CHAPTER 3
REVENUE

3    Undue favour to licensees and loss of revenue

A mention was made in paragraph 14 of Report No. 6 of 2000 of the Comptroller and Auditor General of India, Union Government, (Post and Telecommunications) for the year ended March 1999 about licensing of Cellular Mobile Telephone Service under fixed licence fee regime, non-payment of licence fee and migration to New Telecom Policy - 99 (NTP-99) in respect of 22 Cellular Mobile Telephone Operators covering 18 circles and 4 metros. Under NTP-99 only those Cellular Mobile Telephone Operators were permitted to migrate to the revenue sharing regime who cleared their total outstanding dues within 90 days of the offer for migration. Those operators who did not clear their dues within 90 days would not only be not allowed to migrate but would have their operating licence terminated without any further notice, so that they would not be able to operate any longer. Twenty operators accepted the offer and paid their outstanding dues. Two operators who did not do so were M/s Koshika Telecom Limited operating in Bihar, Orissa, Uttar Pradesh (UP) (East) and UP (West) circles and M/s JT Mobile operating in Andhra Pradesh, Karnataka and Punjab circles. Together, these two licensees had licence fee dues amounting to Rs 920.65 crore outstanding as of 31 May 1999.

In these two cases the following deviations from the scheme were observed by Audit:

Non-termination of licence inspite of non-payment of dues

The licence of M/s Koshika Telecom Limited was terminated for Bihar, Orissa and UP (West) circles in April 1999 for non-payment of outstanding licence fee. The licence for UP (East) was not terminated as the other licensee viz., M/s Aircell Digilink Limited was also a defaulter at that point of time. Subsequently, on representation by M/s Koshika Telecom Limited, their licences for all the circles were restored and they were allowed to migrate to NTP-99 from 1 November 1999 (1 December 1999 in the case of UP (East)). Although M/s Koshika Telecom Limited did not pay their outstanding dues, the department, in disregard of the requirements of migration package, failed to terminate their licence in the case of UP (East); this inspite of the fact that the licence of M/s Aircell was restored in April 2000 consequent upon payment of their outstanding dues and migration to NTP-99.

The department stated in September 2001 that the case for termination of licence for UP (East) circle and the modalities for recovery of the outstanding dues of Rs 438.20 crore were under active consideration of the Government and a decision was likely to be taken shortly.

The Ministry while accepting the facts stated in November 2001 that M/s Koshika Telecom Limited had resorted to legal proceedings in Delhi High Court against the demand issued by DoT for payment of outstanding dues and apprehending action by the licensor, obtained stay order on 24 September 2001 against termination of Uttar Pradesh (East) circle licence. It further added that DoT had taken necessary action to file reply in the Court to defend the case and that the matter was sub judice and further action would be taken depending on the outcome of the case.

The fact, however, remained that Rs 182.25 crore towards outstanding dues in respect of the licence fee for Bihar, Orissa and UP (West) circles still remained to be recovered although not sub-judice. In addition, outstanding dues to the tune of Rs 255.95 crore were pending in respect of UP (East) circle as the matter was sub judice.

Also the department showed undue favour to M/s Koshika Telecom Limited by failing to terminate their licence from April 2000 onwards, although the licensee did not honour the condition of the migration package.

The licence of M/s JT Mobile was terminated in July 1999 for non-payment of licence fee for Punjab circle. Meanwhile M/s JT Mobile was renamed as M/s Bharti Mobile. M/s Bharti Mobile was issued a migration package for Punjab circle on 31 August 2000 with 7 September 2000 as the cut off date; this was accepted by them, but conditionally. The agreement, therefore, did not materialise. The licence fee outstanding in the case of Punjab circle, however, mounted to Rs 525 crore.

Non-realisation of outstanding dues in respect of the terminated licence

On the advice of the Attorney General, M/s Bharti Mobile were given an offer of a revised migration package on 19 September 2001 for Punjab circle, intimating the dues of approximately Rs 490 crore. Although this figure included the outstanding licence fee, interest calculated upto the date of payment, Wireless Planning and Coordination (WPC) charges and liquidated damages, the amount of dues came down from the earlier figure of Rs 525 crore. This was on account of the notional extension in the effective date by six months. The offer further stipulated that the issue relating to payment of licence fee between 18 April 1996 and 10 March 1998 would be decided by an arbitrator. The licensee gave unconditional acceptance to the offer.

