UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA ETC.ETC.
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Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Catchwords
Indian Telegraph Act, 1885 – Licence Agreement granted by the Govt. of India to the Telecom Service Providers – Definition of gross revenue– Telecom sector liberalized in 1994– Licenses issued to the service providers stipulated fixed licence fee payable every year – Since, fixed license fee was very high an option was given to the licensees to migrate from fixed licence fee to revenue sharing fee in 1999 – 15% Adjusted Gross Revenue (AGR) was fixed as license fee which was reduced to 8% in 2013 – Service providers ensured that they do not pay the licence fee based on even an agreed “AGR”– Department raised demands – In 2003, telecom operators filed petition before the Telecom Disputes E Settlement and Appellate Tribunal (TDSAT) challenging the same – Eventually, TDSAT by order dated. 30.08.2007 inter alia held that AGR would include only the revenue from licence activities – Challenged before Supreme Court in Union of India and another v. Association of Unified Telecom Service Providers of India reported as wherein appeals by the Union of F India were allowed and the order dated. 30.08.2007 was set aside – Telecom operators again approached TDSAT challenging the demands – TDSAT by the impugned order considered the specific head of items to be included/excluded under the definition of AGR –
Held
Contractual definition of gross revenue is binding – Gross amount, as per the definition, is the gross revenue, without set-off, is to be taken into consideration including the discounts given – Licensees made futile attempt to submit that the revenue to be considered would be derived from the activities under the licence; whereas the aforesaid 2011 judgment between the parties holding that the revenue from activities beyond the licence have to be H 672
A the licensee from IP registration under the CUG licence – TDSAT has also rightly held in the case of Bharti Airtel that the revenue from Cable Landing Station has to be included in the gross revenue – Further, all the submissions raised on merits again have been examined, uninfluenced by the plea of res judicata/constructive res judicata and no merit is found in the submissions raised – Interest and penalty have rightly been levied – National Telecom Policy, 1994 – National Telecom Policy, 1999 – Telecom Regulatory Authority of India Act, 1997 – ss.11(1)(a), 14(a)(i) r/w 14(A)(1), 18 – Companies Act, 1956 – ss. 3, 211(3A)-(3C) – Interpretation of Statutes – noscitur a sociis; ejusdem generis – Principle of constructive res judicata – Constitution of India – Arts. 14 and 39 – Service Tax Act, 1994 – s.67 – Income Tax Act, 1961 – s.80 IA (2a). Telecommunication Laws – National Telecom Policy, 1999 – Objectives of – Discussed. D Indian Telegraph Act, 1885 – s.4 – Telecom Service Providers granted Licence Agreement by the Govt. of India – Definition under, of Gross Revenue – Plea of licensees that revenue has not been defined under license and thus, insisted on the fair valuation method relying on J.K Industries Ltd. case –
Held
Submission raised on fair valuation method based on the decision in J.K. Industries case cannot be accepted as the decision is on consideration of different accounting standard which adopts fair valuation method i.e., Ind AS-18 and not relevant for the AS-9 accounting standard – Companies Act, 1956 – ss. 211(3A) & (3C) – Chartered Accountants Act, 1949. F Companies Act, 1956 – ss. 211(3A) & (3C) – Accounting standards recommended by the Institute of Chartered Accountants of India constituted – Relevance of and fundamental difference between AS-9 and AS-18 – Discussed – Chartered Accountants Act, 1949. G Telecom Regulatory Authority of India Act, 1997 – ss.11(1)(a) – Recommendations from the TRAI on the licence fee payable by the licensees – Consideration of, by the Central Government – Discussed.
Catchwords
Companies Act, 1956 – s. 211 – Obligation under, of the companies –
Held
s.211 deals with the obligation of the company
Catchwords
SERVICE PROVIDERS OF INDIA to comply with accounting standards – In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect. Doctrines/Principles – Rule of Contra proferentum – Commercial Contracts – Telecom Service Providers granted Licence Agreement by the Govt. of India – Plea of licenses that all receipts would not form part of Adjusted Gross Revenue (AGR) and that revenue from non-licensed activities was not part of AGR at all and that the contra proferentum rule requires clauses 19.1 and 19.2 of the license agreement to be interpreted against the maker and prefer the interpretation which is favourable to the licensees – C
Held
Rule of contra proferentem does not apply to the present case as there is no ambiguity or doubt in the definition of gross revenue in the agreement.
Catchwords
Doctrines/Principles – Doctrine of unconscionable bargaining – Telecom sector – Applicability of in commercial contracts – Licences granted to the service providers stipulated a fixed licence fee payable by the service providers every year – Migration from fixed licence fee to revenue sharing fee –
Held
After the introduction of the migration package policy, 1999, there is an exponential growth of the telecom sector – Terms and conditions cannot be said to be oppressive as submitted on behalf of the licensees – It cannot be said that DOT was in a dominant position, or possessed wholly disproportionate and unequal bargaining power– In the matter of commercial contracts, the doctrine of unconscionable bargaining is not applicable – Once benefit has been drawn, the licensees cannot deny validity or binding effect of contract. Dismissing the appeals of the licensees while allowing that of the DoT, the Court HELD: 1.1 In Re: Definition of Gross Revenue G There was a paradigm shift in Telecom Policy of 1999 from the fixed licence fee to the revenue sharing basis regime, which was advantageous to the Telecom Service Providers. Under the new regime, the Central Government shared the privilege under section 4 of the Indian Telegraph Act, 1885 with the TSPs. It came as a relief against the high licence fee, which used to be
Reporter's headnote (continued) and case details
672 [2019] SUPREME COURT 16 S.C.R. 672 REPORTS [2019] 16 S.C.R.
A B (Civil Appeal Nos. 6328-6399 of 2015)
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SERVICE PROVIDERS OF INDIA included in adjusted gross revenue, is binding – Submission is also that the contract recognises the applicability of accounting standards – It is only to maintain books of accounts – When the financial terms in the agreement are clear in the form of definition of gross revenue governed by Clause 19.1 of the agreement, the definition of Accounting Standard-9 (AS-9) cannot supersede it which is a general one – Stand of Department of Telecommunications (DoT) is apparent that the gross revenue has been clearly defined in the agreement – Further, all discounts and commission etc. form part of the gross revenue for the purpose of payment of licence fee– Forex gain is also to be accounted for as part of gross revenue – Further, stand of TDSAT is approved in regard to assets/scrap, shares etc. – However, artificial bifurcation of insurance claim made by the TDSAT cannot be accepted and is contrary to contractual definition of gross revenue – Finding of TDSAT to the extent it is contrary to revenue, set aside– Further, amount of negative balance is a part of revenue and cannot be deducted from the gross revenue to be worked out as per the definition of gross revenue u/AS-9– Finding of TDSAT set aside – Also, the entire amount received by the licensee on account of sharing of passive infrastructure has to be counted in the gross revenue while working out AGR – Contrary finding recorded by TDSAT, set aside – Late fee is also included explicitly in the definition of gross revenue and as such, it has to be computed as its part – Finding of TDSAT, set aside – With respect to gains from roaming charges and PSTN pass-through charges, the finding recorded by TDSAT, to the extent it is contrary to the DOT, based upon certain conditions, is set aside– Further, definition of gross revenue is wide enough to cover non-refundable deposits – Finding recorded by the TDSAT concerning non-refundable deposits not being part of the revenue, set aside – With respect to licence fee demand where spectrum is not granted, the finding recorded by TDSAT in the case of Videocon & S. Tel is agreed with G – Interest and dividend earned from the licensing and non-licensing activities also have to form part of gross revenue for determination of licence fee – Further, in respect of the bad-debts written off, the findings by TDSAT are appropriate – Interest income from inter- corporate loan has to be included in the gross revenue for working out the licence fee – Also, DOT has rightly included the income of H
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A charged under the 1999 policy. The migration package contained the stipulation as to no dispute to be raised as to working out sharing of revenue. Experts were consulted in the field of accountancy, and it was their advice that the actual figures should be simple and objective to evolve a system of revenue sharing that does not become as arduous one and litigative, had been evolved. Revenue has been defined in a broad, comprehensive, and inclusive manner not to pose problems of interpretation and to protect from the accounting jugglery. Gross revenue has been defined to be inclusive of specific items mentioned in clause 19.1 and any other miscellaneous revenue, without any set-off for related items of expense, etc. All the licensees accepted the migration package and have signed the agreements. It has turned out to be a substantial financial booster in favour of the licensees as is apparent from figures of the gross revenue earned by them mentioned above. When under a contract signed by the parties, gross revenue and AGR have been given the meaning coupled with the format and the annexures which form part of the contract. Format is contained in appendix to Annexure-II which is part of the agreement in which requisite information has to be furnished. The meaning in clause 19 of the gross revenue and the format mentioned above have to prevail. E [Para 44] [726-F-H; 727-A-B] 1.2 The submission raised for adopting fair valuation method relying on S.K. Synthetics is based upon misconception of method applicable to A.S-9. The argument is crafted to get rid of AS-9 and the definition of gross revenue in the agreement. F The ICAI issued the AS-9 revenue recognition standard in the year 1985. In the initial years, it was recommendatory for only Level-I enterprises but was made mandatory for all enterprises from 1.4.1983. The meaning of enterprise is as defined in section 3 of the Companies Act, 1956. The IND AS-18 regime has been introduced later on. In AS-9, revenue recognition is at “nominal” value; whereas IND AS-18, the revenue recognition is at a “fair” value. The barter transactions are included in Ind AS-18, whereas this aspect is not covered in AS-9. In AS-9 revenue recognition, interest income is recognised on a time proportion basis, whereas in Ind AS-18, interest income is recognised using an effective interest rate method. AS-9 recognises revenue as
