Govt warns restaurants over service charge; eateries say it's not illegal

The Department of Consumer Affairs has warned restaurants from charging service tax from customers saying that the practice has significant ramifications on the rights of consumers. To discuss the issues pertaining to service charges levied by restaurants, the department has called a meeting on June 2 with the National Restaurant Association of India (NRAI).

This comes after Consumer Affairs Secretary Rohit Kumar Singh in a letter to the NRAI told them that restaurants and eateries are collecting service charges from consumers by default, although it is supposed to be voluntary and at the discretion of consumers.

The NRAI however defended the practice saying there is no illegality in levying such a charge. The top hotel industry body said that the levy of service charge is a matter of individual policy to decide if it is to be charged or not.

Consumers being misled, says govt

A statement issued by the Department of Consumer Affairs on Monday said: “It has been pointed out in the letter that consumers are forced to pay service charge, often fixed at arbitrarily high rates by restaurants. Consumers are also being falsely misled on the legality of such charges and harassed by restaurants on making a request to remove such charges from the bill amount.”

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“Since this issue impacts consumers at large on a daily basis and has significant ramification on the rights of consumers, the department construed it necessary to examine it with closer scrutiny and detail,” it said.

The meeting will discuss issues like restaurants making service charge compulsory; adding service charge in the bill in the guise of some other fee or charge; suppressing information from consumers that service charge is optional and voluntary; and, embarrassing consumers in case they resist from paying service charge.

Unfair trade practice

Pointing to the guidelines issued by the department in April 2017, the statement said: “The guidelines note that entry of a customer in a restaurant cannot by itself be construed as a consent to pay service charge…. placing of an order by a customer amounts to his/ her agreement to pay the prices displayed on the menu card along with the applicable taxes. Charging for anything other than the afore-mentioned, without express consent of the customer. would amount to unfair trade practice as defined under the Act,” it said.

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“The meeting follows as a result of (the department) taking notice of a number of media reports as well as grievances registered by consumers on the National Consumer Helpline (NCH),” the statement added.

As per a government notification issued on January 2, 2017, hotels and restaurants are required to put up a notice that it is the sole discretion of a consumer to pay the service charge or have it waived.

‘Agreement between parties’

However, the NRAI said in a statement that “Information regarding the amount of service charge is mentioned/displayed by restaurants on their menu cards and otherwise also displayed on the premises, so that customers are well aware of this charge before availing the services.”

“Once the customer is made aware of such a charge in advance and then decides to place the order, it becomes an agreement between the parties, and is not an unfair trade practice. GST is also paid on the said charge to the government,” the industry body argued.