Import of capital goods under the EPCG scheme is subject to an export obligation equivalent to 6 times of duty saved on capital goods, which is to be fulfilled over 6 years from the date of its issue of EPCG authorisation. The authorisation holder must fulfill the export obligation through the export of goods that are produced by him or the supporting manufacture/services that he is connected to, for which the EPCG authorisation has been granted.
Table Of Content
What is the Export Obligation Period?
The Export obligation period usually lasts for 6 years from the date of its issuance approved by the licensing authority. This 6-year term is segregated into two blocks known as the first and second block. The first block has a total of four years from the date of its issuance by the authorities, and on the other hand, the second block consists of two years of authorization. As per the FTP provision, 50% of Export Obligation should be fulfilled in each block.
How to extend the period of Export Obligation?
Remember to apply for an extension within the period or else the process will be more complex. All guidelines that are available on the DGFT website about EPCG authorization should be read carefully. Coming back to the Export Obligation(EO) extension, an exporter must have a valid reason for the extension of the EO period, only then the authorities will look into the case and decide whether to extend the EO period or not. The applicant must provide a valid reason for not completing the export obligation within the given timeframe.
How many times the Export Obligation Period can be extended?
The export obligation period extension can be obtained by the exporter to a certain limit. The authority permits the applicant with two extensions:-
- Export obligation period for two more years, i.e. 7th and 8th year. So, this is something exporters can think about, but again, this decision only and only depends on the applicant whether to take it or not.
- Block-wise export obligation period extension from the first block to the second block.
Application fees required for extension of the Export Obligation Period
| Type of EOP extension | Composition details |
|---|---|
| Block-wise EOP extension (1st block to 2nd block extension) | 2% on duty saved amount proportionate to unfulfilled EO in 1st block |
| Extension in Export Obligation Period (2nd block to 7th & 8th year extension) | 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 the total export obligation imposed under the authorization for each year of extension, as the case may be, at the choice of the exporter. |
| Block-wise EOP extension (1st block to 2nd block extension) | 2% on duty saved amount proportionate to unfulfilled EO in 1st block |
| Extension in Export Obligation Period (2nd block to 7th & 8th year Extension) | 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 the first/second year of extension, as the case may be, at the choice of the exporter. The minimum composition fee will be Rs.10,000. |
Incentive for early obligation fulfillment under the EPCG Scheme?
The Export Promotion Capital Goods (EPCG) Scheme, the authorisation holder, should maintain a proper record of the specific export obligation and average export obligation. The holder must complete the specified export obligation during the allotted block term, meaning that the holder must complete at least Fifty percent of the whole export obligation during the First block which is the first four-year duration. Then the holder should be in a position to fulfill Fifty percent of EO in the Second block period which is the Fifth and Sixth year for a zero-duty EPCG authorisation.
You should read Para 5.09 under the Foreign Trade Policy (FTP) 2015-2020 for a better understanding of the incentive for early export obligation fulfillment. The Directorate General of Foreign Trade (DGFT) plays a main authority in the process of the export obligation of various goods and services. The authorisation has to be redeemed by the EPCG licence by the concerned regional authority.
The units that are located in Assam, Manipur, Arunachal Pradesh, Mizoram, Meghalaya, Sikkim, Nagaland, Tripura, Sikkim, and J &K, the export obligation shall be 25% of the export obligation. As for the exporters of green technology products, however, the export obligation shall be 75% in that scenario.
Post Export EPCG Duty Credit Scrips
The specific Export Obligation (EO) given is 85% of the applicable EO under the EPCG Scheme. The average EO will remain constant, and authorities will provide duty remissions based on the completed EO's proportion.
How do exporters avail of this opportunity?
Exporters can easily access this scheme by choosing this scheme option by submitting an ANF5A application to the relevant RA and benefit from this opportunity, but it comes with a catch i.e. when machinery is imported, exporters need to pay all applicable duties in cash.By that time, the RA will issue an authorization declaration.
- Average EO, if applicable
- The EOP will begin on the date when the Authorization will be issued.
- Not for imports is on the Authorization’s body.
- Specific EO at 85% of the applicable specific EO, which is calculated as though the imports would receive a full duty-free advantage.
For getting Duty Credit Scrips issued in proportion to the EO completed within the specified EOP, exporters may submit a request in ANF 5 B.
Documents proving the fulfillment of the EO and the maintenance of the Average EO must only be submitted for the first such request, along with proof of actual duty payments on Capital Goods, nexus, and installation certificate(s) for Capital Goods. Remember this while applying to avail of these benefits. Unless there have been any changes to the documents or proofs previously submitted, only proof of fulfillment of specific EO along with the proof of maintenance of Average EO further completed with reference to a particular EO fixed may be submitted.
The RA should freely provide transferable duty credit scrip(s) after the given proportionate EO is met. Freely transferable Duty Credit Scrips will be calculated based on a necessary amount of paid primary customs duty. Recall that the last export date for offsetting EO against such CG is the only time that CG imported in accordance with paragraph 5.12 of the FTP may be disposed of.
No duty will be waived under paragraph 5.12 of FTP if the Exporter requests a drawback on a re-export of CG that is determined to be defective or unfit for use in accordance with paragraph 5.25 of HBP.
Conclusion
In conclusion, we learned what the export obligation period is, how one can extend it, and what the fees are to extend an export obligation. Next, we learned about Post Export EPCG Duty Scrip(s) and how the exporters can avail it, exporters need to go through the guidelines and understand them to avoid any confusion.
Frequently Asked Questions
What is an export obligation period?
The export obligation period is for 6 years. The period starts from the date of issuance granted by the licensing authority. Six years are divided into two blocks i.e., the first block consisting of four years and the second block consisting of two years. As per FTP provisions, 50% of export obligation must be fulfilled in each block.
What is duty credit scrip?
Duty credit scrip is an incentive granted by the government to exporters. This scheme tries to encourage exports by providing them concessions to import tariff to exporters. Exporters can get import duty concessions up to a certain percentage of their export value.
How do you calculate export obligations?
The calculation of export obligation is equal to six times the duty-avoided amount. During the first four years, you should meet half of your export quota, and the other half in the final two years.
How to get an export obligation discharge certificate?
When the export obligation is completed, the authorization holder (exporter) receives an Export Obligation Discharge Certificate (EODC) on providing an application in ANF 5B to the respective regional authority under the Directorate General of Foreign Trade(DGFT).
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