A government programme called the Export Promotion Capital Goods Scheme (EPCG Scheme) was created to help Indian manufacturers grow their businesses and promote exports. Its principal goal is to enable duty-free imports of capital goods or machinery that are essential for pre-, post-, and manufacturing processes, among other stages of production.Participating in the EPCG Scheme entails navigating through a series of intricate procedures, starting from the application for a licence to the eventual redemption of said licence through the DGFT. Among the critical stages within this process are the bank guarantee and bond cancellation stages. During the bond cancellation phase, exporters are required to follow specific protocols to terminate the bond associated with the imported capital goods or machinery.

As commonly understood, a guarantee signifies providing assurance or security for a certain obligation. In the realm of finance, a bank guarantee specifically involves a financial institution vouching for the obligations of its clients within the prescribed regulations. Essentially, through a bank guarantee, the bank assumes responsibility for fulfilling the payment obligations should the account holder fail to do so. This mechanism provides a form of assurance to the customs authorities regarding the financial commitments associated with the EPCG Scheme, thereby facilitating smoother transactions and compliance.

Bank Guarantee and Bond Cancellation Under the EPCG Scheme

Under the EPCG Scheme, producers are obligated to meet an export requirement equivalent to six times the amount of duty savings over a span of six years. To ensure compliance, manufacturers are required to furnish both a bank guarantee and bond cancellation detailing their duty-saving commitments.

This documentation specifies the export quota, and the deadline for fulfilment, and outlines the penalties or recovery measures in case of failure to meet the set export targets. Execution of the Bond occurs at the Port during the customs clearance process for duty-free capital goods or machinery. The Bond remains active until the cancellation process at Customs is successfully completed. Bond cancellation is a crucial step to avoid substantial penalties or recovery charges and necessitates the submission of additional documentation alongside the EODC certificate.

Documents Needed to Submit EODC at DGFT

To apply for licence redemption, you’ll need to gather a few important documents:

• A letter confirming your redemption or an EODC letter.
• The redemption application form, ANF-5B.
• A copy of the installation certificate.
• A copy of your EPCG licence.
• Copies of shipping bills and e-BRC documents.

Procedure of Bank guarantee and Bond Cancellation Under the EPCG Scheme

To acquire an End of Duty Concession (EODC) Certificate, you’re required to furnish the specified documentation to the Customs officer responsible for the Bond execution. Once the officer verifies the documents and ensures compliance, they initiate the process for redeeming the licence. This involves making necessary entries in the Customs’ records regarding the Export Obligation. Subsequently, upon completion of these formalities, the licence is terminated.

Following the termination, licence holders are issued a letter by the customs department confirming the cancellation of the bond. Additionally, any bank guarantee procured during the licence acquisition process is returned to the respective bank. The bank then reimburses the amount of the bank guarantee margin that was withheld when the licence holder initially obtained the guarantee.

Importance of Bank Guarantee and Bond Cancellation Under the EPCG Scheme

The licence issued under the Export Promotion Capital Goods (EPCG) scheme comes with certain obligations, particularly regarding export obligations (EO). These obligations necessitate fulfilling an export obligation equivalent to six times the value of duty saved within a span of six years.

Upon importing capital goods at Customs, the licence holder is required to furnish a Bank Guarantee (BG) or execute a bond with customs. This document outlines the liability concerning the duty saved amount and specifies the period within which the export obligation must be met. Failure to fulfil the EO results in the recovery of the duty-saved amount along with applicable interest.

The BG or bond must be executed at the port to facilitate the clearance of duty-free capital goods or machinery from customs. It remains active until the cancellation process is initiated with customs after the redemption of the licence at the Directorate General of Foreign Trade (DGFT). Thus, upon completing the export obligation, it is imperative to inform the customs authority and proceed with the cancellation of the bond or BG.

Conclusion

The Bond Cancellation process under the Export Promotion Capital Goods (EPCG) Scheme is a pivotal step in fulfilling export obligations and avoiding penalties. This scheme, designed to support Indian manufacturers in enhancing exports, necessitates careful adherence to customs procedures. Bond and Bank Guarantee cancellation signifies the successful completion of export commitments and signifies compliance with regulatory requirements.

By submitting requisite documentation and obtaining the End of Duty Concession (EODC) Certificate, manufacturers conclude their obligations under the scheme, allowing for the termination of bonds and return of bank guarantees. Ensuring seamless bond cancellation not only safeguards against financial liabilities but also demonstrates commitment to the scheme’s objectives, fostering sustainable growth in India’s export-oriented industries.