The GST Fitment Committee has revisited the taxation of delivery charges levied by food delivery platforms like Swiggy and Zomato, following notices issued by the Directorate General of GST Intelligence (DGGI). The investigation questions whether delivery charges should be bundled with food supplies and taxed at a higher GST rate of 18%. This blog explores the legal framework, industry concerns, and the potential impact of these decisions.
What’s the Issue?
Background
The DGGI issued GST demand notices to Zomato and Swiggy for the period between July 2017 and March 2023, amounting to ₹400 crore and ₹350 crore, respectively. The notices argue that delivery charges, when bundled with food supplies, should be classified as part of the food supply and taxed at 18% GST under Section 9 of the Central Goods and Services Tax (CGST) Act, 2017.
| Platform | GST Demand | Time Period |
|---|---|---|
| Zomato | ₹400 crore | July 2017–March 2023 |
| Swiggy | ₹350 crore | July 2017–March 2023 |
Legal Framework
Key Provisions of the CGST Act, 2017
- Section 7(1)(a):
Defines the supply of goods and services, including transactions that could cover delivery charges as part of the service. - Section 9:
Stipulates the levy of GST on the supply of goods and services. Delivery charges are often considered incidental to food delivery, but their taxability under the same classification as food supplies remains ambiguous.
Key Concerns Raised by the Industry
- Ambiguity in Tax Classification
- Delivery charges are currently treated as incidental to food delivery, but the DGGI’s interpretation could lead to higher taxes.
- Industry players argue that taxing delivery charges at 18% instead of the 5% GST levied on restaurant services creates an unfair burden.
- Increased Tax Burden on Consumers
- Bundling delivery charges with food supplies means higher taxes, which could be passed on to consumers, raising overall costs.
- Compliance Challenges
- Platforms like Swiggy and Zomato face operational and compliance difficulties if required to classify delivery services separately from food supply.
The Fitment Committee’s Role
The Fitment Committee, comprising state and central GST officials, acts as an advisory body tasked with reviewing tax matters. While it cannot overturn DGGI notices, it can recommend policy changes to the GST Council.
Committee’s Focus Areas:
- Reviewing the classification of delivery charges and whether they should be taxed as part of food supplies.
- Advising on clarifications to avoid ambiguity and ensure fairness for businesses and consumers.
What Lies Ahead?
- Clarifications Expected:
The Fitment Committee may propose clarifications to avoid ambiguity and create a fair tax framework. - Uncertainty on GST Council Agenda:
While the 55th GST Council meeting on December 21, 2024, in Rajasthan may discuss this, no confirmation has been made. - Policy Changes:
If the GST Council approves a separate classification for delivery charges, it could lead to more transparent taxation and ease the compliance burden on businesses.
Takeaway for Businesses and Consumers
The ongoing GST debate highlights the complexity of tax laws in India, particularly for digital platforms like Swiggy and Zomato. Clear classification of delivery charges is essential to prevent undue tax burdens on both businesses and consumers. A balanced decision by the GST Council can ensure fair taxation while promoting industry growth.
“Fair tax policies pave the way for a stronger digital economy.”