Zomato, the foodtech giant, is currently facing fresh tax trouble as tax authorities have slapped a notice of INR 4.2 crore on the startup for alleged short payment of goods and services tax (GST).
This development closely follows the Gurugram-based listed foodtech giant receiving a show cause notice of INR 401.7 crore from the Directorate General of GST Intelligence, Pune Zonal Unit. The notice pertains to unpaid tax on delivery charges collected from customers last week.
Read Other Articles: Zomato receives INR 401.7 Crore show cause notice from GST authority over unpaid taxes
Zomato has received three orders from the Sales Tax Officer, Ward 300, Delhi, and the Deputy Commissioner, DGSTO-4, Bengaluru, Karnataka. These orders allege 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’). The total amount specified in these orders is INR 4.24 crore, as mentioned in a company filing with the exchange.
“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.
During Monday’s session, the company’s shares commenced trading at INR 124.65 each, reflecting a 0.77% increase from its previous closing price of INR 123.7.
GST Notices Hit Zomato and Swiggy
Earlier, 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.
Read Other Articles: Zomato and Swiggy grapple with INR 1,000 Cr GST notices as tax authorities include delivery charges in revenue assessment
It’s noteworthy that in January last year, the Centre included ‘restaurant services’ and cloud kitchens within the scope of Section 9(5) of the CGST Act, 2017. This resulted in platforms like Swiggy and Zomato being liable to pay 5% GST on the ‘restaurant services’ they provide.
However, the clarity on whether delivery services and the associated fees would also incur taxation remained uncertain.
The delivery fees imposed by both Swiggy and Zomato have consistently been a topic of discussion, sparking controversy from various perspectives.
In 2016, Swiggy started the practice of applying food delivery fees. Following suit, Zomato introduced its own delivery charges.
Having established a standard for delivery fees, Zomato subsequently introduced a loyalty programme, now recognised as Zomato Gold. Within this programme, customers can bypass delivery fees by subscribing to a monthly plan, which also provides additional perks.
Likewise, Swiggy introduced Swiggy One, embracing the idea of waiving delivery fees through a subscription model and complementing it with additional benefits.
Zomato and Swiggy fulfill 1.8 to 2 million orders daily nationwide. The introduction of a new Goods and Services Tax (GST) has the potential to disrupt their cash flow.
Meanwhile, both platforms have started imposing a platform fee on orders, with charges ranging from INR 2 to INR 5 per order. It is noteworthy that this fee is universally applicable to all customers, regardless 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 crore during the September quarter of the financial year 2023-24 (FY24). This was an 18-fold jump from PAT of INR 2 crore in the preceding quarter.
Read Other Articles: Zomato reports remarkable surge in profit, achieving second consecutive profitable quarter in FY24