Zomato Faces Rs 803 Crore GST Demand Over Delivery Fees Dispute

Zomato Faces Rs 803 Crore GST Demand Over Delivery Fees Dispute. Zomato, the popular food delivery platform, has recently received a notice from the Goods and Services Tax (GST) authorities demanding a hefty sum of Rs. 803 crore, which includes unpaid taxes, penalties, and interest for the period between 2019 and 2022. The matter comes to light after a debate between food delivery platforms and the government, particularly over the question of whether aggregators like Zomato should be liable to pay tax on the delivery fees they collect.
Why Has Zomato Received Legal Notice?
Zomato disclosed that it received an order on December 12, 2024, for the period spanning October 29, 2019, to March 31, 2022. The Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra, issued the order confirming a GST demand of Rs. 401.70 crore, along with applicable interest and an equal penalty amount.
The authorities argue that delivery fees collected by Zomato are taxable as they classify delivery as a service, which is subject to an 18% GST under the Central Goods and Services Tax (CGST) Act.
According to Section 9(5) of the CGST Act, platforms that act as intermediaries, such as those in the food delivery, ride-hailing, and e-commerce sectors, are required to collect and remit tax on behalf of the service providers.
Zomato, which aggregates restaurant businesses and facilitates food deliveries, is seen as responsible for paying the tax on the delivery fees. However, the platform has contested this view. Zomato argues that while it collects the delivery fee from customers, a significant portion of that fee is passed on to the gig workers who fulfill the deliveries. In some cases, customers are even charged no delivery fees or receive discounts, but the delivery partners are still compensated based on a standard per-kilometer rate.
This development follows a show cause notice (SCN) issued to Zomato on December 26, 2023, by the Directorate General of GST Intelligence (DGGI), Pune Zonal Unit, under Section 74(1) of the Central Goods and Services Tax Act, 2017. The SCN required the company to explain why the alleged tax liability of Rs. 401.70 crore, along with interest and penalties, should not be levied for delivery charges collected on behalf of delivery partners during the specified period. 
Background Of the Case
In 2022, the GST Council clarified that platforms like Zomato would be required to collect GST on behalf of restaurants for sales made through their platform starting from January 1, 2022. However, the council did not offer clarity on whether the delivery fee component should fall within the scope of the tax, leaving the matter unresolved.
The Financial Impact on Zomato
The tax demand of Rs. 803.7 crore is a significant amount, especially considering that Zomato has been profitable only recently. In the fiscal year 2024, Zomato reported a net profit of Rs. 351 crore, with a further rise to Rs. 429 crore in the first half of the ongoing fiscal year. The tax demand is higher than the total profit Zomato made in the April-June 2023 quarter.
The company plans to contest the order and will likely appeal to the GST Appellate Tribunal.
How This Case Impacts Other Sector?
If the tax authorities succeed in their argument, other services that use gig workers for deliveries—such as online grocery platforms, e-pharmacies, and hyperlocal logistics services—could also face similar tax demands. This would have wide-ranging implications for the gig economy, especially for companies that rely on the flexibility of gig workers for last-mile delivery.
Swiggy Also Received Legal Notice
Zomato isn’t the only food delivery platform facing tax scrutiny. Its rival, Swiggy, was also served a show-cause notice in December 2023, with an alleged unpaid tax demand of Rs. 326.8 crore. However, Swiggy has not yet received a formal demand notice, and the situation remains under review.
Zomato's Response and Financial Performance
Despite facing a tax demand, Zomato has continued to show impressive growth in its financials. For the second quarter of the fiscal year 2025, the company reported a 68.5% increase in operating revenue, reaching Rs. 4,799 crore, up from Rs. 2,848 crore in the same quarter of the previous fiscal year. The company’s net profit surged 4.8 times to Rs. 176 crore during this period.
In contrast, Swiggy’s financial performance showed a net loss of Rs. 625 crore despite reporting a revenue of Rs. 3,601 crore for the same quarter. Zomato’s market capitalization remains robust, reflecting its strong position within the industry.
Legal Loophole: Determining the Service Provider in the Food Delivery Sector
An ongoing issue has come to light regarding the government's January 2022 guidelines, which shifted the responsibility of collecting and depositing GST from restaurants to food delivery platforms for sales made through their services. Previously, restaurants were responsible for handling these tax duties.
In September 2021, Finance Minister Nirmala Sitharaman addressed this change, stating, “The place where food is delivered is going to be the point where tax will be collected. They will pay the GST on it.”
This policy change followed concerns raised by Revenue Secretary Tarun Bajaj, who pointed out that some restaurants were evading taxes, a situation that could worsen over time. The guidelines were issued to clarify how taxes should be applied to cloud kitchens and e-commerce aggregators, especially platforms connecting customers with restaurants. However, the issue of repeatedly taxing different components of a transaction remains unresolved.
A key legal ambiguity exists in determining who the "service provider" is for GST purposes, whether it should be the gig worker or the platform aggregator. From the government’s perspective, platforms like Zomato are considered "deemed suppliers" and are required to pay 18% GST on the delivery fees they collect from customers.
Some experts suggest that the entire transaction should be treated as a composite supply, where the transaction is viewed as incomplete without delivery. In such cases, tax should only be collected once on the entire transaction.
There is also a call for clearer government guidelines to resolve this issue. Darshan Bora, a partner at Economic Laws Practice, emphasized the need for clarifications on the taxability of services provided through e-commerce platforms. This would offer much-needed clarity for both platforms and delivery workers.
The 55th GST Council meeting, scheduled for December 21, 2024, could potentially address this unresolved matter. It will be interesting to see if any clarifications are issued in the upcoming session.

