Zomato Gets Rs 401 Crore Notice Over Unpaid Taxes, Their Response

Food delivery giant Zomato has received a Good and Services Tax (GST) notice over a tax liability of Rs 401.7 crore. The Directorate General of GST Intelligence (DGGI) had sent tax notices to Zomato and Swiggy for not paying GST on delivery charges and said the delivery charges fall under the services category and the firms are liable to pay 18 per cent GST.

Zomato responded to a show cause notice issued by DGGI and said it is not liable to pay any tax and said, "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."

"This is also supported by opinions from our external legal and tax advisors. The Company will be filing an appropriate response to the show cause notice," Zomato said in a disclosure statement. 

The tax authority has told Zomato to pay penalties and interest from October 2019 to March 2022 over its inability to pay tax on delivery charges which it collected from customers on behalf of the delivery partners. 

Zomato is a publicly listed firm and said, "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. At this stage, no order of any kind has been passed and as mentioned above, the Company believes that it has a strong case on merit. Hence, this disclosure is being made voluntarily and as a matter of abundant caution given the large alleged tax demand in question."

Whenever a customer orders food from Zomato or Swiggy, there are three components of the bill. First, the price of the food. Second, the delivery charges, are even waived for customers who have platform subscriptions. Third, 5 per cent tax on food and platform fees.

In January 2022, the GST council announced a 5 per cent tax on food delivery services and added 'restaurant services' under the purview of GST, which led to platforms like Zomato and Swiggy paying 5 per cent GST as 'restaurant services'.

In October, Swiggy hiked the platform fee on food delivery orders to Rs 3 from Rs 2. The rise in platform fees was implemented on October 4, the Business Standard reported. The platform fee is charged along with the delivery charge.