Zomato Faces ₹11.82 Crore GST Demand and Penalty for Export Services

Zomato, the prominent online food delivery service, has been slapped with a significant tax demand and penalty totaling Rs 11.82 crore by the Central Goods and Services Tax (CGST) authority in Gurugram. The demand pertains to the GST on services exported to its subsidiaries outside India, spanning from July 2017 to March 2021.

Key Details of the Tax Demand:

1. Amount Involved: The Additional Commissioner of CGST, Gurugram, has issued a demand of Rs 5,90,94,889 for GST, alongside an equal amount as penalty, bringing the total to approximately Rs 11.82 crore. The specific amount of interest applicable has not been disclosed yet.
2. Company’s Stance: In response to the demand, Zomato has expressed confidence in the strength of their legal position and plans to appeal against the order. The company articulated this stance in a regulatory filing, indicating their preparation to contest the demand before the appropriate authorities.
3. Basis of the Demand: The tax authority’s order contested Zomato’s classification of these services as ‘export of services’, a category that enjoys certain tax exemptions under GST law. The order rejected the company’s claim that these services met the conditions required to qualify as exports.
4. Response to Show Cause Notice: Prior to this order, Zomato had responded to a show cause notice where it defended its position using supporting documents and judicial precedents. However, the company indicated that its arguments were not taken into consideration in the final decision made by the tax authorities.
5. Implications for Zomato: This tax demand comes at a time when Zomato is navigating various challenges in the competitive online food delivery market. A financial setback of this nature could impact its operational and financial strategy, especially if the appeal does not turn out in its favor.
6. Wider Industry Impact: This incident highlights the ongoing complexities and challenges businesses face with GST compliance, especially in sectors like technology and e-commerce where cross-border transactions are common. It serves as a critical reminder for similar companies to closely review their tax practices and preparedness for regulatory scrutiny.

Zomato’s next steps and the outcome of its appeal will be closely watched by industry observers and other companies in the tech and service sectors, as it will provide valuable insights into the enforcement of GST rules on export services and the broader implications for the industry.