Disposed

Association of Unified Telecom Service Provider of India v. Union of India

TDSAT30 Aug 2007TELECOM PETITION/7/2003

Case brief

AI extract

What is this about?

The Tribunal determined the components of Adjusted Gross Revenue (AGR) for telecom licensees under the revenue-sharing regime. It approved most TRAI recommendations while excluding non-license-related income like dividends, capital gains, and consultancy fees. The court rejected TRAI's request for prospective application, ruling the order effective from the date each petitioner filed.

What did the court decide?

Directions issued to exclude specific revenue heads from AGR; TRAI's recommendation for prospective application rejected; order made effective from date of filing for each petitioner.

Association of Unified Telecom Service Provider of India… — Service and Employment | TDSAT (2007)

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

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6/7/2018

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL NEW DELHI

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DATED 30^th AUGUST, 2007

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(a) Petition No.7 of 2003 (MA No.2 of 2004)

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Association of Unified Telecom Service Providers of India

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(formerly Association of Basic Telecom Operators)

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Through its Secretary General

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B-601, Gauri Sadan

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5, Hailey Road

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New Delhi – 110 011

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Tata Teleservices (Maharashtra) Limited

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(formerly Hughes Tele.Com (India) Limited

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^st Floor, Pavile House

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Off Veer Savarkar Marg

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Inside Bombay Dying Compound

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Prabhadevi, Mumbai – 400 025

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Shyam Telelink Limited

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A-60, Naraina Industrial Area

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Phase-I

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New Delhi – 110 028

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Tata Teleservices Limited

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^th Floor, Tower 1, Jeevan Bharti

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124, Connaught Circus,

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New Delhi – 110 001

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HFCL Infotel Limited

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8, Commercial Complex Masjid Moth

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Greater Kailash-II

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New Delhi – 110 048 … Petitioners

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file:///E:/all%20judgement%20year%20wise/judgement%202007/30A.08.2007/Petition%20No.7%20of%202003%20and%20connected%20cases.htm

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

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6/7/2018

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Versus

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1. Union of India
Through its Secretary
Ministry of Communications Sanchar Bhawan
20, Ashoka Road
New Delhi – 110 001
2. Assistant Director General (LF-I)
Licensing Finance Cell-I
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi – 110 001
3. Telecom Regulatory Authority of India
Through its Secretary
A-2 / 14, Safdarjung Enclave New Delhi – 110 029 …Respondents
(b) Petition No.53 of 2004
Data Access India Limited
Block-E, 2^ndFloor
International Trade Tower
Nehru Place
New Delhi – 110 019 … Petitioner
Versus
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi – 110 001 …Respondent
(c) Petition No.81 of 2005

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file:///E:/all%20judgement%20year%20wise/judgement%202007/30A.08.2007/Petition%20No.7%20of%202003%20and%20connected%20cases.htm

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

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6/7/2018

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Arvind Mills Limited
(Telecom Division)
Naroda Road
Ahmedabad – 380 025 …Petitioner Versus
1. Department of Telecommunications Ministry of Communications Sanchar Bhawan 20, Ashoka Road
New Delhi – 110 001
2. Bank of Baroda
Corporate Banking Branch 57, Shamali Society Netaji Road
Mithakhali Six Road, Ahmedabad – 380 009 …Respondents
(d) Petition No.82 of 2005
1. Cellular Operators Association of India 14, Bhai Veer Singh Marg New Delhi – 110 001
2. Aircel Limited No.327, Sterling Towers
Anna Salai, Tenyampet Chennai – 600 004
3. Aircel Cellular Limited No.769, Spencer Plaza Anna Salai Chennai – 600 004
4. Bharati Cellular Limited H-5/12, Qutab Ambience
Mehrauli Rod New Delhi – 110 030

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file:///E:/all%20judgement%20year%20wise/judgement%202007/30A.08.2007/Petition%20No.7%20of%202003%20and%20connected%20cases.htm

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

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Hutchison Telecom East Limited
11, Dr.U.N. Brahmachari Street
Kolkata – 700 017
6. IDEA Cellular Limited
810, Kailash Building
26, K.G. Marg,
New Delhi – 110 001 … Petitioners
Versus
1. Union of India
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi – 110 001
2. Telecom Regulatory Authority of India
A-2 / 14, Safdarjung Enclave
New Delhi – 110 029 …Respondents
(e) Petition No.98 of 2005
M/s. Bharti Broadband Limited
(formerly known as Comsat Max Ltd.)
Regd. Office D-222/24
TTC Industrial Area, MIDC,
Nerul Village Shirwane
Navi Mumbai – 400 706 … Petitioner
Versus
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi – 110 001 …Respondent
(f) Petition No.48 of 2005
Videsh Sanchar Nigam Limited
Having its registered office at
Videsh Sanchar Bhawan

