Online food delivery giant Zomato said on Thursday that it is not liable to pay any tax on delivery charges after the company received a show cause notice from the Directorate General of GST Intelligence (DGGI).

The notice, issued under Section 74(1) of the Central Goods and Services Tax Act, 2017, demanded an explanation from Zomato regarding an alleged tax liability amounting to Rs 401.70 crore. This includes interest and penalties for the duration spanning from October 29, 2019, to March 31, 2022.

The show cause notice specifically targets the delivery charges collected by Zomato from customers on behalf of their delivery partners during the aforementioned period.

In response to this development, Zomato issued a statement to the stock exchanges, stating its strong belief that it is not liable to pay any tax in this regard.

According to the company, the delivery charge is collected on behalf of the delivery partners who, as per contractual terms and conditions, provide services directly to the customers. Zomato emphasized that this position is reinforced by opinions from its external legal and tax advisors.

“The company strongly believes that it is not liable to pay any tax since the delivery charge is collected by the Company on behalf of the delivery partners. Further, in view of the contractual terms and conditions mutually agreed upon, the delivery partners have provided the delivery services to the customers and not the company,” Zomato said.

“This is also supported by opinions from our external legal and tax advisors. The Company will be filing an appropriate response to the SCN,” the statement added.

In its filing with the Bombay Stock Exchange (BSE), Zomato clarified that it would be preparing and submitting a comprehensive response to the show cause notice.

The company also expressed confidence in the merit of its case, stating that it does not believe it should be subject to the alleged tax demand.

Furthermore, Zomato highlighted that no order of any kind had been passed at this stage, and the disclosure was made voluntarily and with caution due to the substantial nature of the tax demand in question.

Shares of Zomato fell over 3 per cent following the disclosure, but it is a marginal blip in comparison to the strong rally it has witnessed this year as its shares have rallied over 100 per cent in 2023 so far.