# UNION OF INDIA v. ASSOCIATION OF UNIFIED TELECOM SERVICE PROVIDERS OF INDIA ETC.ETC

- **Citation:** [2019] 16 S.C.R. 672
- **Court:** Supreme Court of India
- **Decided:** 2019-10-24
- **Case number:** Civil Appeal Nos. 6328-6399 of 2015
- **Bench:** Arun Mishra, S. Abdul Nazeer, M. R. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-association-of-unified-telecom-service-providers-of-india-etc-33913
- **Pages:** 139

## Headnote

Indian Telegraph Act, 1885 - Licence Agreement granted by
the Govt. of India to the Telecom Service Providers - Definition
of gross revenue- Telecom sector liberalized in 1994- Licenses
issued to the service providers stipulated fixed licence fee payable
every year - Since, fixed license fee was very high an option was
given to the licensees to migrate from fixed licence fee to revenue
sharing fee in 1999 - 15% Adjusted Gross Revenue (AGR) was
fixed as license fee which was reduced to 8% in 2013 - Service
providers ensured that they do not pay the licence fee based on
even an agreed "AGR"- Department raised demands - In 2003,
telecom operators filed petition before the Telecom Disputes
Settlement and Appellate Tribunal (TDSAT) challenging the same
- Eventually, TDSAT by order dated. 30.08.2007 inter alia held
that AGR would include only the revenue from licence activities -
Challenged before Supreme Court in Union of India and another
v. Association of Unified Telecom Service Providers of India
reported as [2011] 14 SCR 657 wherein appeals by the Union of
India were allowed and the order dated. 30.08.2007 was set aside
- Telecom operators again approached TDSAT challenging the
demands - TDSAT by the impugned order considered the specific
head of items to be included/excluded under the definition of AGR
- Held: Contractual definition of gross revenue is binding - Gross
amount, as per the definition, is the gross revenue, without set-off,
is to be taken into consideration including the discounts given -
Licensees made futile attempt to submit that the revenue to be
considered would be derived from the activities under the licence;
whereas the aforesaid 2011 judgment between the parties holding
that the revenue from activities beyond the licence have to be
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included in adjusted gross revenue, is binding - Submission is also
that the contract recognises the applicability of accounting
standards - It is only to maintain books of accounts - When the
financial terms in the agreement are clear in the form of definition
of gross revenue governed by Clause 19.1 of the agreement, the
definition of Accounting Standard-9 (AS-9) cannot supersede it
which is a general one - Stand of Department of
Telecommunications (DoT) is apparent that the gross revenue has
been clearly defined in the agreement - Further, all discounts and
commission etc. form part of the gross revenue for the purpose of
payment of licence fee- Forex gain is also to be accounted for as
part of gross revenue - Further, stand of TDSAT is approved in
regard to assets/scrap, shares etc. - However, artificial bifurcation
of insurance claim made by the TDSAT cannot be accepted and is
contrary to contractual definition of gross revenue - Finding of
TDSAT to the extent it is contrary to revenue, set aside- Further,
amount of negative balance is a part of revenue and cannot be
deducted from the gross revenue to be worked out as per the
definition of gross revenue u/AS-9- Finding of TDSAT set aside -
Also, the entire amount received by the licensee on account of
sharing of passive infrastructure has to be counted in the gross
revenue while working out AGR - Contrary finding recorded by
TDSAT, set aside - Late fee is also included explicitly in the
definition of gross revenue and as such, it has to be computed as
its part - Finding of TDSAT, set aside - With respect to gains from
roaming charges and PSTN pass-through charges, the finding
recorded by TDSAT, to the extent it is contrary to the DOT, based
upon certain conditions, is set aside- Further, definition of gross
revenue is wide enough to cover non-refundable deposits -
Finding recorded by the TDSAT concerning non-refundable
deposits not being part of the revenue, set aside - With respect to
licence fee demand where spectrum is not granted, the finding
recorded by TDSAT in the case of Videocon & S. Tel is agreed with
- Interest and dividend earned from the licensing and non-licens

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UNION OF INDIA
v.
ASSOCIATION OF UNIFIED TELECOM
SERVICE PROVIDERS OF INDIA ETC.ETC.
(Civil Appeal Nos. 6328-6399 of 2015)
OCTOBER 24, 2019
[ARUN MISHRA, S. ABDUL NAZEER
AND M. R. SHAH, JJ.]
