responsible trade practices by tying duty exemptions to an export obligation. Beneficiaries are required to export goods or services worth multiple times the value of the duty saved within a defined period. This ensures that the benefit is not just a subsidy but a performance-driven incentive, thereby encouraging a results-oriented approach to policy implementation.
• In essence, the EPCG Scheme serves a dual purpose; it provides much-needed financial relief for infrastructure expansion and simultaneously drives export performance, making it one of the most strategically important tools in India’s export promotion arsenal. Its long-term vision and conditional benefit structure make it a sustainable and growth-oriented initiative vital for India’s rise as a global manufacturing hub.

Uses and Applications of EPCG Scheme

The Export Promotion Capital Goods (EPCG) Scheme offers a wide scope of applications across various sectors, making it a powerful policy tool for boosting industrial productivity and export performance in India. At its core, the scheme allows eligible businesses to import capital goods—both new and second-hand (with no age restriction)—without paying customs duties, provided they commit to fulfilling a pre-defined export obligation. Capital goods are defined broadly under the scheme. They include machinery, equipment, spare parts, tools, moulds, jigs, fixtures, dies, and even refurbished or reconditioned units that are used in pre-production, production, or post-production stages. This wide coverage means the scheme can be tailored to suit the technical and operational needs of businesses at various stages of their manufacturing or service delivery pipeline.

Applications across Industries:

• Textile Industry: Companies can import textile looms, spinning machines, or dyeing equipment for fabric and apparel production. This helps maintain high-quality standards needed for exports to Europe, the US, and other global markets.
• Automotive Sector: Automobile component manufacturers can bring in advanced CNC machines, robotic arms, and injection moulding equipment to produce precision-engineered parts for global carmakers.
• Information Technology & Service Sector: IT and BPO companies that earn foreign exchange can use EPCG benefits to upgrade servers, telecom systems, and computer infrastructure, improving service efficiency and expanding delivery capacity for global clients.
• Food Processing: Manufacturers in the food and agri-products segment can import eco-friendly and hygienic processing machinery, packaging lines, and cold storage systems to meet international safety standards and improve product shelf-life.
• Hospitality & Tourism: Hotels and travel agencies registered with the Department of Tourism can leverage the scheme to import kitchen equipment, laundry systems, air-conditioning units, and even luxury amenities used to serve international guests.

Inclusive for Both Goods and Services Exporters

A unique feature of the EPCG Scheme is its applicability to service exporters, not just manufacturers. Companies in logistics, IT-enabled services, healthcare, consulting, and hospitality sectors that earn in foreign exchange are eligible to import capital goods needed for delivering export-oriented services. This broad applicability of the scheme makes it a versatile and inclusive incentive mechanism, encouraging technology adoption across industries. Whether it's a small food processing unit in rural India or a high-end software development firm in Bengaluru, the EPCG scheme can be strategically used to enhance quality, productivity, and global competitiveness.

Eligibility Criteria for EPCG License

The Export Promotion Capital Goods (EPCG) Scheme is open to a wide range of export-oriented entities. However, to qualify and benefit from the scheme, businesses must meet specific eligibility requirements laid down by the Director General of Foreign Trade (DGFT). These criteria ensure that only genuine exporters and capable businesses can avail of the duty exemptions and incentives offered under the scheme.

1. Must Hold a Valid Import Export Code (IEC)

The Import Export Code (IEC) is a mandatory license issued by the DGFT and serves as the basic identification number for any business involved in import or export activities in India. Without a valid IEC, no entity can engage in import or export legally. For EPCG, having an IEC is a non-negotiable prerequisite, as it verifies the business's legitimacy and authorizes it to carry out cross-border trade.

2. Should Be Engaged in Producing or Exporting Goods or Services

The EPCG Scheme is open to businesses that are actively engaged in producing exportable goods or delivering services to international clients. This includes traditional manufacturers (textiles, pharmaceuticals, engineering goods), as well as service providers (IT firms, logistics companies, and hospitality businesses) that earn foreign exchange. This criterion ensures that the imported capital goods are actually used in processes that lead to exports.

3. Merchant Exporters Must Mention Supporting Manufacturer Details

In the case of merchant exporters—entities that trade goods without manufacturing them—it is mandatory to indicate the name and details of the supporting manufacturer in the application and on all shipping bills. This helps ensure traceability and confirms that the capital goods imported under EPCG are being used by the associated manufacturer to produce goods for export, thus fulfilling the scheme’s objective.

