Zomato receives tax demand of INR 803 crore from GST authorities

Food and grocery delivery major Zomato has received a tax demand notice of INR 803.4 crore from the Goods and Services Tax (GST) authorities, the company said in a stock exchange filing.

This includes a tax demand of INR 401.7 crore, and a penalty and interest component of a similar amount.

The demand pertains to unpaid tax dues for the period October 29, 2019 to March 31, 2022.

"We believe that we have a strong case on merits which is backed by opinions from our external legal and tax advisors. The company will be filing an appeal against the order before the appropriate authority," Zomato said in the filing.

Zomato reported operating revenue of INR 4,799 crore in the July-September quarter and a net profit of INR 176 crore.

The issue pertains to tax applicability on delivery fees collected by aggregators such as Zomato and Swiggy. The platforms have argued that gig workers operate as delivery partners and are paid based on the orders serviced.

Users are charged a fee for this delivery, except in loyalty programmes where the platforms waive the charges. This delivery fee is passed on to the gig workers.

Under GST laws, delivery of food is a service liable to be taxed at 18 percent, and the government is of the view that since the platforms have been collecting a service fee, they must pay the tax.

Zomato was served a show cause notice by the GST authorities on this issue back in December last year.

Bengaluru-based Swiggy, which went public last month, had also received the show cause notice last December. In its IPO prospectus, Swiggy had said it received the show cause notice for a tax liability of INR 326.8 crore.

Sources said Swiggy has not received a demand notice for this tax liability yet.

“January 2022 onwards, food ordering platforms that aggregated restaurants were made liable to collect and deposit GST on behalf of restaurants for sales made through the platforms…but at that time no clarity was provided on the delivery fee component,” a food delivery executive said.

“There have been multiple representations to the government and the GST council members over this issue directly by companies as well as industry bodies seeking clarity,” the person added.

On Thursday, Zomato’s share price ended 2.4 percent lower at INR 284.90 on the BSE. Swiggy’s share closed at INR 504.5, down 3.5 percent.