Shares of Zomato Ltd are in focus on Friday morning after the online delivery platform said it has received a tax demand of Rs 803.40 crore in respect of non- payment of GST on delivery charges with interest and penalty. Zomato insisted it has a strong case on merits, backed by opinions from external legal and tax advisors. Zomato told stock exchanges BSE and NSE that it would be filing an appeal against the order before the appropriate authority.
Zomato said it received the order on December 12, which is dated November 12, for the period October 29, 2019 to March 31, 2022. It was passed by Joint Commissioner of CGST & Central Excise, Thane Commissionerate, Maharashtra confirming demand of GST of Rs 401.70 crore with interest as applicable and penalty of Rs 401.70 crore.
Last year, on December 27, Zomato in a BSE filing said it received a show cause notice under Section 74(1) of the Central Goods and Services Tax Act, 2017 on December 26, 2023, from the Directorate General of GST Intelligence, Pune Zonal unit.
The SCN required the company to show cause as to why an alleged tax liability of Rs 401.70 crore along with interest and penalty for the period should not be demanded from the company. The amount alleged in the SCN was based on the amounts collected by the company as delivery charges from the customers on behalf of the delivery partners during the referred period.
To this, Zomato last year suggested that the delivery partners provided the delivery services to the customers and not the company, in view of the contractual terms and conditions mutually agreed upon. Zomato shares have rallied 138 per cent in the past one year.
"Please note that a 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 the large alleged tax demand in question," Zomato had said last year.
Shares Zomato and Swiggy have seen some selling of late amid concerns over the entry of Amazon in the quick commerce space.
"We expect Amazon to leverage its existing supplier relations to offer the largest depth and breadth of assortment available to consumers, like in the case of Flipkart Minutes, which has focussed on offering a wide range of products hitherto only available through traditional e-commerce or offline retail. Initially, Tez may also focus more on Amazon’s captive customer base, especially those with Prime subscriptions," JM Financial said.
Post Tez’s launch, there will be at least seven players with strong balance sheet/parentage competing for the QC pie against just three a few months ago.
"While this is concerning from the point of view of early adopters (namely Blinkit, Instamart and Zepto), we do not see an immediate threat to their near-term growth ambitions as there is a conspicuous shift in consumer spends from traditional e-commerce and unorganised channels to QC. This makes us believe the recent forays of traditional e-commerce players has more to do with protecting their existing turf than driving incremental channel adoption," JM Financial said.