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file:///E:/all%20judgement%20year%20wise/judgement%202007/30A.08.2007/Petition%20No.7%20of%202003%20and%20connected%20cases.htm

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Mahatma Gandhi Road

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Mumbai - 400 001 …..Petitioner

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Versus 1. Union of India through its Secretary Ministry of Communications & Information Technology Department of Telecommunications Sanchar Bhawan 20, Ashoka Road New Delhi 2. Deputy Director General (LF – 1) Ministry of Communications & Information Technology Department of Telecommunications Sanchar Bhawan 20, Ashoka Road New Delhi ….Respondents (g) Petition 59 of 2005 Videsh Sanchar Nigam Limited Having its registered office at Videsh Sanchar Bhawan Mahatma Gandhi Road Mumbai - 400 001 …..Petitioner Versus 1. Union of India through its Secretary Ministry of Communications & Information Technology Department of Telecommunications Sanchar Bhawan 20, Ashoka Road New Delhi 2. Deputy Director General (LF – 1) Ministry of Communications & Information Technology Department of Telecommunications Sanchar Bhawan 20, Ashoka Road

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file:///E:/all%20judgement%20year%20wise/judgement%202007/30A.08.2007/Petition%20No.7%20of%202003%20and%20connected%20cases.htm

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TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL

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New Delhi ….Respondents

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(h) Petition No.57 of 2006

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Hughes Escorts Communications Ltd.
2 nd Floor, Nirlac Centre
B-25, Qutab Institutional Area
New Delhi – 10 016 …..Petitioner
Versus
1. Union of India
through its Secretary
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi
2. Assistant Director General (LF – I)
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi ….Respondents
(i) Petition No.102 of 2006
VSAT Services Association of India (VSAI)
through its Secretary
103, Ashoka Estate
24, Barakhamba Road
New Delhi – 110 001 ….Petitioner
Versus
Union of India
through its Secretary
Department of Telecommunications
Ministry of Communications
Sanchar Bhawan
20, Ashoka Road
New Delhi ….Respondent
BEFORE:
HON’BLE MR. JUSTICE ARUN KUMAR, CHAIRPERSON
LT. GEN. (RETD.) D.P. SEHGAL, MEMBER

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Petition No.7 of 2003

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For Petitioners : Mr.Ramji Srinivasan with Ms.Mandakini Singh,Advocates For Respondents 1&2 : Mr.P.P.Malhotra,ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma,Advocates Petition No.53 of 2004 For Petitioner : None For Respondent : Mr.P.P.Malhotra,ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma, Mr.Dincur Bajaj,Advocates

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Petition No. 81 of 2005 For Petitioner : Mr.U. Hazarika with Mr.Rajinder Kumar, Advocates For Respondents : Mr.P.P.Malhotra, ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma,Advocates

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Petition No. 82 of 2005

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For Petitioners : Mr.A.N.Haksar, Senior Advocate, Mr.Manjul Bajpai, Advocates

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For Respondent No.1-UOI : Mr.P.P.Malhotra, ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma,Advocates

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Petition No.98 of 2005

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For Petitioner	: Mr.Gopal Jain with Ms.Mridul Sharma,Advocates
For Respondent	: Mr.P.P.Malhotra, ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla,
	Mr.Gaurav Sharma,Advocates

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Petition No.48 of 2005 and Petition No.59 of 2005

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For Petitioners : Mr.Dipankar Gupta,Senior Advocate with Mr.U. Hazarika, Ms.Dharitry Phookan,Advocates For Respondents : Mr.P.P.Malhotra,ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma, Mr.Dincur Bajaj,Advocates Petition No.57 of 2006 For Petitioners : Mr.Ramji Srinivasan with Ms.Mandakini Singh,Advocates For Respondents : Mr.P.P.Malhotra,ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma, Mr.Dincur Bajaj,Advocates

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Petition No.102 of 2006

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For Petitioners : Mr.Ramji Srinivasan with Ms.Mandakini Singh,Advocates For Respondent : Mr.P.P.Malhotra,ASG with Mr.Vineet Malhotra, Mr.Chetan Chawla, Mr.Gaurav Sharma, Mr.Dincur Bajaj,Advocates

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O R D E R

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Members of petitioner Associations and other petitioners hold licenses for carrying on different activities in the telecom sector. As per condition of the license granted to them to carry on telecom services, the petitioners are required to pay a share out of the revenue generated by them for such service to the licensor. The relevant clause providing for revenue sharing is the same in all the licenses. Therefore, we have heard the petitions together. The petitioners are aggrieved of the interpretation being put by the licensor Department of Telecommunications (Government of India) on the question as to what constitutes gross revenue or what are the components of gross revenue available with a licensee from which the Government will take its share. Prior to 1999 when the new National Telecom Policy came into force, the Government was charging a fixed license fee from the licensees to whom licenses were issued to carry on telecom services. Under the new Policy the licensor shifted to a revenue sharing regime which means that the licensor shall get a percentage of share of the revenue earned by the licensee.

