Ban on service charge in food bills: Restaurant owners mull legal options

A recent order from the Union government has barred hotels and restaurants from levying service charge to food bills, terming it as “unfair trade practices and violation of consumer rights”. The move has not gone down well with restaurant owners, and they are considering legal options to challenge it.

As per the Central Consumer Protection Authority’s (CCPA) guidelines issued on Monday (July 4), “hotels or restaurants shall not add service charge automatically or by default in the food bill.”

Also read: Nothing justifies restaurant service charges; law to end it is right

If a restaurant levies a service charge, then customers have the option of filing a complaint on the National Consumer Helpline (NCH) by calling 1915 or on the e-daakhil website or via email to CCPA.

‘Deemed consent’

Now, the National Restaurants Association of India (NRAI) is exploring legal options to challenge the new guidelines, a trustee at the industry body said, according to an Economic Times report.

“The guidelines say we’ve to take consent of customers before levying service charge. Our stance is, if we’ve informed the customer that we levy service charge on the menu and put this on boards outside, it’s already a deemed consent,” Anurag Katriar, trustee at NRAI and managing director of Indigo Hospitality, was quoted as saying in the report.

An official from the Department of Consumer Affairs (DoCA), however, said the guidelines do not provide for ‘deemed consent’. “This is already covered in point 7(3) of the CCPA (Central Consumer Protection Authority) guidelines. There is nothing like ‘deemed consent’,” said the official who requested not to be named, the report added.

Hotel industry associations are planning to seek clarifications from the government. “We may approach CCPA seeking clarifications. These are a new set of guidelines that have been issued by CCPA and not a new law,” Pradeep Shetty, secretary of the Federation of Hotel & Restaurant Associations of India (FHRAI), said.

NRAI’s argument

On Wednesday, NRAI said the government cannot make changes in levy of service charge in food bills and it has created unnecessary confusion amongst consumers and disrupted smooth operations of restaurants.

In a statement, NRAI argued that service charge is a part of the owner’s discretion or decision regarding the total price payable by a customer with regards to sale or service of a product.

“It constitutes one of the components of the total price of the product. Neither the government nor any authority can interfere with the decision of the business owner in this regard. It is a universally accepted trade practice,” it said.

Also read: Govt warns restaurants over service charge; eateries say it’s not illegal

NRAI also claimed that the legality, reasonableness or justification of levying service charge has been considered by the Supreme Court, High Courts, National Consumer Disputes Redressal Commission, erstwhile Monopolies and Restrictive Trade Practices Commission and by the Income Tax Authorities (ITAT) and has been “upheld in various judicial pronouncements”.

“It is therefore the owner’s discretion as to how to run its business and what policy should be put in place regarding pricing of the product. The government cannot bring about a change insofar as a levy of service charge is concerned by making guidelines,” it said.

Stressing that guidelines by the very nature of things are only for guidance, the industry body said, “in case there is a need for such change, there has to be either a new law or an amendment in the existing laws.”

NRAI further said, “It is also relevant to state that extra charges are being levied by many other industries, including some government agencies. However, the guidelines are issued only for the restaurant industry.”

‘Service charge beneficial to workers’

Claiming that levy of service charge is beneficial for the workmen as a class who are employed in the establishments, NRAI said, “Any move to the contrary would be detrimental to the interests of workers – and against the labour-friendly stance of the government.”

Stating that the levy of service charge also has a socioeconomic angle, NRAI said, “Generally tips are paid to and pocketed by staff (waiters/stewards) who serve the customers and nothing is shared with those back of the house employees who contribute to the overall product/service.”

Also read: How to complain against a restaurant over service charge

Many hoteliers, restaurant owners and associations, across India, also pointed at the terrible impact the COVID-19 pandemic has had on the hospitality and food sectors, and raised concerns over the impact that this move would have on the business.

Shetty said, “The restaurant industry was slowly recovering after the disruptions caused by the pandemic, during which many workers had left and were engaged in other jobs. It is very difficult to retain and to hire employees in this business and at a time when we were trying to get the people who had left the industry this decision on service charge has made it far less attractive for people to join back.”

Covid had hit this industry “very badly” and this decision on service charge “will continue to make it difficult” going forward, he added.

No service charge in some states

M Ravi, a senior member of the Tamil Nadu Hotel Association, said hotels across Chennai and Tamil Nadu were not levying any service charge.

“Some hotels were charging it because if accidentally cutlery gets damaged or broken while consuming food…that cost is recovered from this. Some amount also goes to the labour but it is shared across departments among the employees,” he told PTI.

Removing service charge would impose additional expenditure on hoteliers, he said.

Also read: Restaurants cannot add service charge in food bills: Goyal

The Kerala Hotel and Restaurants Association (KHRA) said that service charge is not levied upon customers by its members.

“Moreover, it is a reward given by a customer if he or she is happy with the service or food quality, and therefore, it is the customer’s choice,” KHRA state committee president G Jayapal said. “As a result, the Central Consumer Protection Authority (CCPA) direction will not affect us,” he added.

Meanwhile, waiters, chefs, and other restaurant workers have expressed their displeasure over the move to bar levying of service charge, with many of them saying they will “seek a pay raise” from owners to offset the loss and others apprehensive that even tips given by patrons out of goodwill “may now dwindle”.