Supplies made to an EPCG Authorisation Holder are treated as Deemed Exports under the provisions of the Foreign Trade Policy (FTP). Accordingly, as the supplier of capital goods or eligible items to an EPCG Authorisation Holder, you are entitled to claim benefits on the imported raw materials used in the manufacture of such goods. Two alternative options are available as detailed below:

Option 1: Duty Exemption on Raw Materials (Through Advance Authorisation)

1. The EPCG Authorisation Holder will obtain and issue an Invalidation Letter in your favour.
2. Based on this Invalidation, you may apply for an Advance Authorisation from DGFT.
3. Import the required raw materials without payment of customs duty.
4. Manufacture and supply the finished goods to the EPCG Authorisation Holder.
5. Such supply shall be treated as a Deemed Export Supply under Para 7.02(a) of the FTP.
6. Upon completion of supply, you may apply for closure of the Advance Authorisation, since the export obligation stands fulfilled through deemed exports.

Option 2: Duty Drawback on Deemed Export Supply

1. The EPCG Authorisation Holder will issue an Advance Release Order (ARO) in your favour.
2. Import the raw materials on payment of applicable customs duties.
3. Manufacture and supply the finished goods to the EPCG Authorisation Holder.
4. The supply will be treated as a Deemed Export Supply.
5. You may thereafter apply to the concerned Regional Authority of DGFT for a Duty Drawback refund, representing the customs duties paid on the imported inputs used in such supplies.

Comparison Summary: Option 1 vs Option 2

Example Illustration (ABC Exports Pvt. Ltd. and XYZ Machinery Pvt. Ltd.)

XYZ Machinery sells machinery worth ₹50,00,000 + 18% GST = ₹59,00,000 to ABC Exports under EPCG Invalidation.
Since the supply is treated as Deemed Export, XYZ Machinery can claim a refund of ₹9,00,000 GST (or make supply under LUT without charging GST). Meanwhile, ABC Exports fulfils EPCG conditions without importing capital goods. Thus, both parties benefit — the EPCG holder gains zero-duty machinery, and the supplier gets refund/duty relief.

Process Flow Overview

1. DGFT issues EPCG Authorisation to ABC Exports Pvt. Ltd.
2. ABC Exports requests DGFT for Invalidation in favour of XYZ Machinery Pvt. Ltd.
3. DGFT issues Invalidation Letter allowing domestic supply.
4. XYZ Machinery supplies capital goods under EPCG authorisation.
5. ABC Exports installs machinery and fulfils EPCG obligation.
6. XYZ Machinery claims deemed export benefits (refund/exemption).

We trust the above clarifies the available benefits and procedures for suppliers under the EPCG Scheme.

For documentation support, refund applications, or DGFT liaison services, please feel free to contact us.

Warm regards,
DGFT EXIM Consultants
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