HC Strikes Down DGFT Formula For Telco Sops.

MUMBAI/NEW DELHI: Offering relief to Indian telecoms companies, the Bombay High Court has struck down a government body's formula for calculating incentives offered to service providers under the foreign trade policy.

A division bench of Justice DY Chandrachud and Justice AV Mohta said the formula was overpowering the country's foreign trade policy itself while ruling in favour of Vodafone Essar that had contested it in court.

Vodafone Essar, India's third largest telecoms company by subscribers, had filed a writ petition in the Bombay High Court in December last year, challenging a policy circular issued by the director general of foreign trade, or DGFT, in July 2010.

The director general of foreign trade in July 2010 issued a circular that sought to apply new eligibility criteria for availing incentives from a plan - Served From India Scheme - and new measures of quantifying the scheme's benefits to be granted, with retrospective effect. The circular also sought to re-open all scheme-related cases for the telecom sector, re-compute entitlements for past periods and make recoveries.

Effectively, telcos got a complicated formula for calculating their turnover from exports, which instigated Vodafone Essar to file the writ petition.

The telco said that the trade body's circular hampered or did not allow it to avail incentives from SFIS offered under the country's foreign trade policy.

As per the scheme, telecom companies were to get a 10% incentive in the form or a scrip or licence for paying custom duties on imports, or services offered by telcos to customers using international roaming in India. The court's decision would have a positive impact on the telecoms industry said KPMG partner for indirect tax Santosh Dalvi .

"The monetary benefits coming to telcos would be huge. The amount would be sizeable because all benefits availed in the past have been restored and benefits on duty saving for future exports are ensured," he added.

A lot of money was stuck (with the government) and the government could be shelling out a significant amount of money, said an industry executive familiar to the development, who did not wish to be named.

The executive also added that companies such as Tata Communications and Reliance Communications owned Flag that offers international long distance (ILD) services would benefit more from the court ruling when compared to Vodafone Essar as it got ILD permits much later.

Source : economictimes.indiatimes.com