Indian Telegraph Act, 1885 - Licence Agreement granted by
the Govt. of India to the Telecom Service Providers - Definition
of gross revenue- Telecom sector liberalized in 1994- Licenses
issued to the service providers stipulated fixed licence fee payable
every year - Since, fixed license fee was very high an option was
given to the licensees to migrate from fixed licence fee to revenue
sharing fee in 1999 - 15% Adjusted Gross Revenue (AGR) was
fixed as license fee which was reduced to 8% in 2013 - Service
providers ensured that they do not pay the licence fee based on
even an agreed "AGR"- Department raised demands - In 2003,
telecom operators filed petition before the Telecom Disputes
Settlement and Appellate Tribunal (TDSAT) challenging the same
- Eventually, TDSAT by order dated. 30.08.2007 inter alia held
that AGR would include only the revenue from licence activities -
Challenged before Supreme Court in Union of India and another
v. Association of Unified Telecom Service Providers of India
reported as [2011] 14 SCR 657 wherein appeals by the Union of
India were allowed and the order dated. 30.08.2007 was set aside
- Telecom operators again approached TDSAT challenging the
demands - TDSAT by the impugned order considered the specific
head of items to be included/excluded under the definition of AGR
- Held: Contractual definition of gross revenue is binding - Gross
amount, as per the definition, is the gross revenue, without set-off,
is to be taken into consideration including the discounts given -
Licensees made futile attempt to submit that the revenue to be
considered would be derived from the activities under the licence;
whereas the aforesaid 2011 judgment between the parties holding
that the revenue from activities beyond the licence have to be
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included in adjusted gross revenue, is binding - Submission is also
that the contract recognises the applicability of accounting
standards - It is only to maintain books of accounts - When the
financial terms in the agreement are clear in the form of definition
of gross revenue governed by Clause 19.1 of the agreement, the
definition of Accounting Standard-9 (AS-9) cannot supersede it
which is a general one - Stand of Department of
Telecommunications (DoT) is apparent that the gross revenue has
been clearly defined in the agreement - Further, all discounts and
commission etc. form part of the gross revenue for the purpose of
payment of licence fee- Forex gain is also to be accounted for as
part of gross revenue - Further, stand of TDSAT is approved in
regard to assets/scrap, shares etc. - However, artificial bifurcation
of insurance claim made by the TDSAT cannot be accepted and is
contrary to contractual definition of gross revenue - Finding of
TDSAT to the extent it is contrary to revenue, set aside- Further,
amount of negative balance is a part of revenue and cannot be
deducted from the gross revenue to be worked out as per the
definition of gross revenue u/AS-9- Finding of TDSAT set aside -
Also, the entire amount received by the licensee on account of
sharing of passive infrastructure has to be counted in the gross
revenue while working out AGR - Contrary finding recorded by
TDSAT, set aside - Late fee is also included explicitly in the
definition of gross revenue and as such, it has to be computed as
its part - Finding of TDSAT, set aside - With respect to gains from
roaming charges and PSTN pass-through charges, the finding
recorded by TDSAT, to the extent it is contrary to the DOT, based
upon certain conditions, is set aside- Further, definition of gross
revenue is wide enough to cover non-refundable deposits -
Finding recorded by the TDSAT concerning non-refundable
deposits not being part of the revenue, set aside - With respect to
licence fee demand where spectrum is not granted, the finding
recorded by TDSAT in the case of Videocon & S. Tel is agreed with
- Interest and dividend earned from the licensing and non-licensing
activities also have to form part of gross revenue for determination
of licence fee - Further, in respect of the bad-debts written off,
the findings by TDSAT are appropriate - Interest income from intercorporate loan has to be included in the gross revenue for working
out the licence fee - Also, DOT has rightly included the income of
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SERVICE PROVIDERS OF INDIA
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the licensee from IP registration under the CUG licence - TDSAT
has also rightly held in the case of Bharti Airtel that the revenue
from Cable Landing Station has to be included in the gross revenue
- Further, all the submissions raised on merits again have been
examined, uninfluenced by the plea of res judicata/constructive res
judicata and no merit is found in the submissions raised - Interest
and penalty have rightly been levied - National Telecom Policy,
1994 - National Telecom Policy, 1999 - Telecom Regulatory
Authority of India Act, 1997 - ss.11(1)(a), 14(a)(i) r/w 14(A)(1),
18 - Companies Act, 1956 - ss. 3, 211(3A)-(3C) - Interpretation
of Statutes - noscitur a sociis; ejusdem generis - Principle of
constructive res judicata - Constitution of India - Arts. 14 and 39
- Service Tax Act, 1994 - s.67 - Income Tax Act, 1961 - s.80 IA
(2a).
Telecommunication Laws - National Telecom Policy, 1999 -
Objectives of - Discussed.
Indian Telegraph Act, 1885 - s.4 - Telecom Service
Providers granted Licence Agreement by the Govt. of India -
Definition under, of Gross Revenue - Plea of licensees that revenue
has not been defined under license and thus, insisted on the fair
valuation method relying on J.K Industries Ltd. case - Held:
Submission raised on fair valuation method based on the decision
in J.K. Industries case cannot be accepted as the decision is on
consideration of different accounting standard which adopts fair
valuation method i.e., Ind AS-18 and not relevant for the AS-9
accounting standard - Companies Act, 1956 - ss. 211(3A) & (3C)
- Chartered Accountants Act, 1949.
