TaxTMI 
TaxTMI 
2014 (4) TMI 1136
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....ice providers. 3. We have to examine the above-mentioned issue in the light of the various constitutional, statutory and licensing provisions, bearing in mind the fact that we are dealing with "spectrum", which is universally treated as a scarce finite and renewable natural resource, the intrinsic utility of that natural resource has been elaborately considered by this Court in Centre for Public Interest Litigation and others v. Union of India and others (2012) 3 SCC 1 and in the Presidential Reference, the opinion of which has been expressed in Natural Resources Allocation, in Re: Special Reference No.1 of 2012 decided on September 27, 2012, reported in (2012) 10 SCC 1. This Court reiterated that the spectrum as a natural resource belongs to the people, though State legally owns it on behalf of its people because State benefits immensely from its value. This Court in Centre for Public Interest Litigation and others (supra) referring to the intrinsic worth of spectrum stated as follows: "75. The State is empowered to distribute natural resources. However, as they constitute public property/national asset, while distributing natural resources the State is bound to act in conso....
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.... mechanism for distribution of natural resources. In this regard, the doctrine of equality has two aspects: first, it regulates the rights and obligations of the State vis-à-vis its people and demands that the people be granted equitable access to natural resources and/or its products and that they are adequately compensated for the transfer of the resource to the private domain; and second, it regulates the rights and obligations of the State vis-à-vis private parties seeking to acquire/use the resource and demands that the procedure adopted for distribution is just, non-arbitrary and transparent and that it does not discriminate between similarly placed private parties." 4. We have indicated, the worth of spectrum to impress upon the fact that the State actions and actions of its agencies/instrumentalities/licensees must be for the public good to achieve the object for which it exits, the object being to serve public good by resorting to fair and reasonable methods. State is also bound to protect the resources for the enjoyment of general public rather than permit their use for purely commercial purposes. Public trust doctrine, it is well established, puts an imp....
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....gularisation, liberalization and private sector participation for providing certain basic telecom services on affordable and reasonable prices to all people covering all villages and also to achieve various other objectives. Following the New Telecom Policy of 1999 (NTP), licenses were granted to various cellular mobile telephone service operators in various cities and circles to make available affordable and effective communication for citizens, considering the fact that access to telecommunication was of utmost importance to achieve the country's social and economic growth. NTP also attempted to provide universal service to all uncovered areas, including the rural areas and also provided high level services capable of meeting the needs of the country's economy by striking a balance between the two. The NTP of 1999 specifically refers to spectrum management which highlights the following aspects: "10. The policy on spectrum management as enumerated in NTP, 1999 was as under: (i) Proliferation of new technologies and the growing demand for telecommunication services has led to manifold increase in demand for spectrum and consequently it is essential that the spectrum is ut....
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....iders and indicated that it would make further recommendations on efficient utilization of spectrum, spectrum pricing, availability and spectrum allocation procedure, and DoT has to issue spectrum related guidelines, based on its recommendations. 8. Let us now examine the facts which gave rise to these appeals. On 28.01.2010, the TRAI issued a communication to one of the service providers for furnishing books of accounts to the Branch Audit Office of the Director General of Audit, Post and Telecommunication, operative portion of the said communication reads as follows: "In terms of Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rule, 2002, every service provider shall produce all such books of accounts and documents referred to in sub rule (1) of rule 3 thereof that has a bearing on the verification of the Revenue, to Telecom Regulatory Authority of India (the authority); (ii) to furnish to the Comptroller and Auditor General of India the statement or information, relating thereto, which the Comptroller and Auditor General of India may require to be produced before him and the Comptroller....
