Zomato, a food delivery app, receives a show cause notice of Rs 402 crore for unpaid GST.

Zomato, a prominent food delivery platform, disclosed in a regulatory filing on Wednesday that it has received a show cause notice amounting to Rs 401.7 crore from the Directorate General of GST Intelligence, Pune Zonal Unit. The notice stems from alleged non-payment of goods and services tax (GST) related to the delivery charges collected by Zomato from its customers.

According to the regulatory filing, the show cause notice mandates Zomato to explain why it should not be held responsible for an alleged tax liability of Rs 401,70,14,706, inclusive of interest and penalty, covering the period from October 29, 2019, to March 31, 2022. Zomato clarified in its statement that it believes it is not obligated to pay tax on delivery charges since these charges are collected on behalf of the delivery partners. The company emphasized that, based on the agreed contractual terms and conditions, the delivery partners provide services directly to the customers, not Zomato.

The regulatory statement further noted that Zomato intends to submit an appropriate response to address the show cause notice. As of January 1, 2022, food delivery platforms are mandated to collect and remit GST on behalf of restaurants for the orders placed. However, there is a lack of clarity regarding the application of GST to delivery fees. Typically, gig workers serve as delivery personnel for food delivery platforms and are remunerated based on the number of orders delivered.

Zomato pointed out that, at the current stage, no formal order has been issued, and the company asserts that it has a robust legal position. Despite this assurance, Zomato's shares experienced a decline of over 2 percent as of 9:30 am on Thursday, trading at Rs 124.40 apiece on the Bombay Stock Exchange (BSE). The situation underscores ongoing challenges and uncertainties within the regulatory landscape governing the taxation of digital platforms in the food delivery industry.