Top court brings telecom firms under CAG audit

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Ruling opens Pandora’s box for India Inc: Coai

The Supreme Court on Thursday upheld the jurisdiction of the Comptroller and Auditor General (CAG) to audit revenues of telecom companies in both public and private sectors.

A division bench of justices K S Radhakrishnan and Vikramjit Sen passed the order while setting aside an appeal by two associations of telecom service providers that they cannot be subjected to CAG audit.

The bench upheld an earlier order of the Delhi high court empowering CAG to audit telecom firms’ revenues.

“We have no option but to open our account books to CAG after today’s order. This will mean more scrutiny of telecom companies,” said the chief executive officer of a top telecom firm, who did not want to be identified.

The Supreme Court directive assumes significance, as companies like Bharti Airtel, Vodafone and Idea allegedly under-reported gross revenues by up to Rs 1,600 crore during 2006-08, impacting the annual spectrum fee and licence fee payable to the government.

Telecom operators and lobby associations deny any under-reporting of revenue or income by their member-companies.

“It was an issue of differences over what to include and exclude from the aggregate gross revenue (AGR), a part of which is paid by companies as licence fees and annual spectrum fees to the government. Now that the top court has ruled, we will proceed under the TDSAT guidance,” Rajan S Mathews, director general of Cellular Operators Association of India ( Coai), told Financial Chronicle on Thursday.

DoT officials say telecom regulator Trai has already been requested to provide a “clearer definition of what constitutes aggregate gross revenues.”

“The Supreme Court directive has to be respected. But, then, it can open the Pandora’s box, as the consequences are far reaching,” said Hemant Joshi, telecom partner at independent consultancy Deloitte Haskins & Dells.

The telecom companies may consider an appeal before a larger bench of the Supreme Court after going through the order of the two-judge bench.

Coai and Association of Unified Telecom Services Providers of India (AUTSPI) had challenged a Delhi high court order empowering CAG to audit revenues of the telecom firms.

The Supreme Court directive was based on the argument that CAG was entitled to audit books of any company that has direct linkages or bearing on government revenues.

Various courts are hearing over 100 disputes between the government and telecom companies over a range of issues relating to spectrum fees, annual licence fees, what constitutes aggregate gross revenues, service tax applicability, working capital expenses and treatment of revenues from sharing of telecom infrastructure, among others.

Coai’s Mathews expressed serious concern that the multiple audits, including the one by CAG, would lead to additional costs for the telecom companies. Telecom firms are already audited by agencies like the department of telecommunications (DoT), Trai, Telecom Enforcement, Resource and Monitoring (Term) and Sebi.

“By the logic of the court, every taxpayer should also be subject to audit by CAG, in addition to the I-T department,” said Mathews. “This ruling will become a big issue for corporate India and not just mobile operators.”

In a similar case, the Supreme Court had earlier asked Reliance Industries (RIL) to throw open its books to government auditors following allegations of under-reporting of revenues from its Krishna-Godavari basin gas fields.

Telecom companies have maintained that excess regulation could stymie growth of the strategic sector, where $100 billion investment is required as India is still lagging in technology by at least five years. The telecom operators claim that a 10 per cent growth in the sector can translate into one per cent additional GDP growth and thousands of additional jobs.

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