New directive not clear on EPCG scheme

EXIM MATTERS

Last week, the finance ministry issued Customs notifications giving effect to some changes to the Foreign Trade Policy made on April 19.

The trade is not sure if the remaining changes announced by the commerce minister will be given effect, and if so, when.

The notification that the trade was eagerly awaiting related to the export promotion capital goods (EPCG) scheme, in which a number of changes have been made this year, and the text of the policy does not give enough clarity on some of these changes.

The trade was hoping for some clarity. The notifications help clear some doubts but not all.

The notifications confirm that tiny and cottage industries can also get 12 years to fulfill export obligation of six times the duty saved under the EPCG scheme. The notification makes it clear that the EPCG scheme will not be available for import of components by the licence/authorisation holder for assembly into capital goods and for import of consumables. It also confirms that the export obligation waiver may be considered where because of force majeure or other unforeseen circumstances/reasons, the exporter is unable to fulfill export obligation. It deletes the clause that "payments received against counter sales in freely convertible foreign exchange through banking channels according to the Reserve Bank of India guidelines shall be counted for fulfillment of export obligation in the case of service providers in the retail sector."

The commerce minister had announced that the requirement of blockwise fulfillment of export obligation would be abolished. The notification is silent on this. So it appears that the finance ministry has not agreed to this change at least in respect of EPCG licences/authorisations issued in the previous years. The original notification remains un-amended in this regard.

The commerce minister had announced that installation certificate may now be submitted either from the central excise officials or chartered engineer. The notification, however, does not reflect any change.

An important change that the annual supplement made to the Foreign Trade Policy was that spares for existing machinery, whether imported or not, could be imported under the EPCG scheme. The amending notification no. 72/2007 makes no reference to the change as the original notification 97/2004 always maintained that spares for existing machinery, whether imported or not, could be imported under the scheme. Similarly, the changes regarding maintenance of annual average find no expression in the amending notification because the original notification no. 97/2004 did not make any reference to the clause/requirement.

The Foreign Trade Policy says that foreign exchange counted towards fulfillment of export obligation (over and above the average) shall not be eligible for incentives / rewards under promotional measures / schemes. The notification is silent on this aspect.

tncr@sify.com