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SERVICE PROVIDERS OF INDIA per the completed service method or percentage completion method, whereas Ind AS-18 only recognises revenue as per the percentage of completion method. Thus, there is a fundamental difference. The fair value concept has no place in AS-9 as per which the accounts are to be maintained and submitted for determination of gross revenue. AS-9 revenue recognition regime states that the amount of revenue shall be measured by the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation. Thus, the submission raised based on a fair valuation method based on the decision in J.K. Industries v. Union of India cannot be accepted as the decision is on consideration of different accounting standard which adopts fair valuation method i.e., Ind AS-18 and not relevant for the AS-9 accounting standard. The submission is wholly devoid of substance. It is not only barred by the principle of constructive res judicata but also indicates that the licensees are raising the similar objections which they have raised earlier and were not entertained by this Court and were rejected. Again precisely, the same attempt is made by submitting; revenue should be taken as defined in AS-9, not in Clause 19.1 of the agreement, submission runs contrary to the decision of the Court, as held in para 48 of the 2011 judgment, which operates as res judicata inter se parties. The meaning of revenue is apparent that it has to be gross revenue, and the licence fee would be a percentage of the same. Thus, the licensees have made a futile attempt to submit that the revenue to be considered would be derived from the activities under the licence; whereas it has been held in 2011 that the revenue from activities beyond the licence have to be included in adjusted gross revenue, is binding. Even otherwise, on merit, the submission raised is baseless. The contractual definition of gross revenue is binding. When there is a contractual definition as to what would be the gross revenue that would be the revenue and also the total revenue, the revenue as mentioned in the mode of accounting AS-9 cannot govern the definition. The general definition of revenue in the mode of accounting cannot govern the contractual definition of gross revenue. The accounting standard AS-9 makes it clear that same is in the form of guidelines, it is not comprehensive and does not supersede the H
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A practice of accounting. It only lays down a system in which accounts have to be maintained. Accounting standards make it clear that it does not provide for a straight-jacket formula for accounting but merely provide for guidelines to maintain the account books in systematic manner. Section 211 of the B Companies Act, 1956 deals with the obligation of the company to comply with accounting standards. In case they do not comply, it has to be disclosed in its profit and loss account, the deviation, reasons for such deviation, and financial effect. [Paras 61, 65, 67] [736-H; 737-A-H; 738-A-H; 739-A-C-E; 740-C-D]
C 1.3 The definition of gross revenue is crystal clear in the agreement. How the adjusted gross revenue to be arrived at is also evident. It cannot be submitted that the revenue has not been defined in the contract. Once the gross revenue is defined, one cannot depart from it and the very meaning is to be given to the revenue for the agreement. Overall revenue, has to be taken into account for determination of licence fees without set off, as provided in the agreement. The same was defined to simplify it to rule out the litigation, disputes, and accounting myriads. The submission raised that the term revenue has to be interpreted as the consideration payable in keeping with commercial and financial parlance is what is intended to be avoided. Raising of such submission is a futile attempt that has been made to wriggle out of the definition of gross revenue, which has been held to be binding in the previous judgment in Union of India v. AUSPI (2011). The submission is that the contract recognises the applicability of accounting standards. It F is only to maintain books of accounts. To a certain extent, it cannot be disputed that to have clarity, uniformity, and definitiveness; the accounting standards lay down guidelines with respect to financial terms. However, when the financial terms in the agreement are clear in the form of definition of gross revenue governed by Clause 19.1 of the agreement, the definition of Accounting Standard-9 cannot supersede it which is a general one. Submission though attractive, but is again an attempt by taking a rigmarole to get rid of the definition of ‘gross revenue’. Earlier the validity of definition was questioned to confine the meaning of gross revenue how the revenue is sought to be confined to activities under the licence by way of AS-9. The
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SERVICE PROVIDERS OF INDIA reliance has been placed on statement made by DOT in the reply filed in 2003 that the definition of gross revenue is in line with AS-9, it is by way of explaining and cannot have the effect of changing the definition of gross revenue given in the agreement. The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue. [Paras 76, 79] [748-F-H; 749-A-B; 752-C-E] C General Assurance Society Ltd. v. Chandmull Jain, AIR 1966 SC 1644 : [1966] SCR 500 ; M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 : [2009] 10 SCR 373 – referred to. 1.4 It cannot be said that DOT has taken inconsistent stands at different stages of the same litigation. Their stand is apparent that the gross revenue has been clearly defined in the agreement. Parties have agreed to various inclusions in the agreement and have willingly switched over to revenue- sharing regime under the 1999 policy and same is apparent from the stand and the reliefs prayed in the petitions filed in 2003 and
2005. The licensees were aware of items specifically included in the agreement. TSPs agreed to interpretation and accepted it as held by this Court in 2011 judgment. Licensees are taking inconsistent stands, earlier they have taken the stand that all these items concerning which disputes have been raised, had been included illegally in the definition of gross revenue, the definition may be declared ultra vires, invalid, and be struck down. They have also contended that revenue from activities under the licence cannot be included in gross revenue, which submission has been negated by this Court in 2011, it was held that the gross revenue would include the revenue generated from non-licensing activities. Licensees cannot be permitted to approbate and reprobate and to take inconsistent stands that they are not included in gross revenue as per AS-9. The stand taken rather than buttressing the submissions raised by them, counters and militates against their own interest and paves the way in H
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A favour of DOT. The submission raised that the definition is not wide, cannot be accepted, and stands repelled. Clauses 22.1, 22.2 and 22.3 cast obligation upon the licensee to draw, keep and furnish independent accounts for the service. Under clauses 22.1 and 22.2, the licensee has to maintain records quarterly. Accounts have to be audited and can be called for by the licensor or the TRAI, as provided in Clause 22.3. The format of gross revenue is supportive of definition of gross revenue as defined in the agreement. Clause 22 is a rider upon the licensee to maintain the records of activities and other matters such as financial position as enumerated therein. Clause 18.1 of the agreement has also been pressed into service. The submission raised that a single company may hold 5 licences for 5 different service areas; the AGR as suggested by the DOT, cannot be followed as it may end up in paying the licence fee at the rate of 5 times. As the licence fee cannot be charged more than once, there is no room to entertain the submission. It is not what is contemplated in the definition. While computing the licence fee, the gross revenue has to be taken into consideration under a particular licence for which it is being determined. The argument had been raised on a hypothetical basis without foundational facts to raise the same is thus, liable to be and is rejected at the threshold. There is no doubt that the State is a trustee of the natural resources and is obliged to hold it for the benefit of the citizens but also to ensure equal distribution to sub-serve the common good as observed under Article 39 of the Constitution of India. The Government being the sole repository of all the resources in the country, also has the exclusive power to determine the licence conditions at which it parts with the exclusive right to the resources. Government has to make an effort to get the best price for its valuable rights and cannot throw them away, and there would be no arbitrariness in the same. [Paras 83-86] [754-G-H; 755-A-C-F-H; 756-A-F]
G Suzuki Parasrampuria Suitings Private Limited v. Official Liquidator of Mahendra Petrochemicals Limited (2018) 10 SCC 707 : [2018] 12 SCR 906 ; Jal Mahal Resorts Private Limited v. K.P. Sharma (2014) 8 SCC 866 ; A.P. Dairy Development Corporation Federation v. B. Narasimha Reddy (2011) H 9 SCC 286 : [2011] 14 SCR 1 ; In Re : Natural
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Resources Allocation (2012) 10 SCC 1 : [2012] 9 SCR A 311 ; State of Orissa & Ors. v. Harinarayan Jaiswal & Ors. (1972) 2 SCC 36 : [1972] 3 SCR 784 ; Har Shankar v. Excise & Taxation Commissioner (1975) 1 SCC 737 : [1975] 3 SCR 254 ; Government of A.P. v. Anabeshahi Wine & Distilleries (P) Ltd. (1988) 2 SCC B 25 : [1994] 2 SCR 67 ; State of Orissa v. Narain Prasad (1996) 5 SCC 740 : [1996] 5 Suppl. SCR 465 ; State of M.P. v. KCT Drinks Ltd. (2003) 4 SCC 748 : [2003] 2 SCR 574 ; State of Punjab v. Devans Modern Breweries Ltd. (2004) 11 SCC 26 : [2003] 5 Suppl. SCR 930 referred to. C 1.5 A licence granted under section 4(1) is in the nature of a contract. As to the provisions of gross revenue there had been consensus ad idem between the parties. The licensees are bound by it as they have executed the licence agreement. The licensees who have taken the advantage under the licence, carry certain obligations. The licensee is bound to discharge the obligation while taking benefit under the licence of migration package, for this purpose. After the introduction of the migration package policy, 1999, there is an exponential growth of the telecom sector. The terms and conditions cannot be said to be oppressive as submitted on behalf of the licensees. It cannot be said that DOT was in a dominant position, or possessed wholly disproportionate and unequal bargaining power. In the matter of commercial contracts, the doctrine of unconscionable bargaining is not applicable as held with respect to migration package. Once benefit has been drawn, the licensees cannot deny validity or binding effect of contract. [Paras 88, 89, 90, 91, 92] [757-H; 758-B; 759-A; 760-B-F-G; 761-C-D] Assistant Excise Commissioner & Ors. v. Issac Peters & Ors. (1994) 4 SCC 104 : [1994] 2 SCR 67 ; Shyam Telelink Ltd. v. Union of India (2010) 10 SCC 165 : G [2010] 12 SCR 927 ; Bharti Cellular Ltd. v. Union of India (2010) 10 SCC 174 : [2010] 12 SCR 725 ; S.K. Jain v. State of Haryana (2009) 4 SCC 35 : [2008] 17 SCR 1378 ; Cauvery Coffee Traders, Mangalore v. Hornor Resource 67 s (International) Co. Ltd. (2011) 10 SCC 420 : [2011] 12 SCR 473 ; R.N. Gosain v. H
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A Yashpal Dhir AIR 1993 SC 352 : [1992] 2 Suppl. SCR 257 – relied on. Khardah Company Ltd. v. Raymond & Co. (India) Pvt. Ltd. [1963] 3 SCR 183; Central Inland Water Transport Corproation v. Brojo Nath Ganguly (1986) 3 SCC B 156 : [1986] 2 SCR 278 – referred to. 2.1 In re: Discount and Commissions: When the definition of “gross revenue” in clause 19.1 of the licence agreement is pon- dered upon, it is apparent that the gross revenue has to be taken into consideration without C any set-off for related items of expense. Thus, the gross amount, as per the definition, is the gross revenue, without set-off, is to be taken into consideration including the discounts given. Parties understood right from the beginning that the gross revenue does not exclude discounts, commissions, rebate etc. D and specific challenge made to the same had not been accepted in 2011. Now once again by the circuitous method, impermissible attempt has been made to re-write the definition of gross revenue. The definition of ‘gross revenue’ is independent of AS- 9 as the definition of revenue in AS-9 cannot govern the definition in Clause 19.1 of the licence agreement. What has been defined in AS-9 is revenue, whereas, for a licence fee, gross revenue is the revenue. It would be greatest fallacy to say that while gross revenue has been defined in Clause 19.1 of agreement, revenue has not been defined in the licence agreement. What has been defined as gross revenue is in fact broader definition of revenue and has to be taken as definition of revenue for licence agreement. An attempt has made to wriggle out of the rigour of the definition of gross revenue by banking upon the definition of revenue in AS-9 is to scut- tle the effect of the previous decision in Union of India v. AUSPI (2011). Gross revenue as defined in agreement cannot be diluted in any manner whatsoever based on the submission mentioned above, as AS-9 is only for method of accounting and specific definition of revenue i.e., gross revenue under the licence agreement has to prevail. ‘Gross revenue’ is the revenue has been held in 2011 judgment finding is binding on parties for determination of license fees under the licence agreement and the definition of
