The tax landscape for many industries has seen major shifts since the introduction of (GST) in 2017. While the technology has eased out the compliance and reporting, the frequent changes for some sectors in compliances have been challenging. Further, we have seen in recent times that the taxability of certain services has also led to tussle between authorities and assesses. One such sector which has seen multiple changes in its taxability and is constantly under the radar of the GST authorities is that of food aggregators.
The investigative wing of GST i.e., DGGI has recently taken online food delivery giants Swiggy and Zomato under their scrutiny, by issuing GST demand notices of combined Rs. 750 crores over unpaid dues on online delivery fees charged by them from the customers on behalf of the delivery partners.
The taxability of these food aggregators has seen significant changes through 6 years of GST regime. Earlier these platforms were mandated to collect and deposit GST on behalf of the restaurants for the sales made through these platforms. From January 1, 2022, the Government included restaurant services and cloud kitchens under Section 9(5) of the CGST Act, 2017 which resulted in entities like Swiggy and Zomato paying 5% GST on 'restaurant services' provided through their platform. However, no clarity was provided on the taxability of the delivery fee collected by these platforms even after knowing the fact that these platforms are collecting delivery charges on behalf of the delivery partner and the same will directly go to them.
Now the DGGI has raked up another taxability issue for these food aggregators wherein department is demanding GST on delivery charges charged by these food aggregators on behalf of the gig workers treating the same as income for these food aggregators. The Department's case is that both the companies operate as a service provider, therefore, the food aggregators are liable to pay GST@18% on the delivery fee collected by them. Whereas the food aggregators are of the view that the delivery charges are directly passed on to the delivery partners and thus, the delivery fee so collected is not recognized as revenue by the food aggregators. Further, another line of argument is that the food aggregators are just acting as an intermediary and thus, not liable to pay GST on the delivery charges collected on behalf of the delivery partners.
From the annual report of one of these companies it has been observed that the food aggregators categorize delivery charges into two groups based on their revenue recognition policies:
- Where the food aggregator is merely a technology platform provider for delivery partners, (not providing or taking responsibility of the said services), the food aggregator has recorded net delivery charges as expenses. For the service provided by the food aggregator to the delivery partners, the food aggregator charges a platform fee from the delivery partners.
- Where the food aggregator is responsible for delivery of food to the end users, the delivery fees received from the end user is recognized as revenue, as the food aggregator considers itself as a principal in arrangement with delivery partners.
Accordingly, where the food aggregator is just providing the platform to the delivery partner, to claim exemption on the ground that it is acting as a "pass through" between the customer and the delivery partner, the onus would lie on such food aggregator to prove its case. However, wherein the food aggregator is responsible for delivery of goods, the food aggregator would be liable to pay GST on the delivery charges as the same is part of its revenue.
It is interesting to note that the Government has never provided any clarity on the taxability of the delivery charges that have been collected by these food aggregators since the inception of their businesses and left such an important issue open-ended till date. Also, the food aggregators have never sought any clarification on the taxability of the delivery charges keeping in view that these delivery charges are being collected by them through their platform. Further, another important point adding complexity to the entire issue is the fact that the gig workers who operate on per-delivery basis and fall below INR 20 Lakhs threshold.
This scenario clearly shows that there are loopholes for taxing the gig workers and the same is required to be addressed at the earliest. It is not a clear cut case of malafide tax evasion as claimed by DGGI. Further, it is also a reminder for the businesses to proactively keep clear communication with the regulatory bodies to avoid such litigation that may have huge impact on the business.
The notices from DGGI demanding tax on delivery charges is unfair keeping in view that these delivery charges are actually income of the gig workers and food aggregators are being asked to pay taxes on such income. Thus, it is important that the Government issues a suitable clarification to address the ambiguity and avoid long-drawn litigation that has arisen with these pre-consultation notices issued to Swiggy and Zomato. The clarification will not only lay rest to this issue but will also provide clarity to other online delivery platforms which includes online grocery, medicines delivery firms etc. which are highly dependent on fleet of contractual delivery workers.
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