GST Refund explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Export Promotion Capital Goods (EPCG) scheme lets an exporter acquire capital goods without paying customs duty, against a promise to export. GST touches it at three points: the IGST on imported machinery, the GST charged by an Indian supplier of machinery, and the refund the exporter claims on the goods it later ships. This article takes each in turn.
Capital goods imported under an EPCG authorisation are exempt from basic customs duty and also from IGST and compensation cess (Customs Notification 26/2023), so no GST refund arises on the import. Capital goods bought in India against an EPCG authorisation are deemed exports under Notification 48/2017-Central Tax: GST is charged, and the refund can be claimed by the EPCG holder or, on the conditions in Rule 89(1), by the supplier. On the export side, EPCG does not block either the LUT route or the IGST-paid route.
EPCG in brief
According to the ICAI Handbook on Foreign Trade Policy, the key features are:
- capital goods for pre-production, production and post-production can be imported at zero customs duty, or sourced from Indian manufacturers;
- the authorisation is valid for imports for 24 months from issue;
- the export obligation (EO) is six times the duties, taxes and cess saved, to be met within six years, over and above the average export obligation where it applies;
- the goods are subject to an actual-user condition and cannot be sold or transferred until the EO is met and the EODC is granted.
The basic scheme is covered in EPCG scheme explained. Here the focus is the GST side.
Point 1: imports under EPCG — no IGST, so no refund
Customs Notification 26/2023-Customs (1 April 2023) implements EPCG under FTP 2023. It exempts, when claimed:
- the whole of basic customs duty;
- the additional duties under section 3(1), 3(3) and 3(5) of the Customs Tariff Act; and
- the whole of the IGST and compensation cess under section 3(7) and 3(9).
Because no IGST is paid, there is no ITC on the imported machine and nothing to refund. The IGST saved is counted in "duties, taxes and cess saved", so it raises the export obligation.
If you import on full payment of duty and opt for post-export EPCG, the basic customs duty is later remitted as duty credit scrips. The IGST you paid on import is ordinary ITC on capital goods, which matters when you pick an export route (see point 3).
Point 2: buying machinery in India — deemed export refund
Supply of capital goods by a registered person against an EPCG authorisation is one of the four deemed-export categories in Notification 48/2017-Central Tax. The FTP Handbook states it plainly: such a supply is not exempt upfront, GST is charged, and either the recipient or the supplier can claim the refund.
| Point | Position |
|---|---|
| Who claims | EPCG holder (recipient), or supplier where the recipient does not avail ITC and gives an undertaking that the supplier may claim (Rule 89(1)) |
| Proof | Acknowledgement by the jurisdictional tax officer of the EPCG holder that the deemed-export supplies were received (Notification 49/2017-Central Tax) |
| Form | RFD-01, deemed export category |
| Relevant date | Date of filing the return relating to the deemed exports (Explanation 2(b) to section 54) |
| EO benefit | Specific EO is 25% lower for domestic sourcing, per the FTP Handbook |
Illustration: A manufacturer buys a machine from an Indian maker for ₹80 lakh plus GST at an assumed 18% (₹14.4 lakh) against its EPCG authorisation.
- If the manufacturer (recipient) claims: it does not take the ₹14.4 lakh as ITC and files RFD-01 for the refund of the tax paid.
- If the supplier claims: the recipient gives the undertaking that it has not availed ITC and that the supplier may claim, and the supplier files RFD-01.
Either way, ₹14.4 lakh comes back once, to one party. Deciding who claims should be settled in the purchase order. For the undertakings and documents, see deemed export refund: who claims and our deemed export refund service.
If you are unsure whether your machinery purchase or your export refund is the better place to recover the GST, our export refund team can map both before you file.
Point 3: exports by an EPCG holder
Holding an EPCG authorisation does not change how you claim refunds on your exports.
LUT route. You export without IGST and claim accumulated ITC under Rule 89(4). Net ITC counts only inputs and input services, so ITC on capital goods, including any GST paid on machinery outside the deemed-export route, is not refunded through the formula. See refund of ITC on capital goods for exporters.
IGST route. You pay IGST on exports and Customs refunds it. Until 08.10.2024, Rule 96(10) barred this route for exporters who had received supplies at deemed-export or concessional rates, but it always excluded capital goods received under EPCG. Rule 96(10) has since been omitted, so the question no longer arises for new exports. On this route, ITC on capital goods can be used to pay the IGST.
RoDTEP. The FTP Handbook confirms that EPCG and RoDTEP can be claimed together. See RoDTEP and GST refund together.
Common mistakes
- Taking ITC and claiming the deemed-export refund. The supplier can claim only if the recipient has not availed ITC. Taking both invites recovery with interest.
- Missing the officer's acknowledgement. Notification 49/2017-Central Tax requires it; without it, the deemed-export refund is exposed to a deficiency memo.
- Treating imported IGST as refundable. Under EPCG, IGST on import is exempt, so there is no refund.
- Putting machinery ITC into Net ITC. It is excluded from the LUT formula and leads to recovery of the excess.
Need help with EPCG and GST refunds?
EPCG files sit across DGFT, Customs and GST, and the refund usually gets lost between them. We work out who should claim the deemed-export refund, prepare the RFD-01 with the officer's acknowledgement and keep your export refunds running alongside. See our GST refund on exports service or the GST refund hub.
Key takeaways
- EPCG imports are exempt from IGST and compensation cess, so there is no GST refund on the import.
- Domestic purchases of capital goods against EPCG are deemed exports; GST is charged and refunded to the recipient or, with an undertaking, the supplier.
- The relevant date for a deemed-export refund is the date of the return for those supplies.
- EPCG holders can export under LUT or on payment of IGST; Rule 96(10) was omitted from 08.10.2024.
- Capital goods ITC is outside the LUT refund formula but can pay IGST on exports.
Read next
- Deemed export refund: documents and statement
- Rule 89(4A)/(4B): Advance Authorisation and EOU suppliers
- GST refund for exporters: both routes explained
- Can duty drawback and GST refund both be claimed?
Disclaimer: Positions stated as on 30 September 2026, based on the CGST Act and Rules as amended, the Finance Act 2026, and the ICAI Handbook on Refunds under GST (January 2026). Verify current notifications before filing.