Zomato Faces ₹401 Crore GST Notice Over Unpaid Taxes

Food delivery behemoth Zomato has found itself embroiled in a significant tax predicament, as the Directorate General of GST Intelligence (DGGI) issued a notice amounting to ₹401.7 crore in unpaid Goods and Services Tax (GST). The notice pertains to the company’s alleged failure to pay taxes on delivery charges collected from customers on behalf of their delivery partners.

The DGGI’s notice, also sent to Swiggy, underscores the tax liability concerning delivery charges, asserting that these charges fall within the services category and necessitate an 18 per cent GST payment. Zomato, however, staunchly contests this assertion, responding to the show cause notice by stating, “The delivery charge is collected by the company on behalf of the delivery partners. Further, in view of the contractual terms and conditions mutually agreed upon, the delivery partners have provided the delivery services to the customers and not the company.”

In a disclosure statement, Zomato reinforced its stance by citing opinions from external legal and tax advisors, emphasizing that the company is not liable to pay any tax in this regard. They affirmed their intention to submit an appropriate response to the show cause notice.

The tax authority’s directive includes penalties and interest spanning from October 2019 to March 2022, highlighting Zomato’s alleged failure to remit taxes on the delivery charges amassed from customers during this period.

Zomato, a publicly listed entity, clarified their disclosure policy, stating, “A disclosure is required to be made only of orders with penalties passed by authorities or pending litigation/dispute that has a material adverse impact on the Company.” They underscored that, as of now, no such order has been issued and expressed confidence in their position, characterizing the disclosure as a proactive step considering the substantial alleged tax demand.

The complexity of the issue stems from the breakdown of customer bills when ordering from platforms like Zomato and Swiggy. The bill typically comprises the food price, delivery charges (sometimes waived for platform subscription holders), and a 5 per cent tax on food and platform fees. Earlier in January 2022, the GST council imposed a 5 per cent tax on food delivery services and included ‘restaurant services’ within the GST purview, prompting these platforms to remit 5 per cent GST as ‘restaurant services.’

Notably, in October, Swiggy adjusted its platform fee on food delivery orders from ₹2 to ₹3, a move implemented alongside the delivery charge.

This development marks another instance of the evolving regulatory landscape in the food delivery sector, as companies navigate tax implications on various components of their services. Zomato’s forthcoming response and the subsequent actions of the tax authorities are poised to shed light on the resolution of this high-stakes tax dispute.

Sources By Agencies