Zomato’s problems increase! Show cause notice of Rs 402 crore received on outstanding GST, know how the company washed its hands off

Popular food delivery platform Zomato faces a financial challenge as it has received a show cause notice from the Goods and Services Tax (GST) authorities for unpaid amount of Rs 402 crore. This notice pertains to the period October 29, 2019 to March 31, 2022. The central issue revolves around the government’s demand for GST on the delivery charges collected by Zomato from its customers.

The Directorate General of GST Intelligence (DGGI) in November issued pre-demand notices to major food delivery platforms, Zomato and Swiggy, demanding a total of Rs 750 crore in goods and services tax (GST) payments, The Economic Times reported. Zomato has strongly admitted its liability to meet these tax obligations, claiming that it merely acts as a duty collector on behalf of its delivery partners.

Zomato’s official response, as disclosed in its filing with the Bombay Stock Exchange (BSE), outlines the company’s intention to submit a comprehensive reply to the notice. The company’s argument is based on mutually agreed contractual terms and conditions, emphasizing that delivery partners are direct service providers to customers, which exempts Zomato from direct tax responsibility.

The root of the disagreement lies in the government’s expectation that food delivery platforms should waive GST on delivery charges collected from customers. Zomato and its industry peers say that these fees are collected exclusively on behalf of their delivery partners, who are the actual service providers responsible for order delivery.

Effective January 1, 2022, food delivery platforms bear the obligation to collect and deposit GST on behalf of restaurants for sales through their platforms. However, the government has not yet provided clear guidelines regarding the implication of GST on the delivery fee component, adding complexity to the matter.

Expressing confidence in the strength of its legal case, Zomato clarified its position saying that, as of now, no formal order has been issued against the company. In response to the unfolding situation, both Zomato and Swiggy have reportedly sought advice from legal and tax experts. They also plan to approach the government to seek clarification on the taxation dispute.