Zomato faces Rs 402 Cr tax demand over delivery charges

Zomato on Tuesday said that it has received a show cause notice on December 26 from the Directorate General of GST Intelligence, Pune Zonal Unit, which is seeking Rs 401.70 crore from the food-tech company in tax liability for the period between October 2019 and March 31, 2022.

In a filing with the market regulator SEBI, Zomato said the amount alleged in the show cause notice is based on the sum collected by the company as delivery charges from the customers on behalf of the delivery partners during the said period. 

“The Company strongly believes that it is not liable to pay any tax since the delivery charge is collected by the Company on behalf of the delivery partners. Further, in view of the contractual terms and conditions mutually agreed upon, the delivery partners have provided the delivery services to the customers and not the Company,” the company said.

In January 2022, Zomato and other food delivery companies were mandated to pay 5% GST on restaurant services they offer. Before this regime, restaurants collected and deposited the tax. The changes in the GST rules, however, did not address delivery charges.

For the uninitiated, when someone orders a food on Zomato, the bill shows the following components - item total (food price), GST and restaurant charges, delivery partner fee, and platform fee. There’s also an optional delivery partner tip component.

Zomato started charging platform fees (albeit a relatively small  amount) since August 2023 as part of efforts to improve revenues. It’s worth noting that Swiggy had introduced a similar fee a few months earlier.

After turning profitable for the first time on a quarterly basis, Zomato saw its profit after tax increase by 18-fold to Rs 36 crore in the second quarter of the current fiscal year or Q2 FY24. If we compare year-on-year, the firm reported Rs 251 crore loss in Q2 FY23.

The Gurugram-based company registered a nearly 18% jump in its revenue to Rs 2,848 crore in the September quarter against Rs 2,416 crore during June quarter, according to a stock exchange filing. During the last quarter, the firm’s total revenue stood at Rs 3,060 crore including other income of Rs 212 crore.