INSTALLATION CERTIFICATE UNDER EPCG SCHEME - Legal Requirement, Practical Issues, and Consequences of Non-Submission

Introduction

The Export Promotion Capital Goods (EPCG) Scheme is one of the most significant export promotion schemes under the Foreign Trade Policy (FTP). It permits the import of capital goods at concessional or nil customs duty, subject to the fulfilment of prescribed export obligations.

Since the scheme grants substantial duty benefits, the Government requires verification that the imported capital goods have actually been installed and put to use in the premises of the authorisation holder or supporting manufacturer. This verification is achieved by submitting an Installation Certificate.

Failure to submit the Installation Certificate within the prescribed period can lead to serious consequences, including violation of EPCG conditions, denial of benefits, imposition of penalties, and difficulties in redemption of the authorisation.

This article examines the statutory requirement, legal framework, consequences of default, and remedial measures available under the EPCG Scheme.

Objective of Installation Certificate

The Installation Certificate serves the following purposes:

1. To establish that the imported capital goods have been installed at the declared premises.
2. To ensure that the goods are being used for the production of export goods or the rendering of export services.
3. To prevent diversion, sale, transfer, or misuse of duty-free imported capital goods.
4. To provide documentary evidence for monitoring export obligation compliance.

The certificate acts as a safeguard against misuse of the duty exemption granted under the EPCG Scheme.

Legal Provisions

Foreign Trade Policy

Under the EPCG Scheme, capital goods can be imported at concessional or zero customs duty, subject to the fulfilment of an export obligation equivalent to the prescribed multiple of the duty saved (six times the duty saved amount over six years).

Para 5.4 of Handbook of Procedures (HBP)

Para 5.4 of the Handbook of Procedures requires the EPCG Authorisation Holder to submit proof of installation of imported capital goods.

As per the revised provisions effective from 25 July 2024:

• The Installation Certificate must be submitted within three years of the date of completion of imports.
• Earlier, the certificate was required to be submitted within six months.

The certificate may be issued either by:

• Jurisdictional Customs Authority; or
• Independent Chartered Engineer.

Where an Independent Chartered Engineer issues the certificate, a copy must be forwarded to the jurisdictional Customs Authority for information and record purposes.

Where the Capital Goods Should Be Installed?

The imported capital goods should normally be installed at:

• Factory of the authorisation holder;
• Manufacturing premises of the authorisation holder;
• Premises of the supporting manufacturer endorsed in the EPCG Authorisation;
• Other premises if specifically permitted under the policy.

For merchant exporters, the supporting manufacturer's name and address must be properly endorsed in the EPCG Authorisation and export documents.

Time Limit for Submission

The present position is:

• Installation Certificate to be submitted within three years from completion of imports.
• Regional Authority (RA) may grant an extension up to the export obligation period.
• A composition fee of Rs.10,000 per year is payable for such an extension.

The extension is not automatic and must be sought through a proper application before the concerned Regional Authority.

Consequences of Failure to Submit Installation Certificate

1. Violation of EPCG Conditions

Submission of the Installation Certificate is a mandatory post-import condition.

Failure to comply constitutes a breach of EPCG authorisation conditions.

2. Difficulty in Redemption of EPCG Authorisation

At the time of redemption and closure of export obligation, the Regional Authority verifies compliance with all policy conditions.

The absence of an Installation Certificate may delay or prevent the redemption of the EPCG authorisation.

3. Adverse View during Export Obligation Verification

The Regional Authority may question:

• Whether the capital goods were actually installed.
• Whether the goods were diverted.
• Whether production using the imported machinery actually took place.

This can lead to prolonged correspondence and scrutiny.

4. Exposure to Customs Action

Where installation cannot be established, Customs authorities may examine whether the conditions set out in the exemption notification have been violated.

In extreme situations, authorities may initiate proceedings for:

• Recovery of duty saved;
• Applicable interest;
• Penalty under the Customs Act, 1962.

5. Penalty Under FT(DR) Act, 1992

Contravention of the Foreign Trade Policy, Handbook of Procedures, or conditions of authorisation may attract action under the Foreign Trade (Development and Regulation) Act, 1992.

Penalties may be imposed for non-compliance with policy conditions.

6. Delay in Obtaining Future Authorisations

Non-compliance in existing EPCG authorisations may affect:

• Processing of future EPCG applications;
• Amendments;
• Redemption requests;
• Other benefits under the Foreign Trade Policy.

Can Delay Be Regularised?

The answer is 'Yes'. The Handbook of Procedures provides for extension of time upon payment of a composition fee. Where even the extended period has expired, the authorisation holder may approach the EPCG Committee seeking policy relaxation.

Such relaxation is generally considered only where:

• Genuine hardship exists;
• Machinery was actually installed;
• Delay was procedural and not deliberate;
• Supporting documentary evidence is available.

The final approval is granted in accordance with the policy relaxation provisions.

Documents Supporting Installation

In addition to the Installation Certificate, the following records should be preserved:

• Import documents.
• Bill of Entry.
• EPCG Authorisation.
• Commercial invoice.
• Packing list.
• Transport documents.
• Machinery photographs.
• Factory layout.
• Fixed asset register.
• Chartered Engineer's report.
• Production records.
• GST records.
• Electricity consumption records.
• Insurance records.

These documents become important if installation is questioned at a later stage.

Practical Issues Faced by Exporters

Change of Factory Location

Where machinery is shifted after installation, prior approvals and documentary records should be maintained.

Merchant Exporters

Supporting manufacturer details should be correctly endorsed in the authorisation and export documents.

Closure of Unit

If the unit is closed or merged, appropriate permissions should be obtained before transfer or disposal of capital goods.

Delayed Certification

Many exporters overlook the requirement because export obligation periods are long. Internal compliance systems should therefore track the submission due date.

Best Practices

1. Obtain installation certification immediately after commissioning of machinery.
2. Maintain photographic evidence.
3. Preserve all import and installation records.
4. Apply for an extension before the expiry of the prescribed period.
5. Ensure supporting manufacturer details are properly endorsed.
6. Maintain proper communication with the Regional Authority and Customs authorities.
7. Keep a compliance calendar for EPCG obligations.

Conclusion

The Installation Certificate is not merely a procedural requirement under the EPCG Scheme; it is a key compliance requirement demonstrating that duty-free imported capital goods are used for export. Failing to submit it on time may breach the EPCG Scheme and result in delays, penalties, or recovery actions. Exporters must ensure timely submission and supporting records, which helps avoid disputes during export verification and EPCG redemption.