Zomato, the prominent online food delivery service, has recently faced a substantial financial hurdle. The company received a show cause notice from the Directorate General of GST Intelligence (DGGI), Pune Zonal Unit, demanding an explanation for an alleged tax liability. The notice, issued under Section 74(1) of the Central Goods and Services Tax Act, 2017, outlines an alleged tax liability of Rs 401.7 crore, which includes interest and penalties for the period spanning from October 29, 2019, to March 31, 2022. This tax liability is primarily focused on the unpaid tax on delivery charges collected during this period.
In response, Zomato has firmly stated that it is not liable to pay any tax on the delivery charges. According to the company, these charges are collected on behalf of its delivery partners. Zomato emphasizes that the delivery services are provided directly to the customers by the delivery partners, as per their contractual terms and conditions. This stance is supported by opinions from external legal and tax advisors.
The company plans to file an appropriate response to the show cause notice. Zomato also highlighted that, as of now, no order of any kind has been passed against it and expressed confidence in the merit of its case. The company’s shares experienced a drop following the disclosure of this tax demand, but this is viewed as a minor setback in the context of the strong overall performance of its shares in 2023.
This situation highlights the complexities and challenges that online platforms like Zomato face in navigating the tax landscape, particularly regarding delivery charges and the role of gig workers in the digital economy.