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SERVICE PROVIDERS OF INDIA revenue in AS-9 cannot govern. Reliance upon the affidavit filed on behalf of DOT is wholly misconceived. What is the meaning of the definition of gross revenue has been finally settled inter parties vide 2011 judgment. Thus, there is no scope to entertain the miscon- ceived submission. The concept of fair value is not the basis of Accounting Standard-9. Fair value is the operating concept of IND AS-18. In AS-9, revenue recognition is at nominal value and that the fundamental difference between the two accounting standards. Thus, the nominal value has to be taken as the one which is relevant for AS-9. Under the AS-9 regime, the revenue recognition shall be measured as the gross inflow of cash, receivables, or other consideration received. There is no concept of fair valuation under AS-9. The question of service tax liability has no relevance for determination of licence fee for which definition has been worked out by the Government of India, which has been agreed to by the licensees also as that was beneficial to them as compared to the fixed fee regime which prevailed earlier. They have switched over to the new regime of sharing the revenue earned by them on a percentage basis. The definition of gross revenue has the purpose behind it and was the outcome of prolonged exercise and has already been upheld, and the question cannot be reopened once over again by an indirect method. The trade discounts cannot be deducted from the gross revenue merely on the ground that they represent a reduction of cost. The reliance by the licensees on the Guidance Note filed that discounts are reduction granted by a supplier from the list price of goods or services is of no avail owing to the definition of the gross revenue. Set off of trade discounts is not permissible under Clause 19.1 of agreement against revenue as expenses are not permitted to be netted up. Concerning cash discount, it is apparent that cash discount may be used in various methods. It is an incentive for customers. The customer makes payment after deducting amount of cash discount, if eligible for availing of the same as per the agreement between the entity and the customer. Under AS-9, revenue is recognised at the gross amount and cash discount is regarded as an expense when the seller receives the payment net off discount is not permissible. For example, if A has sold goods to Z for Rs.1000 on 90 days’ credit period, but if Z pays within 50 H
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A days, a cash discount of 10% shall be provided by A. It is reasonably sure that Z to pay the amount within 15 days. In the AS regime, the revenue has to be recorded at Rs.1000, and when Z pays Rs.900, the amount of cash discount of Rs.100 will be recognised as an expense. That is the effect of the revenue to be recognised as a gross amount under AS-9. Concerning the volume-based discount, under the AS-9 regime, revenue is recognised at the gross amount received or receivable from the customers. However, the value of trade discounts and volume rebates received cannot be deducted from the gross revenue owing to the definition in clause 19.1. The subscriber’s discount can also be in the form of free calls, some free minutes SMS value. DOT has rightly asked for the licence fee on the no- tional revenue of free calls, SMS, VAS minutes/data. When these amounts admittedly are reflected in the invoice raised on the subscriber as memorandum, it is the gross revenue. It forms part of the gross revenue and cannot be deducted. That is what was intended by carving out the definition to make it free from litigation and accounting jugglery and to free determination of licence fee from the clutches of accounting jugglery. The discounts allowed on international roaming, commission, and discount allowed to distributors on sale of pre-paid vouchers form part of the gross revenue and cannot be deducted by placing reliance on the definition of revenue and certain notes of AS-9 standards; whereas they are explicitly included in the definition of gross revenue. [Paras 107-108, 113-117] [765-F-H; 766-A-F; 768-F-H; 769-A-H] F Union of India v. Bombay Tyres International Pvt. Ltd. (2005) 3 SCC 787 ; Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Advani Oorlikon (P) Ltd. (1980) 1 SCC 360 : [1980] 1 SCR 931 ; M/s. United Exports v. Commissioner of Income Tax, Delhi (2009) SCC Online Del 2566 ; IFB G Industries Ltd. v. State of Kerala (2012) 4 SCC 618 : [2012] 4 SCR 802 ; Commissioner of Central Excise, Madras v. Addison & Co. Ltd. (2016) 10 SCC 56 : [2016] 9 SCR 591 ; Southern Motors v. State of Karnataka & Ors. (2017) 3 SCC 467 ; Maya H Appliances Pvt. Ltd. v. Additional Commissioner of
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Commercial Taxes & Ors. (2018) 2 SCC 756 : [2018] A 2 SCR 250 – held inapplicable. 2.2 As to pre-paid options, the format of statement of revenue and licence fee contained in Appendix II to Annexure- II provides in the case of prepaid options, sale of pre-paid SIM cards including full value of components charged therein. B Revenue from mobile community phone service including full value of all components charged therein has to be considered, revenue from franchisees/re-sellers including all commissions and discounts, etc. have to form part of the gross revenue. How the parties have understood and agreed to pay the gross revenue is apparent from the correspondence and letter dated 22.7.2001 C and the ultimate definition mentioned in the licence agreement Clause 19.1 and rejection of TRAI’s recommendations by the Government. The TDSAT has erred in holding that if the discounts are in the form of reduced billing, no addition to be made in the gross revenue. It would mean violating the D definition of gross revenue where no set-off is permitted. It is rightly submitted by DOT that discounts over and above the agreed charges are part of overall commercial strategy to enhance the business, and hence, these discounts are like expenses. Expenses are not permitted to be net off under clause 19.1 from the gross revenue under the licence agreement. E Similarly, the TDSAT has erred in holding and giving a finding concerning commission and discounts if the invoice is at a discounted price, which is at Rs.90 instead of Rs.100. For the same reason, the finding of TDSAT is not sustainable. The TDSAT has rejected the case of the licensees. Where the bill is for a higher amount and the discount is in the form of volume discount given separately, the billed amount should be taken as the revenue, and the discount may be treated as an expense. That part of the finding is not disturbed. However, for all discounts and commissions allowed on international roaming, and to distributors on sale of pre-paid vouchers, trade discounts, subscribers’ discounts, and volume rebates form part of gross revenue. It has also been submitted on behalf of the licensees that offering discounts is frequently used to increase business in the long run/term. These are inevitable as there were 8 to 10 operators operating in the same geography at highly H
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A competitive prices. Discounts help to survive and grow business and augment revenue. Thus it is in the nature of expense for earning the profit and by this method it is admitted that business has grown and there is an increase in revenue, hence the same being part of the commercial strategy to enhance the business, it has to be treated in the nature of expense and cannot be deducted from gross revenue. Thus, the claim for various forms of discounts, commissions, pre-paid vouchers, goodwill waiver etc., raised on behalf of the licensees are rejected and the finding of the TDSAT to the extent it is contrary to the stand taken by DOT is set aside, and it is held that all discounts and commission etc. as discussed form part of the gross revenue for the purpose of payment of licence fee. [Paras 118, 119, 120-122] [770-A-H; 771-A-B]
3. In re: Gains arising out of Foreign Exchange Fluctuations: D Gain from foreign exchange fluctuation is to be taken in the calculation of AGR, and that is the actual revenue and cannot be ignored. Similarly, gain from foreign exchange fluctuation should be added on accrual basis. If later on, the amount has to be spent on the purchase of equipment or settling roaming charges in foreign currency, that is also a gain and results in economic benefit and has to be accounted for while working out the gross revenue as a decrease in liability would be gain. Whatever may be the expenditure, whether it has increased or decreased, must be accounted for as it forms part of the gross revenue. In the definition of gross revenue, any other miscellaneous revenue is included, and when once the item has to be shown in the balance-sheet or profit and loss account, obviously, it has to be accounted for gross revenue, even as a notional figure. Once the amount is receivable, it has to be taken as part of gross revenue. The finding to the contrary recorded by the TDSAT is thus liable to be set aside. Whether the amount is paid for the purchase of equipment, it has to be accounted for and must be accounted for as per the value spent on the date of the banking transaction, which cannot be ignored. Thus, the gains from foreign exchange fluctuations have to be added in the computation of gross revenue, otherwise, the benefit which is
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SERVICE PROVIDERS OF INDIA accruing will be ignored. Where profit or loss arises on account of appreciation of foreign currency, such gain or loss has to form part of profit from the business or loss. Whether it is profit or loss on account of trading or on account of asset, it has to form part of profit and loss account, thus, it has to account for gross revenue. The fluctuation in the foreign currency has to be accounted for in the account at the time when the amount is received or at the end of the accounting year. Thus, there is no escape from the conclusion that forex gain has to be accounted for as part of gross revenue. When loss can be claimed as an expenditure, profit or gain due to fluctuations in the rate of foreign exchange has also to be accounted for towards gross receipt, which is gross revenue. [Paras 128-129] [773-E-H; 774- A-C]
4. In re: Monetary Gains on Sale of Shares: Given the definition of gross revenue in the licence agreement, every amount which is more than the book value of the current asset and comes to licensee company, has to be considered for calculation of gross revenue without netting off. Thus, the reasons given by the tribunal that any gain over and above the net book value, that is, when the sale proceeds are less than the original purchase cost but more than the net worth of the assets, has to be excluded from the gross revenue, cannot be accepted. The gross revenue for the current year has to be worked out based on the value of the capital assets. Gross revenue for any year is considered in light of the opening statement and also closing statement at the end of the year. What is gain over and above the book value in the year in question, has to be taken into consideration towards gross revenue received. Submission to the contrary raised on behalf of the licensees cannot be accepted. Unable to accept the submission that the money collected on the sale of shares etc. is not like revenue receipt but is a capital receipt. The gain from the sale of capital asset including increase over and above net book value and scrap and not the entire proceeds are to be taken as revenue in calculation of the gross revenue without netting off and should be on accrual basis, is unobjectionably within the ken of definition of gross revenue. To say in case e.g., gain for AGR will accrue when the sale proceeds or the current disposition value of the H