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....customers (e) Cash books (f) Journals (g) Ledger (h) Copies of bills and counterfoils of all receipts. 2. The above mentioned information should be sent directly to DDG (Accounts), Department of Telecommunications, Room No.701, Sanchar Bhavan, 20, Ashoka Road, New Delhi - 110001 within 15 days from date of issue of this letter. Sd/- (16.3.2010) (Shashi Mohan) Director (AS-IV) Tele:23372063/Fax-23372404" 10. One of the service providers replied to the abovementioned letter on 15.04.2010, the operative portion of the same reads as under: "We appreciate that DoT in terms of Clause 22.3 of UASL can call for Licensee's books of accounts or go further and direct for a special audit by independent auditor in terms of Clause 22.6 and we have been complying and are committed to complying with direction/s that may be issued by DoT in this regard. However, we should like to mention here that we are currently undergoing the extensive special audit of our books of accounts by an independent auditor M/s S.K. Mittal & Co. appointed by DoT for the same period i.e. FY 2006-07 and 2007- 08. In the light of the above, the recent communication of DoT as....
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....6/2010-ASIV dt. 16.03.2010. 2) Your office letter No.RTL/09- 10/4433 Dt. 31.3.2010. Dear Shri Singh, Kindly refer to your office letter cited on the above subject extending cooperation in conduct of the audit of revenue share by C&AG. Certain difficulty has been expressed by your Company in providing the books of accounts in physical form as they are being maintained in electronic form in SAP R3. Further, it has been stated, the same could be viewed in the concerned IT Systems which would be made available at your headquarters at DAKC, Navi Mumbai. In this connection, it is requested that on 20th May, 2010, a presentation may be given covering your business activities, accounting policies, Accounting, billing and financial systems and all other issues relating to revenue share, followed by brief interface meeting with my Audit team which would start the process of audit. The time and venue of the presentation is given in Annexure-I. Shri Subu R. Director (Report) of my office has been nominated as Nodal Officer who would be overseeing and coordinating the Audit. Regards, Yours sincerely, R.P. Singh" 12. The TRAI on 21.05.2010 sent yet another communication t....
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.... this letter may attract appropriate action under the TRAI Act. This issues with the approval of the Authority. Yours faithfully, Sd/- (Anuradha Mitra) Pr. Advisor (FA)" 13. The TRAI also apprised the Service Providers that the audit sought to be conducted by CAG was separate and independent of the audit or special audit conducted by DoT, and therefore, directed the Service Providers to make available all the records for audit by CAG or else appropriate action would be taken against them under the TRAI Act. Service providers, aggrieved by the stand of DoT and TRAI, filed Civil Writ Petition 3673 of 2010, challenging the legality of the above-mentioned notices before the Delhi High Court, seeking following reliefs: "i. Pass a writ, order or direction to hold and declare that Rule 5 of the Telecom Regulatory Authority of India, Service Providers (Maintenance of Books of Accounts and other Documents) Rules, 2002 for being ultra vires of Section 16 of the C&AG Act and Article 149 of the Constitution of India; ii. Set aside/quash all actions taken/purported to be taken by the Respondent No.1 and/or Respondent No.2; iii. Set aside/quash Respondent No.2's letter....
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....of the Act of 1971 does not apply to audit of private telecom licensees and submitted that the mere fact that licence fee payable under the licence agreement has to be credited into the Consolidated Fund of India in the form of receipts does not mean that a proprietary audit in respect of such receipts extends to a statutory audit of private telecom licensee. Learned senior counsel also submitted that for audit of telecom licensees the correct legal regime would be clause 22 of the Licence Agreement which specifically provides for audit and special audit. Shri Salve also pointed out that the DoT, under the agreement, can appoint an outside auditor of its choice or even the CAG can conduct an audit in terms of clause 22 of UAS. Learned senior counsel also pointed out that the mere fact that Rule 5 of 2002 Rules states that the CAG may carry out an audit of the accounts of telecom licensee under Section 16 of the 1971 Act does not make such audit legally permissible. Rule 5, according to learned senior counsel, ought to be struck down as ultra vires and in contravention of Section 16 of 1971 Act. 17. Shri Gopal Jain, learned senior counsel also appearing for the appellants, submit....
