Exporters holding the export promotion capital goods (EPCG) licences can rejoice. Thanks to re-fixation of the export obligation under the EPCG scheme, licence holders' burden has come down by an average rate of 40%.
According to the new stipulation in the foreign trade policy, the export obligation is eight times the duty saved on capital goods (CG) imports, against five times the CIF value of CG imports. These exporters can, therefore, avail of the EPCG benefit of concessional import duty on capital goods with a lower export obligation.
Under the EPCG scheme, exporters can import CGs at 5% duty. The total duty forgone under the EPCG scheme was around Rs 3,500 crore in '03-04.
The recent foreign trade policy (FTP) had proposed to accord a zero customs duty benefit to exporters of agricultural products and their value-added variants under the EPCG scheme. This additional benefit for agriculture exporters is, however, yet to be notified by the finance ministry.
Normally, import of CGs attracts a basic customs duty (BCD) of 20%, countervailing duty (CVD) of 16% and a 2% education cess on BCD. Indeed, there are a large number of CGs, particularly those used by textile and garment industries, that are under a 5% concessional duty regime, outside the EPCG purview.
The new stipulation on export obligation corresponds to three times the CIF value of CGs imported. This represents a 40% reduction in obligation, compared to the previous obligation of five times the CIF value of imports, officials said.
An exporter has to fulfil his obligation under EPCG by exports of goods capable of being manufactured or produced by the use of the capital goods imported under the scheme. In case of EPCG licences, where the application is made for re-fixation within two years of its issuance, the export obligation shall be automatically refixed based on eight times the duty saved on the date of issuance of the licence, according to the new norm.
In case the CVD is paid in cash on imports under the EPCG, the incidence of CVD will not be taken for computation of net duty saved provided the same is not modvated. The export obligation can be fulfilled over a period of eight years reckoned from the date of issuance of the licence
The EPCG scheme allows import of capital goods for pre-production, production and post-production (including CKD/SKD thereof, as well as computer software systems) at the specified concessional customs duty. The FTP had also allowed second hand capital goods without any restriction on age under the EPCG scheme.
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