Yes this type of production is allowed in both CFG and Regular Grammar. ' ε' is a valid string of length 0.
Let production be in format u->v
CFG: It should satisfy conditions of type1 and type 0 grammars. Only restriction is u ∈ V (V here is a single variable). So it can also generate S->ε.
Regular Grammar: u ∈ V (single variable) and v ∈ T* + T*V or v ∈ T*+VT* so from this you can generate S->ε.
Hence both generates the above production.
Hope this helps.
