India offers three primary customs duty saving mechanisms for manufacturers importing raw materials and capital goods – the MOOWR Scheme, the EPCG Scheme, and the Advance Authorisation Scheme. Each one reduces import costs, but through fundamentally different mechanisms and with very different compliance commitments.
Choosing the wrong scheme can lock your business into years of export obligations you cannot fulfil, or leave duty savings on the table that a better-suited scheme would have captured. This guide breaks down all three schemes side by side so manufacturers can make an informed decision based on their actual import profile, export capacity, and cash flow priorities.
The Three Schemes at a Glance
Before diving into details, here is the core difference in one line each:
MOOWR – Defers customs duty indefinitely. Pay only when goods enter the domestic market. No export obligation.
EPCG – Exempts customs duty entirely on capital goods. But you must export 6 times the duty saved within 6 years.
Advance Authorisation – Exempts customs duty entirely on raw material inputs. But you must export finished goods within 18 months.
MOOWR Scheme: Duty Deferment Without Export Pressure
What It Is
The Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR) operates under Sections 58 and 65 of the Customs Act, 1962. It allows manufacturers to import raw materials and capital goods into a licensed bonded warehouse without paying customs duty upfront.
How the Duty Mechanism Works
Duty is assessed at the time of import but not collected. It remains deferred – interest-free – for as long as the goods stay within the bonded unit. The duty becomes payable only when the finished goods are cleared for sale in the Domestic Tariff Area (DTA). If the finished goods are exported, the import duty on the inputs used is permanently extinguished.
What Duties Are Deferred
Basic Customs Duty (BCD), Integrated GST (IGST), and any applicable Anti-Dumping or Countervailing Duty.
Eligible Goods
Both raw materials and capital goods (machinery, equipment). There is no restriction on the type of goods that can be warehoused, and no minimum investment threshold – the scheme is accessible to MSMEs and large manufacturers alike.
Export Obligation
None. This is MOOWR’s single biggest differentiator. There is no export obligation, no Net Foreign Exchange (NFE) requirement, and no minimum value addition mandate. Manufacturers can sell 100% domestically and still benefit from the duty deferment.
Key Limitation
MOOWR defers duty – it does not exempt it. For domestic sales, the full duty eventually becomes payable. Additionally, exports from a MOOWR unit do not attract Duty Drawback or RoDTEP benefits. Manufacturers with a high export ratio should evaluate whether the loss of RoDTEP and Drawback offsets the cash flow gain from deferment.
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Consult MCS ExpertsEPCG Scheme: Zero Duty on Capital Goods – With Export Strings Attached
What It Is
The Export Promotion Capital Goods (EPCG) Scheme is administered by the DGFT under Chapter 5 of the Foreign Trade Policy 2023. It allows exporters to import capital goods – machinery, equipment, tools, moulds, spares, and computer systems – at zero customs duty.
How the Duty Mechanism Works
Unlike MOOWR, EPCG does not defer duty – it exempts it entirely. The importer pays zero Basic Customs Duty on eligible capital goods at the time of import. However, this exemption is conditional. The importer must commit to fulfilling a Specific Export Obligation (SEO) as a condition of the zero-duty benefit.
What Duties Are Exempted
Basic Customs Duty (BCD) is fully exempted. Note: IGST is not exempted under EPCG and must be paid at the time of import (though it is available as Input Tax Credit under GST).
Eligible Goods
Capital goods only – machinery, equipment, tools, moulds, dies, jigs, fixtures, spares, and computer software systems used in pre-production, production, and post-production. Raw materials and consumable inputs are not covered under EPCG.
Export Obligation
This is the critical commitment. The EPCG licence holder must export goods or services worth 6 times the duty saved on the imported capital goods, within 6 years from the date of authorisation. If the capital goods are sourced domestically from an Indian manufacturer instead of being imported, the obligation reduces to 4.5 times the duty saved.
The obligation is divided into blocks: a minimum of 50% must be fulfilled in the first four years, and the balance in years five and six. Failure to meet the obligation results in duty recovery with interest, and potential penalties including IEC suspension.
Key Limitation
EPCG is powerful for confident exporters but carries significant compliance risk. If business conditions change – demand drops, a key buyer is lost, a global slowdown hits – the export obligation remains binding. The duty saved becomes a liability with interest if the obligation is not met.
