Zomato ordered to pay Rs. 800 crore in GST and fines by tax authorities

Food delivery giant Zomato Ltd has been slapped with a significant tax demand by the Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra. The order alleges non-payment of goods and services tax (GST) on delivery charges for the period between October 29, 2019, and March 31, 2022. The total demand includes a GST liability of Rs. 401.7 crore, an equal amount in penalty, and applicable interest, brining the total to Rs. 803.4 crore. This development has raised questions about compliance practices in the rapidly growing food delivery industry. Despite the setback, Zomato has vowed to contest the order, citing strong legal grounds.

Zomato receives Rs. 800 crore tax demand from GST department

The tax demand order, dated 12.11.2024, was served to Zomato on 12.12.2024. According to Zomato’s regulatory filing, the case revolves around alleged non-payment of GST on delivery charges. The total demand is broken down as follows:

• GST Liability: Rs. 401.7 crore
• Penalty: Rs. 401.7 crore
• Interest: Applicable interest yet to be quantified

The demand highlights the GST liabilities related to delivery charges, contentious area of taxation for businesses operating in the digital services ecosystem.

Zomato’s response

In response to the demand, Zomato has express confidence in its case. The company stated in its regulatory filing:

“We believe that we have a strong case on merits, supported by opinions from our external legal and tax advisors. We will be filing an appeal against this order before the appropriate authority.”

The company plans to challenge the order through the appropriate legal avenues, emphasizing its commitment to compliance and transparency.

Impact on Zomato’s shares

News of the tax demand had an immediate impact on Zomato’s stock performance. On December 12, 2024, Zomato’s shares ended at Rs. 284.90, marking a decline of Rs. 6.90 of 2.36% on the Bombay Stock Exchange (BSE). Despite this drop, analysts are closely monitoring the situation to assess its long-term impact on the company’s financial health.

Industry Implications

This case sheds light on the regulatory scrutiny faced by food delivery platforms regarding tax compliance. Delivery charges, which form a significant component of the total revenue for companies like Zomato, are subject to evolving interpretations of GST laws. The outcome of this case could set a precedent for similar disputes involving other players in the industry.

Zomato’s position in the market

Despite the ongoing tax dispute, Zomato continues to strengthen its position in the market. Recently, the company replaced JSW Steel in the BSE Sensex, a testament to its growing significance in the India stock market. However, the resolution of this tax issue will be crucial for maintaining investor confidence and ensuring operational stability.

Source: The Times of India