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The petitioners’ case is that the respondent, Union of India, is not entitled to recover its share of licence fee out of the entire revenue accruing to the petitioners. They contend that the respondent cannot claim a share in the revenue accruing to the petitioners (licensees) on account of their nonlicensed activities. By a detailed judgment dated 7^th July, 2006, this Tribunal noted that Section 4 of the Telegraph Act, 1885 gives the Central Government, exclusive privilege of establishing, maintaining and working of telegraphs and under the proviso to the said Section the Government has the right to transfer to any person this privilege by way of licence on such conditions as it thinks fit. This Tribunal held that the privilege conferred under Section 4 of the Telegraph Act is confined to “establishing”, “maintaining”, and “working” of telecommunication. The scope of licence does not go beyond the activities mentioned therein and it is only for these activities that the Government can grant a licence to another party. On this basis this Tribunal concluded that sharing of revenue can be only out of the gross revenue derived from the transferred privilege of establishing, maintaining and working of telecommunication which alone are the licensed activities. After coming to this conclusion, this Tribunal noted that under the provisions of the Telecom Regulatory Authority of India Act (hereinafter called “The Act”), the Government is required to seek recommendation of the

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Telecom Regulatory Authority of India(TRAI) in this connection. This Tribunal found that proper procedure in this behalf had not been followed as relevant material had not been placed before the TRAI to enable it to make its considered recommendations. Therefore, it passed the following order remanding the matter to the TRAI:-

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“In view of the fact we have come to the conclusion that there has not been an effective consultation with the TRAI which is mandatory under the TRAI Act, we think we should not further delve into the exercise of finding out which component of the AGR, as defined by the Government in the conditions of licence, deserves to be retained and which component which the petitioners contend is not derived from the licenced revenue of the licensee should be excluded at this stage. We think it more appropriate that the matter should be remanded to the TRAI which is the 3^rd Respondent herein, before whom the Government should produce the material relied by it while rejecting TRAI’s recommendation so that TRAI can consider the same and send its conclusions to this Tribunal and thereafter, this Tribunal will have the benefit of a comprehensive recommendation of the TRAI after considering the materials relied upon by the Government. While forming its conclusions the TRAI shall hear the Government as well as the licensees and consider the materials that may be placed before it by either side. In this process it is not necessary for the TRAI to hold fresh consultative proceedings unless it thinks necessary. During this proceeding before the TRAI the petitioners shall place before it their contentions in regard to the various components of AGR which they have challenged before this Tribunal and the TRAI after hearing the Government on this issue also, send its recommendations to this Tribunal preferably within three months of the receipt of this order.”

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In pursuance of the said order, the TRAI has gone into the matter in depth and has made its recommendations vide its Report dated 13^th September, 2006 submitted to this Tribunal. After the receipt of the recommendations of the TRAI, counsel for parties sought opportunity to file their respective responses qua the recommendations. This opportunity was allowed and after the responses were received the matter was heard by this Tribunal.

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In its Report, the TRAI has considered various heads of revenue and it has given its reasons followed by its recommendations about whether items under particular head should be included in the gross revenue of the licensee for purposes of calculating the share of the Government. Therefore, we have heard the matter on the basis of consideration of various heads of revenue.

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Mr.P.P. Malhotra, learned ASG argued that as per condition of license, the licensee has to pay a share out of entire revenue accruing to the licensee. According to him Government’s share does not come out of only profits of the licensee. The licensor is not concerned with the expenses of the licensee. The share of the licensor is to be paid out of the gross revenue earned by the licensee. This argument is not open to the respondents. This aspect of the matter has already been gone into by the Tribunal in these proceedings and the Tribunal has held against the Government vide order dated 7^th July, 2006. The Tribunal has analysed the legal position particularly in the light of Section 4 of the Indian Telegraph Act and come to the conclusion that AGR is only the revenue earned through licensed activity. In view of this categorical finding of this Tribunal, this issue cannot be re-agitated.

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Before proceeding to consider the various heads and the recommendations of the TRAI followed by the comments of the parties thereon, we would like to dispose of an argument advanced by the learned Additional Solicitor General appearing on behalf of Union of India. The learned ASG brought to our notice the order passed by the Supreme Court in an Appeal taken by the Union of India against the main judgment of this Tribunal dated 7^th July, 2006. The Supreme Court passed the following order on 19^th January, 2007 while disposing of the Appeal:-

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“Heard the parties.

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Pursuant to the direction of the TDSAT in the impugned order, a fresh recommendation has been made by the TRAI. In view thereof, we see no reasons to interfere. The appeal is dismissed. The appellant is, however, given liberty to urge all the contentions raised in this petition before the TDSAT.”

