Zomato ,Swiggy get notice for Rs 750 crore in unpaid taxes from DGGI

In a significant development that could have far-reaching implications for the food delivery industry, India's Directorate General of GST Intelligence (DGGI) has issued demand notices to two of the country's leading food aggregators, Zomato and Swiggy, alleging non-payment of Goods and Services Tax (GST) on delivery fees. The combined value of the demand notices is a staggering Rs 750 crore, making it one of the largest tax evasion cases in the Indian food delivery sector.

The Basis of Tax Demand: Delivery Fees as a Service

The DGGI's move is rooted in the classification of food delivery as a service, leading to the imposition of GST on the revenue generated by Zomato and Swiggy. The DGGI contends that the delivery charges levied by these platforms are not merely transportation charges but include additional services such as order processing, customer support, and technology infrastructure. As a result, these charges fall under the purview of GST, and the companies are liable to pay the applicable tax rate.

Industry's Perspective: Delivery Fees as Transportation Charges

However, the food delivery industry disputes the DGGI's classification of delivery fees as a service. The industry argues that delivery charges are primarily transportation costs incurred to deliver food from restaurants to customers and should not be subjected to GST. They maintain that the actual service provided by the platforms is limited to connecting customers with restaurants and facilitating ordering, which does not fall under the category of a taxable service.

Legal Implications and Industry Impact

The DGGI's demand notices have sparked a legal battle between the tax authorities and the food delivery companies. Zomato and Swiggy have challenged the notices in court, arguing that the classification of delivery fees as a service is erroneous. The outcome of these legal proceedings will have a significant impact on the future of GST in the food delivery sector. If the courts uphold the DGGI's assessment, it could lead to substantial tax liabilities for other food aggregators as well.

Financial Implications for Zomato and Swiggy

The demand notices have also raised concerns about the financial implications for Zomato and Swiggy. If the companies are held liable for the unpaid taxes, it could significantly impact their profits and potentially lead to increased prices for consumers. Moreover, the uncertainty surrounding the tax issue could dampen investor sentiment and affect the companies' valuations.

Conclusion: A Test Case for GST in the Food Delivery Sector

The DGGI's action against Zomato and Swiggy serves as a test case for the application of GST in the food delivery sector. The outcome of this case will set a precedent for the industry and determine whether delivery fees are indeed taxable services. The case also highlights the importance of clear tax regulations and a consistent approach to classification to avoid ambiguity and disputes. As the food delivery industry continues to grow, the issue of GST remains a crucial one, and the resolution of this case will be closely watched by industry stakeholders, tax authorities, and consumers alike.