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....onsolidated Fund of India" under Article 266 of the Constitution of India take in "all revenue receipts received by the Government of India" and submitted that a combined reading of Sections 13, 16 and 18 would indicate that it is obligatory on the part of the CAG to audit all transactions entered into by the Union and the States pertaining to the Consolidated Fund. Learned ASG referring to Rule 3 submitted that the Rule prescribes the records required to be maintained enabling TRAI to carry out its obligation under Section 11 and Rule 5 provides for furnishing the said record to TRAI for the said purpose and for its audit by CAG. Learned ASG, therefore, submitted that the High Court has correctly interpreted the various provisions of the Act and the constitutional provisions and hence calls for no interference. 20. We will, before examining the various contentions raised by the learned senior counsel for the appellant and ASG on the scope of Article 149 of the Constitution, Section 16 of Act of 1971, Rule 5 of 2002 Rules etc., examine the various clauses in the UAS Licence Agreement. As already indicated, the Licence Agreement specifically refers to Section 4 of the Indian Tele....
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....e binding on the LICENSEE." 23. Part 2 of the licence conditions refers to commercial conditions and clause 17 deals with performance, which reads as under: "17. Tariffs: 17.1 The LICENSEE will charge the tariffs for the SERVICE as per the Tariff orders/ regulations / directions issued by TRAI from time to time. The LICENSEE shall also fulfill requirements regarding publication of tariffs, notifications and provision of information as directed by TRAI through its orders/regulations/directions issued from time to time as per the provisions of TRAI Act, 1997 as amended from time to time." 24. Part 3 of the licence conditions deals with the finance conditions, fee payable, etc. which reads as under: "18.1 Entry Fee: One Time non-refundable Entry Fee of Rs. 2 crore has been paid by the Licensee prior to signing of this Licence Agreement. 18.2 Licence Fees: In addition to the Entry Fee described above, the Licensee shall also pay Licence Fee annually @ 6 (six)% of Adjusted Gross Revenue (AGR), excluding spectrum charges. Annual Licence fee w.e.f. 1.4.2004 shall be @ 6 (six)% of AGR. The Licensor reserves the right to modify the above mentioned Licence Fee any ....
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....ibed form as annexure-II, showing the computation of revenue and Licence fee payable. The aforesaid quarterly STATEMENTS of each year shall be required to be audited by the Auditors (hereinafter called LICENSEE'S Auditors) of the LICENSEE appointed under Section 224 of the Companies' Act, 1956. The report of the Auditor should be in prescribed form as annexure-II. 20.6 Final adjustment of the Licence fee for the year shall be made based on the gross revenue figures duly certified by the AUDITORS of the LICENSEE in accordance with the provision of Companies' Act, 1956. 20.7 A reconciliation between the figures appearing in the quarterly statements submitted in terms of the clause 20.4 of the agreement with those appearing in annual accounts shall be submitted along with a copy of the published annual accounts audit report and duly audited quarterly statements, within 7 (seven) Calendar days of the date of signing of the audit report. The annual financial account and the statement as prescribed above shall be prepared following the norms as prescribed in Annexure. 20.11 The LICENSOR, to ensure proper and correct verification of revenue share paid, can, if deemed necessary, m....
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....l breach independent of any other breach, sufficient to give a cause for cancellation of the LICENCE. 22.5 The LICENSOR may, on forming an opinion that the statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditors of the company enjoy under Section 227 of the Companies Act, 1956. The remuneration of the Auditors, as fixed by the LICENSOR, shall be borne by the LICENSEE. 22.6 The LICENSOR may also get conducted a 'Special Audit' of the LICENSEE company's accounts/records by "Special Auditors", the payment for which at a rate as fixed by the LICENSOR, shall be borne by the LICENSEE. This will be in the nature of auditing the audit described in para 22.5 above. The Special Auditors shall also be provided the same facility and have the same powers as of the companies' auditors as envisaged in the Companies Act, 1956. 22.7 The LICENSEE shall be liable to prepare and furnish the company's annual financial accounts according to the accounting principles prescribed and the directions given by the LICENSOR or ....
