Food fight: Experts suggest Zomato may take legal action for at least three years about the Rs 400 crore GST notice

Food fight: Experts suggest Zomato may take legal action for at least three years about the Rs 400 crore GST notice

Food fight: Experts suggest Zomato may take legal action for at least three years about the Rs 400 crore GST notice

The revenue agency and taxpayers will have to address the GST dispute in court as there is no settlement commission. Because there is a significant financial stake, it is doubtful that the dispute will be settled at a lower level.

Food delivery is considered a service, according to DGGI, hence Zomato and Swiggy must pay 18% GST on their services.

Tax experts warn that Zomato, a meal delivery business headquartered in Gurugram, may have to defend lawsuits for three to five years after declaring that it had a "firm belief" that it would not pay any goods and services tax (GST) on delivery fees. is not accountable for. Collecting the money is done so "on behalf of the delivery partners."

"Tax issues often need a lengthy resolution process. Cases concerning service tax and excise duty—the forerunner to GST—are still being heard in court. Thus, we can anticipate that it will take at least three to five years to fix this problem, according to Ankit Jain, a partner at the tax consulting firm Ved Jain & Associates.

Zomato and competitor Swiggy were reportedly sent with demand notices by the Directorate General of GST Intelligence (DGGI) in November 2023, requesting that they pay outstanding taxes of Rs 400 crore and Rs 350 crore, respectively. Based on the delivery costs that were collected for each order by both businesses, the GST demand was computed.

Food delivery is considered a service, according to DGGI, hence Zomato and Swiggy must pay 18% GST on their services. The industry consensus, however, was that both businesses are only platforms that handle delivery costs on behalf of gig workers, to whom the full payment is sent. As a result, rather than Zomato or Swiggy, the workers bear the tax cost.

Gig workers are not subject to GST, however, since their yearly income falls below the Rs 20 lakh cap.

Zomato contested the tax claim in an exchange filing on December 27, 2023.

Senior adviser Kamal Aggarwal of the legal firm Singhania & Co. said, "These cases involve significant legal issues and significant financial stakes." Consequently, it is unlikely that these matters will be resolved at the lower judicial level.These cases will probably go directly to the Supreme Court, which may take an additional three to five years.

What substitutes exist for Zomato?

As with the Income Tax legislation, there is currently no out-of-court settlement or alternative dispute resolution process available for claims under the GST regulations. Zomato may contest it before the GST adjudicating body or in the High Court by submitting a writ petition, since they have been issued with a show cause notice.

Since there is now no settlement commission in place for GST, the revenue agency and taxpayers will have to battle it out in court. The only other choice is to pay a smaller fine and forego the GST and interest demand. Given that Zomato has previously said that no GST is due, this strategy seems implausible. This suggests that Zomato and Swiggy could take this up in court, according to Agarwal.

Zomato will now need to present their case to the GST department explaining why the disputed transactions are exempt from GST, since they have challenged the show cause notice. The dispute will finish there if they can persuade the authorities, according to Pallava Pradyumna Narang, partner at the tax advising company CNK & Associates (added).

Narang claims that he will get a demand order from the adjudicating authority if the tax demand is sustained. Under the GST Act, a demand order must be contested before the appellate authority.

"If coercive measures (like attachment of assets against demand) have been employed by the department, companies may approach higher courts for interim relief," Narang said.

According to experts, food delivery businesses could potentially submit complaints to the government since the GST statute is unclear on how delivery fees are taxed.

"One of the options that is open to e-commerce operators is to file an opposition before the government, requesting that it issue a clarification in this regard," said Nishant Shah, partner at Economic Laws Practice. Section 9(5) of the Central GST Act, 2017 grants the government exceptional authority to levy taxes on interstate shipments made via e-commerce operators' platforms. Under this area, notifications have been sent out about a variety of services, including restaurants and taxis. For delivery services, no communication has been made in this respect, nevertheless.