'It's a double whammy': Telcos want govt to waive service tax on AGR

Service tax demand can go up to Rs 20,000 crore

With notices being sent to telecom companies (telcos) on the service tax they have to pay on their adjusted gross revenues (AGR), the Cellular Operators Association of India (COAI) has written to the government, asking for a law doing away with the tax on the dues the firms have to stump up in compliance with a Supreme Court (SC) order.

Or else, the COAI said, the telecom industry will suffer incalculable losses. 

The tax demands are as high as Rs 20,000 crore, with an industry source putting it at 15 per cent of the AGR dues.

“It’s a double whammy. First, the SC asked the telcos to pay additional AGR and now the service tax department wants to levy tax on it,” said an industry source.

The department started issuing notices after the SC in October last year ordered all telcos, including Bharti Airtel, Vodafone Idea, and Tata Teleservices, to pay their past dues to the government.

While Bharti Airtel was ordered to pay Rs 43,980 crore, Vodafone Idea’s dues rose to Rs 55,000 crore, while Tata Teleservices was asked to cough up Rs 14,000 crore.

All the telcos have sought 20 years to pay their dues and the SC is hearing their plea. Industry watchers say more litigation is on the cards.

“The liability to pay service tax on licence fee and spectrum usage charges, if any, was with the telecom operators paying the licence fee to the government. Given that the SC has now confirmed the additional liability on licence fee and spectrum usage charges, the service tax paid is no longer a pass-through as credit of service tax paid can no longer be availed of in the goods and services tax (GST) regime,” said Bipin Sapra, tax partner, EY India.

“In the (earlier) service tax regime, it would have been a cash-neutral exercise. Creating a liability of service tax on an industry reeling from accumulated credits and adverse cash flows will result in futile litigation. Representations have been made to the government to resolve this impasse,” he said.

The COAI has, therefore, written to the government, asking it not to levy service tax on AGR dues and, even if it is levied, the money should be immediately refunded. The telcos have sought exemption under the Central Excise Act. 

The COAI has also asked Parliament to approve, if required, the exemption, said a source.
 

“The issue is that the service tax paid would have been available as credit to telcos to be used against output service tax or GST. However, it’s not clear as to how this credit would now be available, given that GST was introduced more than three years ago,” said Pratik Jain, partner and leader, indirect tax, PwC India.

On October 24 last year, the SC stated the telcos had to include non-core revenues to calculate their AGR. Though on November 20, a committee of secretaries, headed by the cabinet secretary, decided to defer receipts of spectrum auction instalments due from the telcos for 2020-21 and 2021-22, the tax department decided to send notices on additional AGR. 

A DOUBLE WHAMMY
 

• Cellular Operators Association of India seeks exemption under Section 11C of Central Excise Act
• Telecom companies want Parliament’s approval on exemption
• Even if service tax is paid, refund should be initiated immediately
• Additional tax will impact the financials of telecom companies