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....me to time, namely:- (i) books of accounts to reflect the itemized original and current cost service-wise of fixed assets and separate heads for different category of assets may be maintained; (ii) books of accounts and other documents to reflect service-wise itemised operational expenses; (iii) books of accounts to reflect service-wise revenue; (iv) books of accounts to reflect income from other sources; (v) supporting books of accounts and other documents as - (a) fixed assets register; (b) stores and spares register (c) register showing particulars, servicewise, of subscribers; (d) register showing deposits from customers; (e) cash book; (f) journal; (g) ledger; and (h) copies of bills and copies of counter foils of all receipts. Explanation - For the purpose of this rule - (a) "itemized" means the requirement for both the total cost and also its break-up; (b) "current cost" means cost after depreciation; and (c) "fixed assets" includes sub-heads such as building, plant and machinery, etc. (2) Every service provider shall intimate to the Authority the place where the books of accounts and other documents are maintained....
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....nd shall only be removed in like manner and on like grounds as of Judge of the Supreme Court of India. The CAG is, therefore, an important functionary under the Constitution and, it is often said, he is the guardian of the purse and that he should see that not farthing of it is spent without the authority of the Parliament. Article 149 deals with the duties and powers of the CAG which reads as under: "149. Duties and powers of the Comptroller and Auditor General. The Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively." 34. Article 149 does confer the power on the CAG to discharge duties and powers in relation to the accounts of th....
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....nd procedures, designed to secure an effective check on the assessment, collection and proper allocation of revenue are being duly observed and CAG has to examine the decisions which have financial implications, including the propriety of decision making. This Court also noticed that the report of the CAG is required to be submitted to the President, who shall cause them to be laid before each House of Parliament, as provided under Article 151(1) of the Constitution of India. By placing the reports of the CAG in the Parliament, CAG regulates the accountability of the Executive to the Parliament in the field of financial administration, thereby upholding the parliamentary democracy. 37. We are of the considered view that when the executive deals with the natural resources, like spectrum, which belongs to the people of this country, Parliament should know how the nation's wealth has been dealt with by the executive and even by the UAS Licence holders and the quantum of the Revenue generated out of the use of the spectrum and whether the same has been properly assessed, collected and accounted for by the Union and the UAS Licence holders. When nation's wealth, like spectrum, is ....
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....vil Liberties (PUCL) and another v. Union of India and another (2003) 4 SCC 399, have no fixed content, most of them are empty vessels into which each generation has to pour its content in the light of its experience. 41. Parliament has an obligation to ascertain whether the entire receipts by way of licence fee, spectrum charges, have been realized by the Union of India and credited to the Consolidated Fund of India (CFI). Article 266 says, all the public moneys received by or on behalf of the Government of India shall be credited to CFI. CAG can carry out examination into the economy, efficacy and effectiveness with which the Union of India has used its resources, and whether it has realized the entire licencee fee, spectrum charges and also whether the Union of India has correctly carried out the audit under Clauses 22.5 and 22.6 of UAS Licence Agreement. CAG's examination of the accounts of the Service Providers in a Revenue Sharing Contract is extremely important to ascertain whether there is an unlawful gain to the Service Provider and an unlawful loss to the Union of India, because the revenue generated out of that has to be credited to the Consolidated Fund of Ind....
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....any way, "relates to contingency public fund". 44. Section 16 of the Act of 1971 deals with audit of receipts of Union or States, reads as under: "16. It shall be the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union Territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed and to make for this purpose such examination of the accounts as he thinks fit and report thereon." 45. The expression "to audit all receipts" does not distinguish the revenue receipts and non-revenue receipts. For the purpose of audit of receipts, the duty of the CAG extends "to such examination of the accounts as it thinks fit and report thereon". Section 13 read along with Section 16 makes it clear that the expression "to audit all transactions" so also "audit of all receipts", payable into Consolidated Fund of India would take in not only the accounts of the Union and of the State and of any other authority or body as m....