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Advance Authorisation Scheme: Duty-Free Raw Materials for Export Production
What It Is
The Advance Authorisation (AA) Scheme is administered by the DGFT under Chapter 4 of the Foreign Trade Policy 2023. It allows exporters to import raw materials, inputs, consumables, fuel, oil, and catalysts duty-free, provided these inputs are physically incorporated into the finished export product.
How the Duty Mechanism Works
Like EPCG, Advance Authorisation exempts duty entirely – not a deferment. The importer pays zero duty on all eligible inputs at the time of import. The exemption is conditional on the inputs being used to manufacture goods that are then exported within the stipulated period.
What Duties Are Exempted
Basic Customs Duty (BCD), IGST, Compensation Cess, Anti-Dumping Duty, Countervailing Duty, Safeguard Duty, and Education Cess – a wider exemption scope than EPCG.
Eligible Goods
Raw materials, components, consumables, fuel, oil, and catalysts – essentially all inputs that are physically incorporated in the finished export product. Capital goods and machinery are not covered under Advance Authorisation.
Export Obligation
The authorisation holder must export finished goods within 18 months from the date of issue of the authorisation. A minimum value addition of 15% is required. The quantity of inputs allowed is governed by Standard Input Output Norms (SION) notified by DGFT, or self-declared ad-hoc norms approved by the Norms Committee.
The authorisation is valid for 12 months for making imports. After completing exports, the holder must file for an Export Obligation Discharge Certificate (EODC) within six months of the export obligation period expiry by linking shipping bills to the authorisation on the DGFT portal. Failure to do so triggers recovery action, including Show Cause Notices and potential IEC suspension.
Key Limitation
Advance Authorisation is strictly for export-oriented production. It offers no benefit whatsoever for domestic sales. Imported inputs are subject to the Actual User condition and cannot be sold or transferred to third parties. Additionally, the SION-based input norms can be restrictive – if the DGFT’s standard norms do not match your actual manufacturing process, you must apply for ad-hoc norms through the Norms Committee, which can delay the process.
Side-by-Side Comparison Table
| Parameter | MOOWR | EPCG | Advance Authorisation |
|---|---|---|---|
| Governing Law | Sections 58 & 65, Customs Act, 1962 | Chapter 5, FTP 2023 (DGFT) | Chapter 4, FTP 2023 (DGFT) |
| Duty Mechanism | Deferment (pay later) | Exemption (zero duty) | Exemption (zero duty) |
| Eligible Goods | Raw materials + Capital goods | Capital goods only | Raw materials + Inputs only |
| BCD | Deferred | Exempted | Exempted |
| IGST | Deferred | Not exempted (ITC available) | Exempted |
| Export Obligation | None | 6x duty saved in 6 years | Export within 18 months |
| Domestic Sales | Permitted (duty payable on clearance) | Permitted (no restriction) | Not permitted from duty-free inputs |
| Duty Drawback / RoDTEP | Not available | Available on exports | Available on exports |
| Input Norms (SION) | Not applicable | Not applicable | Mandatory (SION or ad-hoc) |
| Bank Guarantee | Not required | Required for certain categories | Required |
| Minimum Value Addition | None | None specified | 15% mandatory |
| Application Authority | Customs (ICEGATE 2.0) | DGFT Portal | DGFT Portal |
| Compliance Burden | Monthly returns to bond officer, digital inventory | Block-wise export fulfilment, annual reporting | EODC filing within 6 months of EO expiry |
| Risk on Non-Compliance | Duty becomes payable with interest | Duty recovery + interest + potential IEC suspension | Duty recovery + interest + Show Cause Notice |
| Best For | Import-heavy domestic manufacturers, capital-intensive units | Export-confident businesses importing machinery | Pure exporters with defined input-output ratios |
Which Scheme Should You Choose? Decision Framework
Choose MOOWR If:
Your business sells predominantly in the domestic market and does not want to commit to export targets. You import both raw materials and capital goods and want a single scheme covering both. Your priority is working capital optimization through duty deferment rather than outright exemption. You want the flexibility to export when opportunities arise without being locked into a binding obligation.
Choose EPCG If:
You are importing expensive capital goods (machinery, production lines) and have a strong, established export track record. You are confident of achieving export revenues worth 6 times the duty saved within 6 years. You want the machinery to be usable for both domestic and export production without restrictions. You are not importing raw materials – or are using a separate scheme (like Advance Authorisation or MOOWR) for input imports.