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Relying on the last line in the above order to the effect that liberty was given to Union of India to urge all contentions raised in this petition before the TDSAT, the learned ASG argued that he was entitled to re-open the principal issue as to what constitutes AGR. On the other hand, the learned counsel appearing for the petitioners submitted that the appeal of Union of India was dismissed by the Supreme Court and it was also observed “we see no reason to interfere”. This means that the order under appeal has been affirmed. Therefore, the Union of India is not entitled to argue the matter de novo. Further, it was submitted that unless the order of this Tribunal dated 7^th July, 2006 was set aside by the Supreme Court, the order remains as it is, rather, the appeal against the order having been dismissed, the order has become final and is beyond challenge now.

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We have considered the contentions of both the parties and we are of the view that the appeal against the order of this Tribunal having been dismissed by the Supreme Court, the order has become final and cannot be re-opened. When an order becomes final, it cannot be challenged before the authority passing the order. It is a basic principle of our jurisprudence that an authority passing an order cannot itself sit in appeal against the order. Therefore, we reject the contention of the learned ASG that he should be allowed to re-agitate the issues which were raised by way of appeal against our order dated 7^th July, 2006 before the Supreme Court.

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We would like to emphasize about a basic factor which has to be always kept in mind while undertaking this exercise. The license uses the works, revenue arising from licensed activity. Therefore, one has to always apply the test whether the revenue sought to be included in AGR arises from licensed activity. Keeping this in view, we have the following heads of revenue:

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1. Income from dividend.

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The Authority recommended that income from dividend even though part of the revenue, cannot be said to represent revenue from licensed activity and, therefore, should not be included in AGR. The recommendation of the Authority has been accepted by the petitioners. However, Union of India does not accept this recommendation of the Authority. According to it, the income generated from telecom activity may be invested in other businesses/mutual funds etc. The interest or dividend which this income yields should be part of the revenue of the company because this income is generated out of the income from the licensed activity. In our view the contention raised on behalf of Union of India cannot be accepted. The part of income which is invested by the licensee and which earns dividend, has already been subjected to deduction on account of share of the Government out of the gross revenue. In the income/revenue accrued in the first instance, the Union of India has already taken its share as per the revenue sharing regime. Thereafter, if the licensee is able to save some amount and invest it in some securities or mutual funds that cannot be said to be income from licensed activity. That is an income generated from money saved after meeting all the liabilities including payment to Government, its share of the AGR. The stand of Union of India in this behalf is, therefore, untenable. We affirm the recommendation of the TRAI.

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2. Interest income.

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Interest income can be generated in different forms viz.,

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(a) interest earned on investment of savings made by a licensee after meeting liabilities including liability on account of share of the Government in the gross revenue.

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(b) interest earned on investment of funds received by way of deposits received by licensees on account of security against charges, particularly, from customers using international long distance call service whose bills are heavy; and

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(c) interest earned on deposits of funds received by way of deposits from a customers on account of concessions given in the charges payable for using the telecom services.

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The petitioners accept the recommendation of the TRAI with respect to preposition (a) above, i.e. interest earned under this head should be excluded from AGR. However, with reference to heads (b) and (c) above, TRAI has recommended that such interest income ought to be included in the AGR while the petitioners say that it should be excluded from AGR. According to the Union of India the income under all the heads including head (a) should be included in AGR.

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On head (b), the petitioners have tried to argue that these deposits are invariably refunded on disconnection of service and, therefore, interest earned thereon should not be included in AGR. We are unable to agree with this argument. Firstly, the service continues for years together and the deposits remain with the licensee. Secondly, if deposits are refunded in some cases, in other cases which are generally more in number, deposits are received on account of fresh enlisting of customers. Thus, the fund becomes a revolving fund and substantially the total figure of the fund keeps on improving rather than depleting. Therefore, we are unable to accept the submissions made by learned counsel for petitioners in this behalf. Merely because the deposits are refundable should not make any difference. The basic fact which prevails is that the deposits are received on account of licensed activity and income earned thereon ought to form part of AGR.

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In our view, so far as head (a) is concerned, this income is the same as income on account of dividends and this has been rightly excluded from AGR. Reasoning is the same as in case of dividend income. We agree with the recommendation of TRAI on this. So far as heads (b) and (c) are concerned, we are of the view that income earned on deposits under these heads should form part of AGR as this income is directly related to telecom service which is a licensed activity. Deposits received for meeting a contingency like non-payment of the monthly bills on account of call charges, if invested, generate interest income which is directly relatable to licensed activity and, therefore, ought to be part of AGR. Similarly, if the telecom companies i.e. the licensees, offer special rates of charges to customers who give deposits, such deposits are linked to licensed activity and interest earned on such deposits being reinvested, should form part of AGR.

