CAPITAL GOODS are an essential requirement for almost every business, be it Manufacturing, Projects, Hotels, Hospitals, Construction, Retail, or any other. And they are needed at every stage of the business, be it initial setting up, expansion, up-gradation or day to day working.
The capital goods required may be in the form of machinery, equipments for a manufacturing concern, Air-Conditioning system, Kitchen equipments, Furniture, Carpets, and even cars etc. for Hotels, specialized medical equipments for Hospitals, construction equipments like earth moving equipments for Contractors, Buses and Cars for Tour Operators and Taxi services.
The procurements can be from the domestic suppliers or they can be from International suppliers depending upon technology, availability, price, compatibility etc.
Now, we all know that the duties are a significant cost of any capital goods. In case of domestic procurements GST form up to 18% of the cost while in case of imports the customs duty including IGST is up to 30% of the cost of the equipments.
Foreign Trade Policy and related laws offer certain schemes that can help save on this duty portion of the cost and thus reduce the costs significantly. This article examines these schemes and the benefits in brief.
FOREIGN TRADE POLICY of India prescribes the policy on what and how goods and services be imported/exported. It also provides a lot of benefits like: Duty Exemption Schemes, EPCG Schemes, Deemed Exports, etc. for the purposes of duty exemption, concession or neutralization. These schemes, not only benefits exporters and importers, but also defined domestic businesses, thus assisting all businesses avail benefits and reduce costs at every stage in the business value chain. Besides this for exporters there are various benefits under promotional schemes, which they can avail of.
SCHEMES
Project Import Scheme is allowed for initial set up or expansion of the manufacturing unit. It is also allowed for various other projects like Power Projects, Mining Projects, Metro Projects, Water Supply Projects etc. Under the Scheme, a benefit of 3% to full duty is available for all eligible products.
EPCG Scheme allows import of capital goods at 0 duty subject to an Export Obligation (“EO”) of 6 times the duty saved in a period of 6 years. EO can be fulfilled by Physical Exports, Service Exports, Deemed Exports and 3rd Party Exports. The Scheme can also be used to procure capital goods from indigenous sources with refund of GST. Incase of domestic procurement, the supplier can also import the required components at 0 duty. Further the EO for the buyer is lesser than the normal.
Besides the above there are several notifications under the customs where the import of goods can be at concessional or nil duty depending upon the end use of the Capital Goods, for example in case of equipments required for road projects, for research purposes, for specific projects like Power, Metro rail, Environment etc..
Scripts under promotional schemes of FTP like: MEIS and SEIS or erstwhile FMS, FPS, VKGUY can also be utilized for import of Capital Goods and saving duty without any further obligations.
Suppliers of equipments to EOU/STP units etc. get an exemption of excise duty on their supply. Besides this they can also procure their own inputs/components- duty free or even get the drawback for the same.
BENEFITS
The benefits under the above Schemes can be taken by various businesses like:-
Thus we see that a proper planning before the procurement of Capital Goods and utilization of Foreign Trade Policy and related customs and GST provisions can be very beneficial. It is therefore recommended that a serious consideration be given before procurements of Capital Goods for any purpose, from Domestic or International Sources.
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