A demand notice for Goods and Service Tax amounting to Rs 9.45 crore has been sent to foodtech giant Zomato by the Assistant Commissioner of Commercial Taxes (Audit) in Bengaluru, Karnataka. One explanation for this could be that Zomato overclaimed for input tax credits (ITCs). Businesses can use the Input Tax Credit (ITC) to offset the GST they pay on purchases, lowering their overall GST payment. Zomato would have improperly lowered their GST liability if they had purposefully inflated the amount of GST paid on their inputs or if there had been mistakes in their accounting procedures. If this happens, the tax authorities may send them a demand notice demanding that they return the excess credit they claimed and any interest or penalties that may be due.
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Disagreement between Zomato and the tax authorities over how to classify delivery charges for GST purposes is another possible explanation. In the food delivery business, delivery fees can occasionally be a source of conflict. Delivery charges may be categorised differently by the tax authorities than by Zomato, which could lead to an inconsistency in the amount of GST collected and paid. The tax authorities may send a demand letter for the difference in tax owed if Zomato categorised delivery charges in a way that resulted in a lower GST rate or exemption and the tax authorities disagree with this classification.
Demand Order about Excessive Use of Input Tax Credit
According to Zomato’s disclosure filed with the National Stock Exchange, the demand order was made about the excessive use of the input tax credit and its interest and penalty. According to the papers, the entire amount of Rs 9.45 crore comprises Rs 5 crore in GST, Rs 3.93 crore in interest, and Rs 50.2 lakh in penalties. Zomato continued, “The Company will be filing an appeal against the order before the appropriate authority because we believe we have a strong case on merits.”
GST Administration has Issued this Order Twice
The company was served with a tax demand and penalty order totaling over Rs 184 crore in April. The GST Intelligence sent Zomato a show-cause notice in December, requesting that the foodtech business pay Rs 401.70 crore in unpaid taxes for October 2019 through 31 March 2022. Zomato stated at the time that since it collects the delivery charge on behalf of the delivery partners, it is not required to pay any taxes.
Swiggy, Zomato, received a tax demand of Rs 350 crore?
Food delivery firms like Zomato and Swiggy would have to pay 5% GST on the restaurant services they provide starting in January 2022. Restaurants used to collect and deposit the tax before this, according to reports. Nevertheless, the modifications to the GST regulations did not cover delivery fees. In December of last year, the Goods and Service Tax agency served demand notices worth Rs 1.45 lakh crore to about 1,500 enterprises because the notice period for the 2017–2018 period had ended. However, until 30 December last year, the recovery was only Rs 18,541 crore.