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3. Capital Gains

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TRAI has recommended that revenue on account of sale of immovable properties, securities, warrants or debt instruments, other items of fixed assets should not be part of AGR. The Authority has put a rider to the effect that such revenues may be includable in AGR if there is verifiable data that the receipts had come from establishing, maintaining and working of telecommunications. The petitioners have accepted this recommendation of the Authority except the rider on account of verifiable data about receipts coming from establishing, maintaining and working of telecommunication. The Union of India has simply objected to this recommendation of the Authority without giving reasons for its stand. In our view, items under this head partake the nature of items like dividend income. Sale of assets on which capital gains are made cannot be said to be part of licensed activity. Immovable property or securities might have been purchased out of the savings after meeting liabilities on account of Government share in AGR and income tax etc. Such assets are no longer part of licensed activity. The stage at which the funds are utilized for purchase of immovable properties or securities is after they have severed their connection with AGR. We agree with the petitioners that there is no need for the rider put by the TRAI i.e. unless there is verifiable data with the receipts have come from establishing, maintaining and working of telecommunication. Whether the capital gains arise from what is mentioned in the TRAI rider or from the sale of other assets, the basic concept remains the same and, therefore, there is no justification to make a distinction as the TRAI has done. We are of the view that Capital Gains made on account of sale of fixed assets etc. should not form part of AGR.

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4. Gains from Foreign Exchange rates fluctuations.

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According to the TRAI impact of foreign exchange fluctuations, whether upward or downward, on AGR must be ignored. Foreign exchange fluctuation is a contingency which has impact on every business which may have something to do with foreign exchange. Fluctuations in foreign exchange rates have nothing to do with licensed activity of telecom service providers.

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Union of India, however, submits that incomes accruing on account of foreign exchange fluctuations and which are accounted for in the income statements of the licensee form part of the revenues and hence are subject to levy of license fee by treating it part of AGR. We are unable to accept this. Foreign exchange fluctuations do not arise from licensed activity and, therefore, need not be included in AGR. Secondly, the Union of India does not say anything whether they will permit deduction from AGR if loss occurs on account of such fluctuations.

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We affirm the recommendation of TRAI on this point.

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5. Reversal of provisions and vendor’s credits.

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The TRAI has recommended:

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(a) Revenue arising out of reversal of provisions like bad debts and taxes should not form part of AGR;

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(b) Revenue arising from reversal of Vendors’ credits should form part of AGR.

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Petitioners have argued that both heads should be excluded from AGR. According to them it is not revenue earned from licensed activity. Further, according to them reversal of vendors’ credit can arise not only from capital expenses but also for revenue expenditure. It is argued that when in case of expense transactions, amounts originally charged/debited by vendors are not permitted to be deducted whilst computing AGR, how can amounts credited by vendors be included in AGR!

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Union of India has said nothing to controvert this. We find force in the submission of the petitioners. Therefore, we direct modification of TRAI recommendation under this head to the extent it has allowed part (b) above to be included in AGR. We hold that both (a) and (b) should be excluded from AGR.

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6. Income from property rent.

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The TRAI has recommended that revenue from property rent should be excluded from AGR provided it is clearly established that the property is nowhere connected to “establishing, maintaining

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and working of telecommunication”.

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DoT has accepted this recommendation of TRAI. However, some of the petitioners have objected to the rider put by TRAI. They say this renting of property is not part of licensed activity and, therefore, it should be completely out of AGR net.

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In our view the rider provided by the TRAI is justified in the present context. Rental income from properties utilized in establishing, maintaining and working of telecommunication, which are licensed activities, has to be included in AGR. We thus, affirm the recommendation of the TRAI under this head.

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7. Income from sale/lease of Passive Infrastructure like towers, dark fibre etc.

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The petitioner submitted that setting up of passive infrastructure like towers is not an activity which requires license. Even under the present scheme, the tower structure is being erected by independent parties and is being offered to service providers on rent. Similar activity when carried out by a service provider should not be treated as part of licensed activity. Therefore, revenue earned from rent/leasing out passive infrastructure should not form part of AGR. Petitioners also argued that renting/leasing of dark fibre, towers etc. is carried out by IP-1 Operators. These operators do not require any license. Therefore, it is a non-licensed activity and should be out of purview of AGR. According to TRAI, service providers create assets for establishing, maintaining and carrying out telecom activities and capabilities to provide towers and dark fibres on rent emanate from licence. The licensees have special privilege like right of way which facilitates laying down of ducts and fibre. This facility is not available to independent/non-licensed operators. Accordingly, TRAI recommended that renting and leasing of passive infrastructures by service providers is part of normal telecom activity and should, therefore, be part of AGR. We agree with the reasoning of the TRAI and affirm its recommendation that revenue from rent of towers, dark fibres etc. should be part of AGR.

