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Indirect Tax Laws and Practice · Export Promotion Schemes under Foreign Trade Policy

EPCG Scheme: Export Obligation, Conditions and Fulfilment

Updated 11 October 2026 · Fact-checked

The Export Promotion Capital Goods (EPCG) scheme lets an exporter import capital goods at zero customs duty, or a reduced duty, against an authorisation from the DGFT. In return you must export goods worth a stated multiple of the duty saved, commonly 6 times, within a set period. To solve a question, compute duty saved first, then multiply.

Understand EPCG Scheme

The EPCG scheme is an export promotion scheme under the Foreign Trade Policy. Capital goods such as machines and equipment are costly, and customs duty on them raises the cost of making export goods. The scheme removes or cuts that duty at the time of import.

There is a trade-off. The government gives up duty today, and you promise exports tomorrow. This promise is the export obligation (EO). If you do not meet it, the consequences follow under the Foreign Trade Policy, the conditions of the authorisation and the related customs notification. These generally include recovery of duty in proportion to the unfulfilled obligation.

The authorisation is issued by the Director General of Foreign Trade (DGFT) or an officer authorised by him. Section 9 of the FT(D&R) Act, 1992 covers a licence, certificate, scrip or any instrument bestowing financial or fiscal benefits. An EPCG authorisation is treated as such an instrument. It is also a permission within the definition of "licence" in section 2(g). Under section 9(2), the DGFT may grant, renew or refuse it, and must record reasons in writing when he refuses. Under section 9(4), he may suspend or cancel it only for good and sufficient reasons recorded in writing, after giving the holder a reasonable opportunity of being heard.

The multiple and the period for the EO come from the Foreign Trade Policy and the Handbook of Procedures. They do not come from the FT(D&R) Act. The commonly taught position is an EO of 6 times the duty saved, to be fulfilled within 6 years from the date of issue of the authorisation. Always use the multiple and period given in the question. If the question gives none, say the figures are as per the current policy. These can be changed by notification. Duty saved means the customs duty that would have been payable on the capital goods but for the exemption.

Do not mix this with the Advance Authorisation. Advance Authorisation covers duty-free import of inputs that are physically incorporated in export products. EPCG covers capital goods, which are not consumed in the export product but are used to produce it.

Key rules to remember

Export obligation (general rule)
Export obligation = 6 × Duty saved
Duty saved is the customs duty exempted on the capital goods. The multiple comes from the Foreign Trade Policy and Handbook of Procedures, not from the FT(D&R) Act. Use the multiple given in the question; 6 times is the commonly taught figure.
Duty saved
Duty saved = Duty that would have been payable at the normal rate − Duty actually paid (if any)
For a zero-duty import, duty saved equals the full duty that would have been payable.
Time to fulfil
Export obligation period = 6 years from the date of issue of the authorisation (commonly taught)
This period also comes from the policy and Handbook, not from the Act. Use the period stated in the question or the current policy.
Appeal period against an adverse order (section 15)
45 days from service of the order, plus up to 30 days more for sufficient cause
Appeal against a DGFT order goes to the Central Government. Against a subordinate officer's order it goes to the DGFT or a superior officer he authorises.
Penalty deposit for appeal
Penalty or redemption charges must be deposited before the appeal is entertained
The Appellate Authority may dispense with the deposit, unconditionally or on conditions, if it causes undue hardship.

How to solve EPCG Scheme questions

Most EPCG questions ask for the export obligation, a check of compliance, or the consequence of a default. Use the same sequence each time.

  1. 1Identify what is imported. Confirm it is a capital good and not an input or consumable.
  2. 2Find the customs duty that would normally be payable on the goods, including all duties that the question says are exempted.
  3. 3Subtract any duty actually paid to get the duty saved.
  4. 4Multiply the duty saved by the multiple given in the question. If none is given, use the commonly taught 6 times and say it is as per the current policy.
  5. 5Note the period allowed, as stated in the question or the current policy (commonly 6 years from the date of issue of the authorisation), and compare actual exports with the obligation.
  6. 6If exports fall short, state the consequence: it is governed by the policy, the conditions of the authorisation and the customs notification, under which duty is recovered in proportion to the unfulfilled obligation. Separately, the DGFT may suspend or cancel the authorisation under section 9(4) only for recorded reasons and after a hearing.
  7. 7For disputes, state the appeal route under section 15 with its time limits and deposit rule.
  8. 8Close with a clear conclusion in one line.

Quickest way: Duty saved times six, then compare

When to use it: Use for MCQs and short numerical parts where only the obligation or a shortfall is asked.

  1. Write the duty saved in rupees.
  2. Multiply by the multiple given in the question (commonly 6) and write the result as the EO.
  3. Subtract actual exports from the EO to find the shortfall.
  4. Calculate the proportion of shortfall to EO only if the question asks for proportionate duty recovery.
  5. Check the period given in the question or the current policy (commonly 6 years) against the dates given.

