Blow to Bharti Airtel, Voda Idea: SC rejects appeal against AGR definition

We are disappointed by the verdict of the Hon'ble Supreme Court, Airtel says in a statement

Supreme Court on Thursday rejected telecom companies’ appeal against the Union government’s definition of Adjusted Gross Revenue (AGR). The apex court will later decide on the timeframe for the operators to pay AGR.

The definition of AGR has been a long standing issue between the Department of Telecommunications and the Telecom Service Providers (TSPs), in particular, on some items that the TSPs strongly believed should not be included while calculating AGR since these are not part of the core telecommunications services.

AGR is a measure of income calculated from a company's gross income and is used to determine the taxable income.

The Cellular Operators Association of India (COAI) had in 2005 filed the first case, challenging the government’s definition on calculation of AGR. It had contended that the components of AGR, which the government was trying to include, were contrary to the Telegraph Act and the recommendations made by the Telecom Regulatory Authority of India (TRAI).

While the industry has already paid 85% of the demand raised by the DoT, the remaining 15% has remained in disput for a very long time with the telcos getting favorable judgments in various legal forums, including Telecom Disputes Settlement and Appellate Tribunal (TDSAT), High Courts and even the Supreme Court.

The telecom companies have withheld these payments as per legal judgments till date that have clearly favoured the arguments made by the industry on the definition of AGR, industry sources said.

After today's judgment, the industry will need to pay these dues to the government. The total dues amount to Rs 92,641 crore (disputed actual demand is Rs 23,189 crore, levy of interest of Rs 41,650 crore, penalty of Rs 10,923 crore and interest on penalty of Rs 16,878 crore). The industry feels that the demand is unjust given previous judgments, where the same was held in favour of the industry by TDSAT on two occasions (2007 and 2015). The Supreme Court in 2011 also remanded the matter back to the TDSAT for interpretation of the heads and computation thereof.

Experts feel that the telecom industry is in deep financial distress and any arbitrary demand/penalty imposed on it will prove to be catastrophic. Operators like Reliance Communications, Aircel, Telenor and Tata Teleservices have already closed down or are in Insolvency and Bankruptcy Code (IBC), so recovery of the said amount from them will never happen.

After the judgment, a statement released by Airtel said, "We are disappointed by the verdict of the Hon’ble Supreme Court. The definition of AGR has been a long standing dispute between the DoT and the Telecom Service Providers (TSPs) dating to 2005. The issue of inclusion of revenue from non-telecom activities and interpretation of the heads included in the definition of AGR under the license conditions has been through several rounds of litigation, which have been in favour of the TSPs till now."

"The TSPs have invested billions of dollars in developing the telecom sector and providing world-class services to consumers. 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. Of the 15 old operators impacted by the order, only two private sector operators remain in service today. The Government must review the impact of this decision and find suitable ways to mitigate the financial burden on the already stressed industry. We will be able to comment further only after reviewing the order in detail," the statement added.