The Supreme Court has permitted the reconsideration of Adjusted Gross Revenue (AGR) dues for telecom companies like Vodafone Idea, offering relief from the burdensome 2019 judgment. This move could lead to the waiver of hefty interest and penalties. It addresses long-standing disputes over revenue calculations in the sector.
In a significant development, the Supreme Court has directed the reconsideration of Adjusted Gross Revenue (AGR) dues for Vodafone Idea, providing a pathway to waive interest and penalties imposed under the controversial 2019 ruling. This decision aims to mitigate the damage caused by the October 2019 judgment in Union of India vs Association of United Telecom Service Providers of India, which had severely impacted telecom operators.
The telecom sector in India shifted from a fixed licence fee model in 1994 to a revenue-sharing framework under the New Telecom Policy of 1999, crediting it for substantial growth. Operators share 8 percent of AGR as licence fees with the government, where AGR is gross revenue minus items like service tax and sales tax. A key dispute centered on whether AGR should reflect actual revenue received or notional revenue based on published tariffs.
For instance, if a prepaid voucher with a maximum retail price of Rs 100 is sold at a 25 percent discount for Rs 75, telecom firms argued for fees on the actual Rs 75, while the Department of Telecommunications demanded 8 percent on Rs 100. The Telecom Disputes Settlement Appellate Tribunal (TDSAT), under Justice Aftab Alam in 2015, ruled in favor of actual revenue, deducting discounts and rebates.
However, the Supreme Court in 2019 reversed this, holding that gross revenue includes all sources and fees apply to published tariffs, leading to a principal liability of Rs 23,000 crore across companies. Compounding the issue, interest under Clause 20.5—at 2 percent per month above the State Bank of India's prime lending rate, plus penalties—ballooned the total demand to Rs 93,000 crore, with Rs 70,000 crore (75 percent) from interest and penalties.
Arvind P. Datar, a senior advocate who represented a telecom company in the 2019 case, noted, "It is an elementary principle of accounting that the word 'revenue' refers to the actual inflow that accrues or arises to a company." He highlighted that Accounting Standards (AS-9) mandate revenue recognition after discounts, contrasting the Court's view that such standards are mere guidelines not overriding licence agreements.
Operators had followed TDSAT orders until 2019, making penalties unjust, Datar argued. Despite the government's proposal for a 20-year repayment, the Court mandated 10 years. The recent ruling invokes the Supreme Court's 2016 emphasis on economic impacts of judgments and a 1970 principle that penalties apply only to conscious disregard of obligations, offering a chance to alleviate the sector's financial strain.