TaxTMI 
TaxTMI 
2014 (4) TMI 1136
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....tioned 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 consonance with the principles of equality and public trust ....
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....d, 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 implicit embargo on the right of the State to transfer public proper....
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....ding 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 utilised efficiently, economically, rationally and optimally. (ii) There is a ....
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....um, 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 and Auditor General of India may audit the same in accordance with the provisions of Section 16 of the....
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....oned 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 asking us to provide our accounting records for period of three years starting from 2006-07 for an audit by the C&AG is a matter of surprise and concern for us. ....
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....ion 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 to one of the service providers with specific reference to "Furnishing of Books of Accounts to the Branch Audit Offices of the Director General of Audit, Post and Telecommunications", the operative port....
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....he 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 letters dated 10.5.2010 and 21.5.2010 and the directions contained therein; iv. Set aside/quash Respondent No.3's letter dated 28.1.2010 and the directions contained therein; v. pass any order(s) as the Court may deem fit in the interest of justice, equ....
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....roprietary 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, submitted that the reasoning of the High Court is patently erroneous in law and pointed out that the licence agreement obliges the licensee to maintain accounts as prescribed in the agreement to produce those accounts as and when demanded, and if the Government is sa....
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....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 Telegraph Act, 1885, which highlights the fact that the Central Government enjoys an "exclusive privilege" so far as "spectrum" is concerned, which is a scarce, finite and renewable natural resource which has got intrinsic utility to mankind. Spectrum, as already indicat....
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....ns 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 time during the currency of this agreement. 18.3 Radio Spectrum Charges: 18.3.1 The LICENSEE shall pay spectrum charges in addition to the Licence Fee on revenue share basis as notified separately from time to time by the WPC Wing. However, while calculating 'AGR' for limited purpose of levying ....
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....ould 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, modify, alter, substitute and amend whatever stated in Conditions 20.4, 20.7, 22.5 and 22.6 hereinbefore and hereinafter written." 27. Clause 22 deals with the preparation of accounts. Relevant clauses are extracted hereunder: "22. Preparation of Accounts. 22.1 The LICENSEE will draw, keep and furnish independent accounts for ....
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....he 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 the TRAI, as the case may be, from time to time." 28. Clause 32 deals with the obligations imposed upon the licensee, which read as under: "32. Obligations imposed on the LICENSEE. 32.1 The provisions of the Indian Telegraph Act 1885, the Indian Wireless Telegraphy Act 1933, and the Telecom Regulatory Authority of India Act, 1997 as modified from ....
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....oks 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." 31. Rule 5 of 2002 Rules, the validity of which is under challenge, reads as under: "5. Audit Every service provider shall produce all such books of accounts and documents, referred to in sub-rule (1) of rule 3, that has a bearing on the verification of the Revenue, to the Authority - (i) for the purpose of calculating license fee; and (ii) to furnish to the Comptroller and Auditor General o....
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....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 the Union and the States or any other authority or body, as may be prescribed under the law made by the Parliament. CAG, therefore, is exercising constitutional powers and duties in relation to the accounts, while the High Court under Article 226 of the Constitution, so also the Supreme Court under Article 32 of the Constitution, is exercising judicial powers. Duties and powers conferred by the Constitution on the CAG un....
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....ided 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 being dealt with either by the Union, State or its instrumentalities or even the private parties, like service providers, they are accountable to the people and to the Parliament. Parliamentary democracy also envisages, inter alia, the accountability of the Council of Ministers to the Legislature. In this connection reference may be made to the Judgment of this Court in S.R. Chaudhuri (supra) and Kihoto Hollohan (supra).  ....
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....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 India. The subject matter, with which we are concerned, as already indicated, is "spectrum", a natural resource, which belongs to the people, therefore people of this country, through Parliament should know how its natural resources have been dealt with by the Union, State or its instrumentalities or even by UAS licence holders. Instances are not rare, where even the Executive, at times, acts hand in glove with licence holders, who deal ....
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....e 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 may be prescribed or under any law made by the Parliament but also to audit all transactions which Union and State have entered into which has a nexus with Consolidated Fund, especially when the receipts have direct connection with Revenue Sharing. 46. Above reasoning is further re-inforced if we look at Section 18 of the Act, which deals with the powers of the CAG in connection with the audit of accounts, which reads as follows :- "18. (1) The Comptr....
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....aintained 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 shall be bound by the terms and conditions of the agreement as well as by the order/directions/regulations of TRAI as per the provisions of TRAI Act, 1997. For effective fulfillment of the above-mentioned statutory obligations, TRAI framed 2002 Rules under Section 35 of Act of 1971. Rule 3 of TRAI Rules 2002, as already stated, casts an obligation on the service providers to maintain the Books of Accounts and other documents so as to make available the same to CAG. Article ....
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....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 Providers approached the Telecom Disputes Settlement and Appellate Tribunal (for short 'the Tribunal') and filed two petition Nos. 139 and 141 of 2010 seeking following reliefs: "i. Set aside/quash the impugned communications inter alia dated 16th March, 2010 and 10th May, 2010 seeking audit of telecom companies by the C&AG and seeking information beyond the ambit and scope of the UAS license; ii. Strike down Rule 5(b) of TRAI Service Providers (Maintenance of Books of Accounts....
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.... 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 measures, namely: (i) refer the matter to the Comptroller and Auditor General which has even otherwise the requisite jurisdiction to audit the books of accounts of the petitioners for the purpose of ascertaining as to whether the revenue earned by them has correctly been shared with the DOT in terms of the conditions of license; (ii) conduct an audit within the meaning of provisions of clause 22.5 of the license and; (iii) conduct a special audit. (d) The power to conduct an audit through CAG or depa....
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....0 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 upon the service providers to make available all the records so that they could be scrutinized by the CAG. CAG, it was pointed out, has got the power under Article 149 of the Constitution read with Section 16 of the Comptroller of Auditor General's (Duties, Powers and Conditions of Service) Act, 1971 and Rule 5 of TRAI Rules, 2002 and the conditions of license to carry on audit of the accounts of the service providers, since the Union of India and the service providers are in agreement for revenue sharing. Shri Kuhad also questione....
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....nferred 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 accounts/ other documents as a) Fixed asset register b) Stores and spares / inventory register c) Register showing service - wise particulars of subscribers d) Register showing deposits from customers e) Cash books f) Journals g) Ledger h) Copes of bill and counter foils of all receipts. [Emphasis Supplied] 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 110 001 within 15 days from date of issue of this letter. Sd/- 16.3.2010 (Shashi Mohan) Director (AS-IV)" 63. The ....
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.... 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 audit could be carried out by access to your systems at Noida Office. In this connection, it is requested that on 21st 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 shares, followed by brief interface meeting with my Audit term 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, Sd/- R. P. Singh" 66. Both the....