SC nod for telco audit may open Pandoras box

Written by fe Bureau | New Delhi | Updated: Apr 18 2014, 06:11am hrs
BhartiSC said service providers are bound to provide all the records and documents called for by the CAG. Reuters
TELECOM operators like Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications Ltd must now submit their books of revenue receipts for examination by the Comptroller and Auditor General, with the Supreme Court upholding the Delhi High Courts January order in this respect.

A bench comprising justices KS Radhakrishnan and Vikramajit Sen said this would not be a statutory audit of accounts, but conducted for the limited purpose of ascertaining whether the Union is getting its legitimate share by way of revenue sharing.

Service providers are, therefore, bound to provide all the records and documents called for by the CAG, the bench stated.

The verdict may have wide-ranging implications as government departments can now examine the books of private firms if they are part of any PPP or pay a revenue share licence fee in lieu of any kind of resources leased to them by the government.

In short, any money which flows to the government exchequer from a private party can be examined by the CAG.

The verdict is sure to impact the ongoing case in the Delhi High Court where private power distributors have challenged former Delhi chief minister Arvind Kejriwals order for a CAG audit of their books.

The court passed the order on a batch of petitions filed by telecom companies associations, including Association of Unified Service Providers of India (AUSPI) and Cellular Operators Association of India (COAI), challenging the Delhi High Court verdict which had okayed CAG audits of the firms accounts.

The immediate impact of the order would be to deal with multiple audits. The licence condition binds companies to a statutory audit of books. In addition, the department of telecommunications has powers to audit their books and if it feels so, it can get a special audit also done. Now, they would have to be ready for a CAG audit as well.

Telecom firms pay a revenue share licence fee to the government which is currently 8% of their adjusted gross revenue. They also pay a spectrum usage charge which is now at 3% of AGR for firms having only auctioned spectrum and around 5% for the ones who have a mix of allotted and auctioned spectrum. For BWA operators who won spectrum in the 2010 auctions, the levy is 1% of their AGR.

Analysts said the judgment will only add to the complexity of the current operating environment in the telecom sector. The country is 4-5 years behind in technology in telecom and needs about $100 billion to catch up with the world. This ruling would add to the perception that India is a difficult country to do business in and there is more government than warranted, said Hemant Joshi, partner, Deloitte Haskins & Sells. He added that such directions could eventually extend to mining, power companies, airline, banking, manufacturing, services companies and even individuals.

The current case dates back to 2008 when the sector regulator Trai which routinely gets data on operators AGR, licence fee and spectrum charges noted that Reliance Communications had been under-reporting their revenues over a couple of years to pay a lower share of its income to the government.

At Trais behest, in April 2009, the DoT initiated audits of the accounts of top telecom players for financial years 2006-07 and 2007-08, starting with Reliance Communications. This was later extended to Bharti Airtel, Vodafone, and Idea Cellular to ensure that they have correctly reported and shared revenue with the telecom department.

The audit found that while RCom had concealed revenues by booking voice revenues under data which at that point of time attracted a lower revenue share fee, others had shown lower adjusted gross revenue by claiming that certain revenue streams did not constitute earnings from telecom services.

Telecom players involved in the audits have vehemently denied all allegations of under-reporting or mis-reporting revenues.

While the DoT has raised a total demand of around Rs 1,500 crore from the countrys top five mobile operators for under-payment of licence fee to the government during 2006-07 and 2007-08, the matter is stuck in various courts of the country since all operators challenged the demand notices and obtained stay orders.