Zomato Faces INR 23 Cr Tax Demand from Karnataka Authorities

The substantial GST notice that Zomato received from the Karnataka tax authorities exacerbates its already existing tax-related problems. Nevertheless, the business is certain that it can maintain its standing and continue to generate profits in spite of these obstacles.

GST Notice from Karnataka Authorities:

• Zomato, a prominent foodtech major, has disclosed receiving a Goods and Services Tax (GST) notice amounting to INR 23.26 Cr for the fiscal year 2018-19 (FY19) from Karnataka tax authorities.
• The notice demands a GST payment of INR 11.27 Cr, accompanied by additional interest and penalty charges, summing up to INR 23.26 Cr.
• According to the regulatory filing made by the company, the notice was received on March 30, 2024, following the audit of GST returns and accounts by the Assistant Commissioner of Commercial Taxes (Audit), Karnataka.

Reasons for the Notice:

• The overuse of the input tax credit and the resulting interest and penalty penalties are the main points of the notification.
• Zomato asserts that despite providing clarifications supported by relevant documents and legal precedents in response to the show cause notice, the authorities did not fully consider the provided information when issuing the order.

Company's Response and Plan of Action:

• Zomato, certain that it has a solid defense to back up against the issue, plans to contest the order before the relevant authorities.
• The company does not anticipate any significant financial impact resulting from this issue.

Past Tax Issues:

• This development adds to the existing tax-related challenges faced by Zomato. In the previous month, the company received a GST penalty notice from Gujarat's Deputy Commissioner of State Tax, concerning fiscal year 2018-19.
• Similar to this, Zomato received a show-cause notice in December from the Pune Zonal Unit of the Directorate General of GST Intelligence for unpaid tax on delivery costs that were collected from clients between October 29, 2019, and March 31, 2022. The notification was for INR 401.7 Cr.

Financial Performance and Market Response:

• Despite these challenges, Zomato reported its second consecutive profitable quarter, with a notable surge in profit after tax (PAT) to INR 36 Cr during the September quarter of the financial year 2023-24 (FY24), marking an 18X increase from the preceding quarter.

On April 1, 2024, Zomato's shares opened at INR 182.35.