Under-reporting of revenues: Telcos for out of court settlement

After much wrangle, the CAG could take up audit of telecom companies only in April 2014 after the Supreme Court passed an order enabling the audit watchdog to do so.

The CAG’s audit covers a period of only four years from 2006 to 2010 and not the entire period of over 16 years since 1999. It is believed if the loss to the exchequer from underreporting of revenues by telcos for their entire period is calculated it could go up manifolds.

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Telcos had in past opposed CAG audit and had run into disputes regarding interpretation of revenue share and some other issues and had gone even to courts.

Soon after the CAG tabled its report in Parliament in March this year, the government ordered a special audit of telecs for the period 2008-09, 2009-10 and 2010-11, an issue which kicked up a political turmoil this month with Congress alleging a cover up plan, an allegation stoutly rejected by the BJP.

On Wednesday, the PAC called the representatives of all the six private telecom service providers besides representatives of Ministry of Communications & Information Technology (Department of Telecommunications) to hear them on the subject “Sharing of Revenue by Private Telecom Service Providers during the years 2006-07 to 2009-10” based on CAG report.

When contacted PAC chairman K V Thomas said, “Telecom companies wanted out of court settlement but the department was not ready. Their argument was that since the fight was going on for seventeen years and is almost coming to an end now, so let the court first come out with some decisions”.

Telcos had approached courts on the issues of revenue sharing formalue and other issues.

Government had served showcause notices to various telecom firms for alleged under-reporting of revenues of over Rs 10,800 crore in 2012.

However, most of the companies immediately approached the Telecom Disputes Settlement Appellate Tribunal and various courts against the government notices for claims of under- reporting and the tribunal and courts gave stay orders.

There is a perception that the government could have to adjust less revenue if it  opts for out of court settlement. In the panel the government officials are learnt to have said that once the court takes a decision, then some sort of a legal settlement can be arrived at.

A PAC member said that CAG has calculated the losses on the basis of their own mechanism and formulae.

“There are certain differences between the department and the private operators between various issues, like on the definition of the use terms, expenditure, and revenue sharing. The department believes that all these things will be clarified, once the court order comes,” a member said.

The PAC has said that it is indeed very sad that even though the revenue sharing regime was introduced as part of National Telecom Policy of 1999, the department has not realised its “legitimate revenue share” as contracted in the license agreement with private operators even after 17 years of its implementation.

The panel also sought some “pro-active, affirmative, tangible and result-oriented measures” to realise the revenue blocked for decade in protracted litigations.

Thomas said that the panel has held three meetings on the issue and is ready to submit a report on to it. He also said enough meetings on the issue had taken place and unless members demand more meeting, the PAC will examine the points presented by both the telcos and the department and submit a report to Parliament soon.

In the panel meeting on June 6, Thomas had rapped telecom and finance ministries, accusing them of “inefficient functioning” after going through the CAG audit and said that the lack of proper supervision of Controllers of Communications Accounts (CCAs) in Department of Telecom (DoT) and the Financial Wing in the Finance Ministry has “contributed to significant financial loss to the exchequer”.