Zomato In Hot Soup, Gets GST Demand Notice Of INR 4.2 Cr

Fresh tax trouble has mounted for foodtech giant Zomato as tax authorities have now slapped a notice of INR 4.2 Cr on the startup for alleged short payment of goods and services tax (GST).

This comes close on the heels of the Gurugram-based listed foodtech giant receiving an INR 401.7 Cr show cause notice from the Directorate General of GST Intelligence, Pune Zonal Unit, over unpaid tax on delivery charges collected from the customers last week.

Zomato has received three orders from Sales Tax Officer, Ward 300, Delhi and Deputy Commissioner, DGSTO-4, Bengaluru, Karnataka alleging short payment of GST along with applicable interest and penalty under Section 73 of the Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’), Delhi Goods and Services Tax Act, 2017 (‘DGST Act, 2017’) and Karnataka Goods and Services Tax Act, 2017 (‘KGST Act, 2017’), with an amount totalling to INR 4.24 Cr, the company said in an exchange filing.

“The authorities in Delhi and Karnataka seem to have issued the above orders dated December 30 and 31, 2023 without giving due consideration to our response submitted earlier. We believe that we have a strong case on merit and the company will be filing appeals against the orders before the appropriate appellate authorities,” Zomato said in the filing.

The company’s shares opened at INR 124.65 apiece during Monday session, up 0.77% compared to its previous close at INR 123.7.

Earlier also, reports surfaced that the food delivery giants Zomato and Swiggy reportedly received notices for a cumulative goods and services tax (GST) worth INR 1,000 Cr, as the tax authorities now view delivery charges collected by these platforms as their revenue.

It is important to note that in January last year, the Centre added ‘restaurant services’ and cloud kitchens under the purview of Section 9(5) of the CGST Act, 2017, which led to the likes of Swiggy and Zomato paying 5% GST on ‘restaurant services’ they offer.

However, it continued to remain unclear whether delivery services and fees collected from that would also be taxed.

The delivery fees charged by both Swiggy and Zomato have consistently been a subject of debate, drawing controversy from various viewpoints.

In 2016, Swiggy started the practice of implementing food delivery fees. Subsequently, Zomato followed suit by introducing its delivery charges.

Having set a standard for delivery fees, Zomato then introduced a loyalty programme, now acknowledged as Zomato Gold. Under this programme, customers can circumvent delivery fees by subscribing to a monthly plan, which also offers additional perks.

Similarly, Swiggy introduced Swiggy One, adopting the concept of exempting delivery fees through a subscription model and accompanying it with supplementary benefits.

Zomato and Swiggy deliver 1.8 Mn to 2 Mn orders per day across the country. The introduction of a new Goods and Services Tax (GST) could potentially disrupt their cash flow.

Meanwhile, both platforms have started imposing a platform fee on orders, with charges varying between INR 2 and INR 5 per order. Notably, this fee applies universally to all customers, irrespective of whether they are subscribed to any specific loyalty programme.

Zomato reported its second consecutive profitable quarter, with profit after tax surging to INR 36 Cr during the September quarter of the financial year 2023-24 (FY24). This was an 18X jump from PAT of INR 2 Cr in the preceding quarter.

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