Informist, Tuesday, Mar 1, 2022
By Sreejiraj Eluvangal
KOCHI – In a judgement that can have a far-reaching impact on the telecom sector, India’s apex telecom disputes settlement body has ruled that the government cannot exempt public sector companies from paying revenue share merely because they are owned by the government or because they get only a small portion of their revenue from telecommunication-related services.
Instead, the tribunal said, exemption can be given to such companies--including Power Grid Corp of India Ltd, GAIL India Ltd, Delhi Metro Rail Corp, ONGC Ltd, Oil India Ltd and Railtel Corp of India--only if the same is extended to private sector players.
The ruling is likely to free a number of private sector internet service providers, such as GTPL Hathway Ltd, from having to pay heavy regulatory charges imposed by the DoT two years ago.
The judgement by the Telecom Disputes Settlement and Appellate Tribunal may also help telecom service providers such as Bharti Airtel Ltd and Vodafone Idea Ltd claim that they were subjected to discriminatory treatment by the government.
REVENUE SHARE IMBROGLIO
The ruling came in appeals filed by two datacentre operators--Netmagic Solutions Pvt Ltd and Data Ingenious Global Ltd--against the government's move to force them to pay revenue share just because they hold internet service provider licences.
The internet service provider, or ISP, licence contains a clause that requires the holder to fork out 6-8% of the company’s revenue to the government as a regulatory levy. Similar clauses are also found in most telecom-related licences, such as those for mobile service providers, long-distance connectivity providers, bandwidth providers and universal access providers.
However, traditionally, all these companies used to pay only a share of the revenue generated from the licenced activity--such as providing internet services or telecom services--to the government, and not a share of their entire revenue.
In the case of datacentre operators such as Netmagic, for example, its revenue from its ISP business would be a tiny portion of its overall revenue. However, if it were to calculate this levy on its entire operation, it would have been stuck with a much larger bill.
For example, for a company like Power Grid Corp Ltd, the ISP revenue is estimated to be less than 0.1% of the company’s total revenue. Hence, it would pay 8% of this 0.1%, instead of 8% of its total revenue, most of which comes from its power transmission business.
However, such calculations went for a toss when a Supreme Court bench headed by Justice Arun Mishra ruled on Oct 24, 2019 that the particular clause that talked about revenue share did not make any distinction between revenue generated from licence-related activities and revenue generated from other activities of the company.
As such, the bench ruled, companies should have been paying a share of their entire revenue.
This led to the telecom department recalculating the dues of all such licence holders, including public sector companies such as Railtel Corp, Power Grid, GAIL India, ONGC and Oil India, with retrospective effect.
DoT demanded a whopping 4 trln rupees from these public sector companies alone as back dues for having ‘miscalculated’ their revenue share for several years.
It also sent such notices to private sector players such as Netmagic.
One of the biggest casualties of the move was Vodafone Idea Ltd, which was suddenly slapped with a demand notice of around 560 bln rupees, while Bharti Airtel was saddled with a bill for 430 bln rupees.
The only player that escaped the move lightly was Reliance Jio, which got a bill of only 1.98 bln rupees, as it had shifted most of its non-telecom activities to subsidiary companies.
Under pressure, DoT later withdrew demand notices issued against most public sector companies, including Power Grid Corp, GAIL India and ONGC, but not those issued against private companies, forcing Netmagic and Data Ingenious to approach the telecom tribunal.
DOT DEFENCE
DoT put forth three arguments to defend its case in front of the TDSAT--two of which were entirely dismissed by the tribunal, while the third was partially allowed.
The first point was on ownership. It argued that “PSUs form a class in themselves as they substantially discharge governmental functions and represent public funds” and, therefore, it was in public interest to give them an exemption.
The second argument was that the revenue generated by these companies under the head of telecom services forms a “very negligible and small part of their total revenue”. It pointed out that such services accounted for only 0.0002% of revenue for GAIL, 0.00028% for DMRC and 0.001% for Oil India, and therefore it was unfair to calculate the revenue share on the entire top line of the company.
The third point was that the Supreme Court judgement was given in a case about mobile service providers, and therefore it had decided to withdraw notices issued to other service providers, such as internet service providers, long-distance and bandwidth service providers and so on.
The first point was dismissed by TDSAT by pointing out that public sector and private sector companies cannot be treated differently in front of the law.
“There is no scope to differentiate between two sets of licencees having same or similar licences only on the basis of their ownership, private or public. The statutory rights and liabilities must remain the same for both the classes in so far as they arise from the licences/agreements under consideration. The same conclusion would flow from the requirements of equality, fairness and level playing field,” it said.
On the second argument, that such services contributed only a small portion of these companies’ revenue, TDSAT said there was no legal basis for giving exemptions to companies generating only a small portion of their revenue from licenced services, while denying it to those generating a large portion of their revenue from such activities.
“The difference in ratio of revenue from licenced qua non-licenced activities can not be a germane and relevant basis for change of [adjusted gross revenue] terms for some licencees (PSUs) and thus create two classes amongst licencees holding the same licence.”
On the final argument--that the Supreme Court judgement mentioned only telecom companies--and not ISPs and others even though they too had a similar clause in their licences--TDSAT partially allowed this line of reasoning.
TDSAT said DoT can restrict the scope of the Supreme Court judgement to those holding mobile and universal access licences--such as Vodafone Idea, Bharat Sanchar Nigam Ltd and Bharti Airtel Ltd, while excluding those holding ISP licences, long-distance licences, bandwidth carrier licences and so on.
Such a reading of the judgement has the advantage of excluding all public sector units from the scope of the judgement except Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd.
Thus, companies like Power Grid Corp--holder of an ISP licence--can be excluded from having to pay a share of its entire revenue.
However, pointed out TDSAT, this exemption will also apply to private sector ISPs such as Netmagic and Data Ingenious, which hold only the ISP licence.
As such, the government can only raise demands from these companies only if it plans to raise demands from public sector companies that hold similar licences, it added.
“As a result, the impugned demands of licence fee etc. raised upon the petitioners by the DoT by including revenue from non-licenced activities in AGR on the basis of judgment dated 19.11.2020, are set aside. The respondents will have the liberty to raise revised demands by treating the petitioners at par with the exempted PSUs having licence to provide Internet Services,” said the tribunal comprising Justice Shiva Kirti Singh and Member Subodh Kumar Gupta.
IMPLICATIONS
The ruling is likely to have a far-reaching impact on other private sector players who have been hit by demand notices from DoT, particularly those that do not hold mobile or universal access licences, and only hold other licences such as ISP and long-distance.
Such players include Tulip Telecom and most large cable companies such as GTPL Hathway Ltd.
Even for players that hold mobile and universal access licences--such as Vodafone Idea and Bharti Airtel--the judgement offers the prospect that they can approach the court claiming that they have been unfairly singled out by the government, given that all licences--and not just mobile licences--contain the same provision relating to revenue sharing. End
Edited by Michael Correya
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