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.... while granting the privilege to deal with the spectrum by the licensees is a "revenue received by the Government" within the meaning of Article 266 i.e. "a receipt payable into the Consolidated Fund of India" within the meaning of Section 16 of 1971 Act. 48. Revenue share receivable by the Union being a receipt payable into the Consolidated Fund" by virtue of Section 16 and 18(1)(b) of 1971 Act, in relation to such receipts, the CAG is entitled to seek the records maintained in terms of Rule 3 of Rules of 2002 and the records maintained under clauses 22.1 and 22.2 of the licence agreement. We are of the view that unless the underlying records which are in the exclusive custody of the Service Providers are examined, it would not be possible to ascertain whether the Union of India, as per the agreement, has received its full and complete share of Revenue, by way of licence fee and spectrum charges. 49. We may now examine the challenge made to Rule 5 of TRAI Rules 2002, on the basis that the same is ultra vires to Section 16 of CAG Act, 1971 and Article 149 of the Constitution. Clauses 9.1 as well as 16.1 of the Licence Agreement categorically states that the licensee sh....
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....pendent, which is not similar to the audit conducted by the DoT under Clause 22.5 or special audit under Clause 22.6. CAG's function is only to ascertain whether the Union of India is getting its due share, while parting with the right to deal with its exclusive privilege to the Service Providers, who are dealing with a national wealth, to that extent, Rule 5(1)(ii) has to be read down, but the service providers are bound to make available all the books of accounts and other documents maintained by them under Rule 3, so as to ascertain whether the Union of India is getting its full share of revenue. CIVIL APPEAL NOS.10748 AND 10749 OF 2011 52. We are, in these appeals, concerned with the legality of the communication dated 16.3.2010 issued by the Department of Telecommunications and the communication dated 10.5.2010 issued by the Director General of Audit, Post and Telecommunication, to the various Telecom service providers covered by Unified Access Service (UAS) License for making available all the accounting records for three years commencing from 2006-2007 for the purpose of audit by the Comptroller of Auditor General of India (CAG). 53. The Telecom Service Provi....
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....spondent must be held to be wholly illegal. (iii) Adherence to the principles of natural justice which is a sine-qua-non for exercise of the power conferred on DOT having not been complied with, the impugned letters are liable to be quashed. (iv) The invoices and other documents supporting the books of accounts maintained by the petitioner would be voluminous keeping in view the fact that Vodafone alone has about 200 million subscribers. (v) Exercise of power by DOT in any event was an abuse of process of the Court. (vi) DOT cannot be permitted to do something indirectly which it cannot do directly." 56. The Tribunal also considered the contentions raised by the Department, which are as follows: "(a) DOT has exercised its power in terms of the letter issued by TRAI as also by the Comptroller of Auditor General of India. (b) Some of the parties, namely, Vodafone and Airtel having expressly undertaken to produce the books of accounts and co-operate with the respondent are stopped and precluded from raising the question of the jurisdiction of the Tribunal. (c) Having regard to clause 22.4 of the Conditions of License, DOT could adopt one of the three mea....