Common mistakes in EPCG Scheme

  • Taking the export obligation as 6 times the value of capital goods

    Students remember '6 times' but forget what it is applied to.

    Fix: Always multiply the duty saved, not the CIF value of the goods.

  • Confusing EPCG with Advance Authorisation

    Both give duty-free imports against exports.

    Fix: EPCG is for capital goods used in making export goods. Advance Authorisation is for inputs physically incorporated in the export product.

  • Forgetting to deduct duty already paid

    Questions on reduced-duty imports are read as zero-duty cases.

    Fix: Duty saved is the normal duty minus the duty actually paid.

  • Stating wrong appeal timelines

    Students mix GST appeal periods with the FT(D&R) Act.

    Fix: Section 15 gives 45 days from service, with 30 more days for sufficient cause. The appeal is not a GST appeal.

  • Saying the DGFT can cancel the authorisation without a hearing

    The word 'default' suggests automatic action.

    Fix: Section 9(4) requires recorded reasons and a reasonable opportunity of being heard before suspension or cancellation.

Worked examples

Example 1

Sharda Engineering Ltd, Pune, obtains an EPCG authorisation to import a machine. The customs duty that would normally be payable is ₹40,00,000, and the machine is imported at zero duty. Assume the policy multiple of 6 times duty saved and a period of 6 years from the date of issue of the authorisation. Calculate the export obligation and state the period for fulfilling it.

Show the solution
  1. Duty that would be payable = ₹40,00,000.
  2. Duty actually paid = ₹0, so duty saved = ₹40,00,000.
  3. Export obligation = 6 × ₹40,00,000 = ₹2,40,00,000.
  4. Period = 6 years from the date of issue of the authorisation, as assumed in the question. In an exam, use the period stated in the question or the current policy.

Answer: The export obligation is ₹2,40,00,000, to be fulfilled within 6 years from the date of issue of the authorisation, on the multiple and period assumed in the question.

Example 2

Kaveri Textiles Ltd imports capital goods under EPCG. Normal duty is ₹25,00,000 and it pays duty of ₹5,00,000 at the concessional rate. Assume the export obligation is 6 times duty saved. It exports goods worth ₹90,00,000 within the period. Find the export obligation and the shortfall.

Show the solution
  1. Duty saved = ₹25,00,000 − ₹5,00,000 = ₹20,00,000.
  2. Export obligation = 6 × ₹20,00,000 = ₹1,20,00,000.
  3. Actual exports = ₹90,00,000.
  4. Shortfall = ₹1,20,00,000 − ₹90,00,000 = ₹30,00,000.
  5. Shortfall as a proportion of the obligation = ₹30,00,000 ÷ ₹1,20,00,000 = 25%.
  6. Kaveri has fulfilled 75% of the obligation. The consequence of the unfulfilled 25% is governed by the policy, the conditions of the authorisation and the customs notification, under which duty is recovered in proportion to the unfulfilled obligation, as these provide.

Answer: Export obligation is ₹1,20,00,000 and the shortfall is ₹30,00,000, which is 25% of the obligation. Duty is recoverable in proportion to this unfulfilled 25%, as the policy, the authorisation conditions and the customs notification provide.

Exam tips

  • Show 'duty saved' as a separate line before multiplying. Marks are given for this step.
  • In a descriptive answer, tie the authorisation to section 9 of the FT(D&R) Act and the appeal to section 15, and quote the time limits exactly.
  • For difference questions, write a two-column comparison in sentences: goods covered, purpose, and obligation.
  • Do not mention MEIS or SEIS as current schemes; both are discontinued and are historical.
  • In case-based MCQs, check dates carefully before declaring the obligation fulfilled.

Practice questions from Export Promotion Schemes under Foreign Trade Policy

EPCG Scheme in other exams

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

EPCG Scheme: frequently asked questions

What is the export obligation under the EPCG scheme?

It is the value of exports you promise to make in return for duty-free or reduced-duty imports of capital goods. The commonly taught rule is 6 times the duty saved. The multiple and period come from the Foreign Trade Policy and Handbook of Procedures, so use the figures given in the question.

What is the difference between EPCG and Advance Authorisation?

EPCG covers capital goods used to produce export goods. Advance Authorisation covers inputs that are physically incorporated in the export product. Both carry an export obligation.

Can the DGFT cancel an EPCG authorisation?

Yes, but under section 9(4) only for good and sufficient reasons recorded in writing. The holder must first be given a reasonable opportunity of being heard.

How do I appeal against a DGFT order under the Act?

Under section 15, an appeal against a DGFT order goes to the Central Government. It must be filed within 45 days of service, extendable by 30 days for sufficient cause. A penalty must be deposited first, unless the authority dispenses with it for undue hardship.