Even the taxman allows assessees to dispute calculations, and will SC now examine if bankruptcies were kosher?
The turn of events in the AGR-dues case must leave most aghast, apart from hastening the likelihood of Vodafone Idea shutting down. A firm that has invested over $51-billion, shutting down sends out very poor signals about India’s investment climate, but that apart, it is not clear how much of the Rs 58,254 crore of AGR dues the government will be able to get back in such an eventuality. Keep in mind that around Rs 40,000 crore of the government’s Rs 167,000 crore of dues is from three companies—RCom, Aircel and Videocon—that are already in the bankruptcy courts. Of the Rs 12,389 crore that Aircel owes, for instance, most is from its 2G licences while it sold just the 3G licences to Bharti Airtel; so there is little chance of Bharti Airtel paying those dues. And, while RCom owes Rs 25,199 crore, a large part should be transferred to RJio as it traded 60% of RCom’s spectrum, but the latter cite judgments on why it doesn’t have to pay. The Supreme Court (SC) has now asked for the records of these telcos, to see if the bankruptcy proceedings were kosher, but it is not the apex court’s job to be ascertaining this.
Vodafone Idea, of course, will be a pale shadow of itself even if SC gives it 15 years to pay the AGR dues since the interest costs themselves will be quite high. This could get mitigated if the government scrapped licence fee and spectrum charges—since 2010, it is charging market prices for spectrum—but the government has been unable to move on this for six years.
SC refusing to even allow the telcos to deposit dues based on their own assessments is worrying; even the taxman allows assessees to challenge its demand-orders, so SC saying such a challenge is akin to reopening its order is unfortunate. The original AGR order was flawed for a variety of reasons as even interest earned on bank deposits is to be counted as ‘revenue’. Also, in the past, the telcos had successfully challenged the department of telecommunication’s (DoT’s) AGR orders. So, the SC ruling on this was the first final ruling on the matter. In which case, SC should have just asked the telcos to pay the basic amount asked for, not the penalty and interest costs on this as there was no default in paying the dues till then. This would reduce the AGR dues to around a fourth. The telcos, though, clearly goofed up by not providing for this contingency all these years; had they done so, they wouldn’t be hit as badly.
It gets worse since, even if you accept the principle of the SC’s ruling on what comprises AGR, there are computation errors that the telcos allege. Given the interest costs of 12-17% that were used for much of the period and the 50% penalty imposed, any mistake in computation, no matter how small, has a big impact. A Rs 12 difference in what was due in 2007, using these numbers, becomes Rs 94 in 2020 (bit.ly/2ZLwc0h). The telcos had, by way of example, submitted documents to DoT showing that they had not been allowed a set-off for expenses on interconnection charges—dues are not paid on expenses—as they had not submitted the full documentation on time. This explains why, while DoT believes Bharti Airtel owes it Rs 43,980 crore, the telco thinks it owes Rs 13,004 crore; it is Rs 58,254 crore and Rs 21,533 crore in the case of Vodafone Idea. Ideally, once the SC judgment was accepted as the final word, the details of the calculation should have been entrusted to a technical body. Arguing this in SC only inflames passions as it looks as if SC orders are being challenged.