On Friday February 14, the Supreme Court launched a scathing attack on the Department of Telecommunications (DoT) for failing to take any action or collect a single rupee from telecom operators such as Bharti Airtel and Vodafone Idea India (VIL) on their adjusted gross income. (AGR) contributions.
A bench of three judges led by Judge Arun Mishra said it was shocked that the telecommunications operators – Vodafone Idea and Bharti Airtel – did not pay any of their dues by the January 23 deadline set by the court in its judgment AGR last October. Judge Mishra was livid, saying he was “literally shocked” that not “a single penny has been paid to date”, and called for the opening of contempt proceedings against the telecommunications operators. Reliance Jio is the only phone company to pay.
The court was also furious with the telecoms ministry for allowing telecom operators to delay payments until the court verdict.
The relentless position of the bench on the payment of contributions is likely to push Vodafone Idea, which will quickly spit Rs 53,000 crore, towards collapse. Bharti Airtel, which has over Rs 35,000 crore in dues, can raise the necessary funds. He’s building a war chest to pay dues, having raised $ 250 million in perpetual bonds recently after raising $ 3 billion in January.
The long history of ADR litigation
In order to relieve telecommunications operators from the regime of very high fixed charges, the NDA government in 1999 gave licensees the option of switching to the revenue sharing model. Under this scheme, mobile operators were required to share a percentage of their AGR with the government in the form of an annual fee (LF) and a spectrum fee (SUC).
Licensing agreements between the Department of Telecommunications (DoT) and telecommunications companies help define the gross revenues of the latter. The AGR is then calculated after taking into account certain deductions set out in these license agreements. The LF and SUC were set at 8 percent and between 3 and 5 percent of AGR respectively, based on the agreement.
The dispute between the DoT and the mobile operators focused on the definition of AGR. The DoT argued that the AGR includes all revenues (before discounts) from telecom and non-telecom services.
The companies claimed that the AGR should include only income generated from basic services and not dividends, interest income or profits on the sale of an investment or fixed asset.
In 2005, the Cellular Operators Association of India (COAI) challenged the government’s definition for calculating AGR. However, the dispute over the definition of Adjusted Gross Income (AGR) between the Ministry of Telecommunications and telecom operators took a turbulent turn in 2007-08.
In 2007-2008, the Telecommunications Dispute Resolution and Appeal Tribunal (TDSAT) reduced the scope of the AGR. Following this, the then UPA government appealed.
The Department of Telecommunications (DoT) challenged in the Supreme Court the jurisdiction of the TDSAT over the terms of telecommunications licenses that had previously been accepted unconditionally by telecommunications operators.
In an order dated January 19, the Supreme Court dismissed the DoT’s appeal and ordered it to raise its arguments before the TDSAT.
At that time, A. Raja was the Minister of Union Telecom, which was subsequently involved in several controversies. The TDSAT again reiterated its earlier findings.
On August 30, TDSAT accepted most of TRAI’s recommendations and passed an ordinance that would apply to AUSPI members who had moved TDSAT from the date they filed their petitions.
The industry body AUSPI and the Cellular Operators Association of India (COAI) have filed a petition for review requesting that the TDSAT order be applicable to all members of both bodies from the date of filing of their petition.
Following this, the DoT appealed again on the advice of the Ministry of Law which was then headed by Kapil Sibal.
The DoT again moved the Supreme Court against the August 30 TDSAT order. Even though the DoT’s appeal was pending in the Supreme Court, some telephone companies filed petitions with TDSAT asking to be included in the August 30 court order.
On October 11, 2011, the Supreme Court ruled that TDSAT’s August 30, 2007 order should be set aside. It allowed licensees to challenge any request before TDSAT, which would have to examine the merits of the request and decide whether it complied with the license agreement and met the definition in the AGR. All telecommunications licensees have moved the TDSAT disputing the basis of the DoT royalty claim.
In 2015, TDSAT maintained the case in favor of telecommunications companies and estimated that the AGR includes all revenue except capital revenue and income from non-core sources such as rent, profit on the sale of fixed assets, dividends, interest and miscellaneous.
For reference, the case would be similar to that of an aluminum plant. The excise could have argued that the cost of a fan and a lake should be part of the assessed value. The cost of land, workers, etc. is part of the final cost of each kg of aluminum.
However, setting aside TDSAT’s order, the Supreme Court of October 24, 2019 upheld the definition of AGR as stipulated by the DoT.
(With IANS entries)