Companies Act, 1956 - ss. 211(3A) & (3C) - Accounting
standards recommended by the Institute of Chartered Accountants
of India constituted - Relevance of and fundamental difference
between AS-9 and AS-18 - Discussed - Chartered Accountants Act,
1949.
Telecom Regulatory Authority of India Act, 1997 -
ss.11(1)(a) - Recommendations from the TRAI on the licence fee
payable by the licensees - Consideration of, by the Central
Government - Discussed.
Companies Act, 1956 - s. 211 - Obligation under, of the
companies - Held: s.211 deals with the obligation of the company
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to comply with accounting standards - In case they do not comply,
it has to be disclosed in its profit and loss account, the deviation,
reasons for such deviation, and financial effect.
Doctrines/Principles - Rule of Contra proferentum -
Commercial Contracts - Telecom Service Providers granted Licence
Agreement by the Govt. of India - Plea of licenses that all receipts
would not form part of Adjusted Gross Revenue (AGR) and that
revenue from non-licensed activities was not part of AGR at all and
that the contra proferentum rule requires clauses 19.1 and 19.2 of
the license agreement to be interpreted against the maker and
prefer the interpretation which is favourable to the licensees -
Held: Rule of contra proferentem does not apply to the present case
as there is no ambiguity or doubt in the definition of gross revenue
in the agreement.
Doctrines/Principles - Doctrine of unconscionable
bargaining - Telecom sector - Applicability of in commercial
contracts - Licences granted to the service providers stipulated a
fixed licence fee payable by the service providers every year -
Migration from fixed licence fee to revenue sharing fee - Held:
After the introduction of the migration package policy, 1999, there
is an exponential growth of the telecom sector - Terms and
conditions cannot be said to be oppressive as submitted on behalf
of the licensees - It cannot be said that DOT was in a dominant
position, or possessed wholly disproportionate and unequal
bargaining power- In the matter of commercial contracts, the
doctrine of unconscionable bargaining is not applicable - Once
benefit has been drawn, the licensees cannot deny validity or
binding effect of contract.
Dismissing the appeals of the licensees while allowing that
of the DoT, the Court
HELD: 1.1 In Re: Definition of Gross Revenue
There was a paradigm shift in Telecom Policy of 1999 from
the fixed licence fee to the revenue sharing basis regime, which
was advantageous to the Telecom Service Providers. Under the
new regime, the Central Government shared the privilege under
section 4 of the Indian Telegraph Act, 1885 with the TSPs. It
came as a relief against the high licence fee, which used to be
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SERVICE PROVIDERS OF INDIA
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charged under the 1999 policy. The migration package contained
the stipulation as to no dispute to be raised as to working out
sharing of revenue. Experts were consulted in the field of
accountancy, and it was their advice that the actual figures should
be simple and objective to evolve a system of revenue sharing
that does not become as arduous one and litigative, had been
evolved. Revenue has been defined in a broad, comprehensive,
and inclusive manner not to pose problems of interpretation and
to protect from the accounting jugglery. Gross revenue has been
defined to be inclusive of specific items mentioned in clause 19.1
and any other miscellaneous revenue, without any set-off for
related items of expense, etc. All the licensees accepted the
migration package and have signed the agreements. It has
turned out to be a substantial financial booster in favour of the
licensees as is apparent from figures of the gross revenue
earned by them mentioned above. When under a contract signed
by the parties, gross revenue and AGR have been given the
meaning coupled with the format and the annexures which form
part of the contract. Format is contained in appendix to
Annexure-II which is part of the agreement in which requisite
information has to be furnished. The meaning in clause 19 of the
gross revenue and the format mentioned above have to prevail.
[Para 44] [726-F-H; 727-A-B]
1.2 The submission raised for adopting fair valuation
method relying on S.K. Synthetics is based upon misconception
of method applicable to A.S-9. The argument is crafted to get
rid of AS-9 and the definition of gross revenue in the agreement.
