In a significant legal case, the Supreme Court of India delivered a landmark judgment regarding the definition of gross revenue in telecom licenses. The dispute between Telecom Operators and the Union of India over revenue sharing under the National Telecom Policy, 1999, came to a resolution with this decision. The Court clarified the inclusion of various income elements in AGR, setting a precedent for future license fee computations in the telecom sector.
Facts
- Telecom operators benefited from the migration package to revenue sharing regime under the National Telecom Policy, 1999.
- The Central Government implemented the revenue sharing regime to become a partner in the gross revenue of telecom operators.
- Disputes arose regarding the definition of gross revenue despite agreements between parties under the Telecom Policy of 1999.
- The telecom sector was liberalized in 1994 under the National Telecom Policy, leading to the issuance of various licenses.
- Financial benefits did not deter telecom service providers from avoiding payment of license fees to the public exchequer based on agreed AGR.
- Disputes regarding the inclusion of various income elements in AGR led to a petition before the TDSAT by telecom operators in 2003.
- The TDSAT held that AGR would include only revenue from license activities.
- The Tribunal directed the matter to be remitted to the TRAI for recommendations on license fee.
- The Union of India challenged the Tribunal’s order before the Court.
- The Court allowed the Union of India’s appeal and set aside the Tribunal’s order.
- The Court clarified that the definition of AGR in the license could not be challenged and includes all items of revenue mentioned.
- The Tribunal’s jurisdiction to decide the validity of terms in the license, including the AGR definition, was affirmed by the Court.
- The TDSAT considered TRAI’s recommendations on heads of revenue to be included in AGR.
- The Tribunal held that AGR includes revenue from license activities, not from activities outside the license.
- Items such as Gain on sale of Capital assets and receipt from the sale of scrap were excluded from gross revenue for license fee computation.
- The Central Government can take a percentage of the licensee’s gross revenue from activities under the license, as per Section 4 of the Indian Telegraph Act.
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Issue
- The licensee can challenge the computation of adjusted gross revenue
- The challenge can be made at a certain stage and on specific grounds
- The grounds for challenge should be valid and relevant to the computation process
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Arguments
- The licensees argue that revenue has not been defined under the license.
- They contend that accounting standards, which are incorporated by reference in the license agreement, define what should be included as revenue.
- It is suggested that only revenue cash inflow can be considered as revenue in the definition of gross revenue, not all incomes recorded in the profit and loss account.
- Non-revenue items cannot be included in the definition of gross revenue according to accounting standards.
- The stand taken by the licensees may actually work in favor of the Department of Telecommunications.
- The licence fee is paid on the realised amount.
- Gross revenue includes revenue from non-licensing activities.
- Trade discounts and subscriber’s discounts are not recognized as revenue.
- Discounts are transparently reflected in the invoice.
- Fair value concept is not part of Accounting Standard-9.
- Customers receive discounts as part of tariff plans.
- The definition of gross revenue is not exhaustive.
- Accounting standards are mandatory and determine revenue.
- Revenue is measured at fair value of consideration received.
- Discounts and volume rebates are not considered as revenue.
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Analysis
- The parties are free to enter into a contract with a State voluntarily, and once accepted benefits, cannot question the terms.
- The contra proferentem rule does not apply as there is clarity in the definition of gross revenue in the agreement.
- Terms cannot be considered oppressive based on the Central Inland Water Transport Corporation ruling.
- The Government has the competence to make final decisions on the definition of gross revenue in the license agreement.
- The license fee is determined as a percentage of gross revenue which is the total revenue of the licensee company.
- The licensees cannot challenge the definition of gross revenue and are bound by the terms of the contract.
- The tribunal does not have jurisdiction to alter the definition of AGR in the license agreement.
- The meaning of gross revenue is defined clearly in the agreement and must be adhered to.
- Discounts and commissions must be accounted for in the gross revenue calculation.
- Trade discounts cannot be deducted from gross revenue.
- The agreement provides instructions on how licensees should prepare their accounts.
- Companies are obligated to maintain their books of accounts following accounting standards recommended by the Institute of Chartered Accountants.
- Parties’ subsequent conduct aids in interpreting provisions of a commercial contract.
- Interpreting revenue items should follow the doctrine of ejusdem generis.
- Penal interest can only be charged once for one period of default and cannot be capitalized.
- Levying interest is permissible when there is a contractual stipulation, and it can be compounded.
- Litigants cannot benefit from inconsistent or untenable stands and engage in prolonged litigation.
- Interest and penalty have been rightly levied based on the merits of the case.
- There are no grounds to reduce the interest and penalty amounts considering the nature of objections raised by the licensees.
- The objections were either barred by res judicata or constructive res judicata.
- The demands were based on a proper interpretation of the license agreement.
- Failure to pay the full amount results in a 50% penalty on the defaulted sum.
Decision
- The appeals of licensees are dismissed
- The appeals filed by DOT are allowed
- The findings recorded support the allowance of the appeals
- The order passed by the Court must be implemented regarding the inclusion or exclusion of items in gross revenue
Case Title: UNION OF INDIA Vs. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA
Case Number: C.A. No.-006328-006399 / 2015
