RegLaw | Practise area detail

Brief Analysis of the Recent Supreme Court Judgment in Telecom License Fee Matter

The Supreme Court rendered the decision in Union of India vs. Association of Unified Telecom Service Providers of India.

On 24 October 2019, the Supreme Court rendered the decision in Union of India vs. Association of Unified Telecom Service Providers of India. The key takeaway from the judgment is that the definition of Gross Revenue (GR) is comprehensive and binding, and that Accounting Standards-9 (AS-9) cannot prevail over the definition. All the heads of revenue have been tested on this parameter and the Supreme Court has come to conclusion that these falls within GR definition in the license. On interest, penalty & interest on penalty, the Supreme Court has held that the levy is in terms of the license conditions and there is nothing wrong in such levy. The Supreme Court has also held that while the operators have enjoyed benefits, they have denied revenue to the government

A brief analysis of the judgment culling out the general principles, treatment of specific heads, and the overarching implications on telecom operators/service providers is as follows:

I. GENERAL PRINCIPLES LAID DOWN
(a) Meaning of Gross Revenue

The meaning of revenue has to be Gross Revenue and revenue from activities beyond the license will have to be included in Adjusted Gross Revenue (AGR). The question of what constitutes Gross Revenue has been concluded in the earlier decision of the Supreme Court in Association of Unified Telecom Service Providers of India vs. Union of India (2011 AUSPI Judgment), to include revenue from activities beyond the license. From the outset, licensees were aware of all terms and conditions, including the definition of Gross Revenue/AGR, and that notional revenue will be included in such. There was consensus ad idem between the Department of Telecommunications (DoT) and licensees regarding the provisions of Gross Revenue therefore, the licensees are now bound by the definition in the License.

The meaning of Gross Revenue in Clause 19 of the License along with the format contained in appendix to Annexure-II, has to prevail over AS-9. Gross Revenue as defined in the License cannot be diluted in any manner whatsoever. The definition of Gross Revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided. The revenue mentioned in AS-9 is merely a method to maintain books of accounts, and it cannot govern/override the definition of Gross Revenue in the License. Reliance placed by the Telcom Service Providers on definition of 'Revenue' in Clause 4.1 of the AS-9 to argue that revenue ‘in the course of ordinary activities of an enterprise’ is only to be included in Gross Revenue has been expressly negated in the 2011 AUSPI Judgment. Explanation to clause 5 of AS-9 also makes it clear that the agreement between the parties would determine the amount of revenue arising on a transaction
(b) Levy of Interest, Penalty & Interest on Penalty

Disputes raised by licensees are not bona fide and have only been raised to delay liability and payment in accordance with the License. No justification was available for licensees to have raised objections on the various heads included in the definition of Gross Revenue, which is all encompassing, and to keep such objections pending for two decades. This is not a case of levying penal interest but one of levying penalty and interest as per the contractual 2 stipulation, which have been rightfully levied and compounded. Since the applicable regime is of revenue sharing, the Government has been deprived of the benefit of revenue it would have earned but for granting the privilege.
II. TREATMENT OF SPECIFIC HEADS
III. CONCLUSION/IMPACT

Gross Revenue has to include all heads/subjects that are mentioned in the definition of Gross Revenue in the License, including revenue from non-licensed activities, and no deductions except those specifically provided in Clause 19.2 of the License, i.e., PSTN related call charges, roaming revenues passed to other operators and service & sales tax. The principles laid down by Supreme Court in the 2011 AUSPI Judgment was upheld and reiterated. All demands were upheld and are required to be paid. This Judgment has a further impact on the Spectrum Usage Charges (SUC) demands which again run into thousands of crores.