July 24, 2024


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The AGR case is a triumph of bureaucratic obstinacy over good sense

The ‘second National Bank of the United States’ was made by the Federal Govt in 1816. Numerous condition governments resented the lender for contacting in financial loans it had made to them. Therefore, some states passed legal guidelines made to hinder the bank’s operation. Other folks only tried using to tax it. Maryland imposed an once-a-year levy of $15,000 on the lender, hoping to tax it out of existence.

When the problem to the tax arrived at the Supreme Courtroom, a unanimous Courtroom talking through Chief Justice Marshall held that the tax was invalid. The Courtroom also utilized a phrase that has arrive to be a person of the enduring clichés of taxation legislation: “The electric power to tax will involve the electric power to damage.”

If the functions top up to it and the judgment in the ‘AGR case’ are just about anything to go by, it is a cliche that the Indian government and the Supreme Courtroom have taken to heart.


The National Telecom Plan of 1999 launched the ‘Adjusted Gross Revenue’ design for payment of license charges. Below the coverage, a percentage of the telecom companies’ AGR was to be shared with the Govt as license price. To begin with, the percentage was fixed at 15 per cent. It was capped at 8 per cent in 2013.

Litigations that have led to the Oct 2019 Supreme Courtroom judgment started in 2003. They revolve all around the definition of the phrase ‘Gross Revenue’. The providers argued that the definition of gross income for the intent of levy of license price could only be associated to this sort of receivables that arose out of everyday telecom associated activities. The Government’s stand was that license price was payable on in general income (which includes income realised on account of non-telecom activities).

The telecom providers further argued that 80 per cent of the license charges demanded by the Govt had been compensated. Payment of the remaining amount had been stayed by the Courtroom. Non-payment was thanks to a bonafide dispute, and less than protective orders of Courts. Thus, if the Courtroom uncovered that the Government’s definition of gross income was suitable, the providers would only be demanded to spend the remaining license price. Penal outcomes like desire or penalty could not be imposed. The Govt argued that it was entitled to desire and penalty.

The Courtroom upheld the Government’s stand on both equally counts. As a outcome, the telecom providers are demanded to spend a full of Rs one.three trillion (ninety two,000 crore in licence price, and 41,000 crore as spectrum usage prices) to the Govt. Only twenty five per cent of this amount is the real sum owed by the providers. The relaxation is in the variety of desire and penalties.

The reasoning at the rear of the verdict is doubtful. How can licenses charges be compensated on non-telecom revenues? It also raises the much larger query of the Court’s job in analyzing problems that have a sizeable impact on the economy – problems that it is admittedly ill-geared up to deal with. Even though a reasonable share of the blame for the crippling influence the Judgment is very likely to have on the telecom sector lies on the Courtroom, an similarly large share of the blame lies at the doorways of the Govt for very poor dealing with of the issue.

The Supreme Courtroom and the economy

The Supreme Courtroom has ordinarily been regarded as the arbiter tasked with the mechanical responsibility of making use of the legislation and decoding the Structure. Financial issues continue to be outside the house its domain – and know-how. A broad and considerably erratic work out of the electric power of judicial review has meant that issues with serious financial outcomes usually arrive at Courtroom. In a 2017-judgment, the Supreme Courtroom held that it is the “bounden responsibility of the Court” to keep in head the financial impacts of its selections. Having said that phone calls for this sort of an financial evaluation continue to be a voice in the judicial wilderness.

There have also been situations where by the Courtroom has departed from the tradition of deference to legislative/executive coverage, in order to actively take part in charting the course of the economy. A essential example of this was the Supreme Court’s cancellation of 2G licences supplied to 122 telecom providers. The catalyst of the affair was a determine of Rs one.seventy six trillion—the CAG’s estimate of the notional decline to the exchequer in the allocation of 2G licences. The determine was centered on doubtful assumptions. Crucially, both equally the CAG and the Supreme Courtroom reasoning started with a defective premise: that the government’s guiding theory must have been income maximization.

Contemplating that the Indian economy depends on overseas and local investments, the implications of this sort of Courtroom action are serious. The Court’s “interventionist” and “legitimizing” roles send conflicting signals to the organization sector. Now acquiring to contend with a wide executive forms, the sector is pressured to facial area decades of unsure legal proceedings. Normally a get in Courtroom does not necessarily mean reduction – due to the fact the Govt remains absolutely free to retrospectively amend the legislation – as it did with its tax demand on Vodafone.

The Government’s dealing with of litigation

Financial coverage seeks to regulate relations rooted in an ambiance of negotiation, flexibility, and trade-offs. Guided as it is by the rigid rule of precedents and concrete constitutional principles, a courtroom is not the finest discussion board to deal with this sort of problems.

In the rapid aftermath of the AGR Judgment and the dismissal of petitions in search of review of the exact, the Govt is hoping to discover methods to offer some succour to the telecom providers. The Finance Minister is on document stating that she is waiting for the Telecom department’s stand on the issue. Experiences also point out that the Reserve Bank of India has requested the government to give some reduction to the telecom players on clearance of the dues, in order to save banking companies from exposure.

It is reasonable to think that these problems were being recognised to the Govt when it escalated the subject to the Supreme Courtroom. Having said that its actions (to borrow an expression utilized by the late Mr. Palkhivala), are “a triumph of bureaucratic obstinacy around great perception.” The Supreme Courtroom does not feel to have been educated of the financial fallout of its final decision. The 153-web page judgment does not converse of its very likely impact on the economy even once.

The judgment is very likely outcome in Vodafone-Concept shutting – leaving at the rear of a private sector duopoly. The government alone stands to reduce a large part of the sum that it is owed. The possibility of a retrospective amendment nonetheless remains. Provided the very likely political ramifications of the exact, it is not likely.

Chief Justice Marshalls’ cliché about taxation was tempered by afterwards judges. It was put to relaxation by the good Justice Holmes with the trenchant observation that “the electric power to tax is not the electric power to damage although this Courtroom sits.” It is a message that does not feel to have arrived at our Supreme Courtroom or our government. And that does not augur perfectly for the financial commitment climate in our country.

The authors are attorneys who practise in the Supreme Courtroom. They tweet @sanjayuvacha & @parahoot

Disclaimer: Sights expressed are particular. They do not replicate the check out/s of Business Conventional.