Zomato, a leading online food ordering platform, has received a show cause notice from the Goods and Services Tax (GST) authorities amounting to ₹401.7 crores.
This notice, issued by the Directorate General of GST Intelligence (DGGI), raises concerns over unpaid taxes on delivery charges collected by the company between October 29, 2019, and March 31, 2022. In November, the Directorate General of GST Intelligence (DGGI) issued pre-demand notices not only to Zomato but also to its rival Swiggy, seeking a total of Rs 750 crore in GST.
Zomato argues that it is not obligated to pay any tax since the delivery charges are collected by the company on behalf of the delivery partners.
The company emphasizes that, per the agreed contractual terms and conditions, it is the delivery partners who provide the actual delivery services to the customers, not Zomato itself. Zomato, backed by opinions from external legal and tax advisors, is gearing up to submit a robust response to the show-cause notice.
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Recent Regulatory Changes
Starting from January 1, 2022, food delivery platforms have been entrusted with the responsibility of collecting and depositing GST on behalf of restaurants for sales made through their platforms. However, a lack of clarity persists regarding the taxation of the delivery fee component.
Industry-Wide Impact
The case involves not only Zomato but also Swiggy, and the outcome may set a precedent for the entire food delivery industry. Both companies are engaging with lawyers and tax consultants, seeking clarity on their stance. Zomato reassures stakeholders that, as of now, no adverse orders have been passed, and the company maintains confidence in the merit of its case.
Components of a Food Order
Understanding a typical food bill from Zomato or Swiggy is crucial in grasping the intricacies of the issue. The bill generally consists of three components: the cost of the food items, the delivery charges (which may be waived for platform subscribers), and a 5% tax on both food and platform fees.
GST Council’s January 2022 Announcement
In January 2022, the GST Council introduced a 5% tax on food delivery services and expanded the GST purview to include ‘restaurant services.’ This led to Zomato and Swiggy paying 5% GST as ‘restaurant services.’ However, the delivery fee component remains a grey area.
Platform Fee Hike
In October, Swiggy increased its platform fee on food delivery orders from Rs 2 to Rs 3. This rise in platform fees was implemented alongside the delivery charge. Such adjustments further complicate the ongoing debate around taxation on delivery charges.
The stock market has responded to the situation, with Zomato’s shares trading more than 4% down after the receipt of the Rs 402 crore show-cause notice. The company is navigating these challenges as a publicly listed firm, making voluntary disclosures to keep stakeholders informed.
