Zomato Firmly Denies Tax Liability against 402 crores GST Demand Notice

Food delivery service provider Zomato firmly denied the tax liability against 402 crores Goods and Service Tax (GST) demand notice.
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Zomato Ltd, the online delivery platform, was under scrutiny as it received a show cause notice (SCN) from the Goods and Services Tax (GST) office. The Directorate General of GST Intelligence (DGGI) had issued tax notices to both Zomato and Swiggy, alleging non-payment of GST on delivery charges.

The notice contended that delivery charges fell within the services category, imposing a liability of 18 percent GST. Zomato then faced a potential tax liability of ₹401.7 crore, inclusive of interest and penalties.

Zomato, a prominent food delivery giant, responded defiantly to a show cause notice from the Directorate General of GST Intelligence (DGGI), disputing any tax liability linked to delivery charges.

The company contended that the delivery charge was a pass-through collected on behalf of delivery partners, emphasizing the contractual terms defining the role of delivery partners in providing services directly to customers. Zomato had planned to submit a comprehensive response supported by legal and tax opinions.

The tax authority, however, had demanded Zomato to pay penalties and interest spanning from October 2019 to March 2022, citing the company’s alleged failure to remit taxes on delivery charges collected from customers on behalf of delivery partners.

While Zomato, as a publicly listed firm, maintained that no adverse orders had been issued, it voluntarily disclosed the ongoing dispute as a matter of caution, acknowledging the substantial alleged tax demand.

The controversy emerged against the backdrop of the three-fold components in customer bills for food orders from platforms like Zomato and Swiggy: food prices, delivery charges (waived for platform subscribers), and a 5% tax on food and platform fees. The evolving tax landscape, with the GST council introducing a 5% tax on food delivery services in January 2022, had led to platforms paying GST as ‘restaurant services.’

In a related development, Swiggy had increased its platform fee on food delivery orders in October, from ₹2 to ₹3, in response to industry-wide adjustments prompted by regulatory changes.