IPO-Bound Swiggy Facing INR 327 Cr GST Demand, Allegations Of Employing Child Labourers

IPO-Bound Swiggy Facing INR 327 Cr GST Demand, Allegations Of Employing Child Labourers

SUMMARY

Swiggy faces potential GST liabilities to the tune of INR 326.7 Cr from DGGI, Pune for allegedly not paying the tax levy on the delivery fee collected from customers

Cofounder and CEO Sriharsha Majety received a notice last year from Deputy Labour Commissioner, Lucknow over allegations of employing child labourers

As per Swiggy’s updated DRHP with SEBI, its IPO will comprise a fresh issuance of shares worth up to INR 3,750 Cr and an OFS component of up to 18.53 Cr shares

Foodtech major Swiggy faces potential goods and services tax (GST) liabilities to the tune of INR 326.7 Cr, as per its recently filed updated draft red herring prospectus (DRHP).

The office of Directorate General of GST Intelligence (DGGI) (Pune zonal unit), in December 2023, issued a demand notice to the foodtech giant for allegedly not paying tax levy on the delivery fee collected from customers. The case pertains to the period between July 2020 and March 2022. 

 

“In December 2023, our Company received show cause notices from the GST authorities requiring our company to show cause why a tax liability of INR 326.7 Cr along with the interest and penalty for the period from July 2020 to March 31, 2022, should not be demanded and recovered. The alleged amount is calculated on the delivery charges collected by our Company from the end user on behalf of the delivery partners,” read the DRHP.

In the IPO documents, the foodtech giant said that it will continue to monitor developments in the case and “address any further proceedings as necessary”. 

However, Swiggy added, “We cannot assure you that an unfavourable decision in relation to this matter will not be passed or that such decision will not have an adverse impact on our financial condition and operations”.

Notably, Swiggy’s listed competitor Zomato is also saddled with multiple demand notices from the GST authorities spanning various states. 

Just a week ago, Zomato was slapped with a fresh INR 18 Cr GST penalty notice from West Bengal authorities, which was preceded by similar notices from GST officials in Delhi, Tamil Nadu, Karnataka, among others. 

Meanwhile, the GST notices are not the only litigation against Swiggy. The DRHP lists multiple legal cases and notices against the company and its cofounders:

  • Cofounder and CEO Sriharsha Majety received a notice last year from Deputy Labour Commissioner, Lucknow over allegations of employing child labourers 
  • A criminal complaint by a DGGI, Hyderabad official against Swiggy’s top executives and directors for availing input tax credit without corresponding supply of service, falsifying records/ producing fake accounts and providing false information. The matter is pending before a trial court
  • A case alleging violation of competition laws filed by National Restaurant Association of India (NRAI) before CCI

The DRHP also flagged high levels of attrition at the foodtech major. As per the draft IPO papers, employee attrition stood at 53.74% in the financial year 2023-24 (FY24), up from 50.49% in FY23 and 37.1% in FY22. While Swiggy’s voluntary attrition rate stood at 34.56% in the fiscal year ended March 2024, the involuntary attrition rate stood at 19.18%.

Swiggy filed its updated DRHP with the markets regulator on Thursday (September 26). The public issue will comprise a fresh issuance of shares worth up to INR 3,750 Cr and an offer for sale (OFS) component of up to 18.53 Cr shares. 

The company, which will list on BSE and NSE, plans to utilise the fresh proceeds to fuel its subsidiary Scootsy, marketing activities, invest in technology, funding inorganic growth through acquisitions and for general corporate purposes.

The IPO-bound startup trimmed its loss by 44% to INR 2,350 Cr in FY24 as against a loss of INR 4,179.3 Cr in FY23. Operating revenue jumped 36% to INR 11,247.3 Cr during the year under review from INR 8,264.5 Cr in the previous year.

However, the startup’s net loss widened 8% in Q1 FY25 to INR 611 Cr from INR 564.08 Cr in the year-ago period. However, the foodtech major managed to narrow its adjusted EBITDA loss to INR 347.8 Cr in Q1 FY25 from INR 486.8 Cr in the year-ago quarter. Revenue from operations zoomed 35% year-on-year to INR 3,222.2 Cr during the quarter. 

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