Import of capital goods shall be subject to Actual User condition till the export obligation is completed.

The following conditions shall apply to the fulfilment of the export obligation:

1. The export obligation shall be fulfilled by the export of goods manufactured or produced by the use of the capital goods imported under the scheme. The export obligation may also be fulfilled by the export of same goods, for which EPCG licence has been obtained, manufactured or produced in different manufacturing units of the licence holder. However, if exporter is processing further to add value on the goods so manufactured, the export obligation shall stand enhanced by 50%.

2. The exports shall be direct exports in the name of the EPCG licence holder. However, the export through third party(s) is also allowed provided the name of the EPCG Licence holder is also indicated on the shipping bill. If a merchant exporter is the importer, the name of the supporting manufacturer shall also be indicated on the shipping bill. At the time of export, the EPCG licence No. and date shall be endorsed on the shipping bill which are proposed to be presented towards discharge of export obligation.

3. Export proceeds shall be realised in freely convertible currency;

4. Exports shall be physical exports. However, deemed exports as specified in paragraph 10.2 (a), (b), (d), (f), and (g) of Policy shall also be counted towards fulfilment of export obligation, but the EPCG licence holder shall not be entitled to claim any benefit under paragraph 10.3 of this Policy in respect of such deemed exports The export obligation shall be, in addition to any other export obligation undertaken by the importer, except the export obligation for the same product under the duty exemption scheme as specified in paragraph below.

5. The export obligation shall be over and above the average level of exports achieved by him in the preceding three licensing years. Wherever the average level of export was fixed taking into account the exports made to former USSR, the average level of exports shall be reduced by excluding exports made to former USSR. This waiver shall be applicable to all EPCG licences which have not been redeemed/ regularised. However, exports made against any EPCG licence, except the EPCG licences , which have been redeemed, shall not be added up for calculating the average export performance for the purpose of the subsequent EPCG licence. If the exporter achieves an export of 75% of the annual value of the production of the relevant export product, the export obligation against the EPCG licence shall be subsumed under that export, provided, however, that the aggregate value of such exports during the specified period shall not be less than the aggregate value of the export obligation fixed under paragraph 6.2 of this Policy;

6. Where the manufacturer exporter has obtained licences for the manufacture of the same export product both under EPCG and the Duty Exemption Scheme or Diamond Imprest Licence/ Replenishment Licence (under Chapter 8), the physical exports made under the Duty Exemption Scheme including the Duty Entitlement Passbook scheme/Diamond Imprest Licence/Replenishment Licence shall also be counted towards the discharge of the export obligation under this scheme;

7. In case of export of computer software, agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture, the export obligation shall be determined in accordance with paragraph 6.2 of the Policy, but the licence holder shall not be required to maintain the average level of exports as specified in sub- paragraph (v) above.

The licence issued under this scheme shall be valid for the goods already shipped/ arrived provided customs duty has not been paid and the goods have not been cleared from Customs.

A person may apply for a licence under the EPCG scheme to import the capital goods in dis-assembled/ un-assembled condition to be assembled into capital goods by the importer or components of such capital goods required for assembly or manufacture of capital goods by the importer. This facility shall not be available for replacement of parts.

A person may apply for a licence under the EPCG scheme to import the capital goods in dis-assembled/ un-assembled condition to be assembled into capital goods by the importer or components of such capital goods required for assembly or manufacture of capital goods by the importer. This facility shall not be available for replacement of parts.

A person holding an EPCG licence, may source the capital goods from a domestic manufacturer instead of importing them. In the event of a firm contract between the parties for such sourcing, the domestic manufacturer may apply under the scheme for the import of components required for the manufacture of the said capital goods, at a rate of duty at which EPCG licence for capital goods is issued The domestic manufacturer may also replenish the components after supply of capital goods to the EPCG licence holder. However the export obligation relating to an EPCG licence, shall be reckoned with reference to the CIF value of the licence, actually utilised.

The domestic manufacturer supplying capital goods to EPCG licence holders shall be eligible for deemed export benefit under paragraph 10.3 (a) (Special Imprest licence) or 10.3 (b) in respect of supplies to Zero Duty EPCG licence holder and 10.3 (b) in respect of supplies to 10% EPCG licence holder. In addition, deemed export benefits under paragraph 10.3 (c) and (d) would also be available to such supplies against both 10% and zero duty EPCG licence.

A person holding an EPCG licence, may source the capital goods from a domestic manufacturer instead of importing them. In the event of a firm contract between the parties for such sourcing, the domestic manufacturer may apply under the scheme for the import of components required for the manufacture of the said capital goods, at a rate of duty at which EPCG licence for capital goods is issued The domestic manufacturer may also replenish the components after supply of capital goods to the EPCG licence holder. However the export obligation relating to an EPCG licence, shall be reckoned with reference to the CIF value of the licence, actually utilised.