The Comptroller and Auditor General of India (CAG), in a draft report, has told the Department of Telecom that Reliance Jio may have under-reported revenues, earned from forex gains, to the tune of ₹63 crore.

According to the draft report, scrutiny of the annual financial statements and revenue reconciliation statements furnished by RJio for the years 2012-13 and 2014-15 revealed that there was a realised foreign exchange gain amounting to ₹63.77 crore. “However this gain was not included in the adjusted gross revenue share which is resulted in short payment of licence fee,” the draft report, seen by BusinessLine , stated.

Telecom operators pay a share of their overall revenues as licence fee to the DoT. However, over the years there has been a dispute over what constitutes revenues. According to the industry definition, only those revenues earned from offering telecom services need to be taken into account for calculating the licence fee.

But the DoT has been insisting that all revenues, including those earned from fixed deposits in banks, gains made from foreign exchange fluctuations, or sale of mobile handsets, should be considered while calculating the revenue share payable by the operators. This issue has also been debated at various legal courts.

Reliance Jio too had challenged the DoT notices on the issue of paying licence fee on gains made on foreign exchange. The telecom tribunal — TDSAT— had set aside the DoT notices in December 2015. However, CAG has observed that this was not an acceptable position because DoT had raised demand for only ₹42.94 lakh against the forex gains of ₹1.29 crore in 2012-13. “This is yet to be realised. Further, demand notices for 2014-15 have not yet been raised. Thus, non-inclusion of forex gains in adjusted gross revenue was in violation of the licence conditions which resulted in under-statement of revenue by ₹63.77 crore,” the CAG observed in the draft note.

Industry view

While Reliance Jio did not comment, industry sources highlighted that the issue of forex gains has been raised on other operators also. For example, last year, the CAG had said that review of data/records of Bharti Airtel for the period from 2006-07 to 2009-10 revealed that the realised gain during 2006-07 to 2009-10 was ₹221.58 crore out of which forex gain of ₹5.93 crore only was considered for payment of licence fee during 2006-07 . “The industry has been arguing that the realised forex was nothing but an overall business risk which each company would assume in foreign currency transactions. Such notional gains/losses on account of reduction/increase in the liabilities/loans cannot be considered to be revenue from operations and should not be considered as revenue for the purpose of calculating licence fee,” said a industry representative.

“The notional foreign exchange fluctuation was a contingency which had impact on every business and was not specific and unique to telecom business. Also, as per TRAI recommendation dated September 13, 2006 on the adjusted gross revenue matter, forex was not related to telecom activities,” said another operator. Meanwhile, CAG has given DoT six weeks to respond on the issue.

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