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Zomato and Swiggy in Hot Soup: Hit with ₹500 Crore GST Notices Over Delivery Charges Dispute

In a recent development, leading online food delivery platforms, Zomato and Swiggy, have reportedly been slapped with GST notices amounting to a staggering ₹500 crore each concerning their delivery charges, as per media reports surfaced on Wednesday.

Both Zomato and Swiggy typically levy charges under the tag of delivery fees from their customers. However, this financial practice has sparked continual disagreements between tax authorities and these food delivery giants, amassing a sum of nearly ₹1000 crore, according to reliable sources.

When probed for commentary on this issue, Zomato declined to provide any statement, while Swiggy remained mum. Clarifying their stance, both Zomato and Swiggy emphasise that the ‘delivery charge’ primarily accounts for the expenses incurred by the delivery partners who transport food directly to customers’ doorsteps. These companies assert that they merely collect these costs from customers and subsequently transfer them to the delivery partners. However, tax officials seem to contest this explanation, as outlined in the reports.

Notably, last month, Swiggy took a step to increase its platform fee for food orders from ₹2 to ₹3. A spokesperson from Swiggy, while speaking to IANS, noted that this adjustment in platform fees represents a common practice observed among various service providers across industries, highlighting its prevalence.

Adding to the timeline of changes, in April, Swiggy introduced a platform fee of ₹2 per order, irrespective of the order’s value. In a similar move, Zomato also escalated its platform fee from an initial ₹2 to ₹3 per order back in August.

An important shift in Zomato’s policy involved the commencement of charging the platform fee from Zomato Gold users, who were previously exempted from such charges. The ongoing dispute between these food delivery titans and tax authorities regarding the categorisation and taxation of delivery fees remains a matter of contention, with both sides holding firm to their perspectives.

This incident further escalates the already existing discord between tech-based platforms and regulatory bodies, underscoring the ongoing challenges faced in aligning taxation practices with the evolving dynamics of the digital economy.

According to Vakilsearch experts, the ongoing disagreement between Zomato, Swiggy, and tax authorities is a classic instance of ambiguity in tax regulations within the digital economy. The interpretation of delivery charges as an expense passed onto delivery partners is contentious. This scenario highlights the need for clearer guidelines to align with the constantly evolving dynamics of online platforms. Clarity in taxation laws is vital to prevent such clashes that impact businesses and consumers alike.

In the wake of disputes like the Zomato-Swiggy tax tiff, legal expertise becomes pivotal for businesses navigating complex regulations. Vakilsearch offers comprehensive legal support to tackle tax ambiguities, ensuring compliance and safeguarding against substantial penalties. Connect with Vakilsearch today to secure your business from regulatory hurdles and ensure a seamless operational journey in the digital landscape.

Team Vakilsearch