The Ministry stated in November 2001 that all the dues as per the migration package amounting to Rs 491 crore (including the spectrum charges of Rs 5.41 crore) pertaining to the period prior to migration stood recovered from M/s Bharti Mobile Limited in respect of Punjab circle in terms of migration package offered on 19 September 2001.

Although the licensee paid the outstanding dues, the department showed undue favour to the extent of Rs 57.50 crore to the licensee by way of notional extension in the effective date by six months, as already commented in para 14.10.1 of the Report of the Comptroller and Auditor General of India for the period ended 31 March 1999.

Further, the matter regarding payment of licence fee for the period 18 April 1996 to 10 March 1998 had been entrusted to an Arbitrator whose decision was awaited. As a result, receipt of the corresponding licence fee amounting to approximately Rs 218 crore (at the rate of Rs 115 per year as given in the payment schedule of the agreement), which was included in the recovery of Rs 491 crore, was not final.

4    Non realisation of licence fee and royalty charges

WPC wing is empowered to grant/renew licence to wireless telegraph stations being used by private parties

Wireless Planning and Co-ordination (WPC) wing of Ministry of Communications is empowered to grant/renew licence to users to establish, maintain and operate wireless telegraph stations. Licences are generally issued for a period of two years at a time, if otherwise not required for a shorter period. The users are required to pay licence fee and royalty charges as per the tariff applicable from time to time.

10 users operated wireless stations without licences

Rs 83.41 lakh not realised towards licence fee and royalty charges

Scrutiny of records of Wireless Monitoring Station, Shillong in December 2000 by Audit revealed that 10 users were allowed to operate wireless stations at different localities without valid licences for 99 to 219 months as indicated in the Appendix-V. This resulted in non-realisation of licence fee and royalty charges amounting to Rs 83.41 lakh from January 1983 to March 2001.

In a similar comment made in the Audit Report No. 6 of 2001, Ministry in their Action Taken Note stated in November 2001 that penal action could not be taken due to non-existence of an enforcement mechanism in the existing set up. The Ministry added that the proposal for creation of an enforcement group was under consideration.

Issuance of licences and recovery of dues still awaited

When this was pointed out by Audit, the officer in charge, Monitoring Station Shillong stated in March 2001 that they issued licences to one out of 10 users; in respect of the others, the matter was being taken up with the users as well as the WPC wing for expediting the process for obtaining the licence.

The Ministry in their reply stated in November 2001 that the inspection unit Shillong had already taken up the cases with the users. They added that the onus of applying for a licence or its subsequent renewal lay with the respective users.

5    Short recovery of liquidated damages

As per condition of the licence agreement with the basic service operators, if an operator fails to bring the service or any part thereof into commission within the prescribed commissioning period of 12 months from the effective date, DoT shall be entitled to recover liquidated damages. The amount of liquidated damages is linked to the category of the service area.

Scrutiny of the records of DoT in February 2001 revealed that M/s Shyam Telelinks Network (India) Limited, a basic service operator, who entered into an agreement with DoT in March 1998 for commissioning basic service in Rajasthan circle, commenced the service after a delay of 459 days (June 2000). As Rajasthan circle falls in category ‘B’ service area, the maximum liquidated damages recoverable were Rs 4 crore. The department, however, had recovered only Rs 3.30 crore for a delay of 149 days i.e. up to 31 July 1999. This resulted in short recovery of liquidated damages of Rs 0.70 crore. When this was pointed out by Audit, the department recovered the balance amount of Rs 0.70 crore in May 2001.

The Ministry stated in September 2001 that the liquidated damages were first charged for 149 days i.e. up to 31 July 1999 because that was the cut off date for migration of the existing licence. The Ministry added that the case was reviewed after commencement of services and demand was raised for the balance amount and realised in May 2001. The recovery of Rs 0.70 crore, however, was made by the department after Audit raised the point in February 2001.

