EPCG – Penalty / Compliance

Introduction of EPCG – Penalty / Compliance

EPCG Penalty / Compliance is crucial for businesses to avoid fines and stay fully compliant with DGFT rules while fulfilling export obligations. The Export Promotion Capital Goods (EPCG) Scheme is a flagship initiative under the Foreign Trade Policy (FTP) designed to help Indian exporters upgrade their technology by importing or procuring capital goods at zero customs duty.
In return, the authorization holder commits to achieving a specific Export Obligation (EO) within a prescribed time period.

However, if the exporter fails to meet the prescribed obligations or violates any condition of the license, the Directorate General of Foreign Trade (DGFT) and Customs Department can initiate penalty and compliance actions under the Foreign Trade (Development and Regulation) Act, 1992 and relevant FTP provisions.

At BEST EXIM and Industrial Services, we specialize in handling EPCG Penalty and Compliance cases — from regularization to representation — ensuring our clients stay compliant and avoid unnecessary penalties.

What Leads to EPCG Penalty or Compliance Action

DGFT or Customs authorities may impose penalties or issue Show Cause Notices (SCNs) under various circumstances, such as:

Non-Fulfillment of Export Obligation:
Failure to export goods/services equivalent to 6 times the duty saved value within the stipulated 6 years (or extended period).
Delay in Filing EO Fulfillment Documents:
Not applying for EPCG redemption or closure before expiry of the EO period.
Non-Installation or Late Installation of Machinery:
Capital goods not installed within 6 months of import/purchase or moved without DGFT approval.
Misdeclaration or Inaccurate Documentation:
Providing incorrect export details, product codes, or HS codes inconsistent with the EPCG license.
Unauthorized Transfer or Sale of Machinery:
Selling, leasing, or transferring EPCG machinery before EO fulfillment.
Non-Submission of Installation Certificate or eBRCs:
Missing or invalid proof of installation or foreign exchange realization.
Incorrect Average Export Obligation Maintenance:
Failure to maintain average export performance in addition to specific EO.

Each of these cases can attract DGFT penalties or customs duty recovery.

Types of Penalties under EPCG Scheme

Customs Duty with Interest:
If EO is unfulfilled, DGFT may direct the importer to pay full customs duty saved plus interest (typically 15% per annum) from the date of import.
Composition Fees:
Charged during extensions or partial EO fulfillment to regularize delay.
Monetary Penalty (Section 11(2) FTDR Act):
DGFT may impose penalties up to five times the duty saved value in cases of severe violations or fraudulent claims.
Blacklisting / IEC Suspension:
Persistent default or non-cooperation may lead to suspension of Importer Exporter Code (IEC) and denial of future DGFT benefits.
Bond / Bank Guarantee Enforcement:
Customs may enforce bonds or BGs executed during import if the EPCG license remains unredeemed.

Compliance and Regularization Process

Even if an exporter has defaulted or delayed, DGFT allows the opportunity to regularize EPCG cases by following proper compliance procedures.
This process is known as EPCG Regularization / Post-Export Compliance.

Step-by-Step Process:

Assessment of Default:
Calculate total duty saved value and proportion of export obligation fulfilled.
Prepare a Compliance Statement:
Prepare a detailed note explaining the reasons for non-compliance (such as market downturn, machinery breakdown, or force majeure).
Payment of Duty or Composition Fees:
Pay customs duty proportionate to the unfulfilled EO, along with interest as per DGFT norms.
File Regularization Application to DGFT:
Submit an online application for EPCG Regularization along with supporting documents and payment proofs.
Attach Mandatory Documents:
- Copy of EPCG Authorization.
- Chartered Accountant Certificate for exports made.
- eBRC and shipping bill copies.
- Duty payment challans (if paid).
- Self-declaration for closure.
- Any relevant extension letters.
DGFT Review and Decision:
DGFT examines the documents and, if satisfied, issues a Redemption Letter / Closure Order marking the case as “regularized.”
Customs Clearance:
Submit DGFT’s closure order to customs to officially complete the process and release the bond or BG.

Provisions under DGFT Policy

The DGFT handles EPCG compliance cases based on the Foreign Trade Policy (FTP) 2023 and Handbook of Procedures (HBP) Volume 1, particularly under:

Para 5.14: Export obligation period and extension conditions.
Para 5.19: Regularization of bona fide default cases.
Section 11(2) of FTDR Act, 1992: Penalty for contravention of DGFT license conditions.

DGFT considers genuine difficulties such as global crises, technical delays, or changes in export patterns as valid grounds for regularization.

How BEST EXIM and Industrial Services Helps

At BEST EXIM and Industrial Services, we assist clients across India in managing all EPCG penalty and compliance cases efficiently.

Our specialized services include:

EPCG Compliance Review:
Detailed analysis of EO status, pending obligations, and DGFT record verification.
Show Cause Notice (SCN) Handling:
Drafting strong replies to DGFT or Customs notices with supporting documentation and legal justification.
Regularization of Default Cases:
Assistance in calculating payable duty, composition fees, and filing regularization applications.
EO Recalculation & Documentation:
Preparing export performance data and correcting DGFT or customs mismatches.
DGFT Representation:
Personal representation before DGFT authorities for penalty waiver or favorable consideration.
Redemption and Closure Post-Regularization:
Once compliance is accepted, we ensure the EODC / Redemption letter is issued smoothly.
Preventive Advisory Services:
Guidance on maintaining compliance to avoid future penalties or SCNs.

Our goal is to protect exporters’ interests while ensuring full alignment with DGFT, Customs, and GST laws.

Why Timely Compliance is Important

Prevents accumulation of interest and penalties.
Ensures eligibility for new DGFT schemes and licenses.
Protects your IEC from suspension or blacklisting.
Avoids customs disputes and financial losses.
Maintains your company’s export credibility and rating.

Common Compliance Mistakes to Avoid

Ignoring DGFT notices or reminders.
Submitting incomplete export data.
Delaying redemption even after EO completion.
Not paying composition fees during extensions.
Using incorrect HS codes or product categories.

Proactive compliance through expert guidance ensures smooth business operations and continued export benefits.

Conclusion

The EPCG Penalty and Compliance process is an essential mechanism to ensure exporters maintain transparency and adhere to policy norms.
While defaults or delays can happen due to genuine business challenges, DGFT provides structured procedures to regularize such cases.

With BEST EXIM and Industrial Services, exporters get reliable guidance, accurate documentation, and expert representation to close all EPCG compliance issues effectively.
Our team ensures complete legal protection, timely regularization, and secure redemption of your EPCG licenses.

BEST EXIM and Industrial Services – Your trusted DGFT partner for EPCG License, Penalty Management, and Compliance Excellence.

Best Exim and Industrial Consultants, at the forefront of global trade, is committed to easing the complexities of international business and providing specialized services in subsidies, customs procedures, and GST compliance