4. Export Obligation Must Equal Six to Eight Times the Duty Saved

Businesses availing of the scheme must commit to an export obligation—i.e., exporting goods or services worth six times (in case of zero duty EPCG) or eight times (for 3% duty EPCG) the amount of customs duty saved. This obligation must be fulfilled within six to eight years from the date of EPCG authorization. The performance obligation ensures the benefits are tied to tangible export outcomes.

5. Special Provisions for Common Service Providers (CSPs)

Common Service Providers (CSPs) such as tool rooms, R&D centres, or packaging hubs can also apply. These are entities that provide export-related services to multiple user industries. In such cases, the export obligation can be fulfilled by the end users of the imported capital goods, offering a flexible model for shared facilities.

Requirements and Conditions under EPCG Scheme

The Export Promotion Capital Goods (EPCG) Scheme offers substantial financial advantages by waiving or reducing customs duty on the import of capital goods. However, to ensure that these benefits translate into genuine export growth, the scheme is governed by a set of srong conditions and compliance requirements. These conditions are important and non-negotiable, and failure to adhere can result in severe penalties, including repayment of duty saved with interest and disqualification from future benefits.

Here are some key requirements and conditions under the EPCG scheme:

1. Export Obligation

The cornerstone of the EPCG scheme is the export obligation (EO). This means that the importer must generate export earnings equivalent to a multiple of the duty saved on the imported capital goods.

• For Zero Duty EPCG, the export obligation is 6 times the duty saved.
• For 3% Duty EPCG, the obligation is 8 times the duty saved.

This obligation must be discharged by exporting either the product manufactured using the imported machinery or by providing eligible export services. The exports must be physical exports, or deemed exports in specific sectors, and must be backed by evidence such as shipping bills and e-BRCs (Bank Realisation Certificates).

2. Usage of Capital Goods

The imported capital goods must be directly used for the production of goods or the rendering of services meant for export. The EPCG license does not allow capital goods to be diverted for personal or unrelated use.
This means the machinery must be:

• Installed at the address mentioned in the EPCG license
• Used consistently during the export obligation period
• Not sold, leased, or transferred without DGFT approval

3. Timeline for Fulfilment

The export obligation must be fulfilled within:

• 6 years in the case of Zero Duty EPCG authorisation
• 8 years in the case of Concessional (3%) Duty EPCG

The timeline begins from the date of issuance of the EPCG authorisation. In exceptional cases—such as force majeure events or major market disruptions—an extension of up to 2–6 years may be granted, subject to DGFT’s discretion and proper documentation.

4. Third-Party Exports

The EPCG Scheme permits third-party exports, wherein exports can be carried out by an entity other than the license holder. However, this is allowed only if the license holder’s and manufacturer’s names are clearly mentioned on the shipping bills. Such exports must also carry the EPCG Authorization Number and date at the time of shipping to be counted towards discharge of export obligation. Proper legal agreements and records must be maintained to ensure traceability and transparency.

5. Domestic Sale Restrictions

Businesses availing EPCG benefits are restricted from selling finished goods in the Domestic Tariff Area (DTA) until they have fulfilled their export obligation. This ensures that the primary aim—boosting foreign trade—is not compromised. Only once the entire export obligation is met, the company is allowed to:

• Sell in the domestic market
• Use the imported machinery for domestic production freely

Any violation of this condition can lead to the imposition of duties and penalties, including disqualification from future schemes.

Documents Required for EPCG License

To apply for an EPCG License, the following documents are generally required:

• IEC (Import Export Code)
• RCMC (Registration Cum Membership Certificate)
• Digital Signature Certificate (DSC)
• PAN Card and GST Registration Certificate
• Proforma Invoice from foreign supplier
• Brochure/Catalogue of imported capital goods
• Excise Registration (if applicable)
• Chartered Engineer Certificate (original + self-certified copy)
• Chartered Accountant Certificate on past exports and financial strength

Note: These documents are to be submitted with Form ANF 5B to the DGFT. Incomplete or incorrect documentation can delay or even cancel the application.

Application Procedure for EPCG License Online Through DGFT

The Export Promotion Capital Goods (EPCG) Scheme provides Indian exporters with the facility to import capital goods at zero or concessional customs duty, subject to fulfilling export obligations. To avail of this benefit, businesses must follow a structured registration and application process governed by the Directorate General of Foreign Trade (DGFT). The process is fully digital and is carried out via the DGFT online portal.

