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Business News/ Companies / News/  Zomato gets 401 crore show-cause notice over delivery charges
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Zomato gets ₹ 401 crore show-cause notice over delivery charges

This tax notice is based on the delivery charges collected from customers.

Zomato has said it was was “not liable” to pay any tax on the delivery charges, as these are collected on behalf of delivery partners. (Photo: Reuters)Premium
Zomato has said it was was “not liable” to pay any tax on the delivery charges, as these are collected on behalf of delivery partners. (Photo: Reuters)

New Delhi: Food delivery giant Zomato has received a 401.7 crore show-cause notice for delivery charges collected over two and a half years. The notice, dated 26 December, asks why Zomato shouldn't be liable for this tax amount, including interest and penalties, for the period from 29 October 2019 to 31 March 2022.

Zomato, in a notification to stock exchanges on Thursday, refuted the claims, arguing that it was “not liable" to pay any tax on the delivery charges, as these are collected on behalf of 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. This is also supported by opinions from our external legal and tax advisors. The company will be filing an appropriate response to the show cause notice," Zomato added.

This tax notice is based on the delivery charges collected from customers. Both Zomato and rival Swiggy have received notices for not paying goods and services tax (GST) on the delivery fees they charge on food orders.

Zomato said that no official order has been issued yet, and believes that it has a strong case. The company's disclosure is a precaution, given the magnitude of the alleged tax demand.

“Currently, only a show cause notice has been issued wherein on the basis of examination of the documents of Zomato, the GST authorities have asked Zomato to explain the transaction. Zomato will get an opportunity to present its understanding of the transaction and explain why it believes that the given delivery charges don't attract GST. Zomato can also get an opportunity to verify the quantum of the transaction," said Ankit Jain, partner, Ved Jain & Associates, a Delhi-based charted accountant firm.

Jain explained that if Zomato's arguments persuade the issuing officer, the notice could be withdrawn without any demand. Conversely, if the GST authorities remain unconvinced, they may issue a demand order. In such a case, Zomato would have the option to appeal, necessitating a deposit of 10% of the demanded amount with the GST authorities. He anticipates that resolving this dispute could take between three to five years.

In a related development, major footwear retailer and manufacturer Bata India has also received a similar tax notice for 60.56 crore from Chennai's state tax officer. This notice, served on 27 December, follows an initial audit notification and a subsequent audit report outlining various issues. 

"The company initially received notice for conducting an audit in Form ADT-01 on April 27, 2023 and submission was made against the same along with relevant support. Whereas the final audit report issued in Form ADT-02 on December 25, 2023 on various issues. Now, the opposing party has served Show Cause Notice in Form DRC-01 on December 27, 2023 proposing to levy tax amounting to 60.56 crore and interest thereon," the company said in a stock exchange filing.

The next personal hearing is scheduled on 10 January 2024.

"It is believed that the company has a good case to defend the matters before the appropriate authorities without any material financial impact," Bata said.

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 28 Dec 2023, 06:22 PM IST
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