Restaurants In A Fix After Government Makes Service Charge A Choice

Hotels and restaurants have been prevented from levying service charge on diners, but eateries aren't conceding yet.

“No hotels or restaurants shall add service charge automatically or by default in the food bill,” the Central Consumer Protection Authority's fresh guidelines said, allowing customers to file complaints in case of violation. It termed the restaurant-imposed service charge as “unfair trade practices and violation of consumer rights”. The restaurants, the guidelines said, will have to clearly inform customers that service charge is “voluntary, optional and at consumer's discretion”.

The eateries—usually charge a 10% service charge over the total bill—termed the move as “unfortunate”, hinting at a protracted legal battle and a rise in prices on the menu if this charge is absorbed.

“I, too, think that service charge should not be made compulsory, but it's a global practice and there are various legal judgments that show service charges aren't illegal and even the Supreme Court has acknowledged it,” Sagar Daryani, vice president at the National Restaurant Association of India, told BQ Prime. He is also the chief executive officer and co-founder of Wow! Momo Foods Pvt. Ltd.

According to Daryani, the restaurant industry -- among the largest job creators in the country -- was badly hit in the past two years, and the service charge goes to the waiters who have suffered immensely. The NRAI, he said, is yet to discuss the matter with its fraternity. “The NRAI would gather a holistic view on the subject from its members and then take necessary calls...if the matter should be legally contested or not.”

Service charge is different from service tax—a statutory levy under the goods and services tax.

The fresh guidelines were issued even though the representatives of restaurant owners' association stood their ground during a meeting with the Department of Consumer Affairs on the issue of service charge last month.

The government seeks to ensure strict compliance of the CCPA's 2017 guidelines on levying service charge, a contentious issue that has periodically triggered complaints as it was advisory in nature and didn't specify the practice of levying service charge as “illegal”. Several consumers complained of being misled on the legality of such charges and indicated that they prefer the control of choosing a tip.

The CCPA in its latest guidelines said, “A number of complaints have been registered in the National Consumer Helpline... the issues raised by consumers include making service charge compulsory and adding it in the bill by default, suppressing that paying such charge is optional and embarrassing consumers in case they resist paying service charge.”

“Charging anything other than the said amount would amount to unfair trade practices under the [Consumer Protection] Act, 2019,” the latest order clarified.

The Federation of Hotel & Restaurant Associations of India had contended that there is nothing hidden or deceptive about the levy as the service charge is displayed on the menu or at the restaurant so that diners are aware of it.

“Service charge is essentially a tip and is considered a beneficial payment since it is meant for the benefit of the staff of the establishment. It's for customers to decide whether they wish to pay or not,” Gurbaxish Singh Kohli, vice-president, FHRAI, told had BQ Prime after its meeting with government officials on this subject last month.

Eateries, Kohli had said, may simply raise prices if they have to stop the practice of levying service charges. “A restaurant or hotel may just as easily absorb the service charge component into the charges being collected by it from the customer by including it in the prices on the menu.”

Vikrant Batra, co-founder and director of Batra Bros Food and Beverages Pvt., which runs Cafe Delhi Heights, said, “If the law is imposed, we will have no choice but to increase the prices on our menus.”