Clipped from: https://economictimes.indiatimes.com/small-biz/trade/exports/post-exports/how-to-avail-post-export-epcg-duty-credit-scrip-scheme-and-what-exporters-must-know/articleshow/88748157.cmsSynopsis
The post-export EPCG duty credit scrip scheme is a popular programme of the DGFT under which the basic customs duty paid on capital goods is remitted in the form of freely transferable duty credit scrips (DCSs).
Offered by the Ministry of Commerce, the Export Promotion Capital Goods (EPCG) scheme has traditionally been a popular one among exporters. The aim of this scheme has been to facilitate the import of capital goods by domestic exporters, in order to enhance India’s manufacturing competitiveness. Notably, this scheme allows imports for pre-production, production and post-production at zero customs duty. The scheme has multiple formats.
The post-export EPCG duty credit scrip scheme is one specific type of export promotion benefit offered by the government under the Foreign Trade Policy (FTP) 2015-20. Under this scheme, the basic customs duty (BCD) paid on capital goods is remitted to the exporter in the form of freely transferable duty credit scrips (DCSs). One way of applying for DCSs under the EPCG is through the post-export EPCG duty credit scrip scheme. After exporting a product, this scheme is available to the exporter provided he or she intends to import capital goods by paying the applicable duty in cash.
India’s FTP policy has clearly laid out the various modes that can be used to get the benefits. Exporters say a DCS issued under the Merchandise Exports from India Scheme (MEIS) and the Service Exports from India Scheme (SEIS) can be beneficial to them in multiple ways. For example, a DCS issued by the DGFT provides tax incentives on exports, which can be used by exporters to settle their import duties. The Directorate General of Foreign Trade (DGFT) makes it clear that DCS can be used by exporters to pay off their tax liabilities such as basic customs duty, additional customs duty, safeguard duty, transitional specific safeguard duty, and anti-dumping duty. The government also says that while DCS can be transferred to others, it cannot be used to settle the goods and services tax, compensation cess and education cess.
Given the wide-ranging benefit of post-export EPCG Duty Credit Scrips, many exporters prefer this route to offset their firms’ capital costs.
The fine print exporters must know
There are certain practical aspects that exporters must be aware of before opting for this scheme, mainly an export obligation under the EPCG scheme that must be complied with by the exporters.
The DGFT has set forth that specific export obligation (EO) shall be 85% of the applicable specific export obligation under the scheme. However, the average export obligation shall remain unchanged. The duty remission shall be in proportion to the EO fulfilled.
Generally, under the EPCG, there are two types of export obligation that the authorisation holder must fulfil: First, the annual average export obligation, which is the EO over and above the average level of export achieved by exporters as authorisation holders for three licensing years. It should be for same or similar products and within the overall export obligation period including the extended period (if any). The Ministry of Commerce states that such an average would be the arithmetic mean of export performance in the previous three years for similar products. Second, specific export obligation, which is calculated as six times the duty saved amount. Here, exporters must fulfil a minimum of 50% of export obligation in each block of six years — the first block being the first 4 years and the second block of the remaining 2 years.
Pushkar Mukewar, co-founder and CEO of trade finance company Drip Capital, says exporters must remember that duty remission is in proportion to the EO fulfilled. “The import of capital goods is subject to EO, which is equivalent to six times the duty that would otherwise be paid on importing such goods. The EO must be met within six years from the date of issuance of the EPCG authorisation,” he says.
Since fulfilling the EO is a mandatory precondition under the EPCG scheme, it is most beneficial to those exporters who can manufacture in sizable volumes and are confident of exporting their products overseas. “If one cannot meet the stipulated EO, the importer of the capital goods has to pay customs duties to the authorities, with the prescribed interest. The EPCG licence holders must keep this in mind while availing of the EPCG scheme as the deadline is extended only under exceptional circumstances,” Mukewar adds.
Procedure to avail benefit under the post-export EPCG duty credit scheme
The process of submission of the application to apply for the post-export EPCG Duty Credit Scrip is digital, and facilitated via the DGFT portal.
To avail of benefits under the scheme, exporters should typically follow the following steps:
- Exporters should first get themselves registered on the DGFT website. This is a simple process, and requires the basic details, email ID and the OTP received on the email/phone
- Subsequently, they should go to a section named Services, select EPCG and Apply for EPCG/Post Export EPCG authorisation
- Now they can apply for the issuance of a post-export EPCG authorisation by choosing “Post Export EPCG” under the application
- After the issuance of the authorisation, exporters can go ahead with their export orders against the authorisation number issued to them
- After completion of exports, exporters can apply for the issuance of the duty credit scheme
The key documents required by the DGFT to process applications for the post-export EPCG duty credit scrip scheme include a copy of the foreign inward remittance certificate, copy of import/export code, CA certificate, copy of registration-cum-membership certificate, copy of invoice and copy of foreign exchange earned.
Many exporters make use of the post-export EPCG duty credit scrip scheme. However, Keval Shah, founder & CEO of Mumbai-based DGFT consultant Afleo Consultants, says that due to lack of clarity, many exporters prefer the normal EPCG scheme instead of the post-export EPCG Scheme. “The policy should be made clearer in this regard. In some cases, the field officers of DGFT are also not aware of how the scheme works and how to process the application,” Shah adds.
Hence, the common view among the industry circle is that the government needs to push this scheme aggressively among the exporting community.