The issue could have wider implications, as a senior government official said other companies collecting such fees from users could also be asked to pay tax on the amount, which the platforms claim that they pass on to their delivery partners.
The Directorate General of GST Intelligence issued notices to the two food-delivery companies, seeking GST of Rs 750 crore. It has sought Rs 400 crore from Zomato and Rs 350 crore from Swiggy, people in the know said.
These are pre-demand notices, which give the companies a chance to explain their position to the government before a final demand notice is issued, the people said.
“Companies are engaging with lawyers and tax consultants to provide clarity to the authorities that the delivery fees are not accounted for as revenue but passed on to delivery workers,” a person briefed on the matter said.
The government official cited earlier, however, said delivery of food is a service liable to be taxed at 18% and since the platforms have been collecting a service fee, they must pay the tax.
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“They have not paid GST on delivery fee charged from the consumers for the period between July 2017 and March 2023,” the official told ET. GST was introduced in July 2017.Swiggy did not respond to queries sent by email, while Zomato refused to comment.
The issue at hand
From January 1, 2022, food-delivery platforms are liable to collect and deposit GST on behalf of restaurants for sales made through them. However, no clarity was provided on the delivery fee component.
Typically, in the case of aggregators like Zomato and Swiggy, gig workers operate as delivery partners, and are paid on the basis of the orders serviced. Customers are charged a fee for this delivery, except in case of loyalty programmes under which the platforms offer free deliveries.
“Aggregators account for the delivery fees in their revenues … and then show the pay-outs (to delivery partners) as part of their expenses. This is perhaps where the confusion with GST authorities has arisen,” the person briefed on the matter said.
For the quarter ended September 30, publicly listed Zomato reported Rs 2,848 crore of operating revenue, and Rs 919 crore as expenses on account of delivery and related charges.
“The genesis of the issue lies in the fact that while the aggregator platforms were made liable to pay tax as an ecommerce platform on the restaurant services supplied through them, the question of delivery services have been left open,” said Niraj Bagri, partner, Dhruva Advisors, a tax consultancy firm.
“A suitable clarification from the GST Council would address the situation and avoid the long-drawn litigation. Other aspects like terms of the contract with the consumer, method of accounting by the aggregator companies, establishing the nature of charges as reimbursable expenditure would also indicate the overall nature of the transaction and thereby determine the taxability,” Bagri added.
Wider implications
Experts and industry executives have indicated that should the government stick to its stance of levying GST on delivery fees, this could have wider implications for companies in the online delivery space including quick-commerce platforms and online grocery-delivery firms.
“The issue exposes a key pain point for the delivery industry, which is dependent on fleets of contractual or gig workers who are not employees. It is imperative for the companies to contest these claims…the ramifications of such a tax could be wide ranging on other platforms depending on delivery services including groceries, medicines, etc.,” a senior executive at a food delivery firm said.
The issue came up once earlier this year as well, when industry association Internet and Mobile Association of India (IAMAI) made a representation seeking clarity on the matter from the GST Council.
“(Food delivery platforms) do not provide food delivery services on their own account but enable these services from delivery partners through their platform. Most, if not all, of these delivery partners are below the GST threshold limit of Rs 20 lakh per annum (of earnings), and therefore not registered, or liable to do so under GST,” the IAMAI said in its submission in April this year.
The industry body also pointed out that an absence of clarity on GST for delivery services was leading to “inconsistent and incongruous positions” being taken by various jurisdictional authorities. “This arbitrary assessment is not merely inconsistent with GST rules, but also unfeasible and unfair in seeking GST from ECOs (ecommerce operators) that has never been collected, knowing fully well that ECOs are not in a position to discharge any such amount retrospectively,” it added.