CAG highlights misuse risk in capital goods export scheme system

The Comptroller and Auditor General (CAG) Tuesday flagged the ineffectiveness of the Denied Entity List (DEL) mechanism aimed to make the exporters strictly comply with the conditions of authorizations of the Export Promotion Capital Goods (EPCG) scheme and said that authorizations need to be reviewed as the online system of the
Directorate General of Foreign Trade (DGFT) does not check the veracity of the documents submitted.

The EPCG scheme allows import of capital goods for pre-production, production and post-production at zero customs duty to produce quality goods and services.


Highlighting that DGFT must have a data driven monitoring mechanism for ensuring compliance to the provisions of the foreign trade policy, the CAG said in an audit report: “Issuance of subsequent authorizations without ensuring fulfilment of progress of obligations of earlier authorizations remaining unredeemed must be considered a risk factor”.

The non-compliance with the prescribed procedures in case of domestic procurement of capital goods has a risk of availing dual benefit of availing exemption from payment of integrated goods and services tax (IGST) and also importing items duty free, the CAG said.

As per the audit report, import of capital goods from ports other than the registered port without adhering to the prescribed procedure in the FTP involves risk of importing them from multiple ports using the same authorization which have revenue implications and also has the risk of misuse of the bonds.

“Audit observed that timely realisation of export proceeds were not monitored by DGFT.,” it said, adding that the scheme allows duty free imports of capital goods with the intended objective of producing quality goods and services to enhance our manufacturing competitiveness and therefore any delayed, short, non realisation of export proceeds needs to be monitored more effectively by DGFT.