The ICAI issued the AS-9 revenue recognition standard in the
year 1985. In the initial years, it was recommendatory for only
Level-I enterprises but was made mandatory for all enterprises
from 1.4.1983. The meaning of enterprise is as defined in section
3 of the Companies Act, 1956. The IND AS-18 regime has been
introduced later on. In AS-9, revenue recognition is at "nominal"
value; whereas IND AS-18, the revenue recognition is at a "fair"
value. The barter transactions are included in Ind AS-18,
whereas this aspect is not covered in AS-9. In AS-9 revenue
recognition, interest income is recognised on a time proportion
basis, whereas in Ind AS-18, interest income is recognised using
an effective interest rate method. AS-9 recognises revenue as
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per the completed service method or percentage completion
method, whereas Ind AS-18 only recognises revenue as per the
percentage of completion method. Thus, there is a fundamental
difference. The fair value concept has no place in AS-9 as per
which the accounts are to be maintained and submitted for
determination of gross revenue. AS-9 revenue recognition
regime states that the amount of revenue shall be measured by
the gross inflow of cash, receivables, or other consideration
received. There is no concept of fair valuation. Thus, the
submission raised based on a fair valuation method based on the
decision in J.K. Industries v. Union of India cannot be accepted
as the decision is on consideration of different accounting
standard which adopts fair valuation method i.e., Ind AS-18 and
not relevant for the AS-9 accounting standard. The submission
is wholly devoid of substance. It is not only barred by the
principle of constructive res judicata but also indicates that the
licensees are raising the similar objections which they have
raised earlier and were not entertained by this Court and were
rejected. Again precisely, the same attempt is made by
submitting; revenue should be taken as defined in AS-9, not in
Clause 19.1 of the agreement, submission runs contrary to the
decision of the Court, as held in para 48 of the 2011 judgment,
which operates as res judicata inter se parties. The meaning of
revenue is apparent that it has to be gross revenue, and the
licence fee would be a percentage of the same. Thus, the
licensees have made a futile attempt to submit that the revenue
to be considered would be derived from the activities under the
licence; whereas it has been held in 2011 that the revenue from
activities beyond the licence have to be included in adjusted
gross revenue, is binding. Even otherwise, on merit, the
submission raised is baseless. The contractual definition of gross
revenue is binding. When there is a contractual definition as to
what would be the gross revenue that would be the revenue and
also the total revenue, the revenue as mentioned in the mode
of accounting AS-9 cannot govern the definition. The general
definition of revenue in the mode of accounting cannot govern
the contractual definition of gross revenue. The accounting
standard AS-9 makes it clear that same is in the form of
guidelines, it is not comprehensive and does not supersede the
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practice of accounting. It only lays down a system in which
accounts have to be maintained. Accounting standards make it
clear that it does not provide for a straight-jacket formula for
accounting but merely provide for guidelines to maintain the
account books in systematic manner. Section 211 of the
Companies Act, 1956 deals with the obligation of the company
to comply with accounting standards. In case they do not comply,
it has to be disclosed in its profit and loss account, the deviation,
reasons for such deviation, and financial effect. [Paras 61, 65,
67] [736-H; 737-A-H; 738-A-H; 739-A-C-E; 740-C-D]
1.3 The definition of gross revenue is crystal clear in the
agreement. How the adjusted gross revenue to be arrived at is
also evident. It cannot be submitted that the revenue has not
been defined in the contract. Once the gross revenue is defined,
one cannot depart from it and the very meaning is to be given
to the revenue for the agreement. Overall revenue, has to be
taken into account for determination of licence fees without set
off, as provided in the agreement. The same was defined to
simplify it to rule out the litigation, disputes, and accounting
myriads. The submission raised that the term revenue has to
be interpreted as the consideration payable in keeping with
commercial and financial parlance is what is intended to be
avoided. Raising of such submission is a futile attempt that has
been made to wriggle out of the definition of gross revenue,
which has been held to be binding in the previous judgment in
Union of India v. AUSPI (2011). The submission is that the
contract recognises the applicability of accounting standards. It
is only to maintain books of accounts. To a certain extent, it
cannot be disputed that to have clarity, uniformity, and
definitiveness; the accounting standards lay down guidelines with
respect to financial terms. However, when the financial terms
in the agreement are clear in the form of definition of gross
revenue governed by Clause 19.1 of the agreement, the
definition of Accounting Standard-9 cannot supersede it which
is a general one. Submission though attractive, but is again an
attempt by taking a rigmarole to get rid of the definition of 'gross
revenue'. Earlier the validity of definition was questioned to
confine the meaning of gross revenue how the revenue is sought
to be confined to activities under the licence by way of AS-9. The
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reliance has been placed on statement made by DOT in the
reply filed in 2003 that the definition of gross revenue is in line
with AS-9, it is by way of explaining and cannot have the effect
of changing the definition of gross revenue given in the
agreement. The definition in agreement is unambiguous, clear,
and beyond the pale of doubt, and there is no confusion in the
definition of gross revenue, which is the basis for realisation of
the licence fee. Licensees have made a futile attempt to wriggle
out of the definition in an indirect method, which was rejected
directly in the decision of 2011 between the parties and it was
held that these very heads form part of gross revenue. [Paras
76, 79] [748-F-H; 749-A-B; 752-C-E]
General Assurance Society Ltd. v. Chandmull Jain,
AIR 1966 SC 1644 : [1966] SCR 500 ; M.R. Engineers
& Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009)
