EPCG scheme explained: duty-free capital goods, and the obligation behind them

The Export Promotion Capital Goods (EPCG) scheme lets a manufacturer or service provider import capital goods — plant, machinery, equipment — at zero or concessional Basic Customs Duty, in exchange for a binding commitment to export a multiple of the duty saved within a fixed window. The import is the easy part. The obligation is where EPCG authorisations actually get mismanaged.

What EPCG actually gives you

An EPCG authorisation lets you import capital goods duty-free (or at a concessional rate) against a licence issued before import. It covers new and, in defined cases, second-hand capital goods, and applies to manufacturer exporters, merchant exporters tied to a manufacturer, and service providers who need equipment to deliver an exportable service.

The duty saved is not a subsidy — it is an amount you owe, contingent on meeting the export obligation. If the obligation is not met, the deferred duty becomes payable, with interest.

The export obligation, precisely

The standard obligation is six times the duty saved on the imported capital goods, to be fulfilled within six years from the date of authorisation issue. It is measured on actual duty saved, not on the value of the capital goods themselves, which is the detail that trips up a first-time back-of-envelope estimate.

The six-year window typically runs in two blocks — a block-wise obligation (commonly 50% by year four) rather than a single deadline at year six, so a manufacturer front-loading exports early has room, but one deferring everything to year five or six is working against a shorter effective runway than the headline "six years" suggests.

What counts toward meeting it

Export obligation is fulfilled through physical exports of the goods manufactured using the imported capital goods (or, for services, through specified deemed-export or service-export categories). Exports made before the authorisation was even issued do not count unless specifically permitted as an advance obligation adjustment. This is the second common failure point: exporters assume export turnover generally offsets the obligation, when in fact it has to trace back to production enabled by that specific capital good.

Closing the authorisation

An EPCG authorisation is not self-closing. You need to file export obligation discharge documentation — shipping bills, bank realisation certificates, and the installation certificate confirming the capital goods are actually installed and in use — with DGFT to formally close the licence. An authorisation left open past its window, with the obligation unmet or undocumented, converts the deferred duty into a demand, with interest running from the date of import, not the date the shortfall is discovered.

EPCG vs MOOWR vs Advance Authorisation

EPCG is the right tool specifically when you are buying capital equipment and are comfortable committing to a multi-year export ramp to justify it. If you are not yet certain how much of your output will be exported versus sold domestically, MOOWR covers the same capital-goods import without locking in an obligation. If you already have a confirmed export order and need duty-free inputs (not capital goods) to fulfil it, that is Advance Authorisation territory, not EPCG. The three are not mutually exclusive within the same manufacturing operation — a factory can run EPCG on its machinery while using Advance Authorisation for order-specific inputs.

Where authorisations actually get lost

Not at import — at the six-year mark, when nobody has been tracking cumulative export turnover against the specific obligation figure, and the block-wise 50% checkpoint at year four passed unnoticed. An EPCG authorisation is a running balance from day one, not a filing to revisit once, near the deadline. Tracking obligation fulfilment against the actual duty-saved figure, per authorisation, as exports happen rather than reconstructed at year five, is what keeps a demand notice from showing up on a licence everyone assumed was on track.