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8. Other income including miscellaneous income.

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According to petitioners, miscellaneous income from liquidated damages, sale of scraps, insurance claim, revenue collected on behalf of non-licensed companies, reimbursement of costs/expenses received from other companies, management consultancy fee, training charges, notice pay received from employees do not accrue either from subscribers or from other telecom service providers for provisioning of telecom service, and therefore, should not be part of AGR. It was further submitted that telecom companies are undertaking other activities also like engaging in business like ISPs, handset vendors, insurance companies like to leverage these sources for their benefit by providing service to the subscriber of telecom companies. Hence, such amounts collected by telecom company on behalf of third party as well as commission earned for providing billing collection to third party should not be included in the AGR.

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It is submitted on behalf of petitioners that such activities do not require a telecom licence. The TRAI, however, took the view that other income is a very broad term and includes revenue streams of a number of activities which are closely related to telecom. Some of these incomes are in the nature of capital receipts while others are revenue receipts. These revenue streams could be from licensed activity or from non-licensed activity. According to TRAI, it is not possible to have an exhaustive list of items falling under this head. The items have to be examined on the basis of whether they fall under the category of licensed activity or non-licensed activity. The Authority recommended:-

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(a) Revenue streams like sale of tenders, directories, forms, forfeiture of deposits/earnest money, management fees, consultancy fees, and training charges from the telecom service should form part of AGR.

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(b) Revenue from sale of fixed assets which is in the nature of capital receipts and insurance claims should not be part of AGR.

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(d) Other items falling under the categories of miscellaneous/other income will have to be decided for taking a view regarding its inclusion or exclusion on a case to case basis.

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The DoT has agreed with the recommendations of TRAI made under this head.

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In our view the recommendation of TRAI needs to be partly modified. Revenue earned from management consultancy fee and training charges from telecom service should not form part of AGR. These are activities which do not require a license. Any party could undertake these services and the revenue which is generated, arises from personal efforts of the provider. Consultancy, management and training services are in the nature of professional jobs. The mere fact that training or consultancy is rendered for equipping somebody to be a better IT professional does not mean consultancy or training activity itself becomes a licensed activity. Therefore, in our view revenue generated from such activity has to be excluded from AGR.

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Similarly, payments received on behalf of third party should not form part of AGR. Such payments are meant to be passed on to the concerned party. It is a service being rendered to the customer whether on a small commission or otherwise. Such receipts do not form part of the revenue of the collecting service provider and, therefore, should not be included in AGR.

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9. Inclusion of Revenue from one licensed activity in the revenue of another licensed activity.

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This issue has been particularly agitated by VSNL in Petition No.48 of 2005. Their case is that prior to 01.04.2002, VSNL had monopoly for ILD service. With effect from 01.04.2002, VSNL ceased to be a Government owned company. The old ILD license permitted VSNL to carry both the activities i.e. ILD service as well as TV uplinking. Under the new regime separate licenses had to be obtained. License for TV uplinking service was obtained from Ministry of Information & Broadcasting while the ILD license was issued by DoT. TV uplinking service cannot be rendered in the ILD license due to definition of the word service in that license. Service has been defined as “service covered collection, carriage, transmission and delivery of voice or non-voice message over

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licensees’ network and includes provisions of all types of services except for those requiring a separate license”.

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Since, for TV uplinking facility a separate license is required, such service could not be carried under an ILD license. The ILD license issued by DoT carries a revenue sharing scheme out of the gross revenue which is not there in case of TV uplinking license issued by the Ministry of I&B. The said license is practically free. Therefore, other service providers of TV uplinking service do not have to pay practically any license fee. If VSNL has to pay a percentage of revenue to the DoT out of the revenue earned from TV uplinking facility that would be discriminatory as well as outside the scope of the ILD license issued by the DoT. It will be denial of a level playing field to similarly situated players. We find merit in the submissions made by the petitioners in this behalf. In our view, TRAI has not really adverted to the points raised on behalf of the petitioners regarding two licenses and the definition of service. The DoT had nothing to say regarding this item. In conclusion, we say that we are unable to agree with the recommendation of the TRAI according to which revenue from TV uplinking and Internet service is to form part of AGR. We hold that revenue from this service is to be excluded from AGR.

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10. Revenue from sale of equipment including sale of handsets.

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The sale of telecom equipments like VSAT terminals, PMRTS handsets, CMTS handsets is not a licensed activity and, therefore, should not form part of AGR. TRAI recommended that revenue from discernible and stand-alone sale of handsets or telecom equipment, which is not bundled with telecom service, should be excluded from AGR. It further recommended that sale of handsets or telecom equipment bundled with telecom service should be part of AGR. The DoT argued in this connection that sale of handsets is an integral part of telecom business and, therefore, revenue generated therefrom should form part of AGR. It was also argued on its behalf that segregation of revenue was very difficult and for that reason also it should also form part of AGR. Further, it was

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also submitted that it was not possible for a licensee dealing with telecom service to have a standalone sale of handsets or telecom equipments. According to DoT, if such activities are permitted, it may lead to evasion.