Step 1: Digital Preparation

Before initiating the EPCG application, the exporter must ensure that all the necessary registrations and digital tools are in place:

• Digital Signature Certificate (DSC): A valid Class-III DSC is required for online filing and authentication on the DGFT portal.
• Import Export Code (IEC): This 10-digit code is mandatory for any import/export operation.
• RCMC (Registration-Cum-Membership Certificate): Issued by the relevant Export Promotion Council (EPC), this certificate is required to prove the applicant's status as an exporter.

These documents serve as the foundation for submitting the EPCG application.

Step 2: Filing of Application on DGFT Portal

The applicant must fill Application Form ANF 5B online through the DGFT portal. Key details to be filled include:

• Details of the capital goods to be imported
• Manufacturer and exporter details
• Total duty saved
• Proposed export obligation
• Project location and usage

This form sets the basis for the DGFT to evaluate the scale and intent of the application.

Step 3: Uploading of Supporting Documents

The following documents must be uploaded to support the application:

• Proforma Invoice or Purchase Order for the capital goods
• Chartered Engineer’s Certificate (CEC) confirming technical specifications and end-use of machinery
• Self-certified copies of IEC, RCMC, and PAN
• Company’s PAN and GST registration certificate
• Board resolution or authorization in case of a company or partnership

Additional documentation may be required in specific cases, such as for second-hand machinery or third-party exports.

Step 4: DGFT Review and Clarifications

Once the application and documents are submitted, the concerned Regional DGFT Office conducts a detailed review. They may:

• Raise queries or seek clarifications through the portal
• Request resubmission or additional documents

Prompt response and accurate documentation can help expedite the review process.

Step 5: EPCG License (Authorization) Issuance

After successful verification, the DGFT issues the EPCG Authorization, which serves as the official license to import capital goods duty-free or at concessional rates. The license will specify:

• The description, quantity, and value of capital goods
• The export obligation amount
• The period within which the obligation must be met
• The port of import and project location

Step 6: Port Registration

The final step is to register the EPCG Authorization at the designated port of import (e.g., Nhava Sheva, Chennai, Mundra, etc.). This is done by submitting:

• Copy of the EPCG license
• Copy of IEC and PAN
• Bank Guarantee or Bond (if applicable)
• KYC documents and authorization letter

After successful registration, customs clearance for the capital goods import can begin.

Estimated Timeframe

The entire processfrom online application to issuance of license—typically takes 2 to 4 weeks, depending on the completeness of documents and DGFT workload. Delays may occur due to:

• Incomplete or incorrect documentation
• Complex machinery assessments
• Regional office backlogs

Renewal, Validity, and Extension of EPCG License

The Export Promotion Capital Goods (EPCG) Scheme offers a time-bound incentive structure that combines import facilitation with export accountability. While the scheme allows import of capital goods at concessional or zero customs duty, it imposes strict validity periods and export obligations, ensuring that the benefits lead to tangible export growth.

Standard Validity Period

• The EPCG Authorization (license) is valid for 18 months from the date of issue.
• This period is specifically for importing the capital goods under the scheme.
• Importers must complete the import of the machinery or equipment within this window, or apply for an extension.

Export Obligation Timeline

Once the capital goods are imported, the exporter is required to fulfill the stipulated export obligation within a specific period:

• Zero Duty EPCG Authorization: Export obligation must be completed within 6 years from the date of issuance of the license.
• Concessional Duty EPCG (3% Duty): Export obligation must be completed within 8 years from the date of issuance.

The obligation is generally to export goods or services worth 6 to 8 times the amount of duty saved on the imported goods. The export performance is monitored over this period to ensure compliance.

Extension Options

Extensions are available under specific circumstances, although they are not automatic and require proper justification:

1. Extension for Import Validity (Capital Goods Import):
• If the 18-month period for import is insufficient, businesses can request an extension of 6 to 12 months.
• The application must be submitted before the original validity expires.
• Valid reasons include shipment delays, supply chain issues, or production bottlenecks.
• Extension is at the discretion of DGFT and may require supporting documents like purchase contracts or supplier delays.
2. Extension for Export Obligation (EO Period):
• Extensions for EO fulfillment are granted only in exceptional cases, such as:
• Natural calamities
• Global economic recessions
• Major disruptions in the industry (e.g., pandemic, war, trade restrictions)
• Requests must be submitted well in advance and must be supported by credible evidence, impact assessment, and justification.
• Approval is subject to DGFT’s discretion and may include conditions like enhanced EO or performance bank guarantees.

Is Renewal Required?

Unlike licenses under some other government schemes, EPCG licenses do not require formal “renewal.”

