Restaurants Lobby Slams Latest Service Charge Guidelines

The National Restaurant Association of India has questioned the legality of the new guidelines that prohibit eateries from levying service charge, saying neither the government nor any authority can interfere in this matter.

"It is the business owner's discretion as to how to run its business and what policy should be put in place regarding pricing of the product, and the government cannot bring about a change by issuing guidelines," the apex industry body, representing over five lakh restaurant operators, said in a statement.

"Guidelines, by the very nature of things, are only for guidance and in case there is a need for such change, there has to be either a new law or an amendment in the existing laws," the statement said.

This comes a day after the Central Consumer Protection Authority barred hotels and restaurants from adding service charge by default in the food bill, terming it "unfair trade practices and violation of consumer rights".

In case of violation, the CCPA has also allowed customers to file complaints with the consumer commission or even the district collectors for the investigation.

The latest guidelines follow similar advisories as issued by the government in the past, but has remained contentious for long.

The legality, reasonableness or justification of levying service charge has been upheld by the Supreme Court of India, high courts, the National Consumer Disputes Redressal Commission, erstwhile Monopolies and Restrictive Trade Practices Commission, and by the income tax authorities, the NRAI said.

It cited the SS Ahuja vs Pizza Express case where the Monopolies and Restrictive Practices Commission, New Delhi, in 2001 observed in its order that "levy of service charges cannot be questioned in law as there is no provision prohibiting levy of such charges".

The NRAI alleged that these repeated guidelines are an attempt to start a campaign against the practice of levying service charge by the restaurant industry without any legal basis.

"It is also relevant to state that extra charges are being levied by many other industries, including government agencies like IRCTC."

According to the NRAI, service charge constitutes one of the components of the total price of the product. "Once the customer places the order, after being made aware of the terms and conditions, there comes into existence a binding contract. It is a universally accepted trade practice."

Levy of service charge also has a socioeconomic angle, the association said. While tips are generally paid to and pocketed by staff who serve the customers (waiters/stewards), the back-of-the-house employees who contribute to the overall product/service are left in the lurch.

"The system of service charge envisages point-wise distribution, even to the back of the house staff whose contribution is thus recognised and acknowledged in the form of a part of the service charge collected from the customer."

Any move to the contrary would be "detrimental" to the interests of workers and against the labour-friendly stance of the government, it said.