As Pine Labs gears up for its domestic IPO, the company is navigating a slew of regulatory and tax hurdles, including a confirmed Rs 214.11 crore GST demand and continued scrutiny from the Enforcement Directorate (ED), as per disclosures in its Draft Red Herring Prospectus (DRHP) dated June 25.
The most material issue involves a tax demand from the Directorate General of GST Intelligence (DGGI), Mumbai. In August 2024, the department issued a show cause notice over the denial of input credit on co-branding, e-commerce product listings, and advertising expenses linked to gift card sales between July 2017 and March 2024.
“In August 2024, the Directorate General of Goods and Services Tax Intelligence (“Department”), Mumbai issued a show cause notice… alleging the non-availability of GST credit on co-branding services, product listing fees on e-commerce marketplace and advertisement expenses from the period July 2017 to March 2024 incurred in relation to sale of gift cards amounting to Rs 2,141.11 million (excluding interest and penalty),” said the DRHP.
While the company responded to the notice in December 2024, the Joint Commissioner, Bangalore passed an order in February 2025, confirming the entire demand of Rs 2,141.11 million (Rs 214.11 crore).
In addition, the company reported, “The management has estimated interest liabilities of Rs 955.75 million (Rs 95.57 crore) as of 31 December 2024 on the above matters.”
This puts the total tax exposure at Rs 309.68 crore (excluding penalties), a number that far exceeds the company’s FY25 nine-month net profit of Rs 26.1 crore. Despite this, Pine Labs maintains that it has a strong legal case. “On the basis of internal evaluation and in consultation with the legal counsel, the Group has the high chances of winning the case at higher authorities,” it notes.
GST audit order and other tax issues
In a second case, the Deputy Commissioner of Commercial Taxes issued an order in August 2024 after a GST audit of Pine Labs’ FY20 accounts for a demand totalling Rs Rs 19.26 crore, but the company has disputed most of it.
“Matters pertaining to demand of Rs 190.81 million… are remote and the demand of Rs 1.74 million… on non-payment of interest on delay issue of invoices is possible,” the DRHP said.
Pine Labs has filed an appeal and deposited Rs 1.9 crore under protest.
A third, older dispute dates back to August 2018, when DGGI issued a service tax demand of Rs 13.87 crore over breakage revenue (unredeemed gift vouchers), foreign services, and input reversal between 2012 and 2017. However, in a key development, “The GST Council in its meeting in December 2024 has clarified that unredeemed vouchers (breakage) would not be considered as supply under GST and no GST is payable.”
Following this clarification, Pine Labs reassessed its liability.
“We have considered an amount of Rs 4.94 million (Rs 0.49 crore) only… excluding the demand of service tax on breakage revenue of Rs 133.76 million (Rs 13.38 crore).”
The company has deposited Rs 1.03 crore under protest while the matter remains pending with CESTAT.
ED scrutiny still active
Pine Labs also disclosed that it received a letter from the Enforcement Directorate dated April 18, 2023 seeking documents related to prepaid cards and wallets.
The DRHP also reveals continuing regulatory scrutiny from the ED. In an earlier communication, the company had said, “The Enforcement Directorate vide letter dated April 18, 2023… sought information and documents from the Company relating to operations and KYC processes relating to prepaid cards and wallets.”
As of June 2025, Pine Labs confirmed, “There are no ongoing investigations or proceedings initiated against the Company or any notices received from the ED, other than the aforementioned letter.”
While no formal case has been filed, the company acknowledged the potential risks. “Our operations and compliance practices may be subject to increased regulatory scrutiny, particularly under anti-money laundering laws and regulations.”
The company also flagged income tax disputes related to transfer pricing and disallowed expenses. While these are under assessment as of 2025, none are considered individually material.
