ADJUSTED GROSS REVENUE(AGR)-PAYABLE BY TELECOM COMPANIES

ADJUSTED GROSS REVENUE (AGR) – PAYABLE BY TELECOM COMPANIES

India has one of the largest markets in the Telecom sector. However, some of the major Telecom giant in India are under huge debt, on account of extremely cheap services offered by their rival, Reliance Jio. While the major chunk of telecom firms were battling against Reliance Jio, another hurdle – Adjusted Gross Revenue (AGR) – came their way.

What is Adjusted Gross Revenue (AGR)?

Adjusted Gross Revenue (AGR) is primarily a form of tax, as the term suggests, collected from two core and basic charges i.e. usage and licensing fee with respect to Telecom services. Whether AGR must include other revenues that are collected from its assets (such as taxes generated from non-core activities and business performed by Telecom Industries) or not, has been an issue and topic of discussion over the years. Due to disputed definition and vague interpretation of the term AGR, since 2005, the Telecom companies have been filing cases urging the Hon’ble Supreme Court to lay down a proper and precise definition of AGR. In a general view, AGR can be defined as, part of revenue collected from telecom service providers by the Government of India as License Fee (8% of REVENUE) and Spectrum Usage Charge (SUC which is between 3 to 5% of the REVENUE). The whole point of debate is on the subject of, what all sources of income must be taxed.

The Government has been adamant in comprising all sorts of revenue grossed by a telecom service provider in AGR. It includes revenue generated from non-core sources too, such as dividend income, sale of fixed assets, rent, corporate deposits etc. While the telecom service providers suggest it shall comprise revenue arising out of only telecom services. On October 24, 2019, the Hon’ble Supreme Court in the case of Union Of India vs Association Of Unified Telecom widened the definition of AGR and supported the Government’s view including all the revenues even arising out of non-core sources.

Consequently, the Hon’ble Supreme Court discarded the definition of AGR as proposed and contended by the telecom companies and ordered them to conform to the demands of Department of Telecom (DoT) i.e., to pay the calculated and proposed AGR of more than Rs 1 lakh crore. The Apex Court decided to include all revenues generated by telecom companies, except for termination fee and roaming charges, within the definition of AGR.

Recent Developments in AGR case

Recently, the Hon’ble Supreme Court In Re: Mandar Deshpande, SMC C Nos. 1/2020 held that it shall not adjudicate further upon objections over re-assessment of AGR with respect to the decision of the Supreme Court passed on October 24th, 2019. The Apex Court ordered insolvency details from Reliance communications, Sistema, Shyam Telesevices and Videocon within a stipulated time. The rationale behind doing so was to ascertain that the provisions under IBC are not being tainted or misrepresented by companies in the wake of escaping legal consequences and thereby liabilities. The Supreme Court, considering the plea by Department of Telecommunications permitted settlement of AGR dues over the period of 20 years in installments (in staggered way). Total amount leading to Rs. 92,642 crore.

On August 10 and 14, 2020 the Hon’ble Supreme Court ruled that the Government needs to form a systematic plan on how to recover AGR dues from bankrupt and insolvent telecom service providers. Interestingly, a new issue emerged with respect to spectrum usage of insolvent companies. Looking at the facts of the case, Reliance Communications Limited entered into a spectrum sharing pact with Reliance Jio in the year 2016. Reliance Communications Limited is declared insolvent, leading to another issue, whether Reliance Jio is liable to pay taxes (AGR dues) with regard to spectrum usage of the former, although Reliance Jio has settled its own dues. The Supreme Court has therefore ordered all the telecom companies to furnish details with respect to insolvency and sale of assets if any.

Reportedly, according to hearing held on August 17, 2020[3], the debate is ongoing over the two prime issues i.e. different legal aspects behind sharing and trading of spectrum and if it can be sold. The Learned Solicitor General of India contended that Spectrum being the asset of general public, cannot be sold. Moreover, contended that Insolvency and Bankruptcy Code, 2016 does not include spectrum within the ambit of the definition of asset. Hence, it can be concluded that, the dispute is ongoing on issues pertaining to trading and sharing of spectrum, whether spectrum can be considered as an asset under IBC and thereby sold. Also, the Hon’ble Supreme Court has ordered DoT to furnish details of bifurcation of AGR dues with respect to telecom companies.

Whole AGR Dispute and Timeline of events

Gross Revenue
S. No	Date of Event	Event	Conclusion and Reasoning
1.	1999	The telecom service providers and operators had to share a part percentage of their AGR with the Government in the name of spectrum usage charges (SUC) and annual license fee (LF).	Under the old customary law Telecos were supposed to pay a fixed annual license fee but they defaulted in payments. Consequently, National Telecom Policy was enacted by the NDA Government providing option to Telecos to either pay annual fixed license fee or 15% of the AGR. Later, the same was reduced to 13% and 8%.
2.	Before 2003	The license fee and spectrum usage charges were fixed at 8% and 3-5% of the total AGR respectively	According to the license agreements between Department of Telecommunications(DoT) and Telecom service providers/companies, usage charges were fixed as per the agreement.
3.	2003	Earlier revenue was levied only on Telecom services but DoT claimed the share over total earnings by Telecom companies under AGR.	Subsequently, Telecos objected to such claim made by DoT and filed a suit against it for illicitly altering and modifying the definition of AGR. (dividend, installation cost, insurance claim etc were added)
4.	2005	Cellular Operators Association of India (COAI) objected to the Government’s (DoT) definition of AGR and filed a case against it.	The dispute over definition of AGR led to formation of TRAI (Telecom Regulatory Authority of India) and TDSAT (Telecom Disputes Settlement and Appellate Tribunal).
5.	2007	On August 30, 2007 the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) passed the verdict in favor of Telecom industries narrowing the scope of the definition of AGR and restricting it to revenue to be levied only on Telecom services and not on non-core activities.	DoT appealed to the Supreme Court against the order passed by TDSAT. The appeal was dismissed and sent back to TDSAT for consideration. TDSAT reiterated its earlier verdict.Interestingly, the judgment passed was applicable to only those Telecos or members of AUSPI (Association of Unified Telecom Service Providers of India) who had approached TDSAT.Meanwhile, a review Petition was filed by COAI and AUSPI claiming that the verdict passed on 30th August 2007 by TDSAT, be made applicable to all the registered members of the associations.
6.	2011	The Hon’ble Apex Court on October 11, 2011 set aside the verdict passed by TDSAT.	As per the verdict passed, licensees were permitted to question and thereby challenge any demand before TDSAT, in regard to the merits of claim and decide if it was in accordance with the license agreement and in tune with the AGR definition.Eventually, Telecom companies challenged the verdict so passed questioning the rationale behind license fee demand.
7.	2015	TDSAT passed the verdict in favor of Telecom companies and ruled that the definition of AGR includes all revenues except those extracted or earned out of non-core activities and sources, capital receipts, insurance claim, gain on sale of assets and miscellaneous.	DoT appealed against the judgment passed by TDSAT in the Supreme Court.
8.	2019	On October 24, 2019 the Supreme Court set aside the order passed by TDSAT and upheld the definition of AGR as contended by Department of Telecommunications.	The Hon’ble Supreme Court reserved the judgment so passed by stating that it shall not entertain any objections as to re-assessment of claims and dues. Moreover, considering the plea by Department of Telecommunications, the Supreme Court permitted settlement of AGR dues over the period of 20 years in installments (in staggered way). Total amount leading to Rs. 92,642 crore.