Average Export Obligation not maitained under EPCG

[Narendra Soni]

Dear Experts,

Please suggest what are consequences and what are remedies if Average Export Obligation could note be maintained under EPCG

Thanks..

[Ganeshan Kalyani]

The duty which was saved while importing would required to be paid if export obligation is not met. Thanks.

[KASTURI SETHI]

I endorse the views of Sh.Ganeshan Kalyani, Sir. There is penalty provision also for non-performance of export obligation. There is also possibility of charging interest.

[MUKUND THAKKAR]

Export obligation as per FTP 50% with in 4 years and balance 50% with in next 4 years if importing under terms of 8 years. if you Average export obligation is not meet first block of 4 years. you may request to PRC -Delhi and completed with in next block of 4 years in such situation you need not to pay duty.. first contact your local DGFT office and follow the guide line.

[Narendra Soni]

Dear Sir,

I think,the 50% in first bock and 50% in balance block is applicable for specific export obligation only.You have to maintain the average export obligation mentioned in EPCG authorisation in each year untill completion of specific obligation.

Please confirm my view.

[MUKUND THAKKAR]

Not each year 50% of first block you have to maintained.

[Narendra Soni]

Dear Sir, Please see the para 5.14 (a) of FTP (procedures):-

5.14 Block - wise Fulfilment of EO

(a)The Authorisation holder under the EPCG scheme shall, while maintaining the average export obligation,fulfill the specific export obligation over the prescribed block period in the following proportions:

Period from the date of issue of Authorisation and Minimum export obligation to be fulfilled :-

Block of 1 st to 4th year = 50%, and Block of 5th and 6th year = Balance EO.

---*-----*-----*

Experts are requested to comment on the above para, whether Block wise EO is applicable both for AEO and SEO, or only for SEO.

Thanks n Regards.

[Ganeshan Kalyani]

I support the views of Sri Mukund Ji. The replies is in accordance with the extract of the provision reproduced here in TMI by Sri Soni Ji. The condition mentioned is applicable for specific export obligation while maintaining average export obligation.Thanks.

[Narendra Soni]

Dear Kalyani Ji,

Thanks for supporting Mr.Mukund.

But, as per our Jt.DGFT, Block wise EO facility is not applicable in Average annual EO, what ever average annual obligation fixed by DGFT in authorisation, exporter has to maintain every year.

Block wise facility is only for Specific EO.

Hence requested to please re-check and confirm.

Thanks N Regards.

[Ganeshan Kalyani]

Pls read last sentence of my last reply.

[KASTURI SETHI]

Replies by both experts have enriched my knowledge. Thanks a lot to Sh.Mukund Thakkar, Sir and Sh.Ganeshan Kalyani, Sir.

[YAGAY andSUN]

enriching discussions

[Ganeshan Kalyani]

Yes, in fact.

[Subhash Modi]

The past annual average obligation has to be mandatorily fulfilled year-on-year basis, It is the specific EO which is to be fulfilled up to 50% within the first block of 4 years and balance 50% within the ensuing 2 years or extension allowed as per the Policy provisions. All exports during a year serially should be fist accounted towards annual average and remaining excess exports accounted towards specific EO. In that case duty that was will have to be repaid with interest not entirely but proportionate to unfulfilled specific EO. It is possible that while applying for issue of EPCG inadvertently in the figures furnished for the past 3 years exports, the exports under valid EPCG may have been included though not required as per HBP V1Para 5.12:

5.12 Calculation of Average Export Obligation While calculating Average Export Obligation, exports counted/being counted for fulfilling specific EO against EPCG Authorisations within valid EO Period (whether original or extended) that have been made in the preceding 3 years will not be taken into account.

If there is such a case then past annual average can be re-fixed by submitting fresh CA certificate first showing all exports of past 3 years and then deducting therefrom the exports made during the 3 year towards EPCG EO fulfillment..

The annual average obligation can further be refixed in terms of yearwise PN issued qua the HBP Para 5.19:

5.19 Relief in Average Export Obligation (a) To provide relief to exporters of those sectors where total exports in that sector/product group has declined by more than 5% as compared to the previous year, average export obligation for the year may be reduced proportionate to reduction in exports of that particular sector/product group during the relevant year as against the preceding year. However, in case export decline is continuous over consecutive years, the base year for calculation of eligibility and calculation of reduction in average export obligation will be taken as the year after which the exports have shown continuous decline. (b) The sectors /product groups for which this relaxation is to be allowed shall be conveyed by the DGFT to all the RAs within seven months of the end of the previous financial year, and the RAs shall re-fix the annual average EO for previous year accordingly for exporters in that sector / product group.

[Narendra Soni]

Than Mr.Subhash Modi,

Exactly correct reply in detail,appreciate your effort.

[babu varghese]

Dear all experts and wellwishers,

We have a case as follows.The export obligation was 2.27 cr in 6 years above the Average export obligation of 4.06468Cr.

In the first year we had very less exports as we had an ongoing project which was not approved. In the second year we had a good export and by third year we have finished the export obligation .But the issue is our first year Export is less and not meeting the Average export obligation.What is the correct way to solve this so that we can close our EPCG license.EPCG license was taken in 8/12/2014.

Year	Average Fixed	Average Completed	Unfulfilled
2014-2015	40,468,103	6,676,470.18	33,791,632.82
2015-2016	40,468,103	172,390,454.01	0
2016-2017	40,468,103	62,786,758.56	0

AI Summary

Average Export Obligation: failing the annual EPCG requirement can trigger duty repayment, interest and penalties. Failure to maintain the average export obligation under an EPCG authorisation may require repayment of the duty saved, plus interest and penalties. Block wise fulfilment (50% in first block, balance later) applies to specific export obligations only; the annual average fixed by DGFT must be met year on year. Remedies include refixation of the annual average via CA certificate where prior EPCG exports were wrongly counted, seeking relief for sectoral export decline, and representations to the Regional Authority/DGFT.