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....a India (Firm) Lucknow v. Commissioner of Income Tax, Central-I and Another (2008) 14 SCC 151. The Tribunal also examined the principles laid down in Anisminic Ltd. V. Foreign Compensation Commission 1969 (1) All England Reporter 208 on the question of "jurisdictional error" and took the view that, after the special audit had been conducted, the question of having another audit in terms of Clause 22.5 of the Conditions of License would not arise. Holding so, the Tribunal set aside the communications dated 16.3.2010 and 10.5.2010 and allowed the petitions with costs of Rs. 50,000/. Aggrieved by the same, these two appeals have been preferred. 60. Shri Paras Kuhad, learned Additional Solicitor General appearing for the appellants, submitted that the Tribunal has completely misapplied various clauses of the licence agreement, especially Clauses 22.3, 22.5 and 22.6 which, according to the learned senior counsel, empower the Department to call for the books of account of the service providers for its audit. Shri Kuhad submitted that the communications dated 16.3.2010 and 10.5.2010 are intended to carry out an audit by the CAG and that the Department has got the legal right to call up....
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....ent of India Ministry of Communication Department of Telecommunication (AS Cell) Sanchar Bhawan, 20, Ashoka Road, New Delhi - 110 001 No. 842-1086/1010-AS-IV Dated 16th March, 2010 To M/s. Bharti Airtel Ltd. And Bharti Hexacom Ltd., Unitech World Cyber Park Power-A, 4th Floor, Sector 39, Gurgaon - 122 001 Subject : Audit of Telecom Service Providers by C&AG Reference: Unified Access Service Licence Agreements as detailed below: Sl. No. Service Area Licence No. Dated xxx Xxx Xxx xxx In exercise of powers conferred on the Licensor under clause 22.3 of Unified Access Service (UAS) Licence, it is requested to provide the following accounting records, for three years commencing from 2006-07, consisting of books of accounts and other documents for all the services offered under the above referred UAS licences issued, to reflect: i) Total cost and break-up of original and current cost i.e. cost after depreciation under separate head for different category of fixed assets; ii) Cost and breakup of operation expenses iii) Service wise revenue iv) Income from other sources v) Supporting books of account....
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.... expected to record any reasons and that they can summon books of accounts in respect of the business at any time, from the UAS Licence holders. 65. Let us now examine the communication dated 10.5.2010 issued by the Director General of Audit, Post & Telecommunications to the UAS service providers, which specifically refers to the communication dated 16.3.2010, which is extracted below, once again, for an easy reference: "D.O. No. Report-PSP/F-4/Vol-II/2009-10/4 OFFICE OF THE Director General of Audit, Post & Telecommunications Sham Nath Marg, (Near Old Secretariat), Delhi - 110002 R. P. Singh Director General Dated 10-5-2010 Sub: Audit of Telecom Service Providers by C&AG-Reg. Ref: 1) DoT letter No. 842-1086/2010/AS-IV dt. 16.03.2010 2) Your office letter No. TTSL/DoT/ Audit/2010 dt. 1.04.2010 Dear Sh. Dalal Kindly refer to your office letter cited on the above subject extending cooperation in conduct of the audit of revenue share by C&AG. Certain difficulty has been expressed by your Company in providing the books of accounts in physical form as they are being maintained in electronic form in SAP ERP System. Further, it has been stated that the ....
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....o be conducted not only by CAG in exercise of powers conferred under Article 149 of the Constitution read with the 1971 Act and TRAI Rules 2002, but also an audit under clause 22.5 as well as special audit under clause 22.6. Consequently, an audit to be conducted by CAG would not depend upon the "formation of opinion" by the DoT that the statements or accounts submitted to it were inaccurate or misleading, which, in our view, would deprive the statutory and constitutional powers conferred on the CAG to conduct the audit or enquiry or inspection. Tribunal's order, in our view, is an encroachment upon the constitutional and statutory power conferred on CAG under Articles 148, 149 of the Constitution as well as Section 16 of the 1971 Act read with Rule 5 of the TRAI Rules 2002 and the licensing provisions. 68. We may, in this connection, refer to Clauses 22.5 and 22.6 for an easy reference: "22.5 The LICENSOR may, on forming an opinion that the statements or accounts submitted are inaccurate or misleading, order Audit of the accounts of the LICENSEE by appointing auditor at the cost of the LICENSEE and such auditor(s) shall have the same powers which the statutory auditor....