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A goods is Rs.60, and if it is sold at Rs.70, in that case, there will be a gain of Rs.10. That shall be taken as a gain for AGR calculation. The result would be the same in case the value of an asset worth Rs.100 has depreciated to book value worth Rs.60 and is sold at Rs.70, as urged on behalf of DOT, Rs. 10 will form part of gross revenue. Again, a futile attempt has been made to get rid of the definition of gross revenue, and confusion is sought to be created by ordinary business activity, which is the expression used in Para 4.1 of AS-9. In contrast, the definition of gross revenue in clause 19.1 includes gross revenue from non-licensed activities also. Thus, the submission is wholly sans substance and stands repelled. Finding to the contrary recorded by TDSAT considering the initial cost is set aside. It has to be seen as book value as on date of sale. The stand of TDSAT is approved in this regard in regard to assets/ scrap, shares etc. [Paras 131, 132] [774-F-H; 775-A-F]
D 5. In re: Insurance claim in respect of capital assets: The submission raised on behalf of the licensees cannot be accepted as the insurance claim over and above the book value is considered as revenue and not the value of the capital asset as there is an inflow of cash received. It is accounted for E in the profit and loss account. It has to form part of the gross revenue as defined in clause 19.1. The artificial bifurcation of insurance claim made by the TDSAT cannot be accepted and is contrary to contractual definition of gross revenue. The finding of TDSAT to the extent it is contrary to revenue is set aside. [Paras 136] [777-B-C] F
6. In re: Amount of negative balance of pre-paid customer: It is apparent that the amount of negative balance is a business strategy, and the amount is adjusted in case re-charge is opted. Otherwise also, it is billed and reflected on accrual basis in the account of the customer. Though it has to form part of gross revenue for determination of licence fee under clause 19.1, the number of calls at the full value have to be measured without any discounts or incentive of such business strategy. It is a part of revenue. It cannot be deducted from the gross revenue to be worked out as per the definition of gross revenue under AS-9. Thus, the finding of the TDSAT cannot be said to
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SERVICE PROVIDERS OF INDIA align with the meaning of gross revenue in factual aspects of the case and is set aside. [Para 139] [778-B-C]
7. In re: Reimbursement of the infrastructure operating expenses In the definition of gross revenue, the item sharing of infrastructure facility is explicitly mentioned. In the format in Appendix 2 to Annexure-II also, the entire amount is required to be shown. It has been specifically mentioned that there cannot be any setting off of the amount of gross revenue, and the entire money received has to be treated as the gross revenue for the determination of licence fee. It is not the determination of profit. The gross revenue carries a different definition, and the intendment is clear to prevent disputes. Thus the entire amount received by the licensee on account of sharing of passive infrastructure has to be counted in the gross revenue while working out AGR. Thus, the finding to the contrary recorded by the TDSAT is set aside. [Para 145] [779-E-G]
8. In re: Waiver of late fee Late fee is included explicitly in the definition of gross revenue. As such, it has to be computed as part of gross revenue. Merely by waiver, it cannot be ousted from the purview of gross revenue once it becomes leviable. Thus, the finding of the TDSAT is not sustainable and is set aside. [Para 150] [780- F-G]
9. In re: Gains from roaming charges and PSTN pass- F through charges Para 49 of the judgment of 2011 takes care of the submission. Once there is a branch, maybe based abroad, its income and the activity of the branch may not require any licence since licensee is undertaking the activity, and the definition of G adjusted gross revenue activities includes revenue beyond the licence. The same has to be included in the gross revenue. The submission stands concluded by the previous decision, and no merit is found in the submission. The finding recorded by the TDSAT, to the extent it is contrary to the DOT, based upon certain conditions, is set aside. [Paras 158, 159] [783-C-D] H
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A 10. In re: Non-refundable Deposits
The definition of gross revenue is wide enough to cover non-refundable deposits as non-refundable deposits are revenue earned from licensed activities. Non-refundable deposits are to be treated as accrued in the profit and loss account as per B Annexure III of the licence agreement. It is apparent that non-refundable deposits are in fact revenue received in advance from the subscribers. Even if they are used for discount etc. in the bills, they form part of revenue. Licensees themselves treat non-refundable deposits as income under section 80 IA (2a) of the Income-tax Act. Be that as it may. The finding recorded by the TDSAT concerning non-refundable deposits not being part of the revenue based upon wrong concession made by the learned counsel appearing for the DOT, is as a result of this is liable to be set-aside. It was expected of the TDSAT to consider the concession following law, as such cases cannot be decided and ought not to be decided on the basis of prima facie incorrect concession of the counsel, it has to be legally tested. In case any admission is made, its correctness has to be examined. [Para 162] [783-H; 784-A-C] E
11. In re: Licence fee demand where spectrum is not granted
TDSAT has held that the demands of licence fee based on other activities, are bad, unreasonable, invalid, and unsustainable. During the period in question, the UAS licence came bundled with the spectrum, and it is evident that without a spectrum, the licensee could not work out the licence. The finding recorded by the TDSAT is appropriate. Once there is no activity under a licence, merely on the basis that the licence has been issued, no revenue earned, it cannot be shared. Still, there is no activity under the licence, i.e., based on non-licensed activities, the revenue sharing could not have been asked. It would be an unreasonable and unconscionable bargain to pass on such a liability. Finding recorded by TDSAT in the case of Videocon & S. Tel is agreed with. [Para 163] [784-D-F] H
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12. In re: Income from interest and dividend A There is no scope to entertain the submission concerning the exclusion of interest and dividend from gross revenue. Whatever, interest and dividend earned from the licensing and non-licensing activities, have to form part of gross revenue for determination of licence fee. [Para 164] [784-G-H] B
13. In re: Bad-debts written off The bad debts written off are not allowed as a deduction by the DOT while computing adjusted gross revenue, bad debt is written off when recovered subsequently, it cannot be added to the gross revenue. The TDSAT in the impugned order. C TDSAT has not accepted the submission of the licensees. However, at the same time, it has safeguarded the interest of the licensees. In case it is realised later on, it may not be charged again. It should be charged only once. The finding is found to be appropriate. No case for interference in the findings D recorded by the TDSAT is made out. [Paras 165, 166] [785-A- B-D] Hindustan Machines Ltd. v. Union of India (1985) 2 SCC 197 : [1985] 2 SCR 686 – referred to.
14. In re: Liability written off E TDSAT rightly held that if it is to be considered as an expenditure, liability has to be treated as an expense, and no discount on the income will be allowed for the sum for determining the licence fee. It cannot be charged for the second time for computation of licence fee. Hence, it is to be treated F as an expense, and discount cannot be allowed for determining the licence fee. Hence, it is held that it is to be treated as an expense, and discount cannot be allowed for determining the licence fee. [Paras 168, 170] [786-A-C] Rajputana Trading Co. Ltd. v. Commissioner of Inco G 67 me Tax, West Bengal-I (1982) SCC 775 – relied on.
15. In re: Inter-corporate loan Interest income from inter-corporate loan has to be included in the gross revenue for working out the licence fee. [Para 173] [786-H] H
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A 16. In re: Revenue under IP-1 Registration It is apparent from the definition of gross revenue that income from licensed activities and even from non-licensing activities and any other miscellaneous revenue of the licensee has to be included. Thus, DOT has rightly included the income of the licensee from IP registration under the CUG licence. [Para 174] [787-A-B]
17. In re: Income from management consultancy services: When the definition of gross revenue is considered, it has to be included in the adjusted gross revenue to work out the licence fee. The income from management support and consultancy of the licensee cannot be excluded. Submission to the contrary cannot be accepted and is rejected. The TDSAT has also rightly held in the case of Bharti Airtel that the revenue from Cable Landing Station has to be included in the gross revenue. [Paras 175, 176] [787-C-D]
18. In re: Res Judicata All the submissions which have been raised on merits again have been examined, uninfluenced by the plea of res judicata/constructive res judicata, and no merit is found in the submissions which have been raised. [Para 181] [793-C] Lohia Machines Ltd. & Anr. v. Union of India & Ors. (1985) 2 SCC 197 : [1985] 2 SCR 686; Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 : [1970] F 1 SCR 753 ; Akbar Badrudin Giwani v. Collector of Customs (1990) 2 SCC 203 : [1990] 1 SCR 369 ; Jaiprakash Industries Ltd. v. Commissioner of Central Excise, Chandigarh, (2003) 1 SCC 67 ; Tecumseh Products India Ltd. v. Commissioner of Central Excise, Hyderabad (2004) 6 SCC 30 : [2004] 2 Suppl. SCR G 202 ; J. K. Synthetics Ltd. v. Commercial Taxes Officer (1994) 4 SCC 276 : [2015] 1 SCR 627 ; Kailash Nath Associates v. Delhi Development Authority & Anr. (2015) 4 SCC 136 : [2015] 1 SCR 627 ; Central Bank of India v. Ravindra & Ors. (2002) 1 SCC 367 : [2001] H 4 Suppl. SCR 323 – referred to.
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19. In re: Levy of interest, penalty, and interest on penalty: It is not levy of penal interest, which is involved in the instant case. When there is contractual stipulation, the interest can be levied and compounded. Resultantly, interest and penalty have rightly been levied. Once an amount of shortfall has not been paid, it has to carry 50% of the penalty on defaulted amount, as agreed. Thus, there is no substance in the submission that interest, penalty, and interest on penalty cannot be realised. It is as per the agreement. In the facts and circumstances, no ground is found to reduce the same, considering the nature of untenable objections raised on behalf of the licensees, which were in fact either barred by res judicata or constructive res judicata but as this Court had remitted the matter to TDSAT to find that demand was based on proper interpretation of licence. Matter was remitted after giving finding on inclusion of the various heads in the definition of gross revenue. Even as per the case of licensees they were not validly included in definition, now reprobating that, stand has been taken that they did not form part of revenue which is not permissible. No litigant can be permitted to reap fruits on such inconsistent and untenable stands and litigate for decades in several rounds which is not so uncommon but is disturbing scenario projected in very many cases. [Paras 197, 198] [809-G-H; 810-A-C] J.K. Industries Limited v. Union of India (2007) 13 SCC 673 : [2007] 12 SCR 136 – distinguished. Union of India and another v. Association of Unified F Telecom Service Providers of India (2011) 10 SCC 543 : – relied on. M/s. Everest Industrial Corporation & Ors. v. Gujarat State Financial Corporation (1987) 3 SCC 597 : [1987] 3 SCR 607 ; Punjab Financial Corporation v. G Surya Auto Industries (2010) 1 SCC 297 : [2009] 15 SCR 1187 ; Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandla (2010) 3 SCC 786 : [2010] 3 SCR 91 ; Godhra Electricity Co. Ltd. v. State of Gujarat (1975) 1 SCC 199 : [1975] 2 SCR 42 ; United India Insurance Co. Ltd. v. Pushpalaya Printers H
