EPCG Scheme & Advance Authorisation

Foreign Trade Policy 2023 provides two principal duty-exemption schemes for export-oriented capital investment and production:

EPCG (Chapter 5, FTP 2023, read with HBP 2023 Chapter 5): permits import of capital goods for pre-production, production, and post-production at zero Basic Customs Duty, subject to an Export Obligation (EO) equal to 6 times the aggregate duties, taxes, and cess saved on the imported capital goods, to be fulfilled within 6 years from the date of issuance of the authorisation. Capital goods remain subject to Actual User condition until the EO is discharged.

Advance Authorisation (Chapter 4, FTP 2023, read with HBP 2023 Chapter 4): permits duty-free import of inputs physically incorporated in the export product (plus specified fuel, catalysts, and packing materials), subject to a minimum value-addition threshold and export obligation fulfilment within 18 months from the date of authorisation, evidenced by import/export/consumption records and closed via an Export Obligation Discharge Certificate (EODC). Input-output norms for the authorisation may be fixed under Standard Input Output Norms (SION), self-declaration, ad hoc Norms Committee ratification, or the Self Ratification Scheme.

Both schemes are administered by DGFT; shortfall in export obligation under either scheme attracts proportionate customs duty recovery with interest, and repeated or wilful default is actionable under the Foreign Trade (Development & Regulation) Act, 1992. The two schemes are frequently confused but are structurally distinct — EPCG addresses capital goods, Advance Authorisation addresses production inputs.

The EPCG scheme and Advance Authorisation are the two flagship export incentives of the Foreign Trade Policy. Under the EPCG scheme, an exporter can import capital goods — machinery and equipment — at a concessional or zero customs duty, in exchange for an export obligation: the export of goods worth a prescribed multiple of the duty saved within the prescribed period (VERIFY: the current export obligation multiple and period under the FTP). Under Advance Authorisation, the exporter imports inputs duty-free against the export of the goods made from them, under Chapter 4 of the Foreign Trade Policy.

The two schemes serve different parts of the manufacturing chain. EPCG covers the machines; Advance Authorisation covers the materials. They are frequently used together by the same exporter — the EPCG for the plant, the Advance Authorisation for the production inputs — which is where the compliance becomes a shared discipline: both obligations are tracked against export performance, and both carry the reversal risk if the exports do not materialise.

The cost of missing an export obligation is the recovery of the benefit with interest: the duty saved becomes payable under the Customs Act with interest, and the exporter's record with DGFT carries the default. Because the obligation periods run for years, the tracking is the product — an exporter who loses the obligation file loses the benefit.

This service is for exporters using or planning the EPCG and Advance Authorisation schemes. We assess the duty saving and the obligation, prepare and file the applications under the FTP, track the export obligation against the shipping bills and e-BRCs, manage extensions and the EODC closure, and keep the schemes a source of margin rather than a source of risk.