7 SCC 696 : [2009] 10 SCR 373 - referred to.
1.4 It cannot be said that DOT has taken inconsistent
stands at different stages of the same litigation. Their stand is
apparent that the gross revenue has been clearly defined in the
agreement. Parties have agreed to various inclusions in the
agreement and have willingly switched over to revenue- sharing
regime under the 1999 policy and same is apparent from the
stand and the reliefs prayed in the petitions filed in 2003 and
2005. The licensees were aware of items specifically included
in the agreement. TSPs agreed to interpretation and accepted
it as held by this Court in 2011 judgment. Licensees are taking
inconsistent stands, earlier they have taken the stand that all
these items concerning which disputes have been raised, had
been included illegally in the definition of gross revenue, the
definition may be declared ultra vires, invalid, and be struck
down. They have also contended that revenue from activities
under the licence cannot be included in gross revenue, which
submission has been negated by this Court in 2011, it was held
that the gross revenue would include the revenue generated from
non-licensing activities. Licensees cannot be permitted to
approbate and reprobate and to take inconsistent stands that they
are not included in gross revenue as per AS-9. The stand taken
rather than buttressing the submissions raised by them, counters
and militates against their own interest and paves the way in
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SERVICE PROVIDERS OF INDIA
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favour of DOT. The submission raised that the definition is not
wide, cannot be accepted, and stands repelled. Clauses 22.1,
22.2 and 22.3 cast obligation upon the licensee to draw, keep
and furnish independent accounts for the service. Under clauses
22.1 and 22.2, the licensee has to maintain records quarterly.
Accounts have to be audited and can be called for by the licensor
or the TRAI, as provided in Clause 22.3. The format of gross
revenue is supportive of definition of gross revenue as defined
in the agreement. Clause 22 is a rider upon the licensee to
maintain the records of activities and other matters such as
financial position as enumerated therein. Clause 18.1 of the
agreement has also been pressed into service. The submission
raised that a single company may hold 5 licences for 5 different
service areas; the AGR as suggested by the DOT, cannot be
followed as it may end up in paying the licence fee at the rate of
5 times. As the licence fee cannot be charged more than once,
there is no room to entertain the submission. It is not what is
contemplated in the definition. While computing the licence fee,
the gross revenue has to be taken into consideration under a
particular licence for which it is being determined. The argument
had been raised on a hypothetical basis without foundational facts
to raise the same is thus, liable to be and is rejected at the
threshold. There is no doubt that the State is a trustee of the
natural resources and is obliged to hold it for the benefit of the
citizens but also to ensure equal distribution to sub-serve the
common good as observed under Article 39 of the Constitution
of India. The Government being the sole repository of all the
resources in the country, also has the exclusive power to
determine the licence conditions at which it parts with the
exclusive right to the resources. Government has to make an
effort to get the best price for its valuable rights and cannot
throw them away, and there would be no arbitrariness in the
same. [Paras 83-86] [754-G-H; 755-A-C-F-H; 756-A-F]
Suzuki Parasrampuria Suitings Private Limited v.
Official Liquidator of Mahendra Petrochemicals
Limited (2018) 10 SCC 707 : [2018] 12 SCR 906 ;
Jal Mahal Resorts Private Limited v. K.P. Sharma
(2014) 8 SCC 866 ; A.P. Dairy Development
Corporation Federation v. B. Narasimha Reddy (2011)
9 SCC 286 : [2011] 14 SCR 1 ; In Re : Natural
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Resources Allocation (2012) 10 SCC 1 : [2012] 9 SCR
311 ; State of Orissa & Ors. v. Harinarayan Jaiswal
& Ors. (1972) 2 SCC 36 : [1972] 3 SCR 784 ; Har
Shankar v. Excise & Taxation Commissioner (1975) 1
SCC 737 : [1975] 3 SCR 254 ; Government of A.P. v.
Anabeshahi Wine & Distilleries (P) Ltd. (1988) 2 SCC
25 : [1994] 2 SCR 67 ; State of Orissa v. Narain
Prasad (1996) 5 SCC 740 : [1996] 5 Suppl. SCR
465 ; State of M.P. v. KCT Drinks Ltd. (2003) 4 SCC
748 : [2003] 2 SCR 574 ; State of Punjab v. Devans
Modern Breweries Ltd. (2004) 11 SCC 26 : [2003] 5
Suppl. SCR 930 referred to.
1.5 A licence granted under section 4(1) is in the nature
of a contract. As to the provisions of gross revenue there had
been consensus ad idem between the parties. The licensees are
bound by it as they have executed the licence agreement. The
licensees who have taken the advantage under the licence, carry
certain obligations. The licensee is bound to discharge the
obligation while taking benefit under the licence of migration
package, for this purpose. After the introduction of the migration
package policy, 1999, there is an exponential growth of the
telecom sector. The terms and conditions cannot be said to be
oppressive as submitted on behalf of the licensees. It cannot be
said that DOT was in a dominant position, or possessed wholly
disproportionate and unequal bargaining power. In the matter
of commercial contracts, the doctrine of unconscionable
bargaining is not applicable as held with respect to migration
package. Once benefit has been drawn, the licensees cannot deny
validity or binding effect of contract. [Paras 88, 89, 90, 91, 92]
[757-H; 758-B; 759-A; 760-B-F-G; 761-C-D]
Assistant Excise Commissioner & Ors. v. Issac Peters
& Ors. (1994) 4 SCC 104 : [1994] 2 SCR 67 ; Shyam
Telelink Ltd. v. Union of India (2010) 10 SCC 165 :
[2010] 12 SCR 927 ; Bharti Cellular Ltd. v. Union of
India (2010) 10 SCC 174 : [2010] 12 SCR 725 ; S.K.