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We are unable to appreciate this stand of the DoT. In advancing such propositions DoT is overlooking the basic requirement that the activity should be linked to licensed activity. Sale of equipments including handsets, is an activity which does not require any license and anybody could carry such an activity. If we accept the stand of DoT it will mean that those having a license from DoT, will have to share their revenue with DoT arising from sale of equipment including handsets as well and those who do not have a license will be free to pocket the entire revenue. This is totally unfair and, therefore, has to be rejected. We, therefore, agree with the recommendation of the TRAI that revenue from discernible or stand-alone sale of telecom equipment which is not bundled with telecom service should be excluded from the AGR. However, if the telecom equipments or handsets are bundled with telecom service, the revenue shall be part of AGR. Bundling the telecom service will mean that if somebody buys your handsets, you give concession in service or reduce monthly rental. Such a sale of handset is linked up with the telecom service i.e. licensed activity and, therefore, will come within the purview of AGR.

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11. Receipts from USO Funds.

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USO subsidy is granted by DoT to cover the operating losses of telecom licensees from telecom connections provided in rural areas. The subsidy does not generate any profit for telecom licensees but only help them to reduce their losses from rural extension to a certain extent. The DoT has not contested the recommendation of TRAI. Therefore, we affirm the finding of TRAI that receipts from USO Fund will not be part of AGR.

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12. Receipt from ADC (Access Deficit Charge).

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ADC has all along been treated as part of AGR. The TRAI has recommended that revenue receipts on account of ADC should be part of AGR. This recommendation of TRAI has not been

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contested by any party including DoT. Only COAT in its written submissions says that ADC in the hands of BSNL should be part of AGR. But AGD in hands of private cellular operators should not be included in AGR. No reason is given for the suggestion. It does not appeal to us. We are in agreement with the reasoning of TRAI and, therefore, affirm its recommendation in this behalf.

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13. Deduction of leased line charges, port charges, interconnection set-up costs, signaling charges.

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Petitioners submitted before the Authority that many charges which are paid by one operator to another operator, are treated as revenues in the hands of both the operators resulting in dual charge on the same revenue. For example, charges under leased circuits, port charges, co-location and set up facilities are paid by one telecom operator to the other. These charges are not allowed as deduction even though these are interconnection or access charges which are essentially incurred for carriage and termination of calls. The petitioners have submitted that as deduction of these charges is not permitted, it is resulting into dual levy of license fee on the same revenue. Petitioners also submitted that these charges are in the nature of interconnection charges and should be excluded from AGR on the same premise that interconnection usage charges are allowed for deduction from AGR.

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On the other hand, the DoT is of the view that deductible costs are those which are charged on call by call basis. The amount passed on to other service providers for acquiring leased circuits, ports, bandwidth from others for provisioning of network capable of offering telecom service and which are not for carriage of calls is not deductible as these are not items of costs. The Authority was of the view that telecom is a networked industry and setting-up of interconnection with other operators is as much part of operators’ cost as any other element of its own network. Payments made to other service providers on account of port charges, leased lines are costs for the service providers for giving effective telecom services, expansion of their own network and interconnecting with other operators which is also mandatory under the Licence. The Authority also felt that there was no double category of the revenue for the purpose of levying licence fee as revenue for providing ports, leased lines etc. is only included in the profit and loss account of interconnection provider. Access facilities could either

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be taken on lease or built by the operator. Costs incurred when lines are taken on lease need not be deducted from gross revenue to arrive at the figure of AGR. The Authority was of the view that expenditure on effective network operation viz. port charges etc. cannot be considered similar as interconnection usage charge as interconnection usage charge is revenue collected from the customer by one service provider for using telecom network of another service provider. The interconnection usage charge eventually passed on to another operator. It is in this background that exclusion of interconnection usage charge is specifically provided in the Migration Package and also in the respective service licenses.

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According to the Authority other items of cost like roaming signaling charges are a fixed monthly charge and is not incidental to carriage of calls. Not being in the nature of pass through charges, they need not be deducted from the gross revenue. On cost of content, the Authority was of the view that input cost of content service is in the nature of cost and, therefore, was not deductible from gross revenue for purpose of calculation of AGR. The Authority concluded that costs on account of port charges, interconnection set-up charges, leased lines sharing of infrastructure, roaming signaling charges and content charges should form part of AGR. We have heard the counsel for the petitioners who are canvassing that these charges should be deducted from AGR. However, we find that the detailed reasoning of the Authority on this aspect cannot be faulted. Accordingly, we affirm the recommendation of the Authority.