6    Non-realisation of Rs 27.53 lakh on account of penal interest on belated payment of bills

As per the decision of the DoT relating to unified procedures and charges for Satellite Services, penal interest at 18 per cent is to be charged on the amount due, if the same is not received within the due date.

Director (Traffic) failed to realise penal interest on belated payment of dues for satellite charges

Scrutiny of the records of Director (Traffic), Office of Chief General Manager (Maintenance), Northern Telecom Region New Delhi in June 2000 by Audit revealed that the executive failed to realise penal interest from the parties on account of belated payment of dues for the Satellite charges. This resulted in non-recovery of penal interest of Rs 27.53 lakh for the period upto 30 September 2000.

The matter was referred to the Ministry in November 2001; their reply was awaited as of December 2001.

7    Non/short recovery of revenue

Non/short recovery of Rs 14.37 crore towards rent/licence fee for telecom facilities

Test check in audit revealed non/short realisation of rent of Rs 14.37 crore for the period April 1986 to September 2000 for various telecom facilities in 35 cases in 13 Telecom circles as shown in Appendix-VI. These were mainly due to failure to issue bills, recover advance rental, fix rent and guarantee charges as per rules, bill inter-connection charges and upgradation of exchanges, charging of low rent on capital cost basis etc.

After this was pointed out by Audit, the department recovered Rs 2.44 crore up to December 2001 leaving the balance amount of Rs 11.93 crore.

The matter was referred to the Ministry in August/September 2001. The Ministry in their reply received in December 2001 in respect of Andhra Pradesh, Bihar, Gujarat, Karnataka, Kerala, Maharashtra, Punjab, Tamil Nadu and West Bengal Telecom circles while confirming the facts and figures, stated that the entire amount due from Maharashtra Telecom circle was recovered and partial recoveries had been effected in respect of Andhra Pradesh, Bihar, Gujarat, Karnataka, Kerala, Punjab, Tamil Nadu and West Bengal circles. Replies in respect of other circles were awaited as of December 2001.

Continuance of telephone facilities despite default in payment of bills resulted in accumulation of dues of Rs 11 crore.

Departmental rules provide that a telephone bill is payable by the due date failing which the telephone connection is liable to be disconnected.

Scrutiny of records of 11 Secondary Switching Areas (SSAs) in Bihar, Gujarat, Karnataka, Rajasthan and Uttar Pradesh (East) and Uttar Pradesh (West) Telecom circles revealed that the department continued to allow telephone facilities to various telephone subscribers during the period May 1978 to September 2000, despite non-payment of bills by the due date. This resulted in accumulation of arrears of Rs 11 crore during the period May 1978 to September 2000 as detailed in Appendix-VII.

When this was pointed out by Audit, Bihar, Gujarat, UP (East) and UP(West) Telecom circles recovered Rs 0.46 crore during April, June and December 2001. Recovery of balance amount of Rs 10.54 crore and action taken for disconnection was awaited as of December 2001.

Ministry in their reply received in December 2001 while confirming the facts and figures in respect of Uttar Pradesh (East) and Uttar Pradesh (West) Telecom circles stated that the cases relating to GMTD Ghaziabad was examined and telephone connections were disconnected. Partial recovery was made and action for recovery of balance amount had been initiated by the SSA.

Ministry of Finance levied 5 per cent service tax on Telecommunication services

Ministry of Finance imposed a service tax of 5 per cent on the total charges claimed in the bills with effect from 1 July 1994 on service provided to subscribers by telegraph authorities in relation to telephone connections.

Five units failed to charge service tax of Rs 6.23 crore

Test check of records by Audit in five units of four circles disclosed that service tax was not charged on speech circuits by five units resulting in non-recovery of service tax to the tune of Rs 6.23 crore during July 1994 to September 2000 as shown in Appendix VIII.

Rs 5.69 crore was recovered at the instance of Audit

On this being pointed out by Audit, an aggregate amount of Rs 5.69 crore was recovered by Andhra Pradesh, Gujarat Telecom circles and Mahanagar Telephone Nigam Limited Delhi during January 2001.The details of recovery for balance amount was awaited as of December 2001.