Jain v. State of Haryana (2009) 4 SCC 35 : [2008]
17 SCR 1378 ; Cauvery Coffee Traders, Mangalore
v. Hornor Resource 67 s (International) Co. Ltd. (2011)
10 SCC 420 : [2011] 12 SCR 473 ; R.N. Gosain v.
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Yashpal Dhir AIR 1993 SC 352 : [1992] 2 Suppl. SCR
257 - relied on.
Khardah Company Ltd. v. Raymond & Co. (India) Pvt.
Ltd. [1963] 3 SCR 183; Central Inland Water Transport
Corproation v. Brojo Nath Ganguly (1986) 3 SCC
156 : [1986] 2 SCR 278 - referred to.
2.1 In re: Discount and Commissions:
When the definition of "gross revenue" in clause 19.1 of
the licence agreement is pon- dered upon, it is apparent that
the gross revenue has to be taken into consideration without
any set-off for related items of expense. Thus, the gross amount,
as per the definition, is the gross revenue, without set-off, is to
be taken into consideration including the discounts given.
Parties understood right from the beginning that the gross
revenue does not exclude discounts, commissions, rebate etc.
and specific challenge made to the same had not been accepted
in 2011. Now once again by the circuitous method, impermissible
attempt has been made to re-write the definition of gross
revenue. The definition of 'gross revenue' is independent of AS9 as the definition of revenue in AS-9 cannot govern the definition
in Clause 19.1 of the licence agreement. What has been defined
in AS-9 is revenue, whereas, for a licence fee, gross revenue is
the revenue. It would be greatest fallacy to say that while gross
revenue has been defined in Clause 19.1 of agreement, revenue
has not been defined in the licence agreement. What has been
defined as gross revenue is in fact broader definition of revenue
and has to be taken as definition of revenue for licence
agreement. An attempt has made to wriggle out of the rigour of
the definition of gross revenue by banking upon the definition
of revenue in AS-9 is to scut- tle the effect of the previous
decision in Union of India v. AUSPI (2011). Gross revenue as
defined in agreement cannot be diluted in any manner
whatsoever based on the submission mentioned above, as AS-9
is only for method of accounting and specific definition of
revenue i.e., gross revenue under the licence agreement has to
prevail. 'Gross revenue' is the revenue has been held in 2011
judgment finding is binding on parties for determination of
license fees under the licence agreement and the definition of
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revenue in AS-9 cannot govern. Reliance upon the affidavit filed
on behalf of DOT is wholly misconceived. What is the meaning
of the definition of gross revenue has been finally settled inter
parties vide 2011 judgment. Thus, there is no scope to entertain
the miscon- ceived submission. The concept of fair value is not
the basis of Accounting Standard-9. Fair value is the operating
concept of IND AS-18. In AS-9, revenue recognition is at nominal
value and that the fundamental difference between the two
accounting standards. Thus, the nominal value has to be taken
as the one which is relevant for AS-9. Under the AS-9 regime,
the revenue recognition shall be measured as the gross inflow
of cash, receivables, or other consideration received. There is
no concept of fair valuation under AS-9. The question of service
tax liability has no relevance for determination of licence fee for
which definition has been worked out by the Government of
India, which has been agreed to by the licensees also as that
was beneficial to them as compared to the fixed fee regime which
prevailed earlier. They have switched over to the new regime
of sharing the revenue earned by them on a percentage basis.
The definition of gross revenue has the purpose behind it and
was the outcome of prolonged exercise and has already been
upheld, and the question cannot be reopened once over again
by an indirect method. The trade discounts cannot be deducted
from the gross revenue merely on the ground that they represent
a reduction of cost. The reliance by the licensees on the
Guidance Note filed that discounts are reduction granted by a
supplier from the list price of goods or services is of no avail
owing to the definition of the gross revenue. Set off of trade
discounts is not permissible under Clause 19.1 of agreement
against revenue as expenses are not permitted to be netted up.
Concerning cash discount, it is apparent that cash discount may
be used in various methods. It is an incentive for customers.
