Indirect Tax Laws · Foreign Trade Policy

EPCG Scheme and Capital Goods Import (FTP 2023) for CA Final

Updated 5 October 2026 · Fact-checked

The Export Promotion Capital Goods (EPCG) scheme lets an exporter import capital goods at zero customs duty under an authorisation, in return for an export obligation. You solve questions by fixing the duty saved, applying the export obligation multiple, checking the period, and testing fulfilment, default and penalty.

Understand EPCG Scheme and Capital Goods Import

Exporters need machinery to make goods. If they pay full customs duty on imported machinery, their cost rises and exports become less competitive. The EPCG scheme under the Foreign Trade Policy 2023 removes that burden.

Under the scheme, an exporter gets an EPCG Authorisation from the DGFT. It allows import of capital goods for pre-production, production and post-production at zero customs duty. The scheme covers new and, subject to conditions, second-hand capital goods. Capital goods bought from indigenous sources can also be covered under the authorisation. For such indigenous procurement, a reduced EO applies as per the Handbook of Procedures, so apply the figure or multiple given in the question.

The zero duty is not free. The exporter gives an undertaking, called the export obligation (EO), to export goods or services of a specified value within a specified period. The EO is tied to the duty saved on the capital goods. As per FTP 2023 and the Handbook of Procedures, the EO is 6 times the duty saved, to be fulfilled within 6 years from the date of issue of the authorisation. The duty saved covers the duties that the exemption notification actually exempts. How IGST and compensation cess are treated is governed by that notification, so use the duty figure the question gives. An average export performance (AEP) condition applies only to specified product categories, so do not apply it unless the question says so.

The exporter must show fulfilment by export documents and realisation, and then obtain an Export Obligation Discharge Certificate (EODC). If the exporter fails, the duty saved, in proportion to the unfulfilled EO, becomes payable with interest under the conditions of the authorisation and the customs duty exemption notification, and penal action can follow. The extent of EO fulfilment decides the amount of default. The policy also allows the exporter to regularise the default by paying that duty with interest.

For your exam, treat this as a bargain: duty concession now, exports later, proof at the end. Every question tests one part of that bargain: what was imported, what duty was saved, what EO arises, how much is fulfilled, and what happens on shortfall.

Key rules to remember

Duty saved: Duty saved = Customs duty (BCD, and other duties and cesses covered by the exemption) that would have been payable without the EPCG exemption; This is the base for the EO. The duties included are those exempted under the exemption notification, and the IGST treatment is governed by that notification. Use only the figure given in the question.
Export obligation (general rule): EO = 6 × duty saved on capital goods imported; As per FTP 2023 and the Handbook of Procedures, the EO is six times the duty saved, to be fulfilled within six years from the date of issue of the authorisation. For indigenous procurement, a reduced EO applies as per the Handbook of Procedures. If the question gives a different multiple, apply the question.
Export obligation period: Period = 6 years from the date of issue of the authorisation; Always count from authorisation issue, not from the date of import or installation.
Balance export obligation: Balance EO = Total EO − EO fulfilled; Fulfilment is shown through eligible exports of the goods produced with the capital goods.
Shortfall ratio: Proportionate duty = Duty saved × (Unfulfilled EO ÷ Total EO); The extent of EO fulfilment decides the default amount. This proportionate duty, with interest, is payable under the authorisation and exemption notification conditions. Use it when the exporter has fulfilled part of the EO.
Core condition: Zero duty import ⇒ undertaking to meet EO ⇒ EODC on fulfilment; If the EO is not met, duty saved (proportionate to the default) is recoverable with interest under the authorisation and notification conditions.

How to solve EPCG Scheme and Capital Goods Import questions

Use this order for any EPCG question, whether it asks for EO, fulfilment or default.

1Identify the scheme: confirm that the capital goods are imported or bought locally under an EPCG authorisation and that the exporter has an Importer Exporter Code.
2Compute the duty saved from the figures given: the customs duty that would have been payable but for the exemption.
3Apply the EO multiple: EO = 6 × duty saved as per FTP 2023 and the Handbook of Procedures, to be fulfilled within 6 years from the date of issue of the authorisation. If the question states another rule, or covers indigenous procurement, apply the figure it gives.
4Add up eligible exports made in the period. Count only exports of goods or services that qualify under the authorisation, and ignore unrelated sales.
5Compute the balance EO = total EO − fulfilled EO, and state whether it has been met, or whether the exporter is in default.
6If there is default, compute duty on the shortfall proportionately, add interest where the question gives a rate or period, and mention possible penal action.
7Conclude in provision-fact-conclusion form: the rule, the numbers, and your final answer with the EODC position.

Quickest way: Three-line EPCG check

When to use it: Use when time is short and the question gives duty saved, exports made and asks for EO or shortfall.

