NEW DELHI: In a major setback to telecom service providers, the Supreme Court on Thursday allowed the government to recover licence fees and penal interests worth Rs 92,000 crore from them based on adjusted gross revenue (AGR).While the government had sought to define AGR as all incomes of a telecom firm, telcos wanted AGR to include only income from telecom services.
A three-judge bench headed by Justice Arun Mishra upheld the government’s view. “We have held that the definition of AGR will prevail. We have allowed the appeal of the Department of Telecom and dismissed that of licencees (telcos),” it ruled.
The bench also made it clear that there would no further litigation on the issue and it would fix a timeframe for payment of dues by the telcos. The two largest incumbents — Bharti Airtel and Vodafone Idea — will now have to pay Rs 21,682 crore and Rs 28,308 crore, respectively, to the government. Bankrupt Reliance Communications will have to pay Rs 16,456 crore, while BSNL and MTNL’s payouts stand at Rs 2,098.72 crore and Rs 2,537.48 crore, respectively. New entrant Reliance Jio has to pay only Rs 13 crore. Telecom stocks took a beating on the bourses with Vodafone Idea losing 23.36% and Airtel falling 9% before recovering to close the day up 3.31%.
AGR: Dispute dragging for over a decade
The core dispute has been dragging on for more than a decade now, with the first case filed by COAI in 2005 contesting the government’s definition of AGR used to calculate fees and levies, contending that the Department of Telecom’s (DoT) move to include certain heads was in contravention of the Telegraph Act andTRAI recommendations.
So long has the litigation been dragging on that the industry now stands to pay out nearly twice the original disputed amount in interest alone. According to the DoT affidavit, telecom players owe the government Rs 23,189 crore in AGR dues and another Rs 41,650 crore in interest, alongside a penalty of Rs 10,923 crore and Rs 16,878 crore interest levied on the penalty due.
The industry has expressed “deep disappointment” with the verdict, with Rajan Mathews, president of the Cellular Operators Association of India (COAI) stating that the sector is already reeling under a “daunting debt of Rs 4 lakh crore”. “The sector is in dire financial straits as operators are making negative returns on their investments. Telecom EBITDA continues to contract, while the interest expense of the industry continues to increase. The taxes and levies in the Indian telecom sector, ranging from 29 per cent to 32 per cent, are one of the highest globally,” he said.
Bharti Airtel also responded expressing disappointment, noting the issue of including non-telecom revenues in AGR calculations, which is the DoT’s demand, has gone through several rounds of litigation which “have been in favour of service providers till now”. “This decision has come at a time when the sector is facing severe financial stress and may further weaken the viability of the sector as a whole,” an Airtel spokesperson said.