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A (2004) 3 SCC 694 : [2004] 2 SCR 631 ; Industrial Promotion & Investment Corporation of Orissa Ltd. v. New India Assurance Co. Ltd. (2016) 15 SCC 315 – referred to. Legh-Jones, Longmore et al (Eds.) MacGillivray on B Insurance Law (9th Edn., Sweet and Maxwell, London 1997) at p.280; Robert and Me 67 rkin (Eds.), Colinvaux’s; Law of Insurance (6th Edn., 1990) at p.42 – referred to. Case Law Reference relied on Para 16 C [2007] 12 SCR 136 distinguished Para 38 [2010] 3 SCR 91 referred to Para 58 [1975] 2 SCR 42 referred to Para 60
D [2004] 2 SCR 631 referred to Para 72 (2016) 15 SCC 315 referred to Para 73 [1966] SCR 500 referred to Para 77 [2009] 10 SCR 373 referred to Para 78 E [2018] 12 SCR 906 referred to Para 80 (2014) 8 SCC 866 referred to Para 81 [2011] 14 SCR 1 referred to Para 82 [2012] 9 SCR 311 referred to Para 86 F [1972] 3 SCR 784 referred to Para 86 [1975] 3 SCR 254 referred to Para 87 [1994] 2 SCR 67 referred to Para 87 [1996] 5 Suppl. SCR 465 referred to Para 87 G [2003] 2 SCR 574 referred to Para 87 [2003] 5 Suppl. SCR 930 referred to Para 87 [1963] 3 SCR 183 referred to Para 88
H [1994] 2 SCR 67 relied on Para 88
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[2010] 12 SCR 927 relied on Para 89 A [2010] 12 SCR 725 relied on Para 90 [1986] 2 SCR 278 referred to Para 91 [2008] 17 SCR 1378 relied on Para 91 [2011] 12 SCR 473 relied on Para 92 B
[1992] 2 Suppl. SCR 257 relied on Para 93 (2005) 3 SCC 787 held inapplicable Para 110 [1980] 1 SCR 931 held inapplicable Para 110 C [2012] 4 SCR 802 held inapplicable Para 111 [2018] 2 SCR 250 held inapplicable Para 111 (2017) 3 SCC 467 held inapplicable Para 111 (1982) 2 SCC 775 relied on Para 169 D [1985] 2 SCR 686 referred to Para 179 [1970] 1 SCR 753 referred to Para 187 (a) [1990] 1 SCR 369 referred to Para 187 (b) (2003) 1 SCC 67 referred to Para 187 (c) E [2004] 2 Suppl. SCR 202 referred to Para 187 (d) [2015] 1 SCR 627 referred to Para 187 (e) [2015] 1 SCR 627 referred to Para 187 (f) [2001] 4 Suppl. SCR 323 referred to Para 187 (g) F [1987] 3 SCR 607 referred to Para 190 [2009] 15 SCR 1187 referred to Para 191 CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6328- 6399 of 2015. G From the Judgment and Order 23.04.2015 of the Telecom Disputes Settlement and Appellate Tribunal in Petition No. 7 of 2003, P. Nos. 82 of 2005, 57 of 2006, 284, 289, 290, 291, 292 of 2007, 33, 34, 42, 249, 256 of 2008, 69, 151, 201, 233, 234, 235, 244 of 2009, 106 of 2010, 388, 474, 475, 476, 477, 478, 480 of 2011, 43, 97, 98, 99, 100, H
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A 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 150, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 198, 199, 200, 201, 202, 203, 204, 205 of 2012 With Civil Appeal Nos. 6183-6255, 5832-5852, 5909, 6009, 5996, 5957, B 5997, 5998, 6011, 6002, 6010, 6012, 8496-8505, 8493-8495, 5929, 5911, 5882, 5931, 5934, 5930, 6888-6895, 6003, 6004, 8506-8530, 8009-8017, 14624, 13550, 13705-13711, 13590, 13587, 13586, 13585, 13591, 13538, 13588, 13593, 13595-13596, 13584, 13574, 13681, 13581-13582, 13592, 13699, 13697, 13698, 13680 of 2015, 344, 498, 497, 493, 6022-6044 of C 2016, 8646-8648 of 2018, 8275 of 2019. Tushar Mehta, SG, Vikramjit Banerjee, ASG, Arijit Prasad, Arvind Datar, Ramji Srinivasan, Ms. Pinaki Misra, C. A. Sundaram, Tarun Gulati, Shyam Divan, Gopal Jain, Kavin Gulati, Ritin Rai, B. Adinaraynan Rao, Dr. A. M. Singhvi, U. Hazarika, Chetan Sharma, D Siddhartha Dave, Sr. Advs., Dhruv Tamta, H. Raghavendra Rao, Ms. Shardha Deshmukh, Ms. Binu Tamta, Ms. Swati Ghildiyal, G. S. Makker, Rajat Nair, Sarthak Raizada, Mansoor Ali Shokat, Ms. Nitin Kala, Ms. Manali Singhal, Santosh Sachin, Ms. Vinita Sasidharan, P. Ramesh Kumar, Abhijat P. Medh, Deepak Singh Rawat, Birjesh Kumar Sinha, Hitesh Kumar Sharma, Ms. Meetali Ptolia, Mahesh E Agarwal, Ms. Shally Bhasin, Chaitanya Safaya, Ms. Sayaree Basu Malik, Vaibhav Niti, Ms.Surabhi Limaye, Ms. Vaishali Kalara, Ms. Madhvi Agrawal, Ms. Ambika Mathur, E. C. Agrawala, Shashwat Bajpai, Manjul Bajpai, Arjun Singh, Ms. Sugadha, K.R. Sasiprabhu, Vishnu Sharma, Tushar Bhardwaj, Bhavuk Agarwal, Ms. Sylona F Mahapatra, Nikhil Ramdev, Abhas Kshetrapal, Ms. Kritika Bhardwaj, Somiran Sharma, Biju P. Raman, Jagjeet Sahani, Ms. Palak Verma, Ms. B. Vijayalakshmi Menon, Rohit Choudhry, Ms. Preeti Kohli, Pukhrambam Ramesh Kumar, Ms. Vibha Dhawan, Ms. Alvia Ahmed, Harsh Kaushik, Percvial Billimoria, Amit Bhandari, V. P. Singh, Atul N., Pridyumna Sharma, Nikhar Luthra, Prashanti Rao, Aamir Khan, G Ms. Anvi Sood, Shaurya S. Vardhan, Rohit Saroj, Paul Roy Pashe, Ms. Dharitry Phookan, Mrs. Anjani Aiyagari, Mrs. M. V. Rama, Ms. Sumita Hazarika, Mohit D. Ram, Ms. Monisha Handa, Abhishek Gupta, Ms. Shikha Sarin, Rahul Narayan, B. Krishna Prasad, Gautam Narayan, Ms. Asmita Singh, Ms. Shivani Vij, Adithya Nair, D. S. Mahra, H Jayant Kumar Mehta, Ms. Drishti Harpalani, Sajal Jain, Praveen Kumar,
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Saumyen Das, Rajan Narain, Naveen Kumar, Punit Dutt Tyagi, Navnit A Kumar, M/s. Corporate Law Group, Gurmeet Singh Makker, Mrs. Anil Katiyar, Faisal Sherwani, Gurpreet Singh Kahlon, Achal Gupta, Mayank Grover, Gaurav Kejriwal, Mrs. Bina Gupta, Birjesh Kumar Sinha, Hitesh Kumar Sharma, Arvind Kumar Sharma, Swetank Shantanu, Ravi Chauhan, Pratap Shankar, Sanjeev Kr. Choudhary, Sunil Kumar Jain, B Kishore Kunal, Mohit Paul, Ms. Maneesha Dhir, Ms. Sunaina Phul, Abhishek Kumar, Saransh Gupta, Rameshwar Prasad Goyal, Devashish Bharuka, Ms. Pratyusha Priyadarshini, Ishan Nagar (for M/s. Parekh & Co.). Rohit Mahajan, Rohit Tripathy, Pranav (for M/s. Dua Associates), Advs. for the appearing parties. C
Judgment
The Judgment of the Court was delivered by ARUN MISHRA, J.
1. In the appeals, the question involved is with respect to the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service D Providers. The case has a chequered history and the scenario projected is that even after the licensees agreeing with the revenue sharing regime under the Telecom Policy of 1999 for the last two decades, definition of gross revenue has been litigated upon, though the intendment was to keep it free from the same and various disputes. Notwithstanding E the fact that disputes have been raised, and despite the fact what is the meaning to be given to gross revenue, was agreed upon between the parties.The telecom sector was liberalized under the National Telecom Policy, 1994 and various licenses were issued to companies under Section 4 of the Indian Telegraph Act, 1885. The licences granted to the service providers stipulated a fixed licence fee, which was payable by the service providers every year.
2. However, as the said fixed license fee was very high and the telecom service providers consistently defaulted in making the payments, the telecom service providers made a representation to the Government of India for relief against the steep license fee. The said representation was considered and keeping the interest of the country, and the telecom sector in mind, a new package, known as “the National Telecom Policy, 1999 Regime” giving an option to the licensees to migrate from fixed licence fee to revenue sharing fee was made applicable in the year
1999. The National Telecom Policy, 1999 was devised after holding H
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A detailed deliberations and consultations with the telecom service providers and the telecom industry. Clause III of the migration package reads as under: “(iii) The Licence fee as a percentage of gross revenue under the license shall be payable w.e.f. 1.8.1999. The Government will take a final decision to charge the quantum of the revenue share as licence fee after obtaining recommendations of the Telecom Regulatory Authority of India (TRAI). Meanwhile, the Government decided to fix 15% of the gross revenue of the licensee as a provisional license fee. The gross revenue for this purpose would be the total revenue of the Licensee company excluding the PSTN related call charges paid to DOT/MTNL and service tax collected by the licensee on behalf of the Government from their subscribers. On receipt of TRAI’s recommendation and Government’s final decision, the final adjustment of provisional dues will be effected depending upon the percentage of revenue share and the definition of revenue for this purpose as may be finally decided.”
3. As mentioned, in the new Telecom Policy, 1999, the purpose and objects for the shift to “Revenue Sharing Regime,” which, as such, was more beneficial to the telecom service providers were: E Make available telephone on demand by the year 2002 and sustain it after that to achieve a teledensity of 7 by the year 2005 and 15 by the year 2010. Encourage the development of telecom in rural areas making it more affordable by suitable tariff structure and making rural communication mandatory for all fixed service providers. Increase rural teledensity from the current level of 0.4 to 4 by the year 2010 and provide reliable transmission media in all rural areas. Achieve telecom coverage of all villages in the country and provide reliable media to all exchanges by the year 2002. Provide Internet access to all district headquarters by the year 2000.
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Provide high-speed data and multimedia capability using technologies including ISDN to all towns with a population higher than 2 lakh by the year 2002.
4. Considering the objectives and targets of the new Telecom Policy, 1999, it appears that: i. The Central Government gave a liberalised mode of payment by “revenue sharing” regime, which was the price for parting with the exclusive privilege the Central Government had. ii. The Telecom Policy, 1999, was so designed that the Government becomes a partner or sharer of “gross revenue.” iii. From out of money received under the head of “Adjusted Gross Revenue,” the Central Government took a conscious decision to spend money to remote and uncovered areas, rural areas, tribal areas, and hilly areas to ensure maximum tele-connectivity. iv. The said objective was achieved, inter alia, by giving subsidies for the establishment of telecom infrastructure in such areas
5. Fifteen percent AGR was fixed as license fee under “revenue sharing,” which was reduced to 13 percent and lastly to 8 percent in
2013. It appears that the “revenue sharing” package turned out to be very very beneficial to the telecom service providers, which is evident from the continuing rise in the gross revenue, which is as follows: Financial Year Gross Revenue earned by TSPs F (ending in March) (in crores) 2004 4,855 2006 2,666 2007 89,108 2008 1,05,061 2009 1,43,044 G 2010 1,44,232 2011 1,60,251 2012 1,82,637 2013 2,04,221 2014 2,24,430 2015 2,37,676 H
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A 6. However, the telecom service providers in spite of the financial benefits of the package started to ensure that they do not pay the licence fee to the public exchequer based on even an agreed “AGR”.
7. To arrive at the formula of “AGR,” the Draft Licence Agreement was circulated to the telecom operators. It is pertinent to B note that the Draft Licence Agreement provided clause 18.2, which pertains to an annual license fee payable as a percentage of adjusted gross revenue “AGR.” Gross Revenue defined under clause 19 of the Draft Licence Agreement, reads as under: “19. Definition of ‘Adjusted Gross Revenue’: C 19.1 Gross Revenue: 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 D charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense, etc. 19.2 For the purpose of arriving at the “Adjusted Gross Revenue (AGR)”, the following shall be excluded from the Gross Revenue E to arrive at the AGR: I. PSTN/PLMN related call charges (Access Charges) actually paid to other eligible/entitled telecommunication service providers within India; II. Roaming revenues actually passed on to other eligible/ F entitled telecommunication service providers and; III. Service Tax on provision of service and Sales Tax actually paid to the Government if gross revenue had included as component of Sales Tax and Service Tax. G 19.3 Applicable AGR in respect of Spectrum usage charge shall be as given under Part VII of this agreement.”
8. Along with the Draft Licence Agreement, all annexures to the license, including the format of Statement of Revenue and Licence Fee (Appendix-II to Annexure-II) were circulated. As per the form of the H Statement of Revenue and Licence Fee, the telecom operators were
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required to submit the relevant data/revenue earned by them so that A the ultimate AGR/license fee can be determined.
