The Supreme Court has recently concluded the various items that would be included or excluded under the definition of Adjusted Gross Revenue AGR and the guidelines that need to be followed by the TSPs to make the payments via its two judgements.12
AGR Definition and a Brief History
The brief history prior to these judgments is that in the year 1994, the Government of India vide its National Telecom Policy decided to liberalize the telecom sector by issuing licenses to various companies under Section 4 of the Telegraph Act, 1994. The companies to whom the licenses were granted were known as telecom service providers (hereinafter referred as “TSPs”). The TSPs were required to pay a fixed license fee every year to the Government. The TSPs found the fixed license fee significantly high and due to this many companies started defaulting their yearly payments. Therefore, the TSPs made representation to the government regarding the same. Accordingly, the government introduced a new policy called as the National Telecom Policy, 1999, and gave an option to the licensees to migrate from fixed license fee to revenue sharing fee. The government decided to fix 15% of the gross revenue of the licensee as a provisional license fee known as Adjusted Gross Revenue (hereinafter referred to as “AGR”). In 2013, the government reduced the AGR to 8%. In the meanwhile, several TSPs have challenged the demand notices issued by the government and have also challenged the definition of AGR. In the first judgement, the Hon’ble Court ultimately held that AGR includes revenue from non-telecom operations of the company as well. This judgement was given keeping in mind the expansion of the business of the TSP’s towards providing television broadcasting and financial services. The judgement has indirectly stated that the power of the Central Government is higher than the Telecom Dispute Settlement Appellate Tribunal (hereinafter referred to as “TDSAT”) in these matters. The Supreme Court considered the definition of Gross Revenue as defined in Clause 19.1 of the license agreements-
“The Gross Revenue shall be inclusive of installation charges, late fees, sale proceeds of handsets (or any other terminal equipment etc.), revenue on account of interest, dividend, value added services, supplementary services, access or interconnection charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense, etc.”3
Analysis of the First Judgement
The first judgement gave the particulars that are included in the AGR. The list is as follows-
- Discounts and Revenue- Discounts are treated in the nature of expense and cannot be deducted from the gross revenue.
- Gains Arising out of Foreign Exchange Fluctuations- Since a loss can be claimed as an expenditure, profit or gain due to fluctuations in the rate of foreign exchange has to be considered towards gross receipt, aka gross revenue.
- Monetary Gains on Sale of Shares- Sale of shares and assets which are more than the book value is included in calculation of AGR.
- Insurance Claim in Respect of- The difference between the reimbursement and claim received would be treated as revenue and would be included in the profit and loss account as well as in the AGR.
- Amount of Negative Balance of the Prepaid Customer- To not make this as a business strategy which increases the revenue it is included in AGR.
- Reimbursement of Infrastructure Operating Expenses- The entire amount received by the licensee on account of sharing of infrastructure has to be counted in the gross revenue.
- Waiver of Late Fee- Mere non-¬ realization of the same for any reason, cannot be excluded from the part of gross revenue.
- Gains from Roaming Charges and PSTN Pass through Charges- Detailed call charges paid to other eligible TSPs within India is excluded. Other charges would be included.
- Non-refundable Deposits- TSP’s treat non-¬refundable deposits as income under the Income ¬Tax Act 1961. Thus they are treated as revenue under the computation of AGR.
- Income from Interest and Dividend – Whatever, interest and dividend earned from the licensing and non-¬licensing activities, have to form part of gross revenue.
- Bad Debts Written off – Should be charged only once according to TDSAT upholding the interest of the TSP’s.
- Liability Written Off- Once liability is written off, it has to be added as income from the business hence, it is to be treated as an expense, and discount cannot be allowed for determining the license fee.
- Inter¬corporate Loan- Interest income from inter¬corporate loan has to be included in the gross revenue for working out the license fee.
- Revenue under IP¬1 Registration- It is apparent from the definition of gross revenue that income from licensed activities and even from no licensing activities and any other miscellaneous revenue of the licensee has to be included.
- Income from Management Consultancy Services- As per the definition of gross revenue, it has to be included in the adjusted gross revenue to work out the license fee.
The judgment concluded that the telecom companies owe the DoT a whopping amount of Rs. 93,520 Crore-
|S. No.||Company Name||Amount Owed|
|1||Bharti Airtel||Rs. 25,976 Crore|
|2||Vodafone Idea (Vi)||Rs. 54,754 Crore|
|3||Tata Group||Rs. 12,601 Crore|
|4||Others||Rs. 18 Crore|
|5||Total||Rs. 93.520 Crore|
Analysis of the Second Judgement
The second judgment was given after 1 year of the first judgement and it gave further clarity as to what constitutes the AGR, One of the main point of the judgement was that it barred all the telecom operators from raising any disputes from the demands raised by the Department of Telecom (hereinafter referred to as “DoT”) in respect of the AGR dues. The sole purpose to form TDSAT as separate body form the Telecom Regulatory Authority of India (hereinafter referred to as “TRAI”) was adjudicate disputes and dispose of appeals with a view to protect the interests of service providers and consumers of the telecom sector and to promote and ensure orderly growth of the telecom sector. However, contrary to the purpose of the formation of the Tribunal, the recent judgment has left the TSPs at the mercy of the Supreme Court’s rigid order with no proper redressal mechanism. The order also stated that the respective telecom operators shall make the payment of 10% of the total dues as demanded by DoT by 31-3-2021. The TSPs have to make payment in yearly installments starting from 1-4-2021 up to 31-3-2031 payable by 31st March of every succeeding financial year. The companies via their managing directors/chairmen or other authorized officers, have to make an undertaking within four weeks, to make the payments as per the order. The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by TSPs until the payment is made. In the event of any default in making payment of annual installments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. It would also be punishable for contempt of court.
India has the cheapest telecoms services in the world because of the ease to do business and the competition in the market. The consumer is able to enjoy good deals at attractive rates. The recent judgment has put a massive burden on the service providers which ultimately would put a burden on the consumers through exorbitant prices. However, the Cabinet has approved a 4 year moratorium period for the telecom companies for payment of statutory dues to the DoT. For a tribunal to be able to work and function properly the power has to be given to it. This judgment has left the TSPs at the mercy of the Supreme Court Order and has kept TDSAT in handcuffs by not giving redressal to genuine cases in the telecom industry.
Avik Gopal,Assessment Intern at S.S. Rana & Co. has assisted in the research of this Article.
1 Union of India v. Association of Unified Telecom Service Providers of India and Others, (2020) 3 SCC 525
2 Union of India v. Association of Unified Telecom Service Providers of India and Others, (2020) 9 SCC 748.