Export obligation for export made by holding Company for the license hold by subsidary company

[Abhijeet Mane]

A subsidiary company is availing EPCG benefits. The product manufactured using the EPCG machinery is not exported by the subsidiary. However, the holding company operates from the same premises and uses the same machinery. The holding company manufactures the product and exports it.

In this scenario, will the export obligation under EPCG be considered as fulfilled based on exports made by the holding company, and will the EPCG benefits continue to remain available?

[Sadanand Bulbule]

Under Para No. 5.04 (a) of Foreign Trade Policy and Para 5.15 of Handdbook of Procedure-2023, the holding company's export count towards the subsidiary's Export Obligation, provided the holding company is endorsed as a "Group Company" on the EPCG authorisation

[Shilpi Jain]

Under EPCG the goods manufactured by the license holder can be exported by a third party manufacturer, but would require some compliances. For further details you can look at para 5.10, a part of which is extracted below.

(b) In case the Authorisation holder wants to export through a third party, export documents viz., shipping bills/Bill of exports etc. shall indicate name of both authorisation holder and supporting manufacturer, if any, along with EPCG authorisation number. Shipping bill/Bill of Export, GST invoice and e-BRC/ export realisation from RBI’s EDPMS should be in the name of third party exporter. The goods exported through third party should be manufactured by the EPCG authorisation holder or the supporting manufacturer where the capital goods imported under the authorisation have been installed. The goods manufactured by the authorisation holder shall be exported as it is by the ultimate exporter (third party exporter) without further processing. Proceeds realised through normal banking channel from third party exporter’s account to the authorisation holder’s account on account of such exports shall only be counted towards fulfillment of export obligation.

[Shilpi Jain]

You may have to check whether there is a requirement of adding this person in the authorisation though no such thing is coming out from the FTP and HBP

[Ramakant Patnaik]

As per 5.10 of the para HBP

The wordings used is

The goods exported through third party should be manufactured by the EPCG authorisation holder or the supporting manufacturer where the capital goods imported under the authorisation have been installed.

Basis the definition of Supporting Manufacturer for EPCG the holding company can be qualified as Supporting Manufacturer further the holding company will also qualify as third party.

Hence the export made by holding company by manufacturing made by holding can qualify for export obligations subject to certain compliance as per 5.10 of HBP

[YAGAY andSUN]

As per the settled position under the Foreign Trade Policy (FTP) and Handbook of Procedures, the export obligation (EO) under EPCG must be discharged by the EPCG authorisation holder itself, i.e., the subsidiary in whose name the EPCG licence and machinery stand.

While third-party exports are permitted, the manufacture must be by the EPCG holder, and mere exports by a holding or group company using the same machinery, even from the same premises, do not automatically qualify for EO fulfilment.

Exports by the holding company can be counted only if prior DGFT permission exists (such as recognised supporting manufacturer/third-party export arrangements endorsed on the authorisation).

In the absence of such approval, EO will be treated as not fulfilled, and EPCG benefits may be denied or subjected to recovery with interest.

AI Summary

Holding company exports under EPCG may not discharge subsidiary export obligation without supporting manufacturer or group company endorsement. Under the EPCG scheme the export obligation must be discharged by the EPCG authorisation holder unless a holding or other entity is expressly recognised on the authorisation as a supporting manufacturer or group company; third party exports count only if goods are manufactured by the authorisation holder or recognised supporting manufacturer and specified shipping, invoicing and export realisation compliances are met, otherwise EO will not be treated as fulfilled and benefits may be denied or recovered.