Zomato, the popular food delivery platform, has recently received a notice from the Goods and Services Tax (GST) authorities demanding a hefty sum of Rs. 803 crore, which includes unpaid taxes, penalties, and interest for the period between 2019 and 2022. The matter comes to light after a debate between food delivery platforms and the government, particularly over the question of whether aggregators like Zomato should be liable to pay tax on the delivery fees they collect.

Why Has Zomato Received Legal Notice?

Zomato disclosed that it received an order on December 12, 2024, for the period spanning October 29, 2019, to March 31, 2022. The Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra, issued the order confirming a GST demand of Rs. 401.70 crore, along with applicable interest and an equal penalty amount.

The authorities argue that delivery fees collected by Zomato are taxable as they classify delivery as a service, which is subject to an 18% GST under the Central Goods and Services Tax (CGST) Act.

According to Section 9(5) of the CGST Act, platforms that act as intermediaries, such as those in the food delivery, ride-hailing, and e-commerce sectors, are required to collect and remit tax on behalf of the service providers.

Zomato, which aggregates restaurant businesses and facilitates food deliveries, is seen as responsible for paying the tax on the delivery fees. However, the platform has contested this view. Zomato argues that while it collects the delivery fee from customers, a significant portion of that fee is passed on to the gig workers who fulfill the deliveries. In some cases, customers are even charged no delivery fees or receive discounts, but the delivery partners are still compensated based on a standard per-kilometer rate.

This development follows a show cause notice (SCN) issued to Zomato on December 26, 2023, by the Directorate General of GST Intelligence (DGGI), Pune Zonal Unit, under Section 74(1) of the Central Goods and Services Tax Act, 2017. The SCN required the company to explain why the alleged tax liability of Rs. 401.70 crore, along with interest and penalties, should not be levied for delivery charges collected on behalf of delivery partners during the specified period.

Background Of the Case

In 2022, the GST Council clarified that platforms like Zomato would be required to collect GST on behalf of restaurants for sales made through their platform starting from January 1, 2022. However, the council did not offer clarity on whether the delivery fee component should fall within the scope of the tax, leaving the matter unresolved.

The Financial Impact on Zomato

The tax demand of Rs. 803.7 crore is a significant amount, especially considering that Zomato has been profitable only recently. In the fiscal year 2024, Zomato reported a net profit of Rs. 351 crore, with a further rise to Rs. 429 crore in the first half of the ongoing fiscal year. The tax demand is higher than the total profit Zomato made in the April-June 2023 quarter.

The company plans to contest the order and will likely appeal to the GST Appellate Tribunal.

How This Case Impacts Other Sector?

If the tax authorities succeed in their argument, other services that use gig workers for deliveries—such as online grocery platforms, e-pharmacies, and hyperlocal logistics services—could also face similar tax demands. This would have wide-ranging implications for the gig economy, especially for companies that rely on the flexibility of gig workers for last-mile delivery.

Swiggy Also Received Legal Notice

Zomato isn’t the only food delivery platform facing tax scrutiny. Its rival, Swiggy, was also served a show-cause notice in December 2023, with an alleged unpaid tax demand of Rs. 326.8 crore. However, Swiggy has not yet received a formal demand notice, and the situation remains under review.

Zomato's Response and Financial Performance

Despite facing a tax demand, Zomato has continued to show impressive growth in its financials. For the second quarter of the fiscal year 2025, the company reported a 68.5% increase in operating revenue, reaching Rs. 4,799 crore, up from Rs. 2,848 crore in the same quarter of the previous fiscal year. The company’s net profit surged 4.8 times to Rs. 176 crore during this period.

In contrast, Swiggy’s financial performance showed a net loss of Rs. 625 crore despite reporting a revenue of Rs. 3,601 crore for the same quarter. Zomato’s market capitalization remains robust, reflecting its strong position within the industry.

Legal Loophole: Determining the Service Provider in the Food Delivery Sector

An ongoing issue has come to light regarding the government's January 2022 guidelines, which shifted the responsibility of collecting and depositing GST from restaurants to food delivery platforms for sales made through their services. Previously, restaurants were responsible for handling these tax duties.

In September 2021, Finance Minister Nirmala Sitharaman addressed this change, stating, “The place where food is delivered is going to be the point where tax will be collected. They will pay the GST on it.”

This policy change followed concerns raised by Revenue Secretary Tarun Bajaj, who pointed out that some restaurants were evading taxes, a situation that could worsen over time. The guidelines were issued to clarify how taxes should be applied to cloud kitchens and e-commerce aggregators, especially platforms connecting customers with restaurants. However, the issue of repeatedly taxing different components of a transaction remains unresolved.

A key legal ambiguity exists in determining who the "service provider" is for GST purposes, whether it should be the gig worker or the platform aggregator. From the government’s perspective, platforms like Zomato are considered "deemed suppliers" and are required to pay 18% GST on the delivery fees they collect from customers.

Some experts suggest that the entire transaction should be treated as a composite supply, where the transaction is viewed as incomplete without delivery. In such cases, tax should only be collected once on the entire transaction.

There is also a call for clearer government guidelines to resolve this issue. Darshan Bora, a partner at Economic Laws Practice, emphasized the need for clarifications on the taxability of services provided through e-commerce platforms. This would offer much-needed clarity for both platforms and delivery workers.

The 55th GST Council meeting, scheduled for December 21, 2024, could potentially address this unresolved matter. It will be interesting to see if any clarifications are issued in the upcoming session.