The EPCG scheme allows import of capital goods for pre-production, production and post-production at 3% customs duty. But it also entails an export obligation of eight times the duty saved on capital goods imports that has to be fulfilled in a period of eight years.
With exporters hit hard by slackening demand and lowering prices on account of the global financial crisis, the move is expected to provide some relief to the industry. It will help bring down costs of exports and also give service providers the opportunity to modernise their machinery. It is a welcome step and will add to the competitiveness of Indian exports, Ajay Sahay, director general, Federation of Indian Export Organisations said.
Rakesh Shah, former chairman, Engineering Export Promotion Council said, The move will help bring down costs and increase efficiency and is certainly a welcome step as it comes at a time when the export market is very dull. But with customs duty already ranging between 5% and 15%, the EPCG scheme has begun to lose its sheen. When the duties are already so low, exporters are not keen to enter the scheme and get subjected to export obligations, he pointed out.
Extending the EPCG scheme to common service providers was announced in the Annual Supplement of the Foreign Trade Policy earlier this year, but it is only now that the Central Board of Excise and Customs has notified it.
Under the scheme, eligible service providers will be expected to furnish a clear endorsement giving the details of the users and the Export Obligation which each user would fulfill. These exports would however not be counted towards the fulfilment of other specific export obligations. Also each of the users of the common service provider will have to provide a 100% bank guarantee equal to their portion of the duty foregone. In case they do not fulfill their export obligation, the bank guarantee will be encashed.