The customer makes payment after deducting amount of cash
discount, if eligible for availing of the same as per the agreement
between the entity and the customer. Under AS-9, revenue is
recognised at the gross amount and cash discount is regarded
as an expense when the seller receives the payment net off
discount is not permissible. For example, if A has sold goods to
Z for Rs.1000 on 90 days' credit period, but if Z pays within 50
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days, a cash discount of 10% shall be provided by A. It is
reasonably sure that Z to pay the amount within 15 days. In the
AS regime, the revenue has to be recorded at Rs.1000, and
when Z pays Rs.900, the amount of cash discount of Rs.100 will
be recognised as an expense. That is the effect of the revenue
to be recognised as a gross amount under AS-9. Concerning the
volume-based discount, under the AS-9 regime, revenue is
recognised at the gross amount received or receivable from the
customers. However, the value of trade discounts and volume
rebates received cannot be deducted from the gross revenue
owing to the definition in clause 19.1. The subscriber's discount
can also be in the form of free calls, some free minutes SMS
value. DOT has rightly asked for the licence fee on the no- tional
revenue of free calls, SMS, VAS minutes/data. When these
amounts admittedly are reflected in the invoice raised on the
subscriber as memorandum, it is the gross revenue. It forms
part of the gross revenue and cannot be deducted. That is what
was intended by carving out the definition to make it free from
litigation and accounting jugglery and to free determination of
licence fee from the clutches of accounting jugglery. The
discounts allowed on international roaming, commission, and
discount allowed to distributors on sale of pre-paid vouchers
form part of the gross revenue and cannot be deducted by
placing reliance on the definition of revenue and certain notes
of AS-9 standards; whereas they are explicitly included in the
definition of gross revenue. [Paras 107-108, 113-117] [765-F-H;
766-A-F; 768-F-H; 769-A-H]
Union of India v. Bombay Tyres International Pvt. Ltd.
(2005) 3 SCC 787 ; Deputy Commissioner of Sales Tax
(Law), Board of Revenue (Taxes), Ernakulam v. M/s.
Advani Oorlikon (P) Ltd. (1980) 1 SCC 360 : [1980]
1 SCR 931 ; M/s. United Exports v. Commissioner of
Income Tax, Delhi (2009) SCC Online Del 2566 ; IFB
Industries Ltd. v. State of Kerala (2012) 4 SCC 618 :
[2012] 4 SCR 802 ; Commissioner of Central Excise,
Madras v. Addison & Co. Ltd. (2016) 10 SCC 56 :
[2016] 9 SCR 591 ; Southern Motors v. State of
Karnataka & Ors. (2017) 3 SCC 467 ; Maya
Appliances Pvt. Ltd. v. Additional Commissioner of
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Commercial Taxes & Ors. (2018) 2 SCC 756 : [2018]
2 SCR 250 - held inapplicable.
2.2 As to pre-paid options, the format of statement of
revenue and licence fee contained in Appendix II to AnnexureII provides in the case of prepaid options, sale of pre-paid SIM
cards including full value of components charged therein.
Revenue from mobile community phone service including full
value of all components charged therein has to be considered,
revenue from franchisees/re-sellers including all commissions
and discounts, etc. have to form part of the gross revenue. How
the parties have understood and agreed to pay the gross revenue
is apparent from the correspondence and letter dated 22.7.2001
and the ultimate definition mentioned in the licence agreement
Clause 19.1 and rejection of TRAI's recommendations by the
Government. The TDSAT has erred in holding that if the
discounts are in the form of reduced billing, no addition to be
made in the gross revenue. It would mean violating the
definition of gross revenue where no set-off is permitted. It is
rightly submitted by DOT that discounts over and above the
agreed charges are part of overall commercial strategy to
enhance the business, and hence, these discounts are like
expenses. Expenses are not permitted to be net off under clause
19.1 from the gross revenue under the licence agreement.
Similarly, the TDSAT has erred in holding and giving a finding
concerning commission and discounts if the invoice is at a
discounted price, which is at Rs.90 instead of Rs.100. For the
same reason, the finding of TDSAT is not sustainable. The
TDSAT has rejected the case of the licensees. Where the bill
is for a higher amount and the discount is in the form of volume
discount given separately, the billed amount should be taken as
the revenue, and the discount may be treated as an expense.
That part of the finding is not disturbed. However, for all
discounts and commissions allowed on international roaming, and
to distributors on sale of pre-paid vouchers, trade discounts,
subscribers' discounts, and volume rebates form part of gross
revenue. It has also been submitted on behalf of the licensees
that offering discounts is frequently used to increase business
in the long run/term. These are inevitable as there were 8 to
10 operators operating in the same geography at highly
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competitive prices. Discounts help to survive and grow business
and augment revenue. Thus it is in the nature of expense for
earning the profit and by this method it is admitted that business
has grown and there is an increase in revenue, hence the same
being part of the commercial strategy to enhance the business,
it has to be treated in the nature of expense and cannot be
deducted from gross revenue. Thus, the claim for various forms
of discounts, commissions, pre-paid vouchers, goodwill waiver
etc., raised on behalf of the licensees are rejected and the finding
of the TDSAT to the extent it is contrary to the stand taken by
DOT is set aside, and it is held that all discounts and
commission etc. as discussed form part of the gross revenue for
the purpose of payment of licence fee. [Paras 118, 119, 120-122]
[770-A-H; 771-A-B]
3. In re: Gains arising out of Foreign Exchange
Fluctuations:
Gain from foreign exchange fluctuation is to be taken in
the calculation of AGR, and that is the actual revenue and cannot
be ignored. Similarly, gain from foreign exchange fluctuation
should be added on accrual basis. If later on, the amount has to
be spent on the purchase of equipment or settling roaming
charges in foreign currency, that is also a gain and results in
economic benefit and has to be accounted for while working out
the gross revenue as a decrease in liability would be gain.