The matter was referred to the Ministry in August/September 2001. The Ministry in their reply received in December 2001 in respect of Andhra Pradesh telecom circle and MTNL Delhi while accepting the facts stated that major portion of the amount had been recovered. Replies in respect of other circles were awaited as of December 2001.

Departmental rules provide that an amount of Rs 5000/- in case of urban Subscriber Trunk Dialing (STD)/Public Call Office (PCO) operators and Rs 600/- in case of rural STD/PCO operators or their respective monthly revenue averaged over a period of six months, whichever is higher, is to be given by franchisees as “security deposit” in cash or in the form of bank guarantee. The security deposit amount was also to be reviewed every year.

Non-review of security deposit payable led to short realisation of Rs 5.94 crore

Scrutiny of records of 28 Telecom units in 12 Telecom circles during June 1996 to May 2001 revealed that the department neither conducted the review of security deposits of STD/PCO holders nor revised the deposits payable with increase in the revenue of STD/PCO operators. This led to short realisation of security deposits amounting to Rs 5.94 crore as detailed in Appendix-IX.

When this was pointed out by Audit during May 2000 to May 2001, the department realised Rs 1.49 crore. Recovery particulars of the balance amount were awaited as of December 2001.

The matter was referred to the Ministry between August and September 2001. Ministry in their reply received in December 2001 accepted the facts and figures in respect of Andhra Pradesh, Bihar, Himachal Pradesh, Karnataka, North East, Uttar Pradesh (East) and West Bengal Telecom circles. Amount pointed out by Audit in respect of Himachal Pradesh circle was fully recovered and partial recoveries made in respect of Andhra Pradesh, Bihar, North East, Uttar Pradesh (East) and West Bengal Telecom circles. Replies in respect of other circles were awaited as of December 2001.

The department failed to charge the revised tariff for telecommunications services such as leased telecom services including rental charges for telephone connections. Cases of short recovery of rental due to non-application of revised tariff by Telephone Revenue Accounting (TRA) branch of the department were included in the reports of the Comptroller and Auditor General of India, Union Government (Post and Telecommunications) for the years 1986-87 to 1999-2000. In response to audit observations, DoT issued instructions in September 1991 making it imperative that any revision in tariff should be brought to the notice of all concerned dealing with fixing of rent and guarantee terms and issue of bills. Since the deficiency persisted, DoT again directed the Heads of circles in November 1998 to refer to the instructions issued in September 1991 and take urgent steps to circulate revised tariffs to the SSAs/Areas whenever such orders reached them.

Circles continue to issue bills at old lower tariff despite repeated instructions of DoT

Despite these instructions, Audit has continued to notice cases of issue of bills at old lower tariffs. Test check by Audit revealed short billing of Rs 2.18 crore during April 1986 to September 2000 in seven Telecom circles in 14 cases as shown in the Appendix-X.

When this was pointed out by Audit, the department recovered Rs 0.66 crore. Recovery particulars of the balance amount of Rs 1.52 crore were awaited as of December 2001.

The matter was referred to the Ministry in August-September 2001. Ministry in their reply received in December 2001, while accepting the facts and figures in respect of Andhra Pradesh, Bihar, Gujarat, Orissa and Tamil Nadu Telecom circles stated that the amount pointed out by Audit for Andhra Pradesh circle had been fully realised whereas in respect of Gujarat, Orissa and Tamil Nadu Telecom circles partial recoveries were made. Replies in respect of other circles were awaited as of December 2001.

Operating branch of the telephone district is required to send completed advice notes to the Telephone Revenue Accounting (TRA) branch within a week of providing telecommunication facilities to enable them to post the details in the Subscriber Record Card (SRC) and issue bills to the subscribers. TRA branch is required to obtain a list of non-directory items from the operating branch in April each year and check it with SRCs to ensure that the rent in respect of all the telecommunication facilities has been recovered.

Test check disclosed non/short billing of Rs 1.07 crore in four Telecom circles

Cases of delayed billing/non-billing due to non-receipt of advice notes by TRA branch were commented in the Report of the Comptroller and Auditor General of India, Union Government (Post and Telecommunications) in the past. Despite the department’s assurance that no telephone facility would be released without issuing the advice notes, the deficiency persisted. Test check by Audit revealed non/short billing of Rs 1.07 crore during May 1995 to September 2000 in four Telecom circles involving five cases as shown in Appendix XI.

