Zomato Ltd, a leading food delivery platform, has been issued a notice to pay Goods and Service Tax (GST amounting to 803.40 crore for not paying taxes on delivery charges, by the country's taxation department.

The hefty amount includes ₹401.7 crore in alleged unpaid tax for the period between October 29, 2019, and March 31, 2022, and an equal amount in penalties with applicable interest with it.

The allegations relate to GST liability on delivery charges collected by the platform on behalf of its delivery partners​.

In its stock exchange filing, Zomato confirmed receiving the notice on December 12, 2024, from the Joint Commissioner of CGST & Central Excise, Thane Commissionerate and stated that it will challenge the order.

"We believe that we have a strong case on merits which is backed by opinions from our external legal and tax advisors. The Company will be filing an appeal against the order before the appropriate authority, " the company said.

Zomato shares which lost over 5% in last five trading days, gained over 1% today in BSE.

This move comes as part of a broader crackdown by the taxation authorities on digital platforms such as Swiggy and Zomato which also have seen high growth with its 10-minutes delivery models. The company had received notice for the same in Dec 2023, and Zomato's main competitor, Swiggy, has also been issued a similar notice for unpaid taxes during the same period.

The GST on delivery charge is a contentious issue which is being looked with different perspectives by the tax authorities and the quick ecom and food delivery companies. The companies argue that the amount is collected by the Companies as delivery charges from customers on behalf of delivery partners and same is being given to the delivery agents and hence, does not qualify for the GST​.

While tax authorities classify delivery services as taxable as they fall under services and hence, companies are liable to pay GST​.  Both the companies are also facing scrutiny under the competition laws for allegedly favouring selected restaurants listed on their platforms.

The outcome of the notice and arbitration will be closely watched by the high growth food delivery industry as the development signals increasing regulatory pressure on gig industry which is growing at a CAGR of 17%.

For industry players like Zomato and Swiggy, this could lead to higher compliance costs and the need to reassess operational strategies, potentially influencing pricing structures and competitive dynamics within the sector​.