Write: EO = 6 × duty saved (FTP 2023 and HBP), to be met within 6 years from issue of the authorisation. Compute it at once.
Write: Balance = EO − exports counted. If balance is zero or negative, say EODC can be sought.
If balance is positive, write: Duty payable = duty saved × balance ÷ EO, plus interest. Then state the conclusion in one line.

Common mistakes in EPCG Scheme and Capital Goods Import

Taking EO as a multiple of the value of the capital goods instead of the duty saved.
Students link the word obligation to the cost of the machine.
Fix: Always compute duty saved first. EO is based on duty saved, not on the CIF value of the goods.
Counting the six years from the date of import of the machinery.
The import is the visible event, so students use that date.
Fix: Count from the date of issue of the EPCG authorisation.
Counting all exports of the company as fulfilment of EO.
Students forget that fulfilment must follow the authorisation conditions.
Fix: Check whether the exports are eligible under the authorisation, such as exports of goods made using the capital goods. Ignore other sales unless the question treats them as eligible.
Demanding the full duty saved when the exporter has met part of the EO.
Students treat default as all or nothing.
Fix: The extent of EO fulfilment decides the default amount. Work out the proportionate duty on the unfulfilled portion under the authorisation and notification conditions, then add interest.
Forgetting the EODC and the penal consequences in the conclusion.
Students stop after the arithmetic.
Fix: Close every answer by stating whether EODC can be obtained or whether duty, interest and penal action follow.
Mixing EPCG with Advance Authorisation, which is for inputs.
Both give duty-free import against an export commitment.
Fix: Remember: EPCG is for capital goods, Advance Authorisation is for physically incorporated inputs.

Worked examples

Example 1

Zenith Castings Ltd, an exporter with a valid IEC, obtains an EPCG authorisation on 1 June 2026. It imports a machine that would normally attract customs duty of ₹40,00,000, which is saved under the scheme. Compute the export obligation and state the date by which it must be fulfilled.

Show the solution

Duty saved = ₹40,00,000.
EO = 6 × duty saved (as per FTP 2023 and the Handbook of Procedures) = 6 × ₹40,00,000 = ₹2,40,00,000.
Period = 6 years from the date of issue of the authorisation, so from 1 June 2026.
The EO is therefore to be completed within six years from 1 June 2026, that is, by 31 May 2032.

Answer: Export obligation is ₹2,40,00,000, to be fulfilled within six years from 1 June 2026, that is, by 31 May 2032.

Example 2

Using the same authorisation, Zenith Castings Ltd exports eligible goods worth ₹1,80,00,000 by the end of the period and cannot export more. Compute the unfulfilled EO and the duty payable on the shortfall, ignoring interest and penalty.

Show the solution

Total EO = ₹2,40,00,000 (from the first example).
Fulfilled EO = ₹1,80,00,000.
Unfulfilled EO = ₹2,40,00,000 − ₹1,80,00,000 = ₹60,00,000.
Proportion unfulfilled = 60,00,000 ÷ 2,40,00,000 = 1/4.
Duty payable on shortfall = ₹40,00,000 × 1/4 = ₹10,00,000.
This proportionate duty is payable with interest under the conditions of the authorisation and the exemption notification. The exporter can regularise the default by paying it, and penal action may follow if the default is not dealt with.

Answer: Unfulfilled EO is ₹60,00,000. Proportionate duty payable is ₹10,00,000, plus interest as applicable, under the authorisation and exemption notification conditions. The exporter can regularise by paying the duty with interest, and penal action is possible.

Exam tips

Write the duty saved figure first and box it. Every other number in the answer depends on it.
State EO = 6 × duty saved and the six-year period as the rule, then plug in the facts. Examiners award marks for the provision.
In case scenarios, check what counts as an eligible export before adding it to fulfilment.
Finish with the EODC or default position. Many students lose the final mark by stopping at arithmetic.
Do not invent a different multiple unless the question states it. If the question gives its own figure, use it and say so.

Practice questions from Foreign Trade Policy

EPCG Scheme and Capital Goods Import in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalEPCG Scheme

EPCG Scheme and Capital Goods Import: frequently asked questions

What is the EPCG scheme under FTP 2023?

It is a scheme that allows import of capital goods at zero customs duty under an authorisation issued by the DGFT. In return, the exporter must meet an export obligation within a fixed period.

How is the EPCG export obligation calculated?

As per FTP 2023 and the Handbook of Procedures, the export obligation is six times the duty saved on the capital goods. You first compute the duty that would have been paid without the exemption, then multiply it by six. For indigenous procurement, a reduced EO applies as per the Handbook of Procedures. An average export performance condition applies only to specified product categories.

What is the time limit to fulfil the EPCG export obligation?

The export obligation must be fulfilled within six years from the date of issue of the authorisation. It is not counted from the date of import.

What happens if the EPCG export obligation is not met?

The exporter must pay the duty saved in proportion to the unfulfilled obligation, with interest, under the authorisation and exemption notification conditions. The extent of fulfilment decides the default amount, and the exporter can regularise by paying the duty with interest. Penal action under the foreign trade law can also follow.