9. That vide communication dated 01.03.2001, the Association of Basic Telecom Operators submitted their comments on Draft License Agreement for basic service licenses. The comments on the revenue to levy the license fee were as under: B “For ascertaining the Revenue, income is proposed to be considered on an accrual basis while deductible expenses are proposed to be considered on an actual or pass-through basis. Also, logically, the LICENSEE should be required to pay license fee only on that income which he has actually obtained. In view of this, the above mode of revenue is inequitable. Hence, both the income as well as deductible expenses should be computed on actual basis to arrive at an equitable and fair figure of revenue on which the License Fee can be levied. Income from interest, dividend, etc. are also proposed to be included while computing the Revenue. Such income is purely non-operational income as it is earned from sources other than the provision of SERVICE and is recognised to be so by all statutory authorities including the ICAI, SEBI and the Stock Exchanges. Hence, no license fee should be levied on such income, and accordingly, such income should not be included for computing the figure of REVENUE. All such deposits as are credited to the P&L Account are proposed to be covered in REVENUE. This is irrational since these ....... Further, all bad debts recovered and write-back of provisions and other debits for earlier years are also proposed to be included in REVENUE. However, no deduction on account of bad debts provisions, etc. for the current year is allowed to while computing REVENUE. This is both inequitable, irrational, and against the fundamental accounting concepts. Such additions on account of write-back should be allowed only in licensees are given the corresponding benefit of the very same expenses from the current period’s income for computing REVENUE. Lastly, the definition should be a comprehensive one comprising an exhaustive (and not indicative) list of items which will be included in the expression REVENUE. Any indicative list is H
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A bound to give rise to unnecessary disputes in the future, which will be detrimental to the LICENSEES in most cases.”
10. It appears that after that the licenses were issued in favour of the respective telecom operators. As observed hereinabove, the telecom operators availed the benefit of migration package. However, B thereafter when the department raised the demands on the service providers, in the year 2003 the Association of Basic Telecom Operators and respective telecom operators filed a petition before the Telecom Disputes Settlement and Appellate Tribunal, New Delhi (hereinafter referred to as the ‘TDSAT’) under Section 14(a)(i) read with Section 14(A) (1) of the Telecom Regulatory Authority of India Act, 1997 C (hereinafter referred to as the “TRAI Act”) being Petition No. 07 of
2003. It was a case of the telecom operators that the department was supposed to determine the quantum based on the recommendations of the TRAI. According to the telecom operators, the department had illegally included various elements of income in the definition of the term D “AGR” which do not accrue from the operations under the license viz., dividend income, interest income on short term investment, discounts on calls, revenues from other activities separately licensed, reimbursements under the Universal Service Fund (USF) etc. The telecom operators heavily relied upon the recommendations issued by the TRAI on 31.08.2000, making detailed recommendations on the terms and conditions for issuance of licenses to new Basic Operators, more particularly the recommendations made by the TRAI with the revenue sharing of 12%, 10% and 8% for categories A, B and C Circles respectively ought to be levied on the Basic Operators. 11.On merits and components of the AGR, the telecom operators submitted the following grounds: “48) BECAUSE logically the LICENSEE should be required to pay licence fee only on that income which he has actually obtained;
G 50) BECAUSE income from interest, dividend, etc., which are proposed to be included while computing the Revenue are purely non-operational income as it is earned from sources other than the provision of SERVICE and is recognized to be so by all statutory authorities including the ICAI, SEBI and the Stock H Exchange.
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51) BECAUSE no licence fee should be levied on such A income and accordingly such income should not be included for computing the figure of REVENUE; 52) BECAUSE all such deposits as are credited to the P&L Account are proposed to be covered in REVENUE which is irrational; B 53) BECAUSE further, all bad debts recovered and write- back of provisions and other debits for earlier years are also proposed to be included in REVENUE; 54) BECAUSE no deduction on account of bad debts, provisions, etc. for the current year are allowed to be C made while computing REVENUE; 57) BECAUSE the definition should be a comprehensive one comprising an exhaustive (and not indicative) list of items which will be included in the expression REVENUE;” D
12. It appears that no other grounds were raised. The telecom operators in Petition No.7 of 2003 prayed as under: “a) declare that Adjusted Gross Revenues can only relate to revenues directly arising out of telecom operations licensed under Section 4 of the Indian Telegraph Act, 1885 (after adjustment of expenses and write-offs and revenues not directly attributable to the licensed telecom activities and miscellaneous and other items indicated in the DoT letter dated 26.7.01, including interest income and dividend income, value of rebates, discounts, free calls and reimbursement from the USO fund etc., ought not be included in the Adjusted Gross Revenues for the purposes of computation License Fee; b) set aside the DoT letters dated 7.5.03, attempting to adjust/set off their claims relating to Adjusted Gross G Revenue from out of the amounts due and refundable to the Petitioners consequent to the Judgements of this Hon’ble Tribunal and the Hon’ble Supreme Court; c) set aside the DoT demand letters inter alia dated 21.8.02, 9.8.02, 14/21.1.03, 23.1.03, 7.3.03 and similar demands H
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A raised against the BSOs claiming Revenue Share on interest income and other miscellaneous heads which are contrary to the Recommendations of the TRAI; d) direct the DoT to implement the recommendations of the TRAI dated 31.8.00 and 31.10.00; B e) direct the DoT to refund the BSOs all such excess amounts together with interest @ 12% per annum that may have been collected by it under its letter dated 26.7.01 or 7.5.03 or otherwise, contrary to the recommendations of the TRAI dated 31.10.00.”
C 13. The objections described above can be said to be the first set of the grounds by the telecom operators raised at the first instance and the earliest. It appears that after TDSAT remitted the matter to the TRAI by observing that there was no adequate consultation with the TRAI before finalising the AGR and the components which form D the AGR. While remitting the matter to the TRAI, the TDSAT made some observations regarding the inclusion in gross revenue of the licensee revenue derived from non-licensed activities. The TDSAT directed listing for further directions/hearing after the recommendations of the TRAI are received or in the first week of October 2006, whichever is earlier (Order dated 07.07.2006, Coram: Justice N. E Santosh Hegde, Chairperson, and D.P. Sehgal, Member).
14. That in the order dated 07.07.2006, the Tribunal rejected the contentions of the UOI and held that under Section 4 of the Indian Telegraph Act, 1885, the Central Government can take percentage of the share of gross revenue of a licensee realised from activities of the licensee under the licence and therefore revenue received by a licensee from activities beyond licence activities would be outside the purview of Section 4 of the Telegraph Act. The Tribunal further held that Section 11(1)(a) of the TRAI Act mandates the Central Government to seek recommendations from the TRAI on the licence fee payable by the licensee and as the TRAI has made no effective consultation, the matter should be remitted to the TRAI and the TRAI can consider the issue and send its recommendations to the Tribunal. At this stage, it is required to be noted that the Union of India challenged the order dated 07.07.2006 of the Tribunal before this Court in Civil Appeal No. 84 of 2007 under Section 18 of the TRAI Act. During the pendency of the civil appeal, the TRAI sent its recommendations as to the AGR which
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have been sought by the Tribunal vide its order dated 07.07.2006. A Therefore, when Civil Appeal No.84/2007 came up for hearing before this Court on 19.01.2007, this Court dismissed the said appeal with the liberty to the Union of India to urge all contentions raised in the civil appeal before the Tribunal.
15. It appears that after that the TRAI sent its recommendations to the TDSAT. At this stage, it is required to be noted that though in view of the order passed by this Court dated 19.01.2007 passed in Civil Appeal No. 84/2007, a liberty was reserved in favour of the Union of India to urge all contentions raised in the civil appeal and accordingly the Union of India submitted that the Union of India is entitled to reopen the issue whether the validity of the definition of AGR in the Licence Agreement could be questioned before the Tribunal including the submission that the AGR shall also include the revenue from activities outside the license, the TDSAT in its fresh order dated 30.08.2007 did not permit the Union of India to raise the aforesaid issues, and the Tribunal held that its earlier order dated 07.07.2006 having become final, it cannot be reopened after the disposal of Civil Appeal No. 84/2007. The Tribunal held that it’s finding in the earlier order dated 07.07.2006 that the adjusted gross revenue “AGR” will include only revenue arising from licence activities and not revenue from activities outside the licence cannot be re-agitated by the Union of India. Therefore, the TDSAT E held that the AGR would include only the revenue from licence activities. After that the Tribunal in its fresh order dated 30.08.2007 considered the recommendations of the TRAI regarding the heads of the revenue to be included and the heads of the revenue to be excluded from the AGR and decided as follows: F “(i) The Tribunal accepted the recommendation of TRAI that income from dividend even though part of the revenue does not represent revenue from licensed activity and, therefore, cannot be included in the adjusted gross revenue. G (ii) The Tribunal accepted the recommendation of TRAI that interest earned on investment of savings made by a licensee after meeting all liabilities including liability on account of the share of the Government in the gross revenue cannot be included in the adjusted gross revenue, but, interest on investment of funds received H
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A by a licensee by way of deposits from customers on account of security against charges and on account of concessions given in the charges payable for using the telecom services have to be included in the adjusted gross revenue as these are related to telecom service, which is part of the licensed activity. B (iii) The Tribunal did not fully accept the recommendation of TRAI on capital gains and held that sale of assets of a licensee such as immovable properties, securities, warrants or debt instruments are not part of the licensed activity and, therefore, capital gains earned by a licensee on such sale of assets cannot form part of the adjusted gross revenue. (iv) The Tribunal accepted the recommendation of TRAI that gains from foreign exchange rate fluctuations are also not part of the licensed activity of telecom service providers and, therefore, cannot constitute part of the adjusted gross revenue. (v) The Tribunal did not fully accept the recommendation of TRAI on the reversal of provisions like bad debts, taxes and vendors’ credits and held that all these reversals have to be excluded from the adjusted gross revenue. (vi) The Tribunal also accepted the recommendation of TRAI that rent from property owned by the licensee should be excluded from the adjusted gross revenue, provided it is established that the property is not in any way connected with establishing, maintaining and working of telecommunication. (vii) The Tribunal accepted the recommendation of TRAI that income from renting and leasing of passive infrastructures like towers, dark fiber, etc. should be part of the adjusted gross revenue as they are parts of the licensed activity of the licensee. (viii) The Tribunal accepted the recommendation of TRAI that revenue from sale of tenders, directories, forms, forfeiture of deposits/earnest money in relation to
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telecom service should form part of the adjusted gross revenue, but held that management fees, consultancy fees and training charges from telecom service should not form part of the adjusted gross revenue as these activities do not require a licence. (ix) The Tribunal held that payments received on behalf of the third party should not form part of the adjusted gross revenue and did not accept the recommendation of TRAI in this regard. (x) The Tribunal did not accept the recommendation of TRAI that the revenue from TV uplinking and internet service should form part of the adjusted gross revenue as these activities are under a separate licence. (xi) The Tribunal accepted the recommendation of TRAI that sale of handsets or telephone equipment bundled with telecom service should be part of the adjusted gross revenue because such sale comes within the licensed activity. (xii) The Tribunal accepted the recommendation of TRAI that receipts from USO fund will not form part of the adjusted gross revenue. E (xiii) The Tribunal accepted the recommendation of TRAI that revenue receipts on account of ADC (access deficit charge) should form part of the adjusted gross revenue. (xiv) The Tribunal accepted the recommendation of TRAI that costs on account of port charges, interconnection set- F up charges, leased lines, sharing of infrastructure, roaming signalling charges and content charges should form part of the adjusted gross revenue. (xv) The Tribunal did not accept the recommendation of TRAI that bad debts, waivers, and discounts should form G part of the adjusted gross revenue and held that such losses incurred by a licensee should be excluded from the adjusted gross revenue. (xvi) The Tribunal accepted the recommendation of TRAI that service tax payable by the licensee should be included H
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A or excluded from the adjusted gross revenue on an accrual basis and also accepted the recommendation of TRAI that interconnection usage should also be included or excluded from the adjusted gross revenue on an accrual basis. B (xvii) Tribunal did not accept recommendation of TRAI that its recommendations with regard to items, which are to be included or excluded from the gross revenue, should be effective from a prospective date and instead held that the findings of the Tribunal with regard to items, which are included or excluded from the adjusted gross C revenue, will be effective from the date the licensee approached the Tribunal.”