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14. Bad debts, waivers, discounts from AGR.

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The petitioners have basically submitted that debts, waivers and discounts represent failure of the service provider to realize the amounts. To impose licence fee on these items would mean subjecting the operators to double jeopardy – by failing to realize the amounts they lose the revenue. If such amounts are notionally added for the purpose of calculating AGR it will amount to adding insult to injury. Basic principle is that licence fee should be payable on realized revenue. Amounts which are lost on account of discounts, bad debts or rebates or waivers reduce the revenue causing loss to the operator. Such amount cannot be treated as revenue and the licensees cannot be asked to

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pay licence fee thereon. It goes without saying that in case these amounts are recovered in future they will automatically form part of gross revenue and will be subjected to licence fee. According to DoT, bad debts result on account of inefficiency and allowing deductions on this account would encourage inefficiency. The Authority on the basis of a strange reasoning recommended that bad debts should not be excluded from AGR. The reasoning which prevailed with the Authority is that bad debts are normal costs attached to business and are standard items of expenditure in the profit and loss account. Being part of business such risks including recovery of such costs is built-in in the tariff structure. There is inherent possibility of its occurrence in business. Therefore, according to the Authority, there was no justification for excluding bad debts from AGR. We are unable to accept this reasoning. Bad debts, waivers or discounts are actual monies lost by the service provider. Therefore, such losses have to be excluded from AGR. Allowing amounts on account of such losses to be included in AGR would mean that while the party incurs loss it has to pay licence fee on the loss also. The recommendation of TRAI in this behalf is, therefore, set aside and we recommend that items under this head have to be excluded from AGR.

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15. Inclusion of items of revenue on accrual basis but exclusion of items of cost on actual payment basis.

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The petitioners are at pains to point out inconsistency and unfairness in following the practice of taking into consideration revenue on accrual basis while costs are allowed to be deducted on actual payment basis. To demonstrate this it was contended that service tax is included in the revenue on accrual basis but deduction is allowed only on actual payment. This results in difference between revenue booked and deductions made. As a result of this most service providers end up paying licence fee even on the uncollected portion of the service tax. DoT has supported the existing practice. The Authority concluded that service tax is not a revenue for the service provider but service provider is only a collecting agency on behalf of the Government. The inclusion and exclusion on this item should be on accrual basis. The Authority recommended that service tax should be shown on accrual basis both for inclusion and exclusion for the purpose of AGR. It also recommended that interconnection usage are also to be shown on accrual basis both for inclusion and

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exclusion from the gross revenue for purpose of AGR. We find no reason to differ with the view of the Authority on this point. The recommendation of the Authority is, therefore, affirmed.

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In the end the TRAI has recommended that its recommendations, if accepted, should be effective from a prospective date.

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Petitioners have challenged this part of recommendation of the TRAI on the ground that this was beyond the scope of reference to the TRAI and this gratuitous observation ought to be ignored.

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In our view this part of recommendation of the TRAI has to be rejected on a stronger legal footing rather than what the petitioners have stated. We have to see what was the issue before the Tribunal and what was referred for TRAI’s recommendations. The issue raised before the Tribunal by the service providers was as to what should be the constituents of AGR for the purpose of paying its share of revenue to the Government. The Tribunal in the first instance vide its order dated 7^th July, 2006 determined the principle on which it should be determined as to what should constitute AGR. The matter was referred to TRAI for making recommendations about individual heads of business activity as to what should be included in AGR and what should not be. The TRAI made its recommendations which we have considered in the light of arguments advanced by the parties and we have given our conclusions about the same. The result of this entire exercise is that so far as this Tribunal is concerned the issue has been finalized. The declaration of what should constitute gross revenue by this Tribunal means that at all times gross revenue should have been calculated on this basis. The present decision will be effective in finding out the figures of gross revenue. There is no reasonable basis to make this order effective from a prospective date. The matter has been pending determination for all these years for which nobody can be blamed. The respondent should not reap the benefit of the time lag in completing the legal process. We reject the recommendation of the TRAI for making its recommendations effective prospectively.

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The next question is from what date they should be made effective. We are dealing with specific cases filed before us by various petitioners. The date when a petitioner approached this

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Tribunal is the date on which it registered its grievance and sought redressal. Therefore, we make this order effective for each petitioner from the date it approached the Tribunal.

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All the petitions stand disposed of in terms of this order so far as the issue of AGR is concerned. If there is any other issue involved in any petition, such a petitioner will be free to agitate the same in accordance with law.

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…..……………..J (Arun Kumar) Chairperson

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………………. (D.P. Sehgal) Member

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Association of Unified Telecom Service Provider of India v. Union of India

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Association of Unified Telecom Service Provider of India v. Union of India

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