The Export Promotion Capital Goods (EPCG) Scheme is a crucial tool for businesses in India to import capital goods without paying heavy custom duties upfront. However, this privilege comes with conditions, and a Bank Guarantee (BG) plays a pivotal role in this process. Let’s break down the concept of Bank Guarantee under EPCG and its significance in simple terms.
1. What is a Bank Guarantee (BG) under EPCG?
In the simplest terms, a Bank Guarantee is like a financial safety net provided by a bank on behalf of its customers. Under the EPCG Scheme, the BG acts as a promise made by the bank to customs, ensuring that if the applicant (importer) fails to meet their obligations, the bank will cover the amount owed. This is particularly important because businesses can save on custom duties when importing machinery or equipment under EPCG, and the BG ensures customs authorities have a fallback if things go wrong.
2. How is the Bank Guarantee Executed under the EPCG Scheme?
When a company receives an EPCG license, it is allowed to import capital goods without paying customs duties upfront. However, there’s a catch – the company must meet an export obligation (EO) that is equal to six times the value of the duty saved, within six years.
If the company doesn’t meet its export obligations, it is required to pay back the duties along with interest. To ensure this commitment, customs often ask the company to provide a Bank Guarantee or sign a bond. The BG ensures that, in case of default, customs will receive the payment from the bank.
3. Why is a Bank Guarantee Important under EPCG?
A Bank Guarantee under the EPCG scheme serves as a financial assurance for customs authorities. It ensures that, even if the company fails to meet its export obligations, the duties will still be paid by the bank on the company’s behalf. This protects both parties – customs get their dues, and the company has the flexibility to use imported machinery while working towards fulfilling its export targets.
4. Bank Guarantee Exemption under the EPCG Scheme
In some cases, companies may not need to provide a Bank Guarantee. This exemption is granted based on certain criteria, such as:
1.Position holder:
Star export company (from one star to five stars) are exempt from bank guarantee requirements.
2.Public sector operations (PSU):
PSUs are not required to provide bank guarantees under the EPCG scheme.
3.Exports without credit:
Exporters with a zero-credit status can receive full or partial exemption from bank guarantees.
4.Special Economic Zone (SEZ) Unit:
Exporters in special economic zones are exempt from bank guarantees.
5.Export Oriented Units (EOUs):
EOU can import capital goods without a bank guarantee.
6.Exporters who have previously complied with the requirements:
Compliance with the previous EPCG authorization resulted in the bank’s guarantee requirements being reduced or zeroed.
7.Turnover above ₹5 Crore:
Companies with an annual turnover of more than Rs 5 crore are eligible for exemption from bank guarantees.
8.GST Payments Above ₹1 Crore:
Exporters who paid more than ₹1 crore in GST in the previous year are eligible for exemption from bank guarantee.
5. Conditions for Bank Guarantee Exemption
While exemptions can be granted, they come with conditions. Some of the key conditions include:
The company should not have defaulted on its export obligations for any past licenses under the EPCG scheme.
The company must not have been penalized under the Customs Act, the Central Excise Act, FEMA, or the Foreign Trade Act in the past three financial years.
If the company is a member of an Export Promotion Council (EPC), it must provide a certificate proving export performance or payment of duties.
In cases where the company is not a member of an EPC, a certificate from a Chartered Accountant registered with the GST department must be provided.
6. How Curated Exim Can Help You with EPCG-Related Matters
Navigating the EPCG scheme and Bank Guarantee requirements can be complex. That’s where Curated Exim Consultants come in. We specialize in handling all matters related to the EPCG scheme, including assisting with BG execution and exemption applications.
Here’s why Curated Exim can be your ideal partner:
Expertise in EPCG regulations
Our team is well-versed in EPCG policies and can help ensure your compliance.
Tailored solutions
We offer customized solutions to meet your specific needs, whether it’s securing a Bank Guarantee or applying for an exemption.
End-to-end support
From applying for an EPCG license to ensuring that you meet export obligations, we handle it all.
Seamless interaction with authorities
We liaise directly with customs, DGFT, and other relevant authorities to ensure your business operations remain smooth and compliant.
By choosing Curated Exim, you can focus on growing your business while we handle the complexities of the EPCG scheme for you.