Out of Rs 1.07 crore, the department recovered Rs 0.24 crore. Recovery particulars of the balance amount of Rs 0.83 crore were awaited as of December 2001.

The matter was referred to the Ministry in August - September 2001. Ministry in their reply received in December 2001 in respect of Andhra Pradesh, Tamil Nadu, Uttar Pradesh (East) and West Bengal Telecom circles while confirming the facts and figures stated that the entire amount pointed out by audit was recovered in respect of Andhra Pradesh and Tamil Nadu Telecom circles. The replies in respect of other circles were awaited as of December 2001.

8    Recovery at the instance of Audit

Test check in audit disclosed non/short billing in many cases aggregating to Rs 480.80 crore due to non-receipt of advice notes in TRA branch, issue of bills at old lower tariff, incorrect fixation of rent, non-recovery of service tax and non-realisation of security deposit etc., as brought out in paragraphs 3, 4, 5, 6 and 7 of this chapter.

When this was pointed out by Audit, the department confirmed recovery of Rs 11.68 crore as of December 2001.

9    Revenue Arrears

9.1    The position of demand raised, amount collected and arrears for telephone services for the four years ending March 2001 is given in table 9.1.

(Rs in crore)

Mounting telephone revenue arrears

At the end of March 2001, the revenue arrears on account of telephone services increased to Rs 2946.78 crore as compared to Rs 1713.58 crore at the end of March 1998. In fact, the increase in arrears (72 per cent) outstripped the increase in demand (62 per cent) over the four years 1997-2001. During this period, however, the percentage of collection of revenue to the total demand remained stagnant.

9.2.    The arrears of telephone revenue of Rs 2946.78 crore came down to Rs 1962.05 crore at the end of June 2001 for the bills issued upto March 2001. Age-wise break up of the amount outstanding on 1 July 2001 as compared to the previous year is given in the chart below:

Outstanding revenue of Rs 1222.26 crore for over one year

An amount of Rs 1222.26 crore (as of 1 July 2001) was outstanding for one or more years which constituted 62.30 per cent of the total outstanding revenue.

9.3    Category-wise break up of total telephone dues between June 1998 and June 2001 were as under:

(Rs in crore)

An amount of Rs 1962.05 crore was outstanding against various categories of the telephone subscribers at the end of June 2001. Of the total outstanding amount, 90.38 per cent was outstanding against the private subscribers, 2.09 per cent against the Central Government departments and 7.53 per cent against various State Governments. The amount as well as the proportion of out-standing bills against private subscribers was increasing every year and in the last one year alone the outstanding amount against this category had increased by Rs 285.11 crore. The department had failed to make concerted efforts to recover the huge outstanding amount from the private subscribers.

The position of arrears of revenue on renting of telegraph, teleprinter and telephone circuits and telex/intelex connections to the various categories of subscribers is indicated in table 9.4.

Table 9.4 Revenue in arrears (telegraph, telex/intelex etc.)

(Rs in crore)

The revenue arrears overdue for collection in respect of circuits had gone up from Rs 128.29 crore in 1997-98 to Rs 180.22 crore in 2000-01, while those of telex/intelex charges reduced marginally from Rs 19.61 crore to Rs 18.30 crore during the same period. Thus, the total outstanding revenue on account of circuits/telex/intelex worked out to Rs 198.52 crore, which was subsequently reduced to Rs 160.49 crore as on 1 July 2001 as shown under paragraph 9.5 below.

9.5    The arrears of outstanding dues in respect of circuits and telex/intelex charges has further reduced to the extent of Rs 160.49 crore for the bills issued up to March 2001. Year-wise break up of the outstanding dues as on July 2001 is given below:

(Rs in crore)

9.6    Total arrears of revenue of over Rs 2122.54 crore (telephone - Rs 1962.05 crore and circuits/telex/intelex Rs 160.49 crore) at the end of June 2001 in respect of telephone, telegraph, teleprinter services etc., impinge seriously on the financial health of a commercial department like BSNL.