Big Relief For Paytm, Allahabad HC Stays INR 1,081 Cr GST Demand

In a big sigh of relief for fintech major Paytm, the Allahabad High Court (HC) has stayed the INR 1,081 Cr demand over a Goods and Services Tax (GST) dispute. 

The order was issued earlier this month by a bench of Chief Justice Rajesh Bindal and Justice JJ Munir on a plea filed by Paytm. 

The matter concerns whether the supply of mobile recharge coupons and Direct To Home (DTH) recharge vouchers to users in other states constitutes inter-state supply or intra-state supply.

While Paytm contended that the matter related  to inter-state supply, the Centre’s counsel claimed otherwise. The confusion led to the INR 1,081 Cr GST bill, which has now been stayed. 

In simple terms, inter-state supply comes under the ambit of Integrated Goods and Services Tax (IGST), which is collected and distributed by the union government. On the other hand, intra-state supply comes under the purview of both states and the Centre and has two components namely Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST).

Arguing before the court, Paytm said that it classified the sale as an inter-state supply and accordingly paid the GST in Uttar Pradesh. The fintech major added that the state authorities then attempted to raise the demand by claiming that the said transactions were intra-state supplies. 

Citing provisions of the IGST Act, 2017, and the CGST Act, 2017, the court noted that any amount of tax wrongly paid could be adjusted without any interest. Therefore, the HC sided with Paytm and stayed the order.

“In view of the fact that the amount of tax due on the transaction has already been paid and only dispute is whether it is to be treated as intra-state sale or inter-state sale, recovery of the demand raised vide order dated December 3, 2022 shall remain stayed till the next date of hearing,” the court noted.

The matter will now be heard on April 27, 2023. 

The announcement comes as a sigh of relief for the fintech major, which has been surrounded by controversies in the recent past. Last week, Paytm Payments Bank reportedly received the Reserve Bank of India’s (RBI) final nod to operate as a Bharat Bill Payment Operating Unit (BBPOU).

The startup has been reporting record operational metrics, especially with regards to loan disbursals and value. As per the recent data released by the company, Paytm issued a record 3.7 Mn loans worth INR 3,666 Cr in December 2022.

On the other hand, mounting losses and plummeting stock prices have raised concerns for investors and the board. While the company has set the target of September 2023 to achieve adjusted EBITDA-profitability, Paytm last reported a net loss of INR 571 Cr in Q2 FY23, up 21% YoY.

By adjusted EBITDA-profitability, the company largely refers to positive EBITDA numbers before adding the ESOP cost.

Interestingly, brokerage firm Goldman Sachs expects Paytm to achieve the goal in the March quarter, two quarters ahead of the estimate.

The Paytm stock has tanked more than 14% in the past three months. In his recent conversation with Inc42, valuation guru Aswath Damodaran said that the market has lost faith in Paytm’s management ability to monetise their users. 

As markets continue to be more volatile and adverse, it remains to be seen how Paytm weathers the storm. With the market sentiment expected to remain terse at least for the next few months, all eyes are now on Paytm to see whether the startup fulfills its promise of adjusted EBITDA-profitability by the end of September 2023 quarter.