16. A fresh final order passed by the TDSAT dated 30.08.2007 was the subject matter of appeal before this Court in the case of Union of India and another v. Association of Unified Telecom Service D Providers of India, (2011) 10 SCC 543. This Court formulated the following substantial questions of law: “(i) Whether after dismissal of Civil Appeal No. 84 of 2007 of the Union of India against the order dated 7-7-2006 of the Tribunal, by this Court by order dated 19-1-2007 E [Union of India v. Assn. of Unified Telecom Service Providers of India, Civil Appeal No. 84 of 2007 decided on 19-1-2007 (SC)] , the Union of India can agitate the question decided in the order dated 7-7-2006 that the adjusted gross revenue will include only revenue F arising from licensed activities and not revenue from activities outside the licence of the licensee. (ii) Whether TRAI and the Tribunal have the jurisdiction to decide the validity of the terms and conditions of the licence which had been finalised by the Central G Government and incorporated in the licence agreement including the definition of adjusted gross revenue. (iii) Whether as a result of the Union of India not filing an appeal against the order dated 7-7-2006 of the Tribunal passed in favour of some of the licensees, the said order H dated 7-7-2006 had not become binding on the Union
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of India with regard to the issue that revenue realised A from activities beyond the licensed activities cannot be included in the adjusted gross revenue. (iv) Whether the licensee can challenge the computation of adjusted gross revenue, and if so, at what stage and on what grounds.” B
17. While answering issue No.1, this Court took note of the expressed language of the order dated 19.01.2007 passed in Civil Appeal No.84 of 2007 and held that it was open for the Union of India to raise all contentions which were raised in Civil Appeal No.84 of 2007 including the following grounds: C “1. Because the judgment and order dated 7-7-2006 passed by the TDSAT are wrong, erroneous, contrary to law and deserves to be set aside.
2. Because the TDSAT failed to appreciate that the migration package accepted and acted upon by the respondents herein itself provided for the definition of gross revenue and adjusted gross revenue.
3. Because the TDSAT failed to appreciate that the licensees unconditionally accepted the migration package, exploited the licence on the terms and conditions mentioned therein and after that challenged the definition of adjusted gross revenue.
4. TDSAT failed to appreciate that it had no jurisdiction or power to examine the correctness of terms of the licence which had been unconditionally accepted and acted upon by the licensees.
5. Because the TDSAT failed to appreciate that in fact, some licensees obtained a new licence which contains the definition of ‘gross revenue’ and ‘adjusted gross revenue’ which has been unconditionally accepted by the appellants (sic respondents).
6. Because the TDSAT failed to appreciate that under Section 4 of the Telegraph Act, 1885 it is the exclusive privilege of the Central Government to establish, maintain and work telegraph/telecom and this privilege H
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A can be given to the private parties by granting licences on such terms and conditions as the Central Government thinks fit and appropriate.”
18. This Court specifically observed and held that the Union of India could urge before the Tribunal all contentions under the Grounds B 1 to 6, extracted above, including the assertion that the definition of adjusted gross revenue “AGR” as given in the licence could not be challenged by the licensees before the Tribunal and will include all items of revenue mentioned in the definition of adjusted gross revenue in the licence.
C 19. While answering second substantial question of law, namely, whether TRAI and the Tribunal have the jurisdiction to decide the validity of the terms and conditions of the licence including the definition of adjusted gross revenue finalised by the Central Government and incorporated in the licence, this Court observed and held as under: D “37. A bare perusal of sub-section (1) of Section 4 of the Telegraph Act shows that the Central Government has the exclusive privilege of establishing, maintaining, and working telegraphs. This would mean that only the Central Government, and no other person, has the right to carry on telecommunication activities. E
3939. The proviso to sub-section (1) of Section 4 of the Telegraph Act, however, enables the Central Government to part with this exclusive privilege in favour of any other person by granting a licence in his favour on such conditions and in consideration of such payments as it thinks fit. As the Central Government owns F the exclusive privilege of carrying on telecommunication activities and as the Central Government alone has the right to part with this privilege in favour of any person by granting a licence in his favour on such conditions and in consideration of such terms as it thinks fit, a licence granted under the proviso to sub-section G (1) of Section 4 of the Telegraph Act is in the nature of a contract between the Central Government and the licensee.
4040. A Constitution Bench of this Court in State of Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC 26] relying on Har Shankar case [(1975) 1 SCC 737] and Panna H Lal v. State of Rajasthan [(1975) 2 SCC 633] has held in para
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121 at p. 106 that issuance of liquor licence constitutes a contract between the parties. Thus, once a licence is issued under the proviso to sub-section (1) of Section 4 of the Telegraph Act, the licence becomes a contract between the licensor and the licensee. Consequently, the terms and conditions of the licence, including the definition of adjusted gross revenue in the licence agreement are part of a contract between the licensor and the licensee. We have to, however, consider whether the enactment of the TRAI Act in 1997 has in any way affected the exclusive privilege of the Central Government in respect of the telecommunication activities and altered the contractual nature of the licence granted to the licensee under the proviso to sub- C section (1) of Section 4 of the Telegraph Act.
4141. Section 2(e) of the TRAI Act quoted above defines “licensee” to mean any person licensed under sub-section (1) of Section 4 of the Telegraph Act for providing specified public telecommunication services and Section 2(ea) defines “licensor” D to mean the Central Government or the telegraph authority who grants a licence under Section 4 of the Telegraph Act. Sub- section 2(k) defines “telecommunication service” very widely so as to include all kinds of telecommunication activities. These provisions under the TRAI Act do not affect the exclusive privilege of the Central Government to carry on telecommunication activities nor do they alter the contractual nature of the licence granted under the proviso to sub-section (1) of Section 4 of the Telegraph Act.
4343. These provisions in the TRAI Act show that notwithstanding subsection (1) of Section 4 of the Telegraph Act vesting exclusive privilege in the Central Government in respect of telecommunication activities and notwithstanding the proviso to sub-section (1) of Section 4 of the Telegraph Act vesting in the Central Government the power to decide on the conditions of licence including the payment to be paid by the licensee for the licence, TRAI has been conferred with the statutory authority to make recommendations on the terms and conditions of the licence to a service provider and the Central Government was bound to seek the recommendations of TRAI on such terms and conditions at different stages, but the recommendations of TRAI are not binding on the Central Government, and the final decision H
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A on the terms and conditions of a licence to a service provider rested with the Central Government. The legal consequence is that if there is a difference between TRAI and the Central Government with regard to a particular term or condition of a licence, as in the present case, the recommendations of TRAI will not prevail and instead the decision of the Central Government B will be final and binding.
4444. In contrast to this recommendatory nature of the functions of TRAI under clause (a) of sub-section (1) of Section 11 of the TRAI Act, the functions of TRAI under clause (b) of sub- section (1) of Section 11 of the TRAI Act are not C recommendatory. This will be clear from the very language of clause (b) of sub-section (1) of Section 11 of the TRAI Act which states that TRAI shall discharge the functions enumerated under sub-clauses (i), (ii) and (ix) under clause (b) of sub-section (1) of Section 11 of the TRAI Act. Under clause (c) of sub-section D (1) of Section 11 of the TRAI Act, TRAI performs the function of levying fees and other charges in respect of different services and under clause (d) of sub-section (1) of Section 11, the Central Government can entrust to TRAI other functions. These functions of TRAI under clauses (c) and (d) of sub-section (1) of Section 11 of the TRAI Act are also not recommendatory in E nature. That the functions of TRAI under clause (a) are recommendatory while the functions of TRAI under clauses (b), (c) and (d) are not recommendatory will also be clear from provisos first to fifth which refer to the recommendations of TRAI under clause (a) of sub-section (1) of Section 11 of the TRAI Act and not to clauses (b), (c) and (d) of sub-section (1) of F Section 11 of the TRAI Act.
4545. The scheme of the TRAI Act therefore is that TRAI being an expert body discharges recommendatory functions under clause (a) of sub-section (1) of Section 11 of the TRAI Act and discharges regulatory and other functions under clauses (b), (c) G and (d) of sub-section (1) of Section 11 of the TRAI Act. TRAI being an expert body, the recommendations of TRAI under clause (a) of sub-section (1) of Section 11 of the TRAI Act have to be given due weightage by the Central Government, but the recommendations of TRAI are not binding on the Central H Government. On the other hand, the regulatory and other
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functions under clauses (b), (c) and (d) of sub-section (1) of A Section 11 of the TRAI Act have to be performed independent of the Central Government and are binding on the licensee subject to only appeal in accordance with the provisions of the TRAI Act.
4646. A reading of Section 14(a)(i) of the TRAI Act would show that the Tribunal has the power to adjudicate any dispute between a licensor and a licensee. A licensor, as we have seen, has been defined under Section 2(ea) of the TRAI Act to mean the Central Government or the Telegraph Authority who grants a licence under Section 4 of the Telegraph Act and a licensee has been defined in Section 2(e) of the TRAI Act to mean any person licensed under sub-section (1) of Section 4 of the Telegraph Act providing specified telecommunication services. The word “means” in Sections 2(e) and 2(ea) of the TRAI Act indicates that the definitions of licensee and licensor in Sections 2(e) and 2(ea) of the TRAI Act are exhaustive and therefore would not have any other meaning. As Justice G.P. Singh puts it in his book Principles of Statutory Interpretation, 12th Edn., at pp. 179-80: “… When a word is defined to ‘mean’ such and such, the definition is prima facie restrictive and exhaustive;” E
4747. A dispute between a licensor and a licensee referred to in Section 14(a)(i) of the TRAI Act, therefore, is a dispute after a person has been granted a licence by the Central Government or the Telegraph Authority under sub-section (1) of Section 4 of the Telegraph Act and has become a licensee and not a dispute before a person becomes a licensee under the proviso to sub- section (1) of Section 4 of the Telegraph Act. In other words, the Tribunal can adjudicate the dispute between a licensor and a licensee only after a person had entered into a licence agreement and become a licensee and the word “any” in Section 14(a) of the TRAI Act cannot widen the jurisdiction of the Tribunal to decide a dispute between a licensor and a person who had not become a licensee. The result is that the Tribunal has no jurisdiction to decide upon the validity of the terms and conditions incorporated in the licence of a service provider, but it will have the jurisdiction to decide “any” dispute between the licensor and H
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A the licensee on the interpretation of the terms and conditions of the licence.
