One of the biggest meal delivery services in India, Zomato, is presently involved in a financial and legal battle with the Maharashtra tax office. In addition to a penalty, the corporation has been ordered to pay ₹802 crore in outstanding Goods and Services Tax (GST) obligations. The financial stability of Zomato as well as the larger Indian meal delivery sector may be significantly impacted by this demand. Here is what we now know and why Zomato and its investors should be concerned.
Credits: NDTV Profit
The GST Demand: Breaking Down the ₹802 Crore
In an exchange filing on Thursday, Zomato disclosed that the Maharashtra tax office has ordered company to pay ₹401 crore in unpaid GST debts and an extra ₹401 crore in penalties. The ₹802 crore overall demand is for the period from October 29, 2019, to March 31, 2022.
The main point of contention is the purported failure to pay GST on shipping fees, along with additional interest and penalties. Zomato’s business model heavily relies on delivery fees, which have come under legal investigation. The order from the Maharashtra tax office indicates a discrepancy between Zomato’s GST remittance and the actual amount payable throughout the specified time frame.
Zomato’s Response: Legal Battle Ahead
Despite the heavy demand, Zomato has made it clear that it will challenge the tax authority’s order. In its regulatory filing, the company emphasized that it has a strong legal case, backed by the opinions of external legal and tax advisors. Zomato plans to file an appeal against the order before the appropriate authority.
This legal confrontation is not new for Zomato. In September 2024, the company received another GST demand, this time from the West Bengal tax authority, amounting to ₹17.7 crore for the period between April 2021 and March 2022. This demand also related to GST on delivery charges, signaling a broader issue that could affect Zomato’s operations across various states.
Zomato’s confidence in its legal position could indicate that the company believes it has followed the correct tax protocols. However, the outcome of this appeal could have far-reaching implications for the company’s future, as it will set a precedent for how GST on delivery charges is treated in the food delivery sector.
Financial Impact: A Strain on Zomato’s Bottom Line
While Zomato’s response is centered on challenging the demand, there’s no denying that this ongoing GST dispute is likely to have a financial impact. Zomato’s latest quarterly report shows that the company’s revenue from operations grew by 14% year-on-year, totaling ₹4,799 crore for the September 2024 quarter. However, its net profit saw a concerning 30% decline, down to ₹176 crore.
The combination of rising revenues and shrinking profits reflects the company’s struggle to achieve sustainable profitability. This new GST issue, if not resolved in Zomato’s favor, could further strain its bottom line, leading to increased operational costs or delays in growth initiatives.
The Market Reaction: Stock Impact
The price of Zomato’s stock fell sharply after the announcement of the ₹802 crore GST demand and penalty. Zomato’s stock fell 2.36% to settle at ₹284.9 on Thursday. With the Sensex falling by only 0.29%, this occurred in the midst of more general market tendencies.
The tax dispute adds another level of uncertainty for investors. The protracted procedure of contesting the tax order may cause delays in settling this matter, even though the company is confident in its legal position. Zomato’s stock price might therefore continue to fluctuate until the decision is known.
The Bigger Picture: What This Means for Zomato’s Future
In addition to being a legal matter, Zomato’s conflict with tax officials highlights the larger difficulties facing India’s meal delivery industry. The market, which has experienced rapid expansion in recent years, is coming under tighter regulation, and businesses such as Zomato will probably come under increased scrutiny for their tax policies.
