Exporters can quickly improve their manufacturing capabilities or cash flow by importing high-value machinery at zero customs duty. This is why the EPCG scheme is an invaluable asset for many exporters. But the zero duty in this scheme does not mean zero responsibility. You have signed a strict 6-year contract with the DGFT once your machinery lands. 

The consequences of missing a deadline or miscalculating your export obligations can result in heavy penalties or even IEC suspension. These risks are unavoidable, but working with the right EPCG consultants can help you stay in compliance while taking full advantage of the benefits. 

Let us explore here some of the most common EPCG risks exporters face and how to fix them.

Top 5 Common EPCG Risks Exporters Face

Exporters who fail to comply with the EPCG scheme face the risk of having to pay back the total duty saved plus 15% compound interest. This often takes away the entire benefit the scheme offers. 

This is where experienced EPCG consultants become invaluable, who can help you to avoid costly mistakes. Here are the most common risks and how EPCG consultants help you fix them effectively. 

1. Failing to Maintain Average Export Obligation 

Most exporters stay focused on the 6x Specific Export Obligation, which is where the problems start. 

You may still be in default if you fail to comply with the Average Export Obligation (AEO), which operates silently in the background. A decline in your average export performance over the last three years may result in non-compliance even if you meet your 6x export target. 

How to Fix Them?

• You can apply for a pro-rata reduction in your AEO if your specific industry sector experiences a global decline of more than 5%. 

• Excess exports in one year can offset shortfalls in another within the same block period in some cases. However, this requires precise calculation and approval from the DGFT. 

2. Missing Block-Wise Deadlines

You cannot wait until year 6 to do everything. The scheme requires 50% EO fulfillment by the end of Year 4. Missing this interim target results in composition fees or penalties. 

How to Fix Them?

• You can apply for an extension (usually 1-2 years) by paying a composition fee (often 2% to 5% of the unfulfilled duty proportion).

• You can apply to club them together if you have multiple EPCG licenses. Excess exports from one license can be used to cover the shortfall of another if they are for similar products/services. 

3. Actual User Violations (Machinery Mismanagement)

Capital goods imported under EPCG are subject to an Actual User condition. You cannot sell, rent, or transfer the machinery to another unit/address without prior permission. 

How to Fix Them?

• File a request with the DGFT before moving it if you need to move machinery (e.g., to a different factory unit).

• You must immediately apply for a post-facto amendment to your Installation Certificate and license if you have already moved it, likely paying a penalty for the procedural lapse.

4. Installation Certificate Delays 

You must submit an Installation Certificate (from a Chartered Engineer) within 6 months of import. Failing to do this notifies customs that the machine might have been sold or diverted. 

How to Fix Them?

• Apply to the Regional Authority (DGFT) for condonation of delay. You will likely pay a small penalty (e.g., ₹5,000 - ₹10,000) per authorization, but it prevents the license from being cancelled. 

5. Third-Party Export Documentation Errors

You use a Merchant Exporter to fulfill your obligation (Third-Party Exports), but the shipping bills do not explicitly name you as the Supporting Manufacturer. 

How to Fix Them?

• Ensure before export that the shipping bill contains your name and EPCG license number. You may need to appeal to the DGFT Policy Relaxation Committee (PRC) if missed, which is a long process. 

Conclusion

The EPCG scheme is a long-term commitment that requires careful planning or consistent monitoring. The risks we discussed are not rare mistakes. They are common gaps that many exporters overlook until it is too late. The positive aspect is that every single one of these issues is manageable when you stay proactive.

With the right guidance from experienced EPCG consultants, you can meet deadlines as well as avoid unnecessary penalties. They help you to focus on growing your exports while using the scheme’s benefits instead of worrying about audits or notices.