4848. Coming now to the facts of the cases before us, Clause (iii) of the Letter dated 22-7-1999 of the Government of India, Ministry of Communications, Department of Telecommunications, B to the licensees quoted above made it clear that the licence fee was payable with effect from 1-8-1999 as a percentage of gross revenue under the licence and the gross revenue for this purpose would be total revenue of the licensee company excluding the PSTN related call charges paid to DoT/MTNL and service tax calculated by the licensee on behalf of the Government from the subscribers. It was also made clear in the aforesaid Clause (iii) that the Government was to take a final decision after receipt of TRAI’s recommendation on not only the percentage of revenue share but also the definition of revenue. In accordance with this Clause (iii), the Government took the final decision on the definition of adjusted gross revenue and incorporated the same in the licence agreement. Once the licensee had accepted Clause (iii) of the Letter dated 22-7-1999 that the licence fee would be a percentage of the gross revenue which would be the total revenue of the licensee company and had also accepted that the Government would take a final decision not only with regard to the percentage of revenue share but also the definition of revenue for this purpose, the licensee could not have approached the Tribunal questioning the validity of the definition of adjusted gross revenue in the licence agreement on the ground that adjusted gross revenue cannot include revenue from activities beyond the licence.
4949. If the wide definition of adjusted gross revenue so as to include revenue beyond the licence was in any way going to affect the licensee, it was open for the licensees not to undertake activities for which they do not require licence under Section 4 of the Telegraph Act and transfer these activities to any other person or firm or company. The incorporation of the definition of adjusted gross revenue in the licence agreement was part of the terms regarding payment which had been decided upon by the Central Government as a consideration for parting with its rights of exclusive privilege in respect of telecommunication
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activities and having accepted the licence and availed the A exclusive privilege of the Central Government to carry on telecommunication activities, the licensees could not have approached the Tribunal for an alteration of the definition of adjusted gross revenue in the licence agreement.
5050. Regarding the recommendations of TRAI under Section B 11(1)(a)(i) of the TRAI Act, we find that the Tribunal in its order dated 7-7-2006 has held that the opinion of the renowned expert on Accountancy that any other definition of adjusted gross revenue would lead to reduction of licence fee liability by way of accounting jugglery was not placed before TRAI and as a C result there was no proper and effective consultation with TRAI and the weightage that was due to the recommendations of TRAI was not given effect to. In our considered opinion, if the Tribunal found that there was no effective consultation with TRAI on the opinion of the expert on accountancy, the Tribunal could have at best, if it had the jurisdiction to decide the dispute, directed TRAI D to consider the opinion of the expert on accountancy and send its recommendations to the Central Government and directed the Central Government to consider such fresh recommendations of TRAI as provided in the provisos to Section 11(1) of the TRAI Act. Instead, the Tribunal has considered the recommendations of TRAI and passed the impugned fresh order dated 30-8-2007 contrary to the very provisions of Section 11(1)(a) of the TRAI Act and the provisos thereto. At any rate, as the Central Government has already considered the fresh recommendations of TRAI and has not accepted the same and is not agreeable to alter the definition of adjusted gross revenue, the decision of the Central Government on the point was final under the first proviso and the fifth proviso to Section 11(1) of the TRAI Act, 1997.
53. In State of U.P. v. Devi Dayal Singh [(2000) 3 SCC 5] a truck owner, Devi Dayal Singh, challenged the right of the State G Government to recover by way of toll under Section 2 of the Tolls Act, 1851, an amount for the actual construction of the bridge. This Court held that Section 2 of the Tolls Act, 1851 which enables the State Government to levy toll at such rates “as it thinks fit” and the only restriction is latent in the word “toll” itself. This was therefore not a case of a dispute between the H
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A Government and the contractor where the contractor had challenged a stipulation of the contract. In the present case, on the other hand, the licensees had accepted the terms of the licence and after having taken the benefits of the licence are now trying to wriggle out from the terms of the licence and in particular the definition of the adjusted gross revenue. B
55. On the other hand, we find from the long line of decisions in Har Shankar v. Excise & Taxation Commr. [(1975) 1 SCC 737], Govt. of A.P. v. Anabeshahi Wine & Distilleries (P) Ltd. [(1988) 2 SCC 25 : 1988 SCC (Tax) 147], Excise Commr. v. Issac Peter [(1994) 4 SCC 104], State of C Orissa v. Narain Prasad [(1996) 5 SCC 740], State of M.P. v. KCT Drinks Ltd. [(2003) 4 SCC 748], State of Punjab v. Devans Modern Breweries Ltd. [(2004) 11 SCC 26], Shyam Telelink Ltd. v. Union of India [(2010) 10 SCC 165 : (2010) 4 SCC (Civ) 99] and in Bharti Cellular Ltd. v. Union D of India [(2010) 10 SCC 174 : (2010) 4 SCC (Civ) 108], that this Court has consistently taken a view that once a licensee has accepted the terms and conditions of a licence, he cannot question the validity of the terms and conditions of the licence before the court. We, therefore, hold that TRAI and the Tribunal had no jurisdiction to decide on the validity of the definition of adjusted E gross revenue in the licence agreement and to exclude certain items of revenue which were included in the definition of adjusted gross revenue in the licence agreement between the licensor and the licensee.”
20. While considering the substantial question of law no.3, this F Court observed and held in paragraph 59 as under: “59. Thus, the Tribunal in its order dated 7-7-2006 has not just decided a dispute on the interpretation of adjusted gross revenue in the licence agreement but has decided on the validity of the definition of adjusted gross revenue in the licence agreement. As G we have already held, the Tribunal had no jurisdiction to decide on the validity of the terms and conditions of the licence, including the definition of adjusted gross revenue incorporated in the licence agreement. Hence, the order dated 7-7-2006 of the Tribunal insofar as it decides that revenue realised by the licensee from H activities beyond the licence will be excluded from adjusted gross
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revenue dehors the definition of adjusted gross revenue in the licence agreement is without jurisdiction and is a nullity, and the principle of res judicata will not apply.”
21. While answering and considering the fourth substantial question of law, namely, whether the licensee can challenge the computation of adjusted gross revenue, and if so, at what stage and on what grounds, this Court observed and held in paragraph 63 as follows: “63. Section 14(a)(i) of the TRAI Act, as we have seen, provides that the Tribunal can adjudicate any dispute between the licensor and the licensee. One such dispute can be that the computation of adjusted gross revenue made by the licensor and the demand raised on the basis of such computation is not in accordance with the licence agreement. This dispute, however, can be raised by the licensee, after the licence agreement has been entered into and the appropriate stage when the dispute can be raised is when a particular demand is raised on the licensee by the licensor. When such a dispute is raised against a particular demand, the D Tribunal will have to go into the facts and materials on the basis of which the demand is raised and decide whether the demand is in accordance with the licence agreement and in particular the definition of adjusted gross revenue in the licence agreement and can also interpret the terms and conditions of the licence agreement. We, however, find from the order dated 7-7-2006 that instead of challenging any demands made on them, the licensees have questioned the validity of the definition of adjusted gross revenue in the licences given to them and the Tribunal has finally decided in its order dated 30-8-2007 as to what items of revenue would be part of adjusted gross revenue and what items of revenue would not be part of adjusted gross revenue without going into the facts and materials relating to the demand on a particular licensee.”
22. Ultimately, this Court allowed the appeals preferred by the Union of India and set aside the order dated 30.08.2007 passed by the G TDSAT. Thereafter, in paragraph 67, this Court clarified as under: “67. We have delivered today the judgment in these cases (supra paras 1-66) and while answering the last substantial question of law, we have held that when a particular demand is raised on a licensee, the licensee can challenge the demand H
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A before the Tribunal and the Tribunal will have to go into the facts and materials on the basis of which the demand is raised and decide whether the demand is in accordance with the licence agreement and in particular the definition of adjusted gross revenue in the licence agreement and can also interpret the terms and conditions of the licence agreement.” B
23. After that, the respective telecom operators again approached the TDSAT challenging the demand notices/demand. The TDSAT by the impugned order has considered the specific head of items to be included or excluded under the definition of AGR. The TDSAT examined the following heads: C “1. Gain on sale of Capital Assets and receipt from the sale of scrap.
2. Insurance claim in respect of Capital Assets.
3. Discounts and Commissions. D Discounts allowed on international roaming. Commission and discount allowed to distributors on sale of pre-paid vouchers.
4. Waiver of Late Fee. E
5. Amount of negative balance of the pre-paid customer.
6. Roaming Charges and PSTN pass-through charges (PSTN – Public Switch Telephone Network)
7. Reimbursement of Infrastructure operating expenses. F
8. Gain from foreign exchange fluctuation.
9. Revenue from 214 FCC License, USA (in the case of Bharti BILGO)
10. Proceeds from divestment of investment in a company G (Example, case of Sistema Shyam in Hexacom)
11. The demand for License fee in a circle where the Licensee is not granted spectrum (in the case of Videocon & S. Tel)
H 12. Interest, Penalty, and Interest on Penalty
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SERVICE PROVIDERS OF INDIA [ARUN MISHRA, J.]
13. Non-refundable deposits and notional interest on interest- A free loans.”
24. TDSAT in the impugned order has held that the Gain on sale of Capital assets and receipt from the sale of scrap cannot be included in gross revenue for computation of licence fee. However, it is required to be noted that the said issue was raised earlier and considered by the TDSAT in its earlier order dated 30.08.2007 and held in favour of the telecom operators. However, this Court, in the case of AUSPI (supra) – expressly set aside the order passed by the TDSAT. Therefore, subsequently it was not open for the TDSAT to again hold contrary by the impugned order on the head as mentioned earlier and it can be said to be barred by res judicata because of the specific order of AUSPI (supra).
25. Various questions arise for consideration as under: (i) In re: Definition of gross revenue. (ii) In re: Discount and commissions. D
(iii) In re: Gains arising out of foreign exchange fluctuations. (iv) In re: Monetary gains on sale of shares. (v) In re: Insurance claim in respect of capital assets. E (vi) In re: Amount of negative balance of pre-paid customer. (vii) In re: Reimbursement of the infrastructure operating expenses. (viii) In re: Waiver of late fee. (ix) In re: Gains from roaming charges & PSTN pass- F through charges. (x) In re: Non-refundable deposits. (xi) In re: Licence fee demand where spectrum is not granted. G (xii) In re: Income from interest & dividend. (xiii) In re: Bad-debts written off. (xiv) In re: Liability written off. (xv) In re: Inter-corporate loan. H
p. 720
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