Zomato receives ₹402 cr tax notice; stock dips 5%

Shares of Zomato dipped 5% to ₹123.20 in the early morning trade after the company said it received a show cause notice of ₹401.70 crore from the Directorate General of GST Intelligence, Pune. The food delivery major opened at ₹124.90 against the previous closing price of ₹127.05. The stock touched 52-week high of ₹131.75 on December 19, 2023. At the time of reporting, the stock was trading at 4.99% lower at ₹124 on the BSE, with a market capitalisation of ₹1.06 lakh crore.

The food delivery company has been asked why it should not be held accountable for an alleged tax liability of ₹401.70 crore, along with interest and penalties, covering the period from October 29, 2019, to March 31, 2022. Zomato says it received the show cause notice on December 26, under Section 74(1) of the Central Goods and Services Tax Act, 2017."The amount alleged in the SCN is based on the amounts collected by the company as delivery charges from the customers on behalf of the delivery partners during the referred period. The company strongly believes that it is not liable to pay any tax since the delivery charge is collected by the company on behalf of the delivery partners," Zomato says via a stock exchange filing.

Zomato says in accordance with mutually agreed contractual terms and conditions, the delivery partners are the ones rendering delivery services to customers, not the company itself. This stance is backed by the opinions of external legal and tax advisors, it says, adding that it'll be filing an appropriate response.

"Disclosure is required to be made only of orders with penalties passed by authorities or pending litigation/dispute that has a material adverse impact on the company. At this stage, no order of any kind has been passed and as mentioned above, the company believes that it has a strong case on merit. Hence, this disclosure is being made voluntarily and as a matter of abundant caution given the large alleged tax demand in question," Zomato adds.

In November, the company led by Deepinder Goyal reported a consolidated net profit of ₹36 crore for Q2 FY24, compared to a profit of ₹2 crore in the June quarter of FY24 and a loss of ₹251 crore in the same quarter last year. The revenue witnessed a robust year-on-year growth of 71.46%, reaching ₹2,848 crore compared to ₹1,661 crore in the corresponding quarter last year. On a sequential basis, the revenue demonstrated a notable increase of 17.9% from ₹2,416 crore in the first quarter of the fiscal year 2024.

This was the second consecutive profitable quarter for the company with adjusted EBITDA of ₹41 crore as compared to ₹12 crore profit in the previous quarter (Q1FY24).

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