• Once the exporter has:
• Imported the capital goods
• Fulfilled the export obligation
• Submitted the necessary documentation and closure reports

…the license is considered concluded or closed.

However, exporters must:

• Maintain complete documentation such as:
• Invoices, shipping bills, foreign exchange realization certificates (BRCs)
• Installation certificates for machinery
• Regular reports on export performance
• File an EODC (Export Obligation Discharge Certificate) application with DGFT for formal closure.

Keep records safely for at least 3 years post-EODC, as these may be audited by customs or DGFT.

Export Obligation under EPCG Scheme

The Export Obligation (EO) is the central pillar of the Export Promotion Capital Goods (EPCG) Scheme. While the scheme offers significant savings in customs duties on capital goods, these benefits come with a strict trade-off — the beneficiary must commit to exporting goods or services of a specified value within a prescribed time frame

 What is Export Obligation?

The export obligation is the monetary value of exports that a company must achieve as a condition for availing the EPCG duty exemption. It is expressed as a multiple of the customs duty saved on the capital goods imported under the EPCG license.

There are two primary duty structures under EPCG, each with different EO criteria:

1. Zero Duty EPCG Scheme
• If a company imports capital goods at 0% customs duty, it must export goods or services worth 6 times the duty that would have been payable on that import.
• Time to fulfill EO: 6 years from the date of issue of the EPCG authorization.
2. Concessional Duty EPCG Scheme (3% Customs Duty)
• If capital goods are imported at a concessional 3% customs duty, the company must fulfill an export obligation of 8 times the duty saved.
•  Time to fulfill EO: 8 years from the date of authorization.

 How Can Export Obligation Be Fulfilled?

Export Obligation can be satisfied in multiple flexible ways, including:

• Direct Exports: Exporting goods manufactured using the imported capital goods.
• Export of Services: Applicable for service providers (e.g., IT firms, travel agencies, hotels) earning foreign exchange.
• Third Party Exports: Allowed under EPCG if:
• The EPCG license holder’s name, exporter’s name, and manufacturer’s details are clearly mentioned on the shipping bills.
• Proper documentation and agreements are submitted.

Monitoring & Reporting

DGFT closely monitors export obligation compliance. The beneficiary must:

• Submit regular reports (usually annually) to DGFT.
• Provide evidence of export performance, including:
• Shipping bills
• e-BRCs (Bank Realisation Certificates)
• CA-certified statements validating export values
• Installation certificate confirming usage of capital goods

Timely and accurate reporting is essential to maintain compliance and avoid penalties.

Consequences of Default

Non-fulfillment of export obligation or failure to provide documentation within the prescribed period can result in severe penalties:

• The entire customs duty saved on capital goods becomes payable, along with:
• 15% interest per annum (calculated from the date of import)
• Additional penal action under the Foreign Trade (Development and Regulation) Act and Customs Act
• The company may also face:
• Suspension of IEC
• Blacklisting from DGFT schemes
• Denial of future EPCG or other export incentives

Provision for Extension / Relief

Under exceptional situations like natural disasters, global crises (e.g., COVID-19), or geopolitical disruptions, the DGFT may consider extensions or partial relief in export obligation. However, such requests must be well-documented and justified.

Historical Case: EPCG License Violation

ABC Inc., a company involved in manufacturing semi-combed hosiery yarn, availed benefits under the EPCG (Export Promotion Capital Goods) Scheme by importing capital goods worth ?6.05 crore without paying customs duty. Under the scheme, they were obligated to use these machines for producing exportable goods and fulfill a set export obligation.

However, instead of using the machinery to produce goods for export, ABC Inc. attempted to fulfill the export obligation by submitting unrelated third-party shipping bills through a hired consultant. Initially, the DGFT accepted the documentation, but upon further scrutiny, it was discovered that no actual export related to the machinery had taken place. The investigation revealed that the claimed exports had no connection with the production process of ABC Inc. There was no proof of machinery installation or product traceability. As a result, the authorities confiscated the imported goods under Section 111(o) of the Customs Act, and the company was made liable to pay customs duty of ?1.38 crore, along with interest and penalties.

This case serves as a cautionary tale about the importance of compliance with EPCG norms. It highlights that misuse of the scheme whether through fraud or ignorance can lead to serious consequences including financial penalties, legal action, and blacklisting. It underscores the need for genuine export efforts, accurate documentation, and understanding of the EPCG obligations. Companies must ensure that capital goods are properly utilized in production and export to lawfully benefit from the scheme.