Choose Advance Authorisation If:
Your business is predominantly export-oriented and you import raw materials that are physically incorporated into your export products. Your input-output ratios are well-defined and align with DGFT’s SION norms. You can fulfil the export obligation within 18 months. You want the widest duty exemption (BCD + IGST + all additional duties) on your raw material imports.
Can You Combine Schemes?
Yes. There is no restriction on using multiple schemes simultaneously for different categories of imports. A common and highly effective strategy for import-heavy manufacturers is:
MOOWR for capital goods – defer duty on machinery indefinitely with no export obligation, keeping the asset in the bonded unit for its entire useful life.
Advance Authorisation for raw materials – import inputs duty-free against confirmed export orders, claiming the full IGST exemption that EPCG does not offer.
This combination maximizes duty savings across both input categories while distributing the compliance burden appropriately.
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Consult MCS ExpertsCommon Mistakes Manufacturers Make
Choosing EPCG purely for zero duty without evaluating export capacity. The 6x obligation is binding. If your export pipeline is uncertain or cyclical, the deferred interest-free deferment under MOOWR may be safer than the conditional exemption under EPCG.
Ignoring the RoDTEP trade-off under MOOWR. Exports from a MOOWR unit do not attract Duty Drawback or RoDTEP. For high-volume exporters, this foregone incentive can exceed the cash flow benefit of deferment. Run the numbers before committing.
Assuming Advance Authorisation covers capital goods. It does not. AA covers only raw materials and inputs. Machinery imports need EPCG or MOOWR.
Not considering the IGST difference. EPCG does not exempt IGST – you pay it at import and claim ITC. Advance Authorisation exempts IGST entirely. MOOWR defers IGST. For cash-flow-sensitive businesses, this difference can be significant.
Filing for Advance Authorisation without SION alignment. If your actual input consumption does not match the notified SION norms, you will face either excess imports (leading to compliance issues) or insufficient imports (reducing the scheme’s benefit). Apply for ad-hoc norms through the Norms Committee before filing the authorisation.
Frequently Asked Questions (FAQs)
MOOWR defers customs duty indefinitely on both raw materials and capital goods with no export obligation. EPCG exempts duty entirely but only on capital goods, requiring exports worth 6 times the duty saved within 6 years. Advance Authorisation exempts duty entirely on raw materials and inputs, requiring export of finished goods within 18 months.
MOOWR is the only option among the three that works for purely domestic manufacturers. Both EPCG and Advance Authorisation require mandatory export obligations. Under MOOWR, duty is deferred interest-free and becomes payable only when goods are cleared for domestic sale.
No. MOOWR defers customs duty – it does not exempt it. Duty on inputs becomes payable when finished goods are cleared into the Domestic Tariff Area. However, if the finished goods are exported, the input duty is permanently extinguished, effectively functioning as a full exemption for exports.
If the export obligation is not met within 6 years, the duty saved (along with interest from the date of import) becomes recoverable by Customs. The DGFT may initiate enforcement action including IEC suspension. You can request an extension by paying a Composition Fee, but the obligation itself is not waived.
Yes. Many manufacturers use MOOWR for capital goods (deferring duty on machinery indefinitely) and Advance Authorisation for raw materials (importing inputs duty-free against export orders). This combination maximizes duty savings while distributing the compliance burden.
No. Under EPCG, only Basic Customs Duty is exempted. IGST must be paid at the time of import, though it is available as Input Tax Credit (ITC) under GST. In contrast, both MOOWR (deferment) and Advance Authorisation (exemption) cover IGST.
The authorisation holder must export finished goods manufactured using the duty-free inputs within 18 months from the date of issue. A minimum value addition of 15% is required. Input quantities are governed by Standard Input Output Norms (SION) or ad-hoc norms approved by the DGFT Norms Committee.
No. Exports from a MOOWR bonded unit do not attract Duty Drawback or RoDTEP benefits. This is a key trade-off that export-heavy manufacturers must evaluate against the cash flow benefit of duty deferment.
Only MOOWR covers both. EPCG is limited to capital goods, and Advance Authorisation is limited to raw materials and inputs. This is why MOOWR is often the default choice for manufacturers importing across both categories.
No. Inputs imported under Advance Authorisation are subject to the Actual User condition and must be used exclusively for manufacturing goods that are exported. Domestic sale of finished goods manufactured from duty-free AA inputs is not permitted.