Whatever may be the expenditure, whether it has increased or
decreased, must be accounted for as it forms part of the gross
revenue. In the definition of gross revenue, any other
miscellaneous revenue is included, and when once the item has
to be shown in the balance-sheet or profit and loss account,
obviously, it has to be accounted for gross revenue, even as a
notional figure. Once the amount is receivable, it has to be taken
as part of gross revenue. The finding to the contrary recorded
by the TDSAT is thus liable to be set aside. Whether the amount
is paid for the purchase of equipment, it has to be accounted
for and must be accounted for as per the value spent on the date
of the banking transaction, which cannot be ignored. Thus, the
gains from foreign exchange fluctuations have to be added in the
computation of gross revenue, otherwise, the benefit which is
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accruing will be ignored. Where profit or loss arises on account
of appreciation of foreign currency, such gain or loss has to form
part of profit from the business or loss. Whether it is profit or
loss on account of trading or on account of asset, it has to form
part of profit and loss account, thus, it has to account for gross
revenue. The fluctuation in the foreign currency has to be
accounted for in the account at the time when the amount is
received or at the end of the accounting year. Thus, there is no
escape from the conclusion that forex gain has to be accounted
for as part of gross revenue. When loss can be claimed as an
expenditure, profit or gain due to fluctuations in the rate of
foreign exchange has also to be accounted for towards gross
receipt, which is gross revenue. [Paras 128-129] [773-E-H; 774A-C]
4. In re: Monetary Gains on Sale of Shares:
Given the definition of gross revenue in the licence
agreement, every amount which is more than the book value of
the current asset and comes to licensee company, has to be
considered for calculation of gross revenue without netting off.
Thus, the reasons given by the tribunal that any gain over and
above the net book value, that is, when the sale proceeds are
less than the original purchase cost but more than the net worth
of the assets, has to be excluded from the gross revenue, cannot
be accepted. The gross revenue for the current year has to be
worked out based on the value of the capital assets. Gross
revenue for any year is considered in light of the opening
statement and also closing statement at the end of the year. What
is gain over and above the book value in the year in question,
has to be taken into consideration towards gross revenue
received. Submission to the contrary raised on behalf of the
licensees cannot be accepted. Unable to accept the submission
that the money collected on the sale of shares etc. is not like
revenue receipt but is a capital receipt. The gain from the sale
of capital asset including increase over and above net book value
and scrap and not the entire proceeds are to be taken as revenue
in calculation of the gross revenue without netting off and should
be on accrual basis, is unobjectionably within the ken of definition
of gross revenue. To say in case e.g., gain for AGR will accrue
when the sale proceeds or the current disposition value of the
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goods is Rs.60, and if it is sold at Rs.70, in that case, there will
be a gain of Rs.10. That shall be taken as a gain for AGR
calculation. The result would be the same in case the value of
an asset worth Rs.100 has depreciated to book value worth
Rs.60 and is sold at Rs.70, as urged on behalf of DOT, Rs. 10
will form part of gross revenue. Again, a futile attempt has been
made to get rid of the definition of gross revenue, and confusion
is sought to be created by ordinary business activity, which is
the expression used in Para 4.1 of AS-9. In contrast, the
definition of gross revenue in clause 19.1 includes gross
revenue from non-licensed activities also. Thus, the submission
is wholly sans substance and stands repelled. Finding to the
contrary recorded by TDSAT considering the initial cost is set
aside. It has to be seen as book value as on date of sale. The
stand of TDSAT is approved in this regard in regard to assets/
scrap, shares etc. [Paras 131, 132] [774-F-H; 775-A-F]
5. In re: Insurance claim in respect of capital assets:
The submission raised on behalf of the licensees cannot
be accepted as the insurance claim over and above the book
value is considered as revenue and not the value of the capital
asset as there is an inflow of cash received. It is accounted for
in the profit and loss account. It has to form part of the gross
revenue as defined in clause 19.1. The artificial bifurcation of
insurance claim made by the TDSAT cannot be accepted and is
contrary to contractual definition of gross revenue. The finding
of TDSAT to the extent it is contrary to revenue is set aside.
[Paras 136] [777-B-C]
6. In re: Amount of negative balance of pre-paid customer:
It is apparent that the amount of negative balance is a
business strategy, and the amount is adjusted in case re-charge
is opted.