Thanks guys - really appreciate the support as I'm a picky sod which sometimes leaves me second-guessing the legitimacy of my criticisms. While this clearly isn't right on any bike regardless of the cost, it's good to know that others share my perspective.
To re-iterate my OP I don't think the frame has actually failed in this area so currently the issue is only "cosmetic", however it's clearly not right and apparently points to either a paint defect or something else that's caused a worrying amount of stress in the frame at that point.
As some have pointed out it does indeed look like the paint has split in at least one more place next to the larger, more obvious damage.
Below is an image from inside the frame for the curious; there appears to be no sign of a crack in the steel tube itself, but the top of the crack in the paint can see running across the section of the tube in the bottom of the cutout...
Unless the shop (who are yet to get back to me) offer me a silly-large patial refund for keeping the bike (which is of course highly unlikely) it was always going to back; I'm just so sick and tired of wasting my time having to do stuff like this; especially after ages spent agonising of the purchase over fears of encountering problems just like this.
I only spotted this issue while trying to sort the seatpost clamp; which was pished and very tight - subsequent removal showing the cause to be a burr on its bore which had scored / cut into the paint on the frame
To be fair to the bike shop I assume the seatpost clamp probably comes fitted to the frame rather than them fitting it themselves; while the rest of the build seems good (from what I can tell) with the only other complaint being a little scuffing around the front dropouts where the wheel has been fitted.
Anyway... I'm waiting for the shop to get back to me and no doubt a good chunk of tomorrow will be devoted to packing it up for collection (which I believe they're obliged to arrange and pay for..?). I hope they play ball as I could really do without another